A familiar story is emerging in the retail sector: stock prices fall, but executives get rewarded with big raises.
The latest companies to tell that tale were
, all of which filed their proxy statements this week. In each case, the company's stock price declined by 20% or more, while many of its executives saw double-digit percentage increases in their compensation.
Wal-Mart CEO H. Lee Scott Jr. was one notable example. The company's shares declined by 20% in its last fiscal year, but Scott saw his compensation package jump 33% to $28.96 million.
Likewise, Target shares fell 35% last year, but you wouldn't know it from looking at CEO Robert Ulrich's compensation. Not including the value of his stock options, Target bumped up Ulrich's compensation package 15.4% last year.
A growing number of retailers have revealed in recent weeks that they gave their executives nice raises despite poor share-price performance last year. Among the retail executives who didn't share in their investors' pain were those at
The raises came not only in the face of poor stock performance, but also in the wake of corporate scandals that have focused investor attention on executive pay and corporate governance issues. Many of the companies that awarded big raises to their executives face
shareholder proposals at their annual meetings that would attempt to revamp their boards or rework how they determine executive pay.
But investor ire had little impact on the compensation many retailers paid executives last year.
At Wal-Mart, for instance, Scott's salary increased by just 1.7% to $1.14 million. But his bonus swelled 77% to $3.16 million. Meanwhile, Scott saw a huge increase in the amount of restricted stock Wal-Mart awarded him; the value of such stock grants increased to $13.1 million from $5 million the previous year.
In addition to the restricted stock grant, Wal-Mart granted Scott 605,327 stock options, up from 521,634 the year before, although the fair value of the option grants decreased from a $13.6 million grant in fiscal 2001 to an $11.3 million grant last year.
Scott's other compensation, which includes profit-sharing and retirement-plan contributions and interest on deferred compensation, increased to $167,604 last year from $133,328 the previous year.
In the proxy statement, Wal-Mart's compensation committee defended Scott's salary, saying it was set using "objective factors," including the company's performance and shareholder return and salaries paid to the heads of comparable companies.
"The committee also considered certain subjective factors, including Mr. Scott's general knowledge of the retail business, his contribution to the company's past business success and the committee's belief that Mr. Scott has the vision and managerial capability to oversee the company's continued growth into the foreseeable future," the compensation committee said in the proxy.
But Scott wasn't alone at Wal-Mart in seeing a raise. All five of Wal-Mart's top executives received big raises last year, the company revealed in its proxy statement filed Tuesday. The pay increases came despite the fact that at the end of the company's fiscal year on Jan. 31, its stock had fallen to $47.80 from $59.98 at the close of its previous fiscal year. Amid a poor year for retailers, slowing sales helped to drag down Wal-Mart shares.
Target had a similar situation. The company's stock declined from $43.35 to $28.21 from the end of fiscal 2001 to the end of fiscal 2002. But each of its top five highest-paid executives received big increases in their bonuses, which helped to push up their total compensation.
Ulrich, for instance, saw his salary remain relatively stable at $1.42 million, up less than 1% from the previous year. But his bonus jumped 24% to $4.6 million, helping increase his total cash compensation about 18%.
Federated Chairman James Zimmerman saw an even bigger pay raise. His cash compensation, including salary and bonus, jumped 52% last year to $2.58 million. Zimmerman didn't receive any stock options last year compared with nearly 175,000 the year before. But excluding options, the total value of Zimmerman's compensation package increased 52% to $2.7 million last year.
Meanwhile, Federated's stock price declined 37% last year.
Lowe's Chairman Robert Tillman also saw big bucks. His total compensation increased 31.8% in fiscal 2002 to $4.4 million, while Lowe's stock price declined 25.2%.
To be sure, the companies' bottom-line performance didn't necessarily match their stock performance. Wal-Mart, for instance, increased its earnings per share 22% last year to $1.81. And Federated swung its bottom line from a $1.38 per share loss in fiscal 2001 to a $4.12 a share profit in fiscal 2002.
But the bottom-line performance might not mollify investors. Each company faces shareholder proposals attempting to reign in their boards and executive pay.
Wal-Mart, for instance, faces seven shareholder proposals. Among the proposals are ones that would:
Recommend that two-thirds of the company's board be independent directors;
Urge the company to not seek consulting or other services from its auditors;
Request that the company index the number of options granted to executives to the company's stock performance; and
Urge the company to report to shareholders on its efforts to promote women and minorities into management positions.
Like those of most companies facing such suggestions from shareholders, Wal-Mart's board opposes each of the proposals, saying they are unnecessary.