Mike Duke, the CEO of Wal-Mart Stores Inc., received a pay package in 2011 worth $18.1 million, a 3 percent dip from the year before, according to an Associated Press calculation, mainly because his performance-based cash bonus shrank.
The dip in compensation came even as Wal-Mart reversed a more than two-year sales slump in its namesake business as it emphasized low prices across the store and restored thousands of items that it had culled during its campaign three years ago to declutter its stores.
Duke, 62, who has been Wal-Mart's CEO since February 2009, received a base salary of $1.3 million, up almost 3 percent, and stock awards worth $13.1 million, up 3 percent from fiscal 2010. But Duke's cash-based performance bonus fell 25 percent to $2.88 million in the fiscal year ended Jan. 31 because the company's operating income fell short of goals established in the compensation plan, according to documents filed Monday with the Securities and Exchange Commission. Wal-Mart's operating income growth has been hurt because the company's aggressive moves to cut prices to better compete with rivals have hurt gross profit margins.
Duke's other compensation amounted to $377,258, down 21 percent from $476,567 in the previous year. The perks included $99,861 for the use of the company aircraft. He also received $544,523 in above-market interest credited on deferred compensation.
Wal-Mart, which draws nearly 10 percent of all nonautomotive spending in the U.S., is operating in a more difficult environment since the recession on all fronts. Dollar stores, which have expanded their assortments, are blanketing the country, and Amazon.com's vast selection and low prices are stealing Wal-Mart's key advantages.
Meanwhile, rising gas prices and other household costs are squeezing shoppers' budgets and making it tougher to stretch their remaining dollars to the next payday. A still stubbornly high unemployment rate has also hurt its core shoppers. But Wal-Mart's strategy of going back to its roots of "everyday low prices," instead of resorting to slashing prices on select items, has helped to rebuild its reputation as a low price leader and bolster its namesake U.S business. Its U.S Walmart division accounts for 62 percent of total sales.
In the third quarter of last year, Wal-Mart reversed nine straight quarters of sales declines at stores open at least a year in its namesake U.S. business. That's an indicator of a retailer's health because it excludes results from stores recently opened or closed. In the fourth quarter, Wal-Mart continued the trend. Still, there's a lot more room for improvement. For the year, the measure rose 0.9 percent compared with a 1.1 percent dip in the previous year.
Overall, Wal-Mart posted a 5.9 percent increase in total sales to $418.95 billion for the year. That excluded income from membership fees to Sam's Club, its warehouse club division. Total sales rose 1.5 percent for the Walmart U.S. division in the latest fiscal year. Net income slipped 4.2 percent to $15.69 billion. The Bentonville, Ark., company posted operating income of $26.5 billion, up 4 percent from the year before.
For its performance-based stock plans, Wal-Mart uses return on investment and total sales performance as yardsticks to determine executives' compensation.
Wal-Mart lowered the threshold for return on investment, which accounted for 26.8 percent of Duke's overall compensation, to 18.4 percent in its latest year from 18.66 percent in the previous year. The company's actual return was 18.63 percent. Gregg Rossiter, a Wal-Mart spokesman, noted that the goals for the performance-based plans are set in March.
"They're based on the operating plans to reach the company's strategic goals and are reviewed by the board, which considers economic conditions in retail and in the markets where we compete," he said.
The company announced a year ago that it would replace revenue at stores open at least a year with total sales as a yardstick for measuring performance.
Wal-Mart faces plenty of challenges. Reclaiming its reputation as the lowest-price leader is critical for Wal-Mart to sustain the upward sales trend. In fact, an increasing number of shoppers, armed with smartphones, are using big stores like Wal-Mart to browse and then checking competitors' prices while still standing in the store. They'll walk out if they get a better deal elsewhere.
In his letter to shareholders in Wal-Mart's annual report, released Monday, Duke said one of his top priorities in the current year is to develop existing talent, including advancing opportunities for women. He also reiterated the company's goal of driving down expenses and reinvesting those savings toward lower prices for consumers. It also aims to develop its global e-commerce business, and plans, with government approval, to increase its investment to 51 percent in Yihaodian, a fast growing e-commerce website in China.
In a separate announcement, Wal-Mart said Monday it nominated Google Inc. Vice President Marissa Mayer to its board of directors, a move the discount retailer says will help it sell more products through mobile devices.
"The world moves more quickly each day, and we aim to be at the forefront of bringing about change in retail, both in our stores and through e-commerce," Duke wrote.
The Associated Press formula calculates an executive's total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.
The value that a company assigned to an executive's stock and option awards for 2011 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company's stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.
Wal-Mart Stores will host its annual shareholder meeting June 1 in Fayetteville, Ark.