In my last post about Walmart's compliance reforms, we looked at how Walmart built a centralized, independent compliance function and decided its 14 key responsibilities worldwide. Now let's look at how the company set specific compliance objectives and focused on achieving them.

Jorgensen started with the audit committee. In its 2013 proxy statement filed one year ago, Walmart announced that the audit committee would develop specific compliance goals for named executive officers to achieve: building new compliance systems, hiring key compliance personnel, and the like. Those goals were decided at the start of Walmart's 2014 fiscal year, which was Feb. 1, 2013. Jorgensen briefed the audit committee throughout the year on the executive team's progress toward those goals.

Meanwhile, over at the compensation committee (known at Walmart as the compensation and nominating & governance committee, or “the CNGC”), those folks did their usual job of setting financial targets for the executive team and awarding performance-based cash bonuses if those targets were hit. For all six of Walmart's named executive officers, that pay was roughly 20 percent of their total compensation.

The rest of the equation is simple: if senior executives don't meet their compliance objectives as set by the audit committee, the compensation committee can then cut a portion of whatever cash bonus they may be entitled to receive. That is, executives don't get a bonus for hitting all compliance goals, but they would risk a penalty for failing to hit them.

“The CNGC is in charge of money; audit is in charge of compliance. So they partnered together on this,” Jorgensen said. “The haircut you might face is based on these compliance goals.”

That sends a good message: that compliance is not something an executive does for extra credit, to get a bonus; it's part of your job, and if you don't do your job well, you don't get paid as much. For companies worried about having the right tone at the top—like, say, companies under investigation for violations of the Foreign Corrupt Practices Act—this is the sort of thing you want to implement to show regulators you're serious about cleaning up your act. Jorgensen wouldn't say one peep to me about the FCPA investigation, but clearly this plan helps to send that message.

The goals themselves for fiscal 2014 were pretty much what Jorgensen discussed in my last post: hiring compliance officers for each major market, increasing anti-corruption staff, stepping up training, implementing new IT systems to manage compliance on a global scale. You can see much more detail about the 2014 goals in Walmart's 2014 Global Compliance Program Report.

The audit committee decided at the end of the year that, yes, Walmart's senior executives had met all their compliance goals for fiscal 2014, and handed that finding off to the compensation committee—which, in turn, announced in Walmart's proxy statement this week that it wouldn't dock anyone's pay on that score. In fact, on financial goals Walmart's executive officers did miss a few objectives set by the board (see Page 45 of the proxy), so ultimately they didn't receive their full cash bonuses anyway, but not because of any shortcomings in the compliance effort.

Jorgensen raves about this approach of setting annual compliance objectives for two reasons. First, it focuses the executive's mind on moving the compliance program forward toward long-term goals. Second, as a byproduct of that, it helps the executive not be distracted by day-to-day issues—and let's be honest, Walmart has a ton of day-to-day distractions. The FCPA investigation is only the most glaring example, but on any given day the company might also be preoccupied with labor disputes, anti-Walmart campaigns on social media, environmental issues, IT security threats besieging the retail sector… the list is endless.

“You talk to [senior executives] about the strategic goals that will make the company better in terms of compliance. Then once you get it all enumerated, with a list of executives in charge of each one… it keeps your vision on the long ball,” Jorgensen said. “It's so easy to get caught up in what's wrong today. What keeps us focused on the long-term is having these objectives.”

So what's next for Walmart? Jorgensen said the company has set aside another $100 million for more compliance staff and IT systems this year. The IT investments will focus on giving Bentonville visibility into operations on a global scale, so HQ can pinpoint compliance risks early. Jorgensen cited licensing and permits as an example (no surprise; that's what got Walmart into trouble in Mexico): how can headquarters see the current status of a licensing application pending at the local office? For staffing, Jorgensen wants to put more monitoring teams into each market, for tasks such as checking food safety or fire exits in stores; those audit results would then be available to the country headquarters, regional CEOs, and Jorgensen himself. 

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