NEW YORK — Performance-based bonuses catalyzed compensation among the nation’s top retail executives in 2003 and leading the charge was none other than the usually frugal Wal-Mart Stores.
Despite the company’s shunning of almost all forms of corporate excess — the espousal of a sort of corporate Puritanism if you will — Wal-Mart president and chief executive officer H. Lee Scott topped the retail compensation list. Scott’s salary, including bonus, increased 25.3 percent $5.4 million in 2003, compared with $4.3 million in 2002. The compensation of Scott and two of his Wal-Mart colleagues should be no surprise — it is, after all, the world’s largest retailer. However, it couldn’t come at a more sensitive time as the retail behemoth has been besieged by everything from the federal courts to presidential candidate Sen. John Kerry, claiming its low wages and employment practices are bringing down the quality of jobs in America.
A Wal-Mart spokeswoman pointed out that Scott’s compensation pales in comparison to the remuneration of ceo’s on the Fortune 500 list. For example, Colgate-Palmolive Co. ceo Reuben Mark took home $141 million in 2003, largely by exercising stock options.
“Overall, people who know retail and know the company, know the challenges our executives have,” she added. “They know what it takes to attract and retain top talent.”
In fact, according to the spokeswoman, Wal-Mart last month introduced a new job reclassification and pay structure for hourly associates in stores and clubs. “We did that so we can maintain quality associates in a competitive market,” she explained, declining to provide details. “Many associates received an increase and nobody received a decrease.”
In response to mounting criticism of the company’s hiring practices and several class-action lawsuits — including the largest gender-discrimination lawsuit against a U.S. company to date, potentially encompassing 1.6 million current and former female Wal-Mart employees — Scott at the company’s annual meeting pledged to hire the same percentage of women and minority applicants who apply for positions, “provided an equal number of qualified applicants apply.”
Starting this year, executive bonuses will be tied to diversity goals. Scott will be penalized 7.5 percent of his bonus this year if his goals are not met and up to 15 percent in 2005. “The company is putting its money where its mouth is,” the Wal-Mart spokeswoman said. She declined to discuss specifics of the initiative, saying only “there are goals they are being asked to meet.”
Harold Reiter, president and ceo of executive search firm Herbert Mines Associates, said that even for a company like Wal-Mart that prides itself on being lean and mean, Scott’s rising salary may be an indication of things to come.
“I think Wal-Mart has gone through an evolution just like every other company,” said Reiter. “They know they have to pay for performance.”
Reiter even compared the situation to Wal-Mart’s relationship with its vendors. “If you want to sell to Wal-Mart you’re going to have to do what the Wal-Mart market says you have to do, which is lower your price,” he said. “It’s the same thing with employees. If they want to hire certain people they’re going to have to do what the market demands.”
Scott’s compensation is far from excessive in relation to his retail peers. He helms a company that generated revenues of $256.33 billion in 2003. In comparison, the second-highest compensated executive, Target’s Robert Ulrich, received a salary, including bonus, of $4.9 million in 2003, while the company had sales of $48.16 billion.
And while Wal-Mart had three executives in the top 20, Federated Department Stores saw five of its executives make the list. Each of the Federated executives who made the list saw their total salaries increase by more than 55 percent from the previous year, even though corporate earnings fell 15.3 percent to $693 million from $818 million.
According to the company’s proxy statements, the salary spike was in large part due to “retention payments” awarded to vice chairs Susan Kronick, Thomas Cole and Janet Grove in August 2000 and not paid out until 2003.
Out of the top 20 highest-paid executives of publicly listed retailers, based on salary and bonus, only two saw their compensation decline during the year. In fact, the average salary among the top 20 executives expanded 31.3 percent to $3.2 million. In comparison, the average in 2002 was $2.4 million. The median salary among the executives grew more markedly, rising 43.4 percent to $2.7 million from $1.9 million.
Experiencing the biggest increase was Gap Inc. ceo Paul Pressler, who saw his salary jump 224.1 percent to $4.6 million, due to an employment agreement that guaranteed him a bonus of $1.9 million in 2003 on top of a performance-based bonus. Pressler has no guaranteed bonus after 2003.
Casting aside compensation packages that spiked as the result of guaranteed onetime payouts, salaries in general reflected the growing strength of the retail market as a whole.
“Compensation, whether up or down, is always based on the consequence of the results,” said Terre Simpson, president of executive search firm Simpson Associates. “There’s never a trend other than the trend of the business.”
“The only reason [the executives are] making money is because they’re achieving certain goals, so that’s great,” said Reiter. “Their interests are coincident with the interest of the shareholders.”
A dearth of female executives continues to exist. However, according to Simpson, even that may be starting to change.
“I think it’s opening up. I think you have to go down to the second level, that’s where there are some very competent and qualified females and males. Over the last couple of years you’ve seen more females,” said Simpson.
— With contributions from Sharon Edelson