Executive Pay List Reflects Revised Rules

by Gwen Moritz  on Monday, Aug. 23, 2010 12:00 am  

Michael T. Duke, CEO of Wal-Mart Stores Inc., was the highest-paid public company executive in Arkansas in the most recent fiscal year.

It's not surprising that the CEO of Wal-Mart Stores Inc., the largest company on the planet, was the most highly paid corporate executive in Arkansas last fiscal year with total compensation of $19.4 million.

What's surprising is how much more Michael T. Duke made the previous year - more than twice as much, in fact, as was initially reported.

(Click here to see the list of public company executive compensation. Click here to to purchase a spreadsheet version.)

Revisions to executive compensation figures originally released in 2009 were common in the proxy statements issued this year by publicly traded companies in Arkansas and elsewhere, thanks to the Securities & Exchange Commission's incremental efforts to make compensation reporting more uniform and transparent.

Whether the new requirements actually improve management is a different question, but they clearly do give investors information they didn't have before.

For the purposes of Arkansas Business' annual executive compensation list, most of the revisions concern the valuation of stock options and restricted stock. This is because - as of Feb. 28, just in time for proxy season for most public companies - the SEC required companies to report equity awards as compensation based on their fair market value on the date they were granted rather than as their cost to the company.

It may sound like a small change, and in many cases, it was. But in Duke's case, it was the difference between $13.26 million and $29.42 million. The proxy statement Wal-Mart issued in April 2009 said Duke, who had spent the fiscal year that ended Jan. 31, 2009, as vice chairman, earned $12.24 million and realized another $1.02 million by exercising stock options. But the proxy issued in April of this year revised his stock and options line for fiscal year that ended in 2008 from just over $7.5 million to a whopping $23.7 million.

Similarly, we now know that Wal-Mart Vice Chairman Eduardo Castro-Wright (No. 3) earned $19.7 million in the fiscal year that ended in 2009, not the $11.1 million that was previously reported. But Thomas Schoewe (No. 7) earned $7.9 million that year, not the $10.2 million reported in the 2009 proxy.

The same stock awards line item in Wal-Mart's 2010 proxy statement sent a new name on Arkansas Business' annual list of executive compensation to the No. 2 spot. Brian C. Cornell, formerly CEO of Michael's Stores Inc., was hired as executive vice president to run the Sam's Club division on April 3, 2009, and given $10.57 million worth of stock on that date. Combined with the $668,498 in salary that he earned between April and the end of the fiscal year, a performance incentive of $1.33 million and other compensation that included $1.72 million in relocation expenses (part of which offset a loss on the sale of his home), Cornell's total compensation topped $14.3 million for the fiscal year that ended Jan. 31.

Compensation Philosophies
Arkansas Business' annual list of public company executives ranked by pay uses a simple formula for arriving at total compensation: All compensation reported in the annual proxy plus the actual value realized from the exercise of stock options during the year.

Since the accounting scandals of the early 2000s, investor groups have been vocalizing concerns about executive compensation packages that may or may not align the managers' interests with those of rank-and-file shareholders. The presumption, for instance, that stock options - the right to buy shares of stock at a set price - would inspire executives to manage a company in such a way as to increase the share price for all stockholders was put to the test in the Enron era, when it became clear that some executives would cook the books to get the same result.

Options are still in favor at many companies, although relatively few were exercised by Arkansas executives during the stock market slump of 2009. But they are not as popular as they used to be, and some compensation consultants feel granting restricted stock is just as problematic.



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