AFL-CIO Treasurer Richard Trumka sent a letter to the NYSE last week citing exchange rules that require wage consultants to report solely to board members, not management. At the same time, Trumka writes, Wal-Mart Deputy General Counsel Samuel Hess recently told him that the wage consultants are hired by the company, “not by independent members of the wage committee.” The union representative believes that this could violate the wage committee charter and NYSE listing rules.

Wal-Mart and AFL-CIO officials declined to comment, and Wal-Mart spokesman John Simley said the company “has not violated New York Stock Exchange rules.” He attributed the complaint to a misunderstanding on the part of the complainant “who confused the roles” of a salary consultant hired by management and another consultant the board’s salary committee may hire to help calculate executive pay. Simley said that Wal-Mart’s salary adviser is the Philadelphia-based Hay Group, and the salary committee decides whether to hire its own consultant. Simley said Wal-Mart did not receive a copy of the letter from the NYSE and learned of the request only from reporters.

The AFL-CIO has repeatedly criticized Wal-Mart for its compensation policies, which it considers “an egregious example of executive pay abuse.” The unions have been demanding greater disclosure of arrangements with compensation consultants that could raise concerns about their independence. As part of that effort, they have asked for a separate report on Wal-Mart’s role in hiring independent consultants and other services they provide to the company. The unions plan to include those issues on the agenda of the chain’s annual shareholder meeting this year. Wal-Mart has asked the AFL-CIO to withdraw that proposal. In a letter to union leaders last month, Hess said Wal-Mart’s compensation consultants typically do not provide other services to the company and that in the one instance where they did, their compensation was “minor.”

According to Charles Elson, director of the Center for Corporate Governance Studies at the University of Delaware, Wal-Mart should change this position: More and more companies are moving away from the practice of hiring consultants to set executive salaries. “The trend is for the salary committee to hire a salary consultant for obvious reasons,” Elson says. (WSJ, 02/28/2007, Kirill Koryukin)

Wal-Mart Caught Paying Salaries