A prominent investor in Wal-Mart Stores Inc is pushing ahead with a campaign to link a portion of executive compensation to staff motivation, a sign that the retailer's wage hike last week won't end outside pressure over employee pay and benefits.

Connecticut Treasurer Denise Nappier, whose office oversees $40 million worth of Wal-Mart shares in state pension and trust funds, in December submitted a proposal calling for the incentive pay of senior executives to be tied in part to a measure of "employee engagement," according to previously unreported filings to the Securities and Exchange Commission.

Wal-Mart is fighting to keep this and other select proposals off the ballot for its annual meeting in June, filings show. Because the Walton family controls a majority of shares, outside proposals can be easily defeated even if they are put to a vote, and in any case are usually non-binding.

But even a losing battle could raise pressure on the retailer, potentially leading to compromise.

The proposal by Nappier, a Democrat, shows how some investors are searching for new ways to tackle social issues which they argue are key to a company's financial success. This includes the belief, shared by a growing number of investors of all political stripes, that low-wage employers have underinvested in people to the detriment of long-term returns.

Some are aligned with labor groups fighting for a "living wage" and better conditions at retailers and fast-food chains: Connecticut's proposal is a revised version of a union-supported submission that failed to make the Wal-Mart ballot last year.

In another proposal, a group of Catholic nuns is urging Wal-Mart to disclose a comparison of the pay of top executives to the median store employee wage and explain changes in the gap over time.

Wal-Mart is not the only low-wage employer to face scrutiny over pay. McDonald's Corp and other fast-food chains have also been the target of nationwide protests calling for the wage floor to be set at $15 an hour.

Wal-Mart last week said it was raising its minimum U.S. hourly wage to $9 in April and $10 for current employees next year, compared to the federal minimum of $7.25. Wal-Mart spokesman Randy Hargrove said its $1 billion investment in wages and training would reduce turnover and improve engagement -- addressing the same issue targeted in Connecticut's plan.

In a statement to Reuters, Nappier commended the wage hikes as a "step in the right direction toward investing in human capital." She said she would urge the SEC to allow a vote on the proposal to "ensure that Wal-Mart is committed over the long-haul on this important element of sustainable growth."

The SEC declined to comment.

Flashpoint

Lawyers for Wal-Mart argue the proposal involves "ordinary business" matters, a common SEC criteria for exclusion, and that it has already been implemented in other ways, citing a diversity and inclusion metric that partially determines pay in an annual incentive plan.

The Connecticut proposal defines engagement as the extent to which workers are motivated to "apply discretionary effort to accomplish organizational goals." It calls on the compensation committee to work with outside experts to measure engagement, which would complement financial metrics in determining pay.

Wal-Mart has long been a flashpoint in the debate over employee treatment. Of the roughly 350 proposals that appeared on U.S. shareholder ballots over the past decade related to human capital management, 16 were at Wal-Mart, the most of any company, data from Institutional Shareholder Services shows.

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