Table of Contents
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant
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Filed by a Party other than
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Check the appropriate
box: |
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Preliminary Proxy
Statement |
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Soliciting Material Under Rule
14a-12 |
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Confidential, For Use of
the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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[X] |
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Definitive Proxy
Statement |
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[ ] |
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Definitive Additional
Materials |
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CVS Health Corporation |
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(Name of Registrant as
Specified In Its Charter) |
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(Name
of Person(s) Filing Proxy Statement, if Other Than the
Registrant) |
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the appropriate box): |
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Fee computed on
table below per Exchange Act Rules 14a-6(i)(4) and
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Table of Contents
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Notice
of Annual Meeting of
Stockholders |
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May 7, 2015;
9:00 a.m. |
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CVS Health
Corporation Customer Support Center One CVS Drive Woonsocket,
Rhode Island 02895 |
Table of Contents
MESSAGE FROM OUR
CHAIRMAN AND
OUR
CHIEF EXECUTIVE
OFFICER
Dear
Fellow Stockholders: |
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By
any measure, 2014 was a milestone year for CVS Health. We met or exceeded
all of our key financial targets and maintained our focus on the three
pillars that we consider essential to maximizing stockholder value:
driving productive, long-term growth; generating significant free cash
flow; and optimizing capital allocation. We delivered solid year-over-year
growth in revenues, operating profit, earnings per share, and cash flow,
and once again returned more than $5 billion to stockholders through
dividends and share repurchases.
This
strong performance resulted in total shareholder returns of 36.6 percent
in 2014, outperforming the S&P 500 Index and the Dow Jones Industrial
Average, which returned 13.7 percent and 10.0 percent, respectively. In
fact, we outperformed these indices on a three-, five-, and 10-year basis
as well.
In
2014, we became the first national pharmacy chain to eliminate the sale of
tobacco products. This strategic action eliminated approximately $2
billion in tobacco and associated revenues on an annual basis; yet we
believe it will help drive our long-term growth as it better aligns the
company with patients, payors, and providers as they search for ways to
improve health outcomes and control costs. Importantly, at the same time
we changed our corporate name to CVS Health. Our company is at the
forefront of an evolving health care landscape and our new name reflects
our broader health care commitment and underscores our purpose of helping
people on their path to better health.
Last
year also saw the launch of our new corporate social responsibility
roadmap, Prescription for a Better World. Through this roadmap, we are
focused on three key areas: building healthier communities, protecting the
planet, and creating economic opportunities. We believe these areas are
essential ingredients for a better world and we can help support them by
leveraging the scale, expertise, and innovative spirit of CVS
Health.
In
addition to engaging with our communities, we seek to proactively engage
with our stockholders to ensure that we understand your needs. We believe
accountability to our stockholders is a mark of good governance, and we
pride ourselves in strong corporate governance practices. As you will see,
we have made substantial changes to the format of our proxy statement this
year based on conversations we have had with many of you throughout the
year. We hope that you will find our new presentation helpful and more
user-friendly, and we certainly welcome your feedback.
Our
2015 Annual Meeting of Stockholders will be held on Thursday, May 7, 2015,
at 9:00 a.m., at the CVS Health Customer Support Center located at One CVS
Drive in Woonsocket, Rhode Island. We invite you to attend, and ask you to
please vote at your earliest convenience whether or not you plan to
attend. Your vote is important.
With our strong position in this
evolving health care marketplace, we see a bright future for CVS Health
and our stockholders. Thank you for your confidence and your continued
support. |
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Larry J.
Merlo David W. Dorman
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Sincerely, |
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David W.
Dorman Chairman of the Board
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Larry J.
Merlo President and Chief Executive
Officer |
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www.cvshealthannualmeeting.com 1
Table of Contents
NOTICE
OF
ANNUAL
MEETING
OF STOCKHOLDERS
Date and
Time |
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May 7, 2015, 9:00 A.M.
EDT |
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Place |
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CVS Health
Corporation |
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Customer Support
Center |
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One CVS Drive |
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Woonsocket, Rhode Island
02895 |
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Items to be
Voted |
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●Elect 11 directors named in this proxy
statement;
●Ratify the appointment of Ernst & Young LLP as
the Companys independent registered public accounting firm for fiscal
2015;
●Act, by non-binding vote, to approve the Companys
executive compensation as disclosed in this proxy
statement;
●Approve the performance criteria in the Companys
2010 Incentive Compensation Plan;
●Act on one stockholder proposal to be presented; and
●Conduct any other business properly brought before
the Meeting. |
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Eligibility
to Vote |
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Stockholders of
record at the close of business on March 12, 2015 may vote at the
Meeting. |
By Order of the Board of
Directors,
Colleen M.
McIntosh Senior Vice President
& Corporate Secretary |
Your vote is important.
Whether or not you plan to attend the
Annual Meeting, please vote your shares. In addition to voting in person or by
mail, stockholders of record have the option of voting by telephone or via the
Internet. If your shares are held in the name of a bank, broker or other holder
of record (i.e., in street name), please read your voting instructions to see
which of these options are available to you. Even if you are attending the
Annual Meeting in person, we encourage you to vote in advance by mail, phone or
Internet.
We began mailing this proxy statement
and the enclosed proxy card on or about March 27, 2015 to all stockholders
entitled to vote. Our 2014 Annual Report, which includes our financial
statements, is being sent with this proxy statement.
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meeting to Be Held on May
7, 2015.
The proxy statement and annual
report to security holders are available at www.cvshealthannualmeeting.com
and at www.proxyvote.com/cvs. |
2 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
TABLE OF CONTENTS |
www.cvshealthannualmeeting.com 3
Table of Contents
TABLE OF CONTENTS
4 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
PROXY STATEMENT
HIGHLIGHTS |
This
summary highlights selected information in this Proxy Statement please review
the entire document before voting.
MEETING INFORMATION
Date |
Time |
Location |
Admission |
May 7, 2015 |
9:00 a.m. EDT |
CVS Health Corporation
Customer Support Center One CVS
Drive Woonsocket, RI 02895 |
See page 67 for
instructions |
|
|
All of our Annual
Meeting materials are available in one place at
www.cvshealthannualmeeting.com There, you can download electronic
copies of our Annual Report and Proxy Statement, and use the link to
vote. |
VOTING ITEMS
Item |
Board Recommendation |
Reason(s) for Board
Recommendation |
Further Information
(page) |
1 Election of 11 directors named in this
proxy statement |
FOR each
director nominee |
Our nominees are
seasoned leaders who bring a mix of skills and qualifications to the
Board |
11 |
2 Ratify the
appointment of Ernst & Young LLP as the Companys independent
registered public accounting firm for fiscal 2015 |
FOR |
Based on its recent
evaluation, our Audit Committee believes that the retention of Ernst &
Young LLP is in the best interests of the Company and its
stockholders |
32 |
3 Approve, on a non-binding basis, the Companys executive compensation as
disclosed in this proxy statement |
FOR |
Our executive
compensation program reflects our unwavering commitment to paying for
performance and reflects feedback
received from stockholder outreach |
33 |
4 Approve the
performance criteria in the Companys 2010 Incentive Compensation
Plan |
FOR |
Awards under the Plan
enable us to attract and retain key employees and to align their interests
with those of our stockholders |
35 |
5 Stockholder
proposal regarding congruency of corporate values and political
contributions |
AGAINST |
See the Boards
statement of opposition |
65 |
HOW TO VOTE
Your vote is
important to the future of CVS Health. You are eligible to vote if you were a
stockholder of record at the close of business on March 12, 2015. Even if you
plan to attend the meeting, please vote as soon as possible using one of the
following methods. In all cases, you should have your proxy card in
hand:
Use the Internet |
Use a Mobile
Device |
Call
Toll-Free |
Mail Your Proxy
Card |
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www.proxyvote.com |
Scan this QR
Code |
1-800- 690-6903 |
Follow the instructions on your
voting form |
www.cvshealthannualmeeting.com 5
Table of Contents
PROXY STATEMENT HIGHLIGHTS
THE CVS HEALTH BOARD
You are
asked to vote on the election of the following eleven director nominees to serve
on the Board of CVS Health. Directors are elected by a majority of votes
cast.
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Director Since |
|
Other
Public Company Boards |
CVS Health
Committees |
Name, Primary
Occupation |
Age |
Independent |
A |
MP&D |
N&CG |
E |
Richard M.
Bracken Chairman and CEO of HCA Holdings,
Inc. (Retired) |
62 |
2015 |
YES |
None |
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C. David Brown
II Chairman of Broad and Cassel |
63 |
2007 |
YES |
1 |
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Alecia A. DeCoudreaux
President of Mills College |
60 |
2015 |
YES |
None |
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Nancy-Ann M.
DeParle Co-Founding Partner of Consonance
Capital Partners, LLC |
58 |
2013 |
YES |
1 |
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David W. Dorman
Chairman of the Board of CVS
Health Corporation, Founding Partner of
Centerview Capital Technology
Fund |
61 |
2006 |
YES |
3 |
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Anne M.
Finucane Global Chief Strategy
and Marketing Officer of Bank
of America Corporation |
62 |
2011 |
YES |
None |
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Larry J. Merlo
President and CEO of CVS Health
Corporation |
59 |
2010 |
NO |
None |
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Jean-Pierre Millon
President and CEO of PCS Health
Systems, Inc. (Retired) |
64 |
2007 |
YES |
None |
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Richard J.
Swift Chairman of the Board, President
and CEO of Foster Wheeler Ltd.
(Retired) |
70 |
2006 |
YES |
4 |
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William C. Weldon
Chairman of the Board and CEO
of Johnson & Johnson
(Retired) |
66 |
2013 |
YES |
3 |
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Tony L.
White Chairman of the Board, President
and CEO of Applied Biosystems, Inc.
(Retired) |
68 |
2011 |
YES |
2 |
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A: |
Audit |
MP&D: |
Management
Planning & Development |
N&CG: |
Nominating &
Corporate Governance |
E: |
Executive |
6 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
PROXY STATEMENT HIGHLIGHTS
Board
Developments and Highlights |
The CVS Health Board continues to evaluate
our governance arrangements to ensure that the right mix of individuals
are present in our boardroom, to best serve the stockholders we represent
by ensuring effective oversight of our strategy and
management. |
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Further Information |
2014-2015 Board Developments |
|
●Addition of two new directors; Richard
M. Bracken and Alecia A. DeCoudreaux
●Increase in the number of CVS Health
directors from 9 to 11 |
|
page 11 |
Board Communication
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●Our Board supports our stockholder
outreach program and has responded to stockholder input with changes in
our compensation program and other areas |
|
pages 17, 40 |
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●CVS Health directors welcome communications from our
stockholders and other interested parties |
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page
18 |
Director
Alignment with Stockholder Interests
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●75% of our directors annual retainer
mix is paid in shares of CVS Health common stock |
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page 26 |
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●Directors must own at least 10,000
shares of CVS Health stock
●90% meeting
attendance |
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page 29 page
17 |
Director
Independence |
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Director Tenure |
10 CVS Health directors, including our Chairman, are
independent of management. |
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Our director nominees bring a balance of experience and
fresh perspective to our boardroom. The average tenure of CVS Health
directors is under five years. |
Director Skills and
Experience |
Our director nominees possess
relevant experience, skills and qualifications that contribute to a
well-functioning Board to effectively oversee the Companys strategy and
management. Areas of director expertise
include: |
|
|
For more information
about our director nominees, please refer to page 11 of this proxy
statement. |
www.cvshealthannualmeeting.com 7
Table of Contents
PROXY STATEMENT HIGHLIGHTS
CORPORATE
GOVERNANCE
The Board of CVS Health is committed to
maintaining the highest standards of corporate governance, and has established a
strong and effective framework by which the Company is governed and reviewed.
Highlights include:
|
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Further Information |
2014-2015 Corporate Governance
Developments |
|
●In response to 2014 stockholder
outreach, we redesigned our executive compensation peer group and the presentation
of our disclosure |
|
pages 40, 45 |
Stockholder Rights |
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●Annual election of all directors,
annual Say on Pay vote |
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pages 11, 33 |
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●Stockholder outreach
program |
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pages
17, 40 |
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●Majority voting in director
elections |
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page
19 |
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●Right to act by written consent and to
call special
meetings |
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page
17 |
Committees |
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●We have four Board Committees: Audit, Management
Planning and Development, Nominating and Corporate Governance and
Executive |
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page 21 |
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●All members of Audit, Management Planning and
Development and Nominating and Corporate Governance are independent of
management |
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pages 22-24 |
Board Oversight of Risk |
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●Full Board and individual Committee
focus on understanding Company risks |
|
page 18 |
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|
●Annually, the Audit Committee reviews
our policies and practices with respect to risk assessment and risk
management, including discussing with management our major risks and the
steps that have been taken to monitor and mitigate such
risks |
|
pages 18,22 |
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●Our independent Chairman and our CEO
are focused on the Companys risk management efforts and ensure that risk
matters are appropriately brought to the Board and/or its Committees for
review |
|
page
18 |
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|
For more information on
corporate governance at CVS Health, please refer to page 17 of this proxy
statement and to our website at
http://investors.cvshealth.com/corporate-governance. |
8 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
PROXY STATEMENT HIGHLIGHTS
PERFORMANCE HIGHLIGHTS
For CVS Health, 2014 was a very good
year. Here are some highlights:
|
Net Revenues ($
billions) |
|
Operating Profit ($ billions) |
|
Diluted Earnings Per Share from
Continuing Operations ($) |
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1 year growth of 9.9% |
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1 year growth of 9.5% |
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1 year growth of 5.5% |
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Total Shareholder Return (TSR)
(%) |
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Annual Cash Dividends ($ per
share) |
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Outperformed
S&P 500 |
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1 year increase
of 22.2% |
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For more
information on our financial performance, please refer to page 37 of this
proxy statement and to our Annual Report available at
www.cvshealthannualmeeting.com. |
COMPENSATION HIGHLIGHTS
Leading Practices
in Compensation Programs |
Our pay
practices align with our core compensation principles and facilitate our
implementation of those principles. They also demonstrate our commitment to
sound compensation and governance practices.
Our executive compensation program
motivates executive officers to take personal responsibility for
the performance of CVS Health |
|
✓ |
Core Executive Compensation
Principles Designed to Deliver Growth |
|
✓ |
Performance Measures Aligned with
Stockholder Interests |
|
✓ |
Majority of the Total
Compensation Opportunity is Performance-Based |
|
✓ |
LTI Plan Share Award
Retention |
|
✓ |
Stock Ownership Guidelines
|
We apply leading
executive compensation practices |
|
✕ |
No Excise Tax
Gross-Ups |
|
✕ |
No Option
Repricing |
|
✕ |
No Recycling of
Shares |
|
✓ |
Recoupment Policy
|
|
✓ |
Broad Anti-Pledging and Hedging
Policies |
|
✓ |
Executive Severance
Policy |
|
✓ |
Limited Perquisites and Personal
Benefits |
|
✓ |
Closed SERP to New
Participants |
|
✓ |
Double Trigger Vesting of Equity
Awards |
www.cvshealthannualmeeting.com 9
Table of Contents
PROXY STATEMENT
HIGHLIGHTS
Stockholder
Outreach - Compensation Actions |
Prior to 2014, we experienced very high
and increasing levels of stockholder support for our executive compensation
program. Specifically, in 2011 we received 92.1% support, in 2012 support was
95.4% and in 2013 it was 96.0%. In 2014, the level of support declined to 70.6%. As a result, we engaged in a robust stockholder outreach program and reviewed
our policies and programs against published guidelines of stockholders and
advisory firms, to help us understand and address any concerns stockholders
might have.
What we heard |
|
What we have done in
response |
|
Intended outcome |
|
When effective |
It is hard to find important
information in your proxy statement |
|
Revised the presentation and content
of our proxy statement |
|
Ensure that key messages are more
easily identified |
|
Current proxy
statement |
You grossed up income tax payments
when you terminated your Death Benefit Only Plan in 2013 |
|
The tax payments were related to
that one-time event that will not occur again; excise tax gross ups are
prohibited |
|
Terminating the Death Benefit Only
Plan resulted in immediate and ongoing net savings to the Company; in the
future, we will carefully consider investor views on tax payments
in establishing and terminating programs |
|
One-time event in 2013; excise
tax gross ups were eliminated by the Company in 2010, and removed from
pre-existing executive contracts in 2012 |
Your peer group
includes telecommunications and other companies that dont seem to align
with what you do |
|
Modified our peer
group |
|
Present a closer connection to our retail and health care businesses |
|
2015 |
Although you havent repriced
options in the past, your policy on stock option grants permits re-pricing
of options |
|
Amended our policy on stock option
grants to specifically prohibit re-pricing without stockholder
approval |
|
Explicitly prohibit re-pricing of
stock options |
|
2014 |
The following shows the breakdown of
reported 2014 compensation for our CEO and our other named executive
officers.
|
For more
information on our executive compensation practices, please refer to
Compensation Discussion and Analysis, beginning on page 37 of this proxy
statement. |
10 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
ITEM 1: ELECTION OF
DIRECTORS |
Our Board of Directors has nominated 11
directors for election at the Annual Meeting. Each nominee is currently serving
as one of our directors. If you re-elect them, they will hold office until the
next annual meeting or until their successors have been elected and qualified.
In recognition of the fact that the
selection of qualified directors is complex and crucial to the long-term success
of the Company, the Nominating and Corporate Governance Committee (the
Committee) has established guidelines for the identification and evaluation of
candidates for membership on the Companys Board of Directors. Those guidelines
are included in this proxy statement on page 23. When considering current
directors for re-nomination to the Board, the Committee takes into account the
performance of each director, which is part of the Committees annual Board
evaluation process. That process consists of individual interviews of each
director by our General Counsel, followed by a report summarizing his findings.
The Committee then recommends actions for the
Board to consider and adopt as it sees fit. The Committee also reviews the
composition of the Board in light of the current challenges and needs of the
Board and the Company, and determines whether it may be appropriate to add or
remove individuals after considering, among other things, the need for audit
committee expertise and issues of independence, diversity, judgment, character,
reputation, age, skills, background and experience. The Committee believes that
the Board, as currently constituted, is well-balanced and that it fully and
effectively addresses the Companys needs. All of our nominees are seasoned
leaders, the majority of whom are or were chief executive officers or other
senior executives, who bring to the Board skills and qualifications gained
during their tenure at a vast array of public companies, private companies,
non-profits and other organizations. We have indicated below for each nominee
certain of the experience, qualifications, attributes or skills that led the
Committee and the Board to conclude that the nominee should continue to serve as
a director.
BIOGRAPHIES OF OUR BOARD
NOMINEES
|
|
RICHARD M. BRACKEN Age 62 |
|
Director since
January
2015 |
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Chairman and CEO
of HCA, Inc. and HCA Holdings, Inc. (Retired) |
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INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
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CVS Health Board
Committees Audit Other
Public Boards None |
|
✓ |
Leadership Former
CEO |
|
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|
✓ |
Business
Operations; Consumer Products or Services |
|
|
|
✓ |
Finance |
|
|
|
✓ |
Health
Care/Regulated Industry |
|
|
|
✓ |
Risk
Management |
|
|
|
✓ |
Corporate
Governance |
|
Biography
Mr. Bracken is the former Chairman and
Chief Executive Officer of HCA, Inc. and HCA Holdings, Inc. (collectively,
HCA), one of the nations leading providers of health care services. HCAs
facilities include approximately 165 hospitals and 115 freestanding surgery
centers in 20 states and England. Mr. Bracken served in a number of executive
roles in his 33 year career at HCA, including President of HCAs Pacific
Division in 1995, Western Group President in 1997, Chief Operating Officer of HCA in July 2001, and President and
Chief Operating Officer in January 2002. He was elected to the HCA Board of
Directors in November 2002, became President and Chief Executive Officer in
January 2009, and Chairman and Chief Executive Officer in December, 2009. He
retired as CEO in December 2013, and as Chairman in December 2014.
Skills and Qualifications of
Particular Relevance to CVS Health
Mr. Brackens experience in leading a
large, publicly traded health care company lends expertise and perspective
greatly valued by the Board. In addition, his experience operating in the
highly-regulated health care industry with significant experience in enterprise
clinical quality is also greatly valued by the Board.
www.cvshealthannualmeeting.com 11
Table of Contents
ITEM 1: ELECTION OF
DIRECTORS
|
|
C. DAVID BROWN
II Age 63 |
|
Director since
March 2007 |
|
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Chairman of
Broad and Cassel |
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|
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INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Management Planning and Development (Chair), Nominating and
Corporate Governance, Executive Other Public Boards Rayonier Advanced Materials Inc. |
|
✓ |
Real
Estate |
|
|
|
✓ |
Business
Development and Corporate Transactions |
|
|
|
✓ |
Finance |
|
|
|
✓ |
Legal and
Regulatory Compliance |
|
|
|
✓ |
Risk
Management |
|
|
|
✓ |
Public Company
Board Service |
|
Biography
Mr. Brown has been Chairman of Broad
and Cassel, a Florida law firm, since March 2000. From 1989 until March 2000, he
was Managing Partner of the Orlando office of the firm. He is also the lead
director of Rayonier Advanced Materials Inc. (RYAM), a leading specialty
cellulose production company. Mr. Brown previously served on the board of
directors and as lead director of Rayonier Inc., a real estate development and
timberland management company, prior to the spin-off of RYAM in June 2014.
Mr. Brown also previously served on the
board of Caremark Rx, Inc. (Caremark) from March 2001 until the closing of the
merger transaction involving CVS Health and Caremark, when he became a director
of CVS Health. Mr. Brown has significant health care experience, including
through his oversight of UF Health while serving as Chairman of the Board of
Trustees for the University of Florida and as a member of the Board of Directors
and Executive Committee of Orlando Health, a not-for-profit health care
network.
Skills and Qualifications of
Particular Relevance to CVS Health
Mr. Browns legal expertise and health
care experience are valued by the Board, as is his ability to analyze and
interpret complex issues and facilitating Board engagement. The Board believes
that Mr. Browns experience adds knowledge and leadership depth to the
Board.
|
|
ALECIA A.
DECOUDREAUX Age 60 |
|
Director since
March 2015 |
|
|
|
|
|
|
|
President of
Mills College |
|
|
|
|
|
|
|
INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees None Other
Public Boards None |
|
✓ |
Business
Development and Corporate Transactions |
|
|
|
✓ |
Legal and
Regulatory Compliance |
|
|
|
✓ |
Health
Care/Regulated Industry |
|
|
|
✓ |
Corporate
Governance |
|
|
|
✓ |
Public Policy and
Government Affairs |
|
Biography
Ms. DeCoudreaux has been President of
Mills College, a liberal arts college for women with graduate programs for women
and men, since July 2011. Previously, Ms. DeCoudreaux served in a number of
leadership roles at Eli Lilly and Company (Eli Lilly), a global pharmaceutical
manufacturer, including as vice president and deputy general counsel, specialty
legal team, from 2010-2011, vice president and general counsel, Lilly USA, from
2005-2009, and secretary and deputy general counsel of Eli Lilly from 1999-2005. During her 30-year career with Eli Lilly Ms.
DeCoudreaux also previously served as an executive director of Lilly Research
Laboratories, director of federal government relations, director of state
government relations and director of community relations. In addition, Ms.
DeCoudreaux has served on a number of charitable, educational, for profit and
nonprofit boards, including as both a trustee and board chair at Wellesley
College.
Skills and Qualifications of
Particular Relevance to CVS Health
Ms. DeCoudreaux has more than 30 years
of experience in the pharmaceutical industry, and her experience as an attorney
in that field and in the area of corporate governance, makes her an excellent
addition to our Board.
12 CVS Health
Notice of Annual Meeting of Stockholders
Table of Contents
ITEM 1: ELECTION OF
DIRECTORS
|
|
NANCY-ANN M.
DEPARLE Age 58 |
|
Director since
September
2013 |
|
|
|
|
|
|
|
Co-Founding
Partner of Consonance Capital Partners, LLC |
|
|
|
|
|
|
|
INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Audit Other
Public Boards HCA
Holdings, Inc. |
|
✓ |
Business
Development and Corporate Transactions |
|
|
|
✓ |
Finance |
|
|
|
✓ |
Legal and
Regulatory Compliance |
|
|
|
✓ |
Health Care
Industry |
|
|
|
✓ |
Public Policy and
Government Affairs |
|
|
|
✓ |
Public Company
Board Service |
|
Biography
Ms. DeParle has been a Co-Founding
Partner of Consonance Capital Partners, LLC, a private equity firm focused on
investing in small and mid-size health care companies, since August 2013. From
March 2009 to January 2013, Ms. DeParle served in the White House, first as
Counselor to the President and Director of the White House Office of Health
Reform, and later as Assistant to the President and Deputy Chief of Staff for
Policy. In addition, from 1993 to 2000, Ms. DeParle served as the Associate
Director for Health and Personnel for the White House Office of Management
and Budget, and later as the Administrator of the
Centers for Medicare and Medicaid Services (then known as the Health Care
Financing Administration). From 2001 to March 2009, Ms. DeParle served as a
Senior Advisor with JPMorgan Partners and as a Managing Director of its
successor entity, CCMP Capital, L.L.C., focusing on private equity investments
in health care companies. Ms. DeParle is also a director of HCA Holdings, Inc.,
a health care services company that owns, manages or operates hospitals and
various other health care facilities.
Skills and Qualifications of
Particular Relevance to CVS Health
Ms. DeParle has more than 25 years of
experience in the health care arena, and is widely considered to be one of the
nations leading experts in health care policy, management and financing, which
makes her an excellent fit for our Board.
|
|
DAVID W.
DORMAN Age 61 |
|
Director since
March 2006 |
|
|
|
|
|
|
|
Chairman of the
Board of CVS Health Corporation, Founding Partner of Centerview Capital
Technology Fund |
|
|
|
|
|
|
|
INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Management Planning and Development, Nominating and Corporate
Governance (Chair), Executive Other Public Boards Motorola Solutions, Inc., Yum! Brands, Inc., eBay,
Inc. |
|
✓ |
Leadership Former
CEO |
|
|
|
✓ |
Finance |
|
|
|
✓ |
International Business
Operations; Consumer Products or Services |
|
|
|
✓ |
Technology and
Innovation |
|
|
|
✓ |
Risk
Management |
|
|
|
✓ |
Corporate
Governance |
|
|
|
✓ |
Public Company
Board Service |
|
Biography
Mr. Dorman has been the Chairman of the
Board of CVS Health Corporation since May 2011. He has also served as Lead
Director of Motorola Solutions, Inc. (formerly Motorola, Inc.), a communications
products company, since May 2011, and was Non-Executive Chairman of the Board of
Motorola from May 2008 through May 2011. He has also been a Founding Partner of
Centerview Capital Technology Fund, a private investment firm, since July 2013.
From October 2006 through April 2008, he was a Managing Director and Senior
Advisor with Warburg Pincus LLC, a global private
equity firm. From November 2005 until January 2006, Mr. Dorman served as
President and a director of AT&T Inc., a telecommunications company
(formerly known as SBC Communications). From November 2002 until November 2005,
Mr. Dorman was Chairman of the Board and Chief Executive Officer of AT&T
Corporation. Mr. Dorman is also a director of Yum! Brands, Inc., a quick service
restaurant company, and eBay, Inc., a global technology company.
Skills and Qualifications of
Particular Relevance to CVS Health
Mr. Dormans experience in leading
large companies, beginning with Sprint and later Pacific Bell and AT&T,
lends a perspective and skill set that is greatly valued by the Board. His
business background of growing companies is in line with and useful to our
business strategy. The Board believes that Mr. Dormans experience leading the
boards of AT&T and Motorola make him well-suited to be the Companys
Chairman.
www.cvshealthannualmeeting.com 13
Table of Contents
ITEM 1: ELECTION OF
DIRECTORS
|
|
ANNE M.
FINUCANE Age 62 |
|
Director since
January
2011 |
|
|
|
|
|
|
|
Global Chief Strategy and
Marketing Officer of Bank of America Corporation, Northeast Market
President |
|
|
|
|
|
|
|
INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Nominating
and Corporate Governance Other Public Boards None |
|
✓ |
Consumer Products
or Services |
|
|
|
✓ |
Corporate Strategy
Development and Oversight |
|
|
|
✓ |
Marketing, Brand
Management |
|
|
|
✓ |
Public
Policy |
|
|
|
✓ |
Public
Relations |
|
|
|
✓ |
Regulated
Industry |
|
Biography
Ms. Finucane has been the Global Chief
Strategy and Marketing Officer for Bank of America Corporation (BOA), an
international financial services company, since 2006 and has been Northeast
Market President for BOA since 2004. During her eighteen-plus years as a senior
leader at BOA and its legacy firms, Ms. Finucane has served as senior advisor to
four chief executive officers and the Board of
Directors, with a focus on corporate strategy and public policy creation and
implementation. Ms. Finucane also oversees all marketing, public policy,
government affairs, consumer policy and corporate social
responsibility for BOA. She is chair of BOAs Corporate Social Responsibility
Committee.
Skills and Qualifications of
Particular Relevance to CVS Health
Ms. Finucanes experience in the
financial services industry, consumer policy, marketing and government affairs
provides the Board with valuable insight in those key areas.
|
|
LARRY J.
MERLO Age 59 |
|
Director since
May 2010 |
|
|
|
|
|
|
|
President and
Chief Executive Officer of CVS Health Corporation |
|
|
|
|
|
|
|
NON-INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Executive Other
Public Boards None |
|
✓ |
Leadership
Current CEO |
|
|
|
✓ |
Business
Operations; Consumer Products or Services |
|
|
|
✓ |
Health
Care/Regulated Industry |
|
|
|
✓ |
Public
Policy |
|
|
|
✓ |
Retail, Retail
Pharmacy and Pharmacy Benefit Management |
|
Biography
Mr. Merlo has been Chief Executive
Officer of CVS Health Corporation (formerly CVS Caremark Corporation) since
March 2011 and President of CVS Health Corporation since May 2010. Mr. Merlo
formerly served as Chief Operating Officer of CVS Health Corporation from May
2010 through March 2011 and was President of
CVS/pharmacy Retail from January 2007 through May 2010; Executive Vice
President Stores of CVS Health Corporation from April 2000 to January 2007;
and Executive Vice President Stores of CVS Pharmacy, Inc. from March 1998 to
January 2007.
Skills and Qualifications of
Particular Relevance to CVS Health
Mr. Merlo has been with CVS Health and
its subsidiaries for more than 30 years, and provides the Board with invaluable
experience and insight into the retail drugstore and health care
industries.
14 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
ITEM 1: ELECTION OF
DIRECTORS
|
|
JEAN-PIERRE
MILLON Age 64 |
|
Director since
March 2007 |
|
|
|
|
|
|
|
President and
Chief Executive Officer of PCS Health Systems, Inc.
(Retired) |
|
|
|
|
|
|
|
INDEPENDENT DIRECTOR |
|
DIRECTOR
QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Audit Other
Public Boards None |
|
✓ |
Leadership Former
CEO |
|
|
|
✓ |
Finance |
|
|
|
✓ |
Corporate Strategy
Development and Oversight |
|
|
|
✓ |
Health
Care/Regulated Industry |
|
|
|
✓ |
International
Business Operations |
|
|
|
✓ |
Pharmacy Benefit
Management |
|
|
|
✓ |
Public Company
Board Service |
|
Biography
Mr. Millon is the retired former
President and Chief Executive Officer of PCS Health Systems, Inc. (PCS). Mr.
Millon joined PCS in 1995, where he served as President and Chief Executive
Officer from June 1996 until his retirement in September 2000. Prior to that,
Mr. Millon served as an Executive and held several global leadership positions
with Eli Lilly and Company. Mr. Millon previously served on the board of
Caremark from March 2004, upon Caremarks acquisition of AdvancePCS, and as a
director of AdvancePCS (which resulted from the merger of PCS and Advance Paradigm, Inc.) beginning in October 2000. He
became a director of CVS Health upon the closing of the merger transaction
involving CVS Health and Caremark. Mr. Millon has over 10 years of financial
management experience and fifteen years of general functional management
experience, including strategic planning experience specific to pharmacy benefit
management companies as the former head of PCS. He also has extensive venture
capital and public and private company board experience, and presently serves on
the CEO advisory board of a private equity fund.
Skills and
Qualifications of Particular Relevance to CVS Health
Mr. Millons extensive background
and experience in the pharmacy benefit management, pharmaceutical and life
sciences businesses, combined with his financial expertise, provide the Board
with additional perspective across the enterprise.
|
|
RICHARD J.
SWIFT Age 70 |
|
Director since
September
2006 |
|
|
|
|
|
|
|
Chairman of the
Board, President and Chief Executive Officer of Foster Wheeler Ltd.
(Retired) |
|
|
|
|
|
|
|
INDEPENDENT
DIRECTOR |
|
DIRECTOR
QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Audit (Chair),
Executive Other Public
Boards Ingersoll-Rand
PLC, Kaman Corporation, Hubbell Incorporated, Public Service Enterprise
Group Incorporated |
|
✓ |
Leadership Former
CEO |
|
|
|
✓ |
Finance |
|
|
|
✓ |
International
Business Operations |
|
|
|
✓ |
Risk
Management |
|
|
|
✓ |
Corporate
Governance |
|
|
|
✓ |
Public Company
Board Service |
|
Biography
Mr. Swift is the former Chairman
of the Board, President and Chief Executive Officer of Foster Wheeler Ltd., an
international engineering and construction firm, having served in those
positions from April 1994 until his retirement in October 2001. Mr. Swift also
served as a member and as Chairman of the Financial Accounting Standards
Advisory Council (FASAC) from 2002 until his retirement from FASAC in December 2006. Mr. Swift is also lead director
of Public Service Enterprise Group Incorporated, an energy company, and a
director of Ingersoll-Rand PLC, a diversified industrial company, Kaman
Corporation, a diversified manufacturer and distributor, and Hubbell
Incorporated, an electrical and electronic products company.
Skills and
Qualifications of Particular Relevance to CVS Health
The Board greatly values Mr.
Swifts financial expertise, including his experience at FASAC and with various
public company boards and audit committees for over 30 years of combined
service. Mr. Swift is an audit committee financial expert and his accounting and
financial skills are important to the oversight of our financial reporting,
enterprise and operational risk management.
www.cvshealthannualmeeting.com 15
Table of Contents
ITEM 1: ELECTION OF
DIRECTORS
|
|
WILLIAM C.
WELDON Age 66 |
|
Director since
March 2013 |
|
|
|
|
|
|
|
Chairman of the
Board and Chief Executive Officer of Johnson & Johnson
(Retired) |
|
|
|
|
|
|
|
INDEPENDENT
DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Management
Planning and Development, Nominating and Corporate
Governance Other Public
Boards JPMorgan Chase
& Co., Exxon Mobil Corporation, Chubb Corporation |
|
✓ |
Leadership Former
CEO |
|
|
|
✓ |
Health
Care/Regulated Industry |
|
|
|
✓ |
International
Business Operations; Consumer |
|
|
|
|
Products or
Services |
|
|
|
✓ |
Risk
Management |
|
|
|
✓ |
Corporate
Governance |
|
|
|
✓ |
Public Company
Board Service |
|
Biography
Mr. Weldon is the former Chairman
of the Board and Chief Executive Officer of Johnson & Johnson, a global
developer and manufacturer of health care products, having served in those
positions from 2002 until his retirement as Chief Executive Officer in April
2012 and his retirement from the board in December 2012. Mr. Weldon previously
served in a variety of senior executive positions during his 41-year career with
Johnson & Johnson. Mr. Weldon is also a director of JPMorgan Chase &
Co., a financial services company, Exxon Mobil Corporation, an international oil
and gas company, and Chubb Corporation, an international insurance
company.
Skills and
Qualifications of Particular Relevance to CVS Health
Mr. Weldons experience in
managing a complex global health care company and his deep knowledge of the
worldwide health care market across multiple sectors makes him extremely well
suited to serve on our Board. His background in international business
management and operating in the highly-regulated health care industry is also
greatly valued by the Board.
|
|
TONY L.
WHITE Age 68 |
|
Director since
March 2011 |
|
|
|
|
|
|
|
Chairman of the
Board, President and Chief Executive Officer of Applied Biosystems, Inc.
(Retired) |
|
|
|
|
|
|
|
INDEPENDENT DIRECTOR |
|
DIRECTOR QUALIFICATION HIGHLIGHTS |
|
|
CVS Health Board
Committees Audit,
Management Planning and Development Other Public Boards Ingersoll-Rand PLC, C.R. Bard, Inc. |
|
✓ |
Leadership Former
CEO |
|
|
|
✓ |
Finance |
|
|
|
✓ |
Health
Care/Regulated Industry |
|
|
|
✓ |
Technology and
Innovation |
|
|
|
✓ |
Risk
Management |
|
|
|
✓ |
Corporate
Governance |
|
|
|
✓ |
Public Company
Board Service |
|
Biography
Mr. White is the former Chairman
of the Board, President and Chief Executive Officer of Applied Biosystems, Inc.
(formerly Applera Corporation), a developer, manufacturer and marketer of life
science systems and genomic information products, having served in those
positions from September 1995 until his retirement in November 2008. Mr. White
is also a director of Ingersoll-Rand PLC, a diversified industrial company, and
C.R. Bard, Inc., a company that designs, manufacturers, packages, distributes
and sells medical, surgical, diagnostic and patient care devices.
Skills and
Qualifications of Particular Relevance to CVS Health
Mr. Whites wealth of management
experience in the life sciences and health care industries, including over 13
years as Chairman and CEO of an advanced-technology life sciences company and 26
years in various management positions at Baxter International, Inc., a provider
of medical products and services, makes him well qualified to serve as a
director of CVS Health.
The Board
of Directors unanimously recommends a vote FOR the election of all
nominees. |
16 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
|
CORPORATE GOVERNANCE AND RELATED
MATTERS |
THE BOARDS ROLE AND ACTIVITIES IN 2014
CVS Healths Board of Directors
(the Board) acts as the ultimate decision-making body of the Company and
advises and oversees management, who are responsible for the day-to-day
operations and management of the Company. In carrying out its responsibilities,
the Board reviews and assesses CVS Health’s long-term strategy and its
strategic, competitive and financial performance.
During 2014, there were eight
meetings of the Board. Directors are expected to make every effort to attend the
Annual Meeting, all Board meetings and the meetings of the Committees on which
they serve. All of our directors at the time of our 2014 Annual
Meeting of Stockholders attended that Annual Meeting. In 2014, each director
attended over 90% of the meetings of the Board and the Committees of which he or
she was a member.
One Board meeting was our annual
meeting of independent directors. The independent directors also regularly hold
executive sessions during regularly scheduled Board meetings in which our
management does not participate.
During 2014, the Board was
instrumental in our decision to become the first national pharmacy chain to
eliminate the sale of tobacco products, as well as our subsequent name change.
The Board also voted to return more than $5 billion to our stockholders, through
a combination of cash dividends and stock repurchases. The Board continued its
focus on our strategic growth initiatives, which have both short- and long-term
aspects and are aimed at guiding CVS Health through the changing health care
landscape.
STOCKHOLDER OUTREACH
Because the Company values each of
its stockholders and their opinions, we have regularly interacted with
our stockholders on a variety of matters. In 2014, at the direction of the
Board, the Company engaged in a robust stockholder outreach effort to best
understand and address any concerns stockholders might have. Details regarding
our outreach effort and the compensation-related actions taken are found on page
40 of this proxy statement. The redesign of this proxy statement, aimed at
making it more reader friendly and easier to understand, grew out of our
outreach effort.
In addition to
compensation-related matters, a number of corporate governance matters were
discussed with our stockholders during the outreach process, including director
tenure, skill sets and diversity. Stockholders were supportive of the Boards current tenure mix and appreciated
the Companys continued attention to the breadth, depth and diversity of its
Board of Directors. In furtherance of those qualities, we are pleased to
highlight the addition to our Board of Richard M. Bracken in January 2015 and
Alecia A. DeCoudreaux in March 2015.
We believe that taking the
responsive actions summarized above will continue to strengthen our
relationships with our stockholders and provide positive improvements in the
areas identified.
STOCKHOLDER RIGHTS
Under our Amended and Restated
Certificate of Incorporation (the Charter) and our Amended and Restated
By-laws (the By-laws), our stockholders have the right to call a special
meeting of stockholders and to act by written consent that is less than
unanimous. Holders of at least 25% of our common stock can call a special meeting or request an action by written
consent by following the procedures described in our Charter and By-laws. Our
Charter and By-laws are available to stockholders at no charge upon request to
our Corporate Secretary.
CORPORATE GOVERNANCE GUIDELINES
The Board has adopted Corporate
Governance Guidelines, which are available on our investor relations website at
http://investors.cvshealth.com and are also available to stockholders at no
charge upon request to our Corporate Secretary. These Guidelines meet the listing standards adopted by the New York Stock
Exchange (NYSE), on which our common stock is listed.
www.cvshealthannualmeeting.com 17
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
THE BOARDS LEADERSHIP STRUCTURE
David W. Dorman is our independent
Chairman of the Board. The independent Chairman presides at all meetings of the
Board, and works with our Chief Executive Officer (CEO) to set Board meeting
agendas and the schedule of Board meetings. In addition, the independent
Chairman has the following duties and responsibilities: the authority to call,
and to lead, independent director sessions; the ability to retain independent
legal, accounting or other advisors in connection with these sessions; facilitation of communication and service
as a liaison between the CEO and the other independent directors; and the duty
to advise the CEO of the informational needs of the Board. The Board believes
that Board independence and oversight of management will be effectively
maintained through the independent Chairman, the Boards composition and its
Committee system.
CONTACT WITH THE BOARD, THE CHAIRMAN AND OTHER INDEPENDENT
DIRECTORS
Stockholders and other parties
interested in communicating directly with the Board, the independent Chairman of
the Board or with the independent directors as a group may do so by writing to
them care of CVS Health Corporation, One CVS Drive, MC 1160, Woonsocket, RI
02895. The Nominating and Corporate Governance Committee has approved a process
for handling letters received by the Company and addressed to the Board, the
independent Chairman of the Board or to
independent members of the Board. Under that process, our Corporate Secretary
reviews all such correspondence and regularly forwards to the Board copies of
all correspondence that, in her opinion, deals with the functions of the Board
or its Committees or that she otherwise determines requires their attention.
THE BOARDS ROLE IN RISK OVERSIGHT
The Boards role in risk oversight
involves both the full Board and its Committees. The Audit Committee is charged
with the primary role in carrying out risk oversight responsibilities on behalf
of the Board. Pursuant to its charter, the Audit Committee annually reviews our
policies and practices with respect to risk assessment and risk management,
including discussing with management the Companys major risk exposures and the
steps that have been taken to monitor and mitigate such exposures. As part of
CVS Healths ongoing Enterprise Risk Management process, each of our major
business units is responsible for identifying risks that could affect
achievement of business goals and strategies, assessing the likelihood and
potential impact of significant risks, prioritizing risks and actions to be
taken in mitigation and/or response, and reporting to managements Executive
Risk Steering Committee on actions to monitor, manage and mitigate significant
risks. Additionally, the Chief Financial Officer (CFO), Chief Compliance
Officer and General Counsel periodically report on the Companys risk management
policies and practices to relevant Board Committees and to the full Board. The
Audit Committee reviews CVS Healths major financial risk exposures as well as
major operational, compliance, reputational
and strategic risks, including developing steps to monitor, manage and mitigate
those risks. In addition, each of the other Board Committees is responsible for
oversight of risk management practices for categories of risks relevant to their
functions. For example, the Management Planning and Development Committee has
oversight responsibility for our overall compensation structure, including
review of its compensation practices, with a view to assessing associated risk.
The Board is regularly updated on specific risks in the course of its review of
corporate strategy, business plans and reports to the Board by its respective
Committees.
The Board considers its role in
risk oversight when evaluating our Corporate Governance Guidelines and its
leadership structure. Both the Corporate Governance Guidelines and the Boards
leadership structure facilitate the Boards oversight of risk and communication
with management. Our independent Chairman and our CEO are focused on CVS
Healths risk management efforts and ensure that risk matters are appropriately
brought to the Board and/or its Committees for their review.
18 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
SELECTING OUR DIRECTORS
Director
Independence |
|
Director
Tenure |
10 CVS Health directors, including
our Chairman, are independent of management. |
|
Our director nominees bring a balance
of experience and fresh perspective to our boardroom. The average tenure
of CVS Health directors is under five
years. |
Director Diversity
DIRECTOR NOMINATIONS
Under our Corporate Governance
Guidelines, the Nominating and Corporate Governance Committee recommends to the
Board criteria for Board membership and recommends individuals for membership on
our Board of Directors. Director Qualification Criteria used by the Committee in
nominating directors are found in the Committees charter and are presented on
page 23 of this proxy statement. Although there is no specific policy on diversity, the
Committee values diversity, which it broadly views in terms of, among other
things, gender, race, background and experience, as a factor in selecting
members to serve on the Board. In addition, to ensure that it has access to a
broad range of qualified, experienced and diverse candidates, the Nominating and
Corporate Governance Committee uses the services of an independent search firm
to help identify and assist in the evaluation of candidates.
The Nominating and Corporate Governance
Committee will consider any director candidates recommended by stockholders who
submit a written request to our Corporate Secretary. All candidates should meet
the Director Qualification Criteria. The Committee evaluates all director
candidates and nominees in the same manner regardless of the source. If a
stockholder would like to nominate a person for election or re-election to the
Board, he or she must provide notice to the Company as provided in our bylaws.
Such notice must be addressed to the Corporate Secretary and must arrive at CVS
Health in a timely manner, between 90 and 120 days prior to the anniversary of
our last annual meeting of stockholders. The notice must include (1) the name
and address, as they appear in our books, of the stockholder giving the notice,
(2) the class and number of our shares
that are beneficially owned by the
stockholder (including information concerning derivative ownership and other arrangements concerning our stock as described in our
by-laws), (3) a written consent indicating that the candidate is willing to be
named in the proxy statement as a nominee and to serve as a director if elected,
and (4) any other information that the U.S. Securities and Exchange Commission
(SEC) would require to be included in a proxy statement when a stockholder
submits a proposal. See Other Matters Stockholder Proposals and Other
Business for our Annual Meeting in 2016 for additional information related to
our 2016 Annual Meeting.
In accordance with our by-laws, each
nominee who is a current director has submitted an irrevocable resignation,
which resignation becomes effective upon (1) that person not receiving a
majority of the votes cast in an uncontested election, and (2) acceptance by the
Board of that resignation in accordance with the policies and procedures adopted
by the Board for that purpose. The Board, acting on the recommendation of the
Nominating and Corporate Governance Committee, will no later than at its first
regularly scheduled meeting following certification of the stockholder vote,
determine whether to accept the resignation of the unsuccessful incumbent.
Absent a determination by the Board that a compelling reason exists for
concluding that it is in the best interests of the Company for an unsuccessful
incumbent to remain as a director, the Board will accept that persons
resignation.
The retirement age for CVS Health
directors is 72. Our Corporate Governance Guidelines provide that no director
who is or would be over the age of 72 at the expiration of his or her current
term may be nominated to a new term, unless the Board waives the retirement age
for a specific director in exceptional circumstances.
www.cvshealthannualmeeting.com 19
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
INDEPENDENCE DETERMINATIONS FOR DIRECTORS
Under our Corporate Governance
Guidelines, a substantial majority of our Board must be comprised of directors
who meet the director independence requirements set forth in the Corporate
Governance Rules of the NYSE applicable to listed companies. Under the NYSE
Corporate Governance Rules, no director qualifies as independent unless the
Board affirmatively determines that the director has no material
relationship with the Company (either directly or as a partner, stockholder or
officer of an organization that has a relationship with the Company). The Board
has adopted categorical standards to assist it in making determinations of
independence.
CVS Healths
Categorical Standards to Assist in Independence
Determinations |
Our Board has
adopted the following categorical standards to assist in making director
independence determinations. Any relationship or set of facts that falls within
the following standards or relationships will not, in itself, preclude a
determination of independence:
(1) |
Charitable donations or
pledges. |
Charitable donations made to a
tax-exempt organization of which a director (or a member of his or her
immediate family) is an executive officer or otherwise made at the behest
of the director where the amounts donated for any calendar year do not
exceed the greater of $120,000 or 2% of the consolidated gross revenues of
the organization. |
(2) |
Commercial banking or investment banking
relationships. |
A situation in which a director
or an immediate family member of a director is an employee of a commercial
or investment bank that has relationships or dealings with or provides
services to CVS Health that do not cross the bright-line tests referred to
in paragraph (4) below. |
(3) |
Ordinary course commercial relationships. |
A situation in which a director
(or a member of his or her immediate family) is a director, officer,
employee or significant stockholder of an entity with which CVS Health has
ordinary course business dealings that do not cross the bright-line tests
referred to in paragraph (4) below and where the director (or immediate
family member) is not directly responsible for or involved in the entitys
business dealings with CVS Health. |
(4) |
NYSE Listed-Company Bright-Line
Tests. |
Any relationship or set of facts
that falls within the standards permitted by the bright-line tests set
forth in Section 303A.02(b)(i)-(v) of the NYSEs Listed Company Manual,
which are summarized below. |
NYSE Bright-Line
Tests For Director Independence |
The following
summarizes the standards set forth in Section 303A.02(b)(i)-(v) of the NYSEs
Listed Company Manual (excluding, for sake of brevity, the related Commentary):
(1) |
Employees, or family members
who are employees |
A director who is an employee, or
whose immediate family member is an executive officer, of the company is
not independent until three years after the end of such employment
relationship. |
(2) |
Compensated professional services |
A director who receives, or whose
immediate family member receives, more than $120,000 in any 12-month
period in direct compensation from the listed company, other than director
and committee fees and pension or other forms of deferred compensation for
prior service (provided such compensation is not contingent in any way on
continued service), is not independent until three years after he or she
ceases to receive more than $120,000 in such compensation in any 12-month
period. |
(3) |
Audit relationships |
A director who is, or whose
immediate family member is, a current partner of a firm that is the
companys internal or external auditor, or a director who is a current
employee of such a firm, or if a directors immediate family member is a
current employee of such firm and participates in the firms audit,
assurance or tax compliance practice, or a director who was, or whose
immediate family member was, within the last three years (but is no
longer) a partner or employee of such firm and personally worked on the
listed companys audit within that time. |
(4) |
Executive officer compensation committee
relationships |
A director who is, or whose
immediate family member is, or in the last three years has been, employed
as an executive officer of another company where any of the listed
companys executives at the same time serve or served on that companys
compensation committee. |
(5) |
Significant commercial
relationships |
A director who is an executive
officer or an employee, or whose immediate family member is an executive
officer, of a company that makes payments to, or receives payments from,
the listed company for property or services in an amount which, in any
single fiscal year, exceeds the greater of $1 million, or 2% of such other
companys consolidated gross revenues, is not independent until three
years after falling below such
threshold. |
20 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
The Nominating and Corporate Governance
Committee of the Board undertook its annual review of director independence in
March 2015 and recommended that the Board determine that each of Richard M.
Bracken, C. David Brown II, Alecia A. DeCoudreaux, Nancy-Ann M. DeParle, David
W. Dorman, Anne M. Finucane, Jean-Pierre Millon, Richard J. Swift, William C.
Weldon and Tony L. White, is independent. Mr. Merlo is not an independent
director because of his employment as President and CEO of the Company.
In the course of its review as to the
independence of each director, the Committee considered transactions and
relationships, if any, between each director or any member of his or her
immediate family, on the one hand, and CVS Health and its subsidiaries, on the
other. In that regard, as to Mr. Brackens independence, the Committee, in making its recommendation, and the Board, in making its
determination, considered that Mr. Bracken is the former Chairman and CEO of an
entity with which the Company has ordinary course, arms length business
dealings, and that Mr. Bracken was not involved in the entitys dealings with
the Company. The Committee and Board also considered that Mr. Weldons son is a
former executive officer of an entity with which CVS Health has ordinary course,
arms-length business dealings, and that neither Mr. Weldon nor his son was
involved in the entitys business dealings with the Company. See Certain
Transactions with Directors and Officers, below. After considering all relevant
facts and circumstances, the Committee recommended, and the Board determined,
that each of Mr. Bracken and Mr. Weldon is independent.
COMMITTEES OF THE BOARD
The Board has established four standing
committees. The table below provides membership and meeting information for each
of the committees during 2014. Mr. Bracken and Ms. DeCoudreaux joined our Board
in 2015.
Name |
|
Audit Committee |
|
Management Planning
& Development Committee |
|
Nominating &
Corporate Governance Committee |
|
Executive Committee |
C.
David Brown II |
|
|
|
● |
|
● |
|
● |
Nancy-Ann M.
DeParle |
|
● |
|
|
|
|
|
|
David W. Dorman |
|
|
|
● |
|
● |
|
● |
Anne M. Finucane |
|
|
|
|
|
● |
|
|
Larry J. Merlo |
|
|
|
|
|
|
|
● |
Jean-Pierre
Millon |
|
● |
|
|
|
|
|
|
Richard J. Swift |
|
● |
|
|
|
|
|
● |
William C.
Weldon |
|
|
|
● |
|
● |
|
|
Tony L. White |
|
● |
|
● |
|
|
|
|
2014 Meetings |
|
8 |
|
5 |
|
5 |
|
1 |
● |
Committee Chair |
|
Audit Committee Financial
Expert |
www.cvshealthannualmeeting.com 21
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
AUDIT
COMMITTEE |
Committee Members in 2014 (all independent)
Nancy-Ann M. DeParle Jean-Pierre Millon* Richard J. Swift
(Chair)* Tony L. White*
Meetings in
2014:
8
|
|
Each
member of the Audit Committee is financially literate and independent of
the Company and management under the standards set forth in applicable SEC
rules and the Corporate Governance Rules of the NYSE. The Board has
designated each of Messrs. Swift, Millon and White as an audit committee
financial expert, as defined under applicable SEC rules. The Board has
approved a charter for the Committee, which can be viewed on our website
at http://investors.cvshealth.com and also is available to stockholders
without charge upon request to our Corporate Secretary.
Mr.
Richard Bracken, who is also financially literate and independent, joined
the Committee in March 2015.
Primary
Responsibilities Pursuant to its charter, the Committee assists the
Board in its oversight of:
●the integrity of our financial statements;
●the qualifications, independence and performance of our
independent registered public accounting firm, for whose appointment the
Committee bears principal responsibility;
●the performance of our internal audit
function;
●our policies and practices with respect to risk
assessment and risk management, including discussing with management the
Companys major financial risk exposures and the steps that have been
taken to monitor and control such exposures;
●compliance with our Code of Conduct;
●the review of our information governance framework,
including its privacy and information security programs, as well as the
cybersecurity aspects of the information security program;
●the review of our business continuity and disaster
recovery program;
●the review of our environmental, health and safety
program;
●review and ratification of any related person
transactions in accordance with our policy on such matters;
and
●our compliance with legal and regulatory requirements,
including Federal health care program requirements. |
* |
Audit
Committee Financial Expert |
|
Audit Committee
Activities in 2014
The Audit Committee met eight
times in 2014, and each member of the Committee attended all of its meetings.
Four of the Committees meetings were focused primarily on our quarterly
financial reports, including our Form 10-K, Form 10-Qs and our related earnings
releases. At each of these meetings the Committee reviews the documents in depth
and also receives reports from our internal audit department and our independent
outside audit firm, Ernst & Young LLP. The Committee regularly meets with
Ernst & Young outside the presence of management, and also meets
individually with members of management. In addition to its responsibilities
related to our financial statements, the Committee plays a primary role in risk
oversight, including reviews of our enterprise risk management program,
cybersecurity efforts, business continuity and disaster recovery program,
privacy programs, and environmental, health and safety program. The Committee
also reviews our legal and regulatory compliance program on a quarterly basis,
and in 2014 it assumed responsibility for oversight of the Companys compliance
with its Corporate Integrity Agreement.
Audit Committee
Report
During 2014, the Audit Committee
of the Board of Directors was composed of four independent directors. Set forth
below is the report of the Committee on its activities with respect to CVS
Healths audited financial statements for the fiscal year ended December 31,
2014 (the audited financial statements).
● |
The Committee has reviewed and discussed the
audited financial statements with management; |
● |
The Committee has discussed with Ernst &
Young LLP (Ernst & Young), CVS Healths independent registered
public accounting firm, the matters required to be discussed under
applicable auditing standards; |
● |
The Committee has received the written
disclosures and the letter from Ernst & Young pursuant to applicable
requirements of the Public Company Accounting Oversight Board regarding
Ernst & Youngs communications with the Committee concerning
independence, and has discussed with Ernst & Young its independence
from the Company; and |
● |
Based on the review and discussions referred to
above and relying thereon, the Committee recommended to the Board of
Directors that the audited financial statements be included in CVS
Healths Annual Report on Form 10-K for the fiscal year ended December 31,
2014, for filing with the SEC. |
|
|
|
|
Richard J. Swift,
Chair |
Tony L. White |
Nancy-Ann M. DeParle |
Jean-Pierre
Millon |
22 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
NOMINATING AND CORPORATE
GOVERNANCE COMMITTEE |
Committee Members in 2014 (all independent)
C. David
Brown II David W. Dorman (Chair) Anne M. Finucane William C.
Weldon
Meetings in
2014: 5
|
|
Each
member of the Nominating and Corporate Governance Committee is independent
of the Company and management under the standards set forth in the
Corporate Governance Rules of the NYSE.
The
Board has approved a charter for the Committee, which can be viewed on our
website at http://investors.cvshealth.com and also is available to
stockholders without charge upon request to our Corporate
Secretary.
Primary
Responsibilities Pursuant to its charter, the Committee has
responsibility for:
●identifying individuals qualified to become Board
members consistent with criteria approved by the Board;
●recommending to the Board director nominees for election
at the next annual or special meeting of stockholders at which directors
are to be elected or to fill any vacancies or newly-created directorships
that may occur between such meetings;
●recommending directors for appointment to Board
Committees;
●making recommendations to the Board as to determinations
of director independence;
●evaluating Board and Committee performance;
●considering matters of corporate governance and
reviewing, at least annually, our Corporate Governance Guidelines and
overseeing compliance with such Guidelines; and
●reviewing and considering our policies and practices on
issues relating to corporate social responsibility, charitable
contributions, political spending practices and other significant public
policy issues. |
Nominating and
Corporate Governance Committee Activities in 2014
The Nominating and Corporate
Governance Committee met five times in 2014, and each member of the Committee
attended all of its meetings. The Committee spent a considerable amount of its
time evaluating potential candidates for future election to the Board, following
the retirement of three Board members in 2013. These efforts eventually led to
the nomination of Mr. Bracken in January 2015 and Ms. DeCoudreaux in March 2015.
In addition, the Committee reviewed the Companys political activities and
expenditures in depth during two of its meetings, and reviewed the Companys new
corporate social responsibility roadmap, Prescription for a Better World. The
Committee also revised its evaluation process for the Board and its Committees
in 2014, replacing a series of questionnaires with an in-depth interview of each
director. The Committee received updates regarding legal and regulatory
developments related to corporate governance, as well as updates on proxy season
and stockholder communications.
Director
Qualification Criteria
In recognition of the fact that
the selection of qualified directors is complex and crucial to our long-term
success, the Committee has established the following guidelines for the
identification and evaluation of candidates for membership on our Board of
Directors.
Candidates should be distinguished
individuals who are prominent in their fields or otherwise possess exemplary
qualities that will enable them to effectively function as directors. While the
Committee does not believe it appropriate at this time to establish any specific
minimum qualifications for candidates, it focuses on the following qualities in
identifying and evaluating candidates for Board membership:
● |
Background, experience and
skills |
● |
Character, reputation and
personal integrity |
● |
Judgment |
● |
Independence |
● |
Diversity |
● |
Commitment to the Company
and service on the Board |
● |
Any other factors that the
Committee may determine to be relevant and appropriate
|
Recognizing that the overall
composition of the Board is essential to its effective functioning, the
Committee makes these determinations in the context of the existing composition
of the Board so as to achieve an appropriate mix of characteristics. In making
its determinations, the Committee takes into account all applicable legal,
regulatory and stock exchange requirements concerning the composition of the
Board and its committees. The Committee reviews these guidelines from time to
time as appropriate (and in any event at least annually) and modifies them as it
deems appropriate.
www.cvshealthannualmeeting.com 23
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
MANAGEMENT PLANNING AND DEVELOPMENT
COMMITTEE |
Committee Members in 2014 (all independent)
C. David
Brown II (Chair) David W. Dorman William C. Weldon Tony L.
White
Meetings in
2014: 5
|
|
Each
member of the Management Planning and Development Committee is independent
of the Company and management under the standards set forth in applicable
SEC rules and the Corporate Governance Rules of the NYSE. No Committee
member participates in any of our employee compensation programs and none
is a current or former officer or employee of CVS Health or its
subsidiaries. At its meetings, non-members, such as the CEO, the CFO, the
Chief Human Resources Officer, the General Counsel, other senior human
resources and legal officers, or external consultants, may be invited to
provide information, respond to questions and provide general staff
support. However, no CVS Health executive officer is permitted to be
present during any discussion of his or her compensation or performance,
and the Committee regularly exercises its prerogative to meet in executive
session without management.
The
Committees responsibilities are specified in its charter. The charter, as
approved by the Board, may be viewed on our website at http://investors.cvshealth.com
and also is available to stockholders without charge upon request to our
Corporate Secretary.
Primary
Responsibilities Pursuant to its charter, the Committee:
●oversees our compensation and benefits policies and
programs generally;
●evaluates the performance of designated senior
executives, including the CEO;
●in consultation with our other independent directors,
oversees and sets compensation for the CEO;
●oversees and sets compensation for our designated senior
executives;
●reviews and recommends to the Board compensation
(including cash and equity-based compensation) for our non-employee
directors; and
●prepares and recommends to the full Board the inclusion
of Management Planning and Development Committee Report set forth below.
The Committee may delegate its authority relating to employees other than
executive officers and directors as it deems appropriate and may also
delegate its authority relating to ministerial
matters. |
Management
Planning and Development Committee Activities in 2014
The Management Planning and
Development Committee met five times in 2014 and each member of the Committee
attended all of its meetings. In addition to reviewing the risk assessment and
independence of its advisor as described below, the Committee devoted
substantial time to its oversight of the Companys compensation and benefit
programs. The Committee received updates on compensation trends and legislative
and regulatory updates. The Committee also reviewed the Companys compensation
programs, retirement, health and welfare plans. In addition, the Committee
devoted considerable time to CVS Healths stockholder outreach efforts and the
feedback received from investors. The Committees review of executive
compensation matters and its decisions, including changes made in response to
input from our stockholders, is discussed in the Compensation Discussion and
Analysis beginning on page 37 of this proxy statement.
Compensation Risk
Assessment
The Committee is responsible for
reviewing and assessing potential risk arising from the Companys compensation
policies and practices. In 2014, the Company performed a risk assessment of its
compensation policies and practices to ascertain any potential material risks
that may be created by the programs. The Committee considered the findings of
the assessment and concluded that the Companys compensation programs are
aligned with the interests of its stockholders, appropriately reward pay for
performance, and do not promote excessive risk-taking.
Independent
Consultant
Exequity LLP is the Committees
independent compensation consultant. Exequity provides no other services to the
Company. Exequitys fees for executive compensation consulting to the Committee
for 2014 were $245,252. During 2014, Exequity:
● |
Collected,
organized and presented quantitative competitive market data for a
relevant competitive peer group with respect to executive officers
target, annual and long-term compensation levels; |
|
|
● |
Developed and
delivered an annual Committee briefing on legislative and regulatory
developments and trends in executive compensation and their implications
for CVS Health; and |
|
|
● |
Analyzed market
data and provided recommendations for non-employee director compensation
to the Committee for approval by the Board. |
24 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
The Committee believes that the
advice it receives from Exequity is objective and not influenced by any other
business relationship. The Committee and Exequity have policies and procedures
in place to preserve the objectivity and
integrity of the executive compensation consulting advice, including:
● |
The Committee has
the sole authority to retain and terminate the executive compensation
consultant; |
● |
The consultant
reports to the Committee Chair and has direct access to the Committee
without management involvement; |
● |
While it is
necessary for the consultant to interact with management to gather
information, the Committee determines if and how the consultants advice
can be shared with management; and |
● |
The Committee
regularly meets with the consultant in executive session, without
management present, to discuss recommendations. |
The Committee conducts an annual
review of the independence of its compensation consultant, taking into account
the standards above, the items required to be considered under the NYSE listing
standards and applicable rules and regulations. The Committee determined that
its compensation consultant is independent and that its consultants work does
not raise any conflicts.
Management
Planning and Development Committee Report
The Management Planning and
Development Committee has reviewed and discussed the Compensation Discussion and
Analysis, which begins on page 37
of this proxy statement, with management
and based on that review and discussion, the Committee recommended to the Board
of Directors that the Compensation Discussion and Analysis be included in our
annual report on Form 10-K and this proxy statement.
|
|
|
|
C. David Brown II,
Chair |
David W. Dorman |
William C. Weldon |
Tony L.
White |
EXECUTIVE COMMITTEE |
Committee Members in 2014
C. David
Brown II David W. Dorman Larry J. Merlo Richard J.
Swift
Meetings in
2014: 1
|
|
At
all times when the Board is not in session, the Executive Committee may
exercise most of the powers of the Board, as permitted by applicable
law.
The
Executive Committee met once during 2014, and took no action at that
meeting. |
www.cvshealthannualmeeting.com 25
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
NON-EMPLOYEE DIRECTOR COMPENSATION
CVS Healths approach to compensating
non-employee directors for Board service is to provide directors with an annual
retainer comprised of a mandatory 75% paid in shares of our common stock and 25%
paid in cash (or 100% stock at the directors election). The payment of a
significant portion of the annual retainer, and additional retainers as outlined
below, in our common stock is consistent with our policy of using equity
compensation to better align directors interests with stockholders. This also
enhances the directors ability to meet and continue to comply with the stock
ownership guidelines described below.
For the 2014-2015 Board year, the total
annual retainer for non-employee directors was $280,000, consisting of shares of
our stock valued at $210,000 (the mandatory annual stock retainer) and a cash
payment of $70,000 (unless the director elected to receive 100% of the annual
retainer in shares of our stock). The annual retainer was paid in two equal
installments, in May and November of 2014. Directors may elect to defer receipt
of shares; deferred shares are credited with dividend equivalents to the extent
dividends are paid to stockholders. There are no meeting fees.
Non-Employee Director Retainer
Mix |
For the 2014-2015 Board year,
additional retainers were paid as follows: Chair of the Nominating and Corporate
Governance Committee, $15,000; Chair of the Management Planning and Development
Committee, $20,000; Chair of the Audit Committee, $25,000; and independent
Chairman of the Board, $275,000. Each of these additional retainers was paid in
two equal installments, in May and November of 2014. At least 75% of each
additional retainer must be paid in shares of our common stock, with the
remaining 25% paid in either shares or cash at the directors election. As with
the annual retainer, directors may elect to defer receipt of shares for
additional retainers; any deferred shares are credited with dividend equivalents
to the extent dividends are paid to stockholders.
Ad hoc committees of the Board may be
established from time to time to work on special projects and members may
receive additional compensation for these services, as approved by the Board. In
2014, one such committee was established and the compensation paid in respect of
service on that committee is disclosed on the Non-Employee Director Compensation
Table below. No additional compensation is paid for service on the Executive
Committee.
All Other Compensation and
Benefits |
Directors are eligible to participate
in the employee discount program and are subject to the same terms of the
program as our employees. Directors are generally reimbursed for business
expenses incurred directly in connection with their roles and duties on the
Board, such as services provided by an executive assistant, travel, meals and
lodging. We allow all directors to enroll themselves and their eligible dependents in our prescription drug benefit
program, paying the same premium rates as employees. If a director retires from
the Board with at least five years of service, we will allow continued
participation in the prescription drug benefit plan for life, but the director
must bear the full cost of the premium.
26 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
The following chart shows amounts paid
to each of our non-employee directors in 2014.
Non-Employee Director
Compensation 2014
Name |
|
Fees Earned and Paid in Cash(1) ($) |
|
Cash Fees Elected to be Paid in
Stock(2) ($) |
|
Stock Awards(2) ($) |
|
All
Other Compensation(3) ($) |
|
Total ($) |
C. David Brown
II |
|
0 |
|
75,000 |
|
225,000 |
|
1,866 |
|
301,866 |
Nancy-Ann M. DeParle |
|
54,536 |
|
61,249 |
|
183,746 |
|
|
|
299,531 |
David W. Dorman |
|
82 |
|
142,418 |
|
427,500 |
|
|
|
570,000 |
Anne M. Finucane |
|
70,000 |
|
|
|
210,000 |
|
2,666 |
|
282,666 |
Jean-Pierre
Millon |
|
70,010 |
|
|
|
209,990 |
|
1,866 |
|
281,866 |
Richard J. Swift |
|
76,250 |
|
|
|
228,750 |
|
1,866 |
|
306,866 |
William C.
Weldon |
|
20,000 |
|
70,000 |
|
210,000 |
|
|
|
300,000 |
Tony L. White |
|
70,010 |
|
|
|
209,990 |
|
|
|
280,000 |
(1) |
The amounts shown include cash payments made in lieu of fractional
shares to Mmes. DeParle and Finucane and Messrs. Dorman, Millon, Weldon
and White. The amounts shown also include per diem cash payments made to
Ms. DeParle and Mr. Weldon in connection with their service on an ad hoc
committee of the Board of $19,531 and $20,000, respectively. |
(2) |
These awards are fully vested at grant and the amounts shown
represent both the fair market value and the full fair value at grant.
During 2014, each director received 2,584 shares of stock with a total
value of approximately $210,000 (the mandatory annual stock retainer) on
the date of grant; each director electing to receive the remaining annual
retainer in stock also received 861 shares valued at $70,000 on the date
of grant. Two directors also elected to receive their additional chair retainers in
stock in lieu of cash. As of December 31, 2014, our directors had deferred
receipt of shares of common stock as follows: Mr. Brown, 40,256
shares; Ms. DeParle, 2,762 shares; Mr. Dorman, 15,623 shares; Ms.
Finucane, 2,594 shares; Mr. Swift, 47,865 shares; and Mr. Weldon, 6,741
shares. |
(3) |
Represents Company costs for
director prescription benefits. |
CODE
OF CONDUCT
CVS Health has adopted a Code of
Conduct that applies to all of our directors, officers and employees, including
our CEO, CFO and Chief Accounting Officer. Our Code of Conduct is available on
our website at http://investors.cvshealth.com and will be provided to
stockholders without charge upon request to our Corporate Secretary. We intend to post amendments to or waivers from our
Code of Conduct (to the extent applicable to our executive officers or
directors) at that location on our website within the timeframe required by SEC
rules.
CERTAIN TRANSACTIONS WITH DIRECTORS AND OFFICERS
In accordance with SEC rules, the Board
has adopted a written Related Person Transaction Policy (the Policy). The
Audit Committee of the Board has been designated as the Committee responsible
for reviewing, approving or ratifying any related person transactions under the
Policy. The Committee reviews the Policy on an annual basis and will amend the
Policy as it deems appropriate.
Pursuant to the Policy, all executive
officers, directors and director nominees are required to notify our General
Counsel or Corporate Secretary of any financial transaction, arrangement or
relationship, or series of similar transactions, arrangements or relationships,
involving the Company in which an executive officer, director, director nominee,
five percent beneficial owner or any immediate family member of such a person
has a direct or indirect material interest. Such officers, directors, nominees,
five percent beneficial owners and their immediate family members are considered
related persons under the Policy. For the above purposes, immediate family
member includes a persons spouse, parents, siblings, children, in-laws,
step-relatives and any other person sharing the household (other than a tenant
or household employee).
The General Counsel or the Corporate
Secretary presents any reported new related person transactions, and significant
proposed transactions involving related persons that might be deemed to be
related person transactions, to the Audit Committee at its next regular meeting,
or earlier if appropriate. The Committee reviews these transactions to determine
whether the related person involved has a direct or indirect material interest
in the transaction. The Committee may conclude, upon review of all relevant
information, that the transaction does not constitute a related person
transaction, and thus that no further review is required under the Policy. On an
annual basis, the Committee reviews previously approved related person
transactions, under the standards described below, to determine whether such
transactions should continue.
In reviewing a related person
transaction or proposed transaction, the Committee considers all relevant facts
and circumstances, including without limitation the commercial reasonableness of
the terms, the benefit and perceived benefit, or lack thereof, to the Company,
the availability and/or opportunity costs of alternate transactions, the
materiality and character of the related persons
www.cvshealthannualmeeting.com 27
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
direct or indirect interest, and the
actual or apparent conflict of interest of the related person. The Committee
does not approve or ratify a related person transaction unless it has determined
that, upon consideration of all relevant information, the transaction is in, or
not inconsistent with, the best interests of the Company and its
stockholders.
If after the review described above,
the Committee determines not to approve or ratify a related person transaction
(whether such transaction is being reviewed for the first time or has previously
been approved and is being re-reviewed), the transaction will not be entered
into or continued, as the Committee shall direct.
William C. Weldon is a member of our
Board. Mr. Weldons son, Ryan H. Weldon, was formerly an Executive Vice
President and Company Group Chairman at Valeant Pharmaceuticals International,
Inc. (Valeant). Valeant is a multinational specialty pharmaceutical company
that develops, manufactures and markets a broad range of pharmaceutical products
and medical devices, including both branded and generic drugs. CVS Health
purchases Valeants branded products through its wholesalers, but receives
certain rebates for prescription drug dispenses directly from Valeant. Such
rebates are usual and customary in the industry and are based on arms length
negotiations; a substantial majority of such rebates are passed on to various
clients of CVS Healths prescription benefit management business. In addition,
CVS Health purchases certain generic pharmaceuticals directly from Valeant
and/or its wholly owned subsidiaries. Neither William Weldon nor his son was
involved in the negotiation of the terms of any purchases, sales, contracts or
business arrangements between the two companies. Moreover, the business unit of
Valeant that Ryan Weldon formerly headed, aesthetics, did not do business with
CVS Health at all. The dollar amount of rebates paid to CVS Health and direct purchases of Valeants generic
pharmaceuticals by CVS Health in 2014 were approximately $244 million and $64
million, respectively. Ryan Weldon left Valeant in June 2014, shortly after
Valeant divested much of its aesthetics business line to a subsidiary of Nestlé,
S.A.
Richard M. Bracken is a member of our
Board and the retired Chairman and Chief Executive Officer of HCA Holdings, Inc.
(HCA). Since 2007, CVS/caremark, the Companys pharmacy benefit management
(PBM) service provider, has had a Master Coalition Agreement with Healthtrust
Purchasing Group, L.P. (HealthTrust), a group purchasing organization. The
general partner of HealthTrust is a subsidiary of HCA, and HCA, through certain
of its subsidiaries, owns approximately 54% of HealthTrust. Under the Master
Coalition Agreement, HealthTrust, on behalf of its coalition members (including
HCA and approximately 65 unaffiliated entities), agreed to certain terms and
conditions for PBM services provided by CVS/caremark, and in 2014 CVS/caremark paid
HealthTrust approximately $13 million under the Master Coalition Agreement. Also
as part of this arrangement, each coalition member has directly entered into a
sub-agreement with CVS/caremark for PBM services. Under the terms of its
sub-agreement, HCA and its employee participants paid CVS/caremark approximately
$305 million in 2014 (including both prescription drug spend, a large portion of
which is passed through to various members of our retail pharmacy network, and
administrative service fees). Mr. Bracken was not directly involved in the
negotiation or administration of either HealthTrusts Master Coalition Agreement
or HCAs sub-agreement with CVS/caremark.
The Audit Committee has reviewed each
of these transactions and the circumstances under which they occurred and has
determined that the transactions were reasonable and in the best interests of
the Company and its stockholders.
28 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
OWNERSHIP OF AND TRADING IN OUR
STOCK |
EXECUTIVE OFFICER AND DIRECTOR STOCK
OWNERSHIP
REQUIREMENTS
CVS Health has long been mindful of the
importance of equity ownership by directors and executive management as an
effective link to stockholders and, as such, the Board maintains stock ownership
guidelines for all directors and officers on our Business Planning Committee
(BPC), and requires that directors and BPC members achieve compliance with the
ownership requirements within five years of becoming a director or BPC member.
Our named executive officers, who appear in the Summary Compensation Table on
page 54, must maintain ownership levels as set forth in the table below. Shares
included in the calculation to assess compliance
with the guidelines include shares owned outright, unvested restricted stock
units, shares held in the Deferred Stock Compensation Plan and shares purchased
through the Employee Stock Purchase Plan. Unexercised stock options do not count
toward satisfying the guidelines. The Board believes that these requirements
emphasize the importance of equity ownership for the Board and executive
management, which in turn reinforces alignment with stockholder interests. To
further reinforce this commitment, the Board annually reviews the policy and
compliance by directors and executives.
Executive Name |
|
Multiple of Salary Required |
|
Multiple of Salary Held as of March 12, 2015 |
|
In Compliance |
Larry J. Merlo |
|
5x |
|
99x |
|
Yes |
David M. Denton |
|
3x |
|
36x |
|
Yes |
Helena B.
Foulkes |
|
3x |
|
12x |
|
Yes |
Jonathan C. Roberts |
|
3x |
|
22x |
|
Yes |
Thomas M. Moriarty |
|
3x |
|
6x |
|
Yes |
All non-employee directors must own a
minimum of 10,000 shares of CVS Health common stock, which is worth
approximately $1 million based on the March 12, 2015 stock price of $102.96, or
nearly 15 times the amount of the annual cash retainer ($70,000). Directors must
attain this minimum ownership level within five years of being elected to the
Board and must retain this minimum ownership level for at least six months after
leaving the Board. The current level of stock pay in the
directors mix of annual compensation is intended to facilitate the directors
ability to meet the ownership level within the timeframe. Each of our directors
has timely attained the minimum ownership level. Mmes. DeCoudreaux and DeParle
and Messrs. Bracken and Weldon, each of whom has five years from the date of her
or his election to the Board to attain the ownership requirement, are on track
to meet this requirement.
www.cvshealthannualmeeting.com 29
Table of Contents
OWNERSHIP OF AND TRADING IN OUR
STOCK
SHARE
OWNERSHIP OF DIRECTORS AND CERTAIN EXECUTIVE
OFFICERS
The following table shows the share
ownership, as of March 12, 2015, of each director, each executive officer
appearing in the Summary Compensation Table found on page 54 and all directors and
executive officers as a group, based on information provided by these
individuals. Each individual beneficially owns less than 1% of our common stock and, except as described in the footnotes
to the table, each person has sole investment and voting power over the shares.
None of the shares listed below has been pledged as collateral.
|
|
Ownership of Common Stock
(1) |
Name |
|
Number |
|
Percent |
Richard M.
Bracken |
|
703 |
|
|
* |
C. David Brown II |
|
181,650 |
(1) |
|
* |
Alecia A.
DeCoudreaux |
|
451 |
(1) |
|
* |
David M. Denton |
|
656,491 |
(2)(3)(4) |
|
* |
Nancy-Ann M.
DeParle |
|
5,389 |
(1) |
|
* |
David W. Dorman |
|
76,417 |
(1) |
|
* |
Anne M. Finucane |
|
17,107 |
(1)(5) |
|
* |
Helena B. Foulkes |
|
170,614 |
(2)(3)(4)(6) |
|
* |
Larry J. Merlo |
|
2,276,302 |
(2)(3)(4)(6)(7) |
|
* |
Jean-Pierre Millon |
|
81,316 |
(8) |
|
* |
Thomas M.
Moriarty |
|
84,054 |
(2)(3) |
|
* |
Jonathan C. Roberts |
|
455,841 |
(2)(3)(4)(6)(7) |
|
* |
Richard J. Swift |
|
52,443 |
(1) |
|
* |
William C. Weldon |
|
8,355 |
(1) |
|
* |
Tony L. White |
|
17,309 |
(9) |
|
* |
All
directors and executive officers as a group (22 persons) |
|
5,335,217 |
|
|
0.47% |
* |
Less than 1%. |
(1) |
Includes the following shares of common stock constituting deferred
non-employee director compensation, which do not have current voting
rights: Mr. Brown, 40,398; Ms. DeCoudreaux, 451; Ms. DeParle, 2,772; Mr.
Dorman, 15,678; Ms. Finucane, 2,603; Mr. Swift, 48,034; Mr. Weldon 6,764;
and all non-employee directors as a group, 116,700. |
(2) |
Includes the following shares of common stock not currently owned,
but subject to options which were outstanding on March 12, 2015 and were
exercisable within 60 days thereafter: Mr. Denton, 368,226; Ms. Foulkes,
69,126; Mr. Merlo, 977,756; Mr. Moriarty, 40,321; Mr. Roberts, 257,948;
and all executive officers as a group, 2,127,290. |
(3) |
Includes the following shares of common stock granted under our
1997 Incentive Compensation Plan and/or 2010 Incentive Compensation Plan
(together, the ICPs) that remain subject to certain restrictions
regarding employment and transfer as provided in the ICPs: Mr. Denton,
181,662; Ms. Foulkes, 43,638; Mr. Merlo, 263,284; Mr. Moriarty, 27,954;
Mr. Roberts, 72,742; and all executive officers as a group,
783,012. |
(4) |
Includes shares of common stock held by the Trustee of our Employee
Stock Ownership Plan that are allocated to the executive officers as
follows: Mr. Denton, 1,634; Ms. Foulkes 3,940; Mr. Merlo, 6,429; Mr.
Roberts, 5,149; and all executive officers as a group,
17,710. |
(5) |
Includes 14,504 shares held in a family trust. |
(6) |
Includes the following shares of common stock that were receivable
upon the lapse of restrictions on restricted stock units or the exercise
of options, but the actual receipt of which was deferred pursuant to our
Deferred Stock Compensation Plan, and which do not have current voting
rights: Ms. Foulkes, 26,134; Mr. Merlo, 535,585; Mr. Moriarty, 6,768; Mr.
Roberts, 71,552; and all executive officers as a group,
904,758. |
(7) |
Includes the following hypothetical shares of common stock held in
notional accounts in our unfunded Deferred Compensation Plan, which do not
have current voting rights: Mr. Merlo, 5,133; Mr. Roberts, 1,417 and all
executive officers as a group, 7,017. |
(8) |
Includes 81,316 shares held in a family trust. |
(9) |
Includes 7 shares held by Mr.
Whites wife. |
30 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
OWNERSHIP OF AND TRADING IN OUR
STOCK
SHARE
OWNERSHIP OF PRINCIPAL STOCKHOLDERS
We have been notified by the entities
in the following table that each is the beneficial owner (as defined by the
rules of the SEC) of more than five percent of our common stock. According to
the most recent Schedule 13G filed by the beneficial owner with the SEC, these
shares were acquired in the ordinary course of business and were not acquired
for the purpose of, and do not have the effect of, changing or influencing
control over us.
Title of Class |
|
Name and Address of Beneficial Owner |
|
No. of Shares Beneficially Owned
(1)(2)(3) |
|
Percent of Class Owned
(1)(2)(3) |
Common Stock |
|
BlackRock, Inc. (1) 55 East 52nd
Street New York, NY 10022 |
|
66,879,743 |
|
5.8% |
Common Stock |
|
FMR LLC (2) 245
Summer Street Boston, MA 02210 |
|
59,503,472 |
|
5.2% |
Common Stock |
|
The Vanguard Group, Inc. (3) 100
Vanguard Blvd. Malvern, PA 19355 |
|
68,055,811 |
|
5.9% |
(1) |
Information based on a Schedule 13G/A filed February 9, 2015.
BlackRock, Inc. (BlackRock) is the parent holding company of a number of
subsidiaries that hold CVS Health common stock for the benefit of various
investors. BlackRock and/or its subsidiaries have sole voting power with
respect to 53,872,967 of these shares and sole dispositive power with
respect to 66,835,936 of these shares. |
(2) |
Information based on a Schedule 13G/A filed February 13, 2015. FMR
LLC (FMR) is the parent holding company of a number of subsidiaries that
hold CVS Health common stock for the benefit of various investors. FMR
and/or its subsidiaries have sole voting power with respect to 8,581,051
of these shares and sole dispositive power over all of these
shares. |
(3) |
Information based on a Schedule
13G filed February 10, 2015. The Vanguard Group, Inc. (Vanguard)
directly or through its subsidiaries, holds CVS Health common stock for
the benefit of various investors. Vanguard and/or its subsidiaries have
sole voting power with respect to 1,986,554 of these shares, shared
dispositive power with respect to 1,846,981 of these shares and sole
dispositive power with respect to 66,208,830 of these
shares. |
SECURITIES TRADES BY COMPANY PERSONNEL
The Board and executive management of
CVS Health take seriously their responsibilities and obligations to exhibit the
highest standards of behavior relative to selling and trading our stock. All
transactions in our stock contemplated by any director, executive officer or
designated employee who has a significant role in, or access to, our financial
reporting process (collectively Insiders), must be pre-cleared by either the
General Counsel or the Corporate Secretary. Insiders are generally prohibited
from trading in any of our securities except during periods of varying length
beginning shortly after the release of our financial results for each quarter,
and Insiders and other employees may be required to refrain from trading during
other designated periods when significant developments or announcements are
anticipated. In addition, it is our policy that Insiders and other employees may
not engage in any of the following activities with respect to our securities:
● |
Trading in our securities on a short-term basis (stock
purchased in the open market must be held for at least six
months); |
● |
Purchasing stock on margin or pledging our stock or any
stock incentive award as collateral for a loan or margin
account; |
● |
Engaging in short sales or purchases of our
stock; |
● |
Buying or selling puts, calls, exchange traded options or
other derivative securities; or |
● |
Engaging in any other hedging transactions,
which includes transactions designed to offset any decrease in the market
value of equity securities. |
Our most senior executives and Board
members are generally required to transact in our stock pursuant to a 10b5-1
trading plan, and our other executives are encouraged to use trading plans. A
trading plan is a contract that allows the individual to sell a pre-determined
number of shares at a time in the future when conditions in the plan are met.
However, there are extensive guidelines that govern the use of 10b5-1 trading
plans including the timing of entry or modification of a plan, the price at
which shares will be traded, a cooling off period during which no trades can
take place, minimum and maximum terms, restrictions on the number of plans an
individual can maintain, a prohibition on trading outside of the plan, and
pre-approval of plans (and any modification of plans) by the General Counsel or
Corporate Secretary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934 requires our executive officers and directors and any
persons who own more than 10% of our common stock (reporting persons) to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
These reporting persons are required by SEC regulation to furnish us with copies
of all Forms 3, 4 and 5 that they file with the
SEC, though as a practical matter CVS Health assists its directors and executive
officers by monitoring transactions and completing and filing such forms on
their behalf. Based on a review of forms filed with the SEC and written
representations from our reporting persons, CVS Health believes that all forms
were filed in a timely manner during fiscal 2014.
www.cvshealthannualmeeting.com 31
Table of Contents
|
ITEM 2: RATIFICATION OF
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM |
The Audit Committee of the Companys
Board of Directors (the Committee) has appointed Ernst & Young LLP (Ernst
& Young), an independent registered public accounting firm, to audit the
financial statements of the Company for the fiscal year ending December 31, 2015, and recommended to our full Board of
Directors that it approve that appointment. We are submitting the appointment by
the Committee to you for your ratification.
INDEPENDENT ACCOUNTING FIRM INDEPENDENCE AND FEE
APPROVAL
POLICY
The Committee is directly responsible
for the appointment, compensation, retention and oversight of the independent
registered public accounting firm. The Committee has retained Ernst & Young
as CVS Healths external audit firm since September 2007. In order to assure
continuing external auditor independence, the Committee periodically considers
whether there should be a rotation of the audit firm. Further, in conjunction
with the mandated rotation of the external audit firms lead engagement partner,
the Committee and its chair are directly involved in the selection of Ernst
& Youngs new lead engagement partner. Based on its most recent evaluation
of Ernst & Young, the members of the Committee believe that the continued
retention of Ernst & Young to serve as the Companys independent registered
public accounting firm is in the best interests of the Company and its
stockholders.
All audit services, audit-related
services and tax services were pre-approved by the Committee, and the Committee
is ultimately responsible for audit fee negotiations associated with the
retention of Ernst & Young. The Committee has considered whether Ernst &
Youngs provision of services is compatible with maintaining Ernst & Youngs
independence. The Committees audit approval policy provides for pre-approval of audit, audit-related and tax services that
are specifically described on an annual basis to the Committee and, in addition,
individual engagements anticipated to exceed pre-established thresholds must be
separately approved. The policy also requires specific approval by the Committee
if total fees for audit-related and tax services would exceed total fees for
audit services in any fiscal year. The policy authorizes the Committee to
delegate to one or more of its members pre-approval authority with respect to
permitted services, so long as such pre-approvals are reported to the full
Committee at its next scheduled meeting.
Representatives of Ernst & Young
will be at the Annual Meeting to answer your questions and will have the
opportunity to make a statement if they so desire.
If you do not ratify the appointment of
Ernst & Young, the Committee will reconsider its appointment, although in
the event of reconsideration the Committee may determine that Ernst & Young
should continue in its role. Even if you do ratify the appointment, the
Committee retains its discretion to reconsider its appointment if it believes
that reconsideration is necessary in the best interest of the Company and the
stockholders.
FEES
OF INDEPENDENT ACCOUNTING FIRM
The following table summarizes the fees
paid to Ernst & Young for services rendered during fiscal 2014 and 2013.
|
|
Fiscal Year Ended 12/31/14 |
|
Fiscal Year Ended 12/31/13 |
Audit Fees (1) |
|
$8,846,157 |
|
$8,212,994 |
Audit Related Fees (2) |
|
$709,335 |
|
$819,600 |
Tax Fees
(3) |
|
$1,800,550 |
|
$1,419,898 |
All
Other Fees |
|
|
|
|
(1) |
Represents the aggregate fees and
expenses billed for the audit of our consolidated financial statements and
the audit of our internal control over financial reporting for the fiscal
year, the reviews of the condensed consolidated financial statements
included in our Quarterly Reports on Form 10-Q, audits of our insurance
captives, services provided in connection with statutory and regulatory
filings for the fiscal year, and consultations on technical matters. In
2014 and 2013, approximately $0.6 million and $1 million, respectively,
relates to audit fees incurred in connection with the Companys
acquisitions. |
(2) |
Represents the aggregate fees
billed for audit and other services that are typically performed by
auditors, including audits of our employee benefit plans and charitable
foundations, and procedures performed and reports issued in support of
Service Organization Control Reports. |
(3) |
Represents the aggregate fees
billed for tax compliance, consulting and related
services. |
The Board of Directors
unanimously recommends a vote FOR this
proposal. |
32
CVS Health Notice of Annual Meeting of
Stockholders
Table of Contents
|
ITEM 3: PROPOSAL TO APPROVE, ON AN
ADVISORY BASIS, THE COMPANYS EXECUTIVE COMPENSATION AS DISCLOSED IN THIS
PROXY STATEMENT |
BACKGROUND
We are asking our stockholders to
approve, on an advisory basis, the compensation paid to our named executive
officers, as described in the Compensation Discussion and Analysis (CD&A)
and the Executive Compensation section of this proxy statement. Although the
advisory vote is not binding upon the Company, the Management Planning and
Development Committee (the Committee), which is responsible for designing and
administering our executive compensation program, values our stockholders
opinions and will continue to consider the outcome of the vote in its ongoing
evaluation of our executive compensation program.
At CVS Health, our executive
compensation philosophy and practice reflects our unwavering commitment to
paying for performance both short- and long-term. We define performance as the
achievement of results against challenging internal financial targets that take
into account our results relative to that of our peer companies, as well as
industry and market conditions. We believe that our multi-faceted executive
compensation plans, with their integrated focus on short- and long-term metrics,
provide an effective framework by which progress against our strategic goals may
be appropriately measured and rewarded.
OUR
2014 VOTE; STOCKHOLDER OUTREACH
Prior to 2014, we experienced very high
and increasing levels of stockholder support for our executive pay program.
Specifically, in 2011 we received 92.1% support, in 2012 support was 95.4% and
in 2013 it was 96.0%. In 2014, the advisory vote generated the support of 70.6%
of the votes cast. This result did not reflect our high standards or our
expectations. As a result, we undertook a robust stockholder outreach effort to
better understand and address any concerns stockholders might have. During the
fall of 2014, we reached out to 24 of our top stockholders, including 16 of our
top 20 stockholders (representing more than a third of shares outstanding) and
offered to discuss our compensation programs, corporate governance and any other
matters. Eleven stockholders representing approximately 28% of our outstanding
shares agreed to speak with us. We also had discussions with one of the leading
proxy advisory firms, and obtained feedback from our institutional investors by
means of an independent, third-party platform that provided collective data and
comments. Some of the key takeaways from the discussions were:
●Our stockholders generally were
pleased with our business results and the link between performance and the
compensation earned by key executives. To ensure this link was fully recognized,
investors suggested that the Companys proxy statement be revised to ensure key
messages are more easily identified. We have prepared this 2015 proxy statement
to be engaging, informative and, of course, clearly present material
items.
●Our
peer group, specifically the inclusion of multiple telecommunication companies,
was a point of discussion with certain of our stockholders. Since we compete
with large and successful companies for talent and investors, the peer group,
which is assessed annually, was determined by the Committee to be appropriate.
But to recognize the comments provided by stockholders, effective as of January
1, 2015, we have chosen to reduce the number of telecommunication companies
included as part of our peer group and add companies that present a closer
connection to our retail and health care businesses. The revised peer group is
discussed on page 45.
OUR
2014 PERFORMANCE AND PAY ACTIONS
2014 was a very strong performance year
for the Company with record net revenues of $139.4 billion and robust profitable
growth in all of the businesses. We believe that our efforts during the past
three years set the stage for our 2014 results and continued strong performance
in the future. CVS Health performed favorably against our peer group on several
critical measures including net revenues, operating profit and operating income,
along with a total shareholder return of 36.6%. Our positive 2014 results are
reflected in the 2014 Executive Incentive Plan payouts to our named executive
officers; similarly, the positive performance from 2012-2014 to improve Return
on Net Assets are reflected in Long-Term Incentive Plan payouts to our named
executive officers.
The Committee approved the following
changes that became effective in 2014:
●Consistent with our practice, we
amended the policy on stock option grants to explicitly prohibit re-pricing of
stock options; and
●We established predetermined
annual and quarterly grant dates for all equity awards.
www.cvshealthannualmeeting.com 33
Table of Contents
ITEM 3: PROPOSAL TO APPROVE, ON AN
ADVISORY BASIS, THE COMPANYS EXECUTIVE COMPENSATION
CONCLUSION
We urge stockholders to read the
CD&A beginning on page 37 of this proxy statement, which describes in more detail how
our executive compensation policies and procedures operate and are designed to
achieve our compensation objectives, as well as the Summary Compensation Table
and other related compensation tables and narrative, appearing on pages
54 through
64, which provide detailed information on the compensation of our named
executive officers. The Committee and the Board of Directors believe that the
policies and procedures articulated in the CD&A are effective in achieving
our goals and that the compensation of our named executive officers reported in
this proxy statement has contributed to CVS Healths long-term success.
Stockholders are being asked to vote on
the following resolution:
RESOLVED,
that the stockholders approve, on an advisory basis, the compensation of the CVS
Health executive officers named in the Summary Compensation Table, as disclosed
pursuant to the SECs compensation disclosure rules (which disclosure includes
the Compensation Discussion and Analysis, the compensation tables and other
narrative executive compensation disclosures).
The Board of Directors unanimously
recommends a vote FOR this proposal.
34 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
ITEM 4: PROPOSAL TO APPROVE PERFORMANCE
CRITERIA IN THE COMPANYS 2010 INCENTIVE COMPENSATION
PLAN |
BACKGROUND
We are asking stockholders to approve
the performance criteria in our 2010 Incentive Compensation Plan (the 2010
Plan) pursuant to Internal Revenue Code Section 162(m) (IRC 162(m)). Approval
of this proposal will continue to allow CVS Health to make awards under the 2010
Plan that are tax deductible in accordance with the performance-based
compensation exception to IRC 162(m), as described more fully below.
We are not asking stockholders to
approve additional shares under the 2010 Plan or any other changes to terms of
the 2010 Plan.
Our stockholders approved the 2010 Plan
in May 2010, by a vote of over 91% in favor. Except for our 2007 Employee Stock
Purchase Plan, the 2010 Plan is the only compensation plan under which we grant
stock options, restricted stock and other equity-based awards to our employees.
These awards have enabled and will continue to enable us to attract and retain
key employees and enable those employees to acquire and/or increase their
proprietary interest in CVS Health, thereby aligning their interests with the
interests of our stockholders.
INTERNAL REVENUE CODE SECTION 162(m)
IRC 162(m) places a limit of $1,000,000
on the amount that we may deduct in any one taxable year for compensation paid
to each of our covered employees. Our covered employees include our Chief
Executive Officer and our other three most highly-paid executive officers, other
than the Chief Financial Officer. However the limitation on deductibility does
not apply to compensation earned pursuant to certain performance-based awards,
provided certain requirements are met. One of these requirements is that our
stockholders must approve (and in certain cases, re-approve) the material terms
of the performance goals underlying the performance-based award.
IRC 162(m) requires re-approval of
those performance goals after five years if a companys compensation committee
has retained discretion to vary the targets under the performance goals from
year to year. CVS Healths Management Planning and Development Committee has
retained discretion to vary the targets under the performance goals from year to
year. Accordingly, we are seeking re-approval of the performance goals included in the
2010 Plan in order to preserve our ability to deduct compensation earned by
certain executives pursuant to any performance-based award that may be made in
the future under the 2010 Plan.
PERFORMANCE GOALS
The performance goals to be achieved as
a condition of payment or settlement of a performance award or annual incentive
award will consist of (i) one or more business criteria, and (ii) targeted
level(s) of performance with respect to each business criterion. In the case of
performance awards intended to meet the requirements of IRC 162(m), the business
criteria used must be one of those specified in the 2010 Plan, although for
other participants the Committee may specify any other criteria. The business
criteria specified in the 2010 Plan are: (1) earnings per share; (2) revenues;
(3) cash flow; (4) cash flow return on investment; (5) return on net assets,
return on assets, return on investment, return on capital, or return on equity;
(6) economic value added; (7) operating margin; (8) Common Knowledge Retail
Customer Service score or a similar customer
service measurement as measured by a third-party administrator; (9) Pharmacy
Benefit Services Customer Satisfaction score; (10) net income, pretax earnings,
pretax earnings before interest, depreciation and amortization, pretax operating
earnings after interest expense and before incentives, service fees and
extraordinary or special items, or operating earnings; (11) total stockholder
return; or (12) any of the above goals as compared to the performance of a
published or special index deemed applicable by the Management Planning and
Development Committee including, but not limited to, Standard & Poors 500
Stock Index or a group of comparable companies.
www.cvshealthannualmeeting.com 35
Table of Contents
ITEM 4: PROPOSAL TO APPROVE PERFORMANCE
CRITERIA IN THE COMPANYS 2010 INCENTIVE COMPENSATION PLAN
2010
PLAN SUMMARY
The discussion below summarizes the
material terms of the 2010 Plan. The full text of the 2010 Plan is attached to
this Proxy Statement as Exhibit A, and the description below is qualified in its
entirety by reference to the full text of the 2010 Plan.
Types of Awards: Stock options, restricted stock, restricted stock units,
stock appreciation rights, deferred stock, other stock-related awards and
performance or annual incentive awards that may be settled in cash, stock, or
other property (Awards).
Shares Subject to 2010
Plan: A total of 74 million shares,
consisting of authorized and unissued shares. Shares previously awarded may not
be recycled in the event of forfeiture, settlement, surrender or expiration of
an Award.
Annual Per-Person
Limitations: During any fiscal year the
number of shares of stock issued as an Award, as a bonus or in lieu of other
obligations, or other stock-based Awards granted to any one participant may not
exceed three million shares for each type of such Award, subject to adjustment
in certain circumstances, such as stock splits. The maximum cash amount that may
be earned as a final annual incentive award or other annual cash Award in
respect of any fiscal year by any one participant is $10 million, and the
maximum cash amount that may be earned as a final performance award or other
cash Award in respect of a performance period other than an annual period by any
one participant on an annualized basis is $5 million.
Certain Federal Income Tax
Implications of the 2010 Plan: The following
is a brief description of the federal income tax consequences generally arising
with respect to Awards under the 2010 Plan.
The grant of an option will create no
tax consequences for the participant or CVS Health. Upon exercising an option,
the participant must generally recognize ordinary income equal to the difference
between the exercise price and fair market value of the freely transferable and
non-forfeitable shares acquired on the date of exercise. CVS Health generally
will be entitled to a tax deduction equal to the amount recognized as ordinary
income by the participant in connection with an option. Note that the tax
treatment of incentive stock options, or ISOs, is different, but we have not
issued ISOs in recent years.
With respect to Awards granted under
the 2010 Plan that result in the payment or issuance of cash or shares or other
property, the participant must generally recognize ordinary income equal to the
cash or the fair market value of shares or other property received once it is
transferable or is no longer subject to a substantial risk of forfeiture. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. CVS Health is generally entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
The foregoing summary of the federal
income tax consequences in respect of the 2010 Plan is for general information
only. Interested parties should consult their own advisors as to specific tax
consequences, including the application and effect of foreign, state and local
tax laws.
Highlighting Important Policies that Apply to the 2010
Plan |
✓ Performance
Measures Aligned with Stockholder Interests |
✓ Stock Ownership Guidelines |
✓ LTI Plan Share Award Retention |
✓ Broad Anti-Pledging and Hedging
Policies |
x No Option Repricing |
x No Recycling of Shares |
x No Excise Tax
Gross-Ups |
The Board of Directors unanimously
recommends a vote FOR this
proposal.
36 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
EXECUTIVE COMPENSATION AND RELATED
MATTERS |
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
Our
Performance |
For CVS Health, 2014 was a very good
year. Here are some highlights: |
Financial
highlights
●Generated record revenues and healthy profit growth across the
enterprise.
●Year-over-year, our pharmacy services segment revenues were up 16.1%
and our retail pharmacy segment revenues rose 3.3%.
●Successful 2015 PBM selling season, with gross client wins of $7
billion and net new client business of $3.6 billion.
●Operating Profit, the measure on which our annual incentive plan performance is primarily based, increased by 9.5% year-over-year,
or 1.8% above target growth; PBM operating profit rose nearly 14% year-over-year, and retail operating profit grew nearly 8% over the
same period.
●Return on Net Assets (RoNA), the performance measure for our
three-year long-term incentive plan, exceeded target for the 2012-2014
performance period by 8.3%.
●Total shareholder return (TSR) for 2014 was 36.6%, outpacing both the
retail and health care sector indices and the S&P 500 index as a
whole.
●Generated free cash flow significantly in excess of the $5.3 billion
returned to stockholders through dividends and share buybacks.
|
Net Revenues ($
billions) |
|
Operating Profit ($
billions) |
|
2012-2014 Return on Net Assets
(%) |
|
|
1 year growth of 9.9% |
|
1 year growth of 9.5% |
|
Exceeded target by
8.3% |
|
|
|
|
|
|
|
|
|
Total Shareholder Return (TSR)
(%) |
|
Annual Cash Dividends ($ per
share) |
|
|
Outperformed S&P
500 |
|
1 year increase of
22.2% |
|
|
|
|
|
|
|
|
For more information on
our financial performance and strategy, please refer to our Annual Report
available at
www.cvshealthannualmeeting.com. |
www.cvshealthannualmeeting.com 37
Table of Contents
EXECUTIVE COMPENSATION AND RELATED MATTERS
Our Compensation
Core Principles |
Our executive
compensation program has five core principles that drive our executive
compensation philosophy. Management and the Committee believe these principles
motivate our executive officers to take personal responsibility for the
performance of the business and deliver long-term stockholder
value:
|
|
|
|
|
Support, Communicate and Drive Achievement |
Attract
and Retain |
Motivate
High Performance |
Align Interests |
Reward Achievement |
|
|
|
|
|
Of our business strategies and
goals. |
The highest-caliber executive
officers by providing compensation opportunities comparable to those
offered by other companies with which we compete for business and talent.
|
From executive officers in an
incentive-driven culture by delivering greater rewards for superior
performance and reduced awards for underperformance. |
Of our executive officers and our
stockholders, and foster an equity ownership environment. |
Of short-term results as well as
long-term stockholder value creation. |
How We Pay Our
Executives |
We achieve
these objectives by employing the following elements of pay for our
executives:
● |
Base
salary |
● |
Annual cash
incentives |
● |
Annual equity incentives in the
form of stock options and restricted stock units |
● |
Long-term
incentives to reward multi-year success over a three-year period,
generally payable in cash and common stock |
● |
Retirement and health
benefits |
● |
Limited perquisites
|
|
|
For more information on our compensation core principles, and how we pay our executives, please refer to page 41
of this proxy statement. |
38 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED MATTERS
The following shows the breakdown of
reported 2014 compensation for our CEO and our other named executive
officers.
|
For more information on reported
2014 compensation for our CEO and our other named executive officers,
please refer to the Summary Compensation Table on page 54 of this proxy
statement. |
Leading Practices
in Compensation Programs |
Our pay practices align with our core
compensation principles and facilitate our implementation of those principles.
They also demonstrate our commitment to sound compensation and governance
practices.
Our executive compensation
program motivates
executive officers to take
personal responsibility for the performance of CVS
Health |
|
✓ |
Core Executive
Compensation Principles Designed to Deliver Growth |
|
✓ |
Performance Measures Aligned with Stockholder
Interests |
|
✓ |
Majority of the Total Compensation Opportunity is
Performance-Based |
|
✓ |
LTI
Plan Share Award Retention |
|
✓ |
Stock Ownership
Guidelines |
We apply leading
executive compensation practices |
|
✕ |
No Excise Tax Gross-Ups |
|
✕ |
No Option
Repricing |
|
✕ |
No
Recycling of Shares |
|
✓ |
Recoupment Policy
|
|
✓ |
Broad
Anti-Pledging and Hedging Policies |
|
✓ |
Executive Severance Policy |
|
✓ |
Limited Perquisites and Personal Benefits |
|
✓ |
Closed SERP to New Participants |
|
✓ |
Double Trigger
Vesting of Equity Awards |
|
For more information on our
compensation practices, please refer to pages 41-53 of this proxy
statement. |
www.cvshealthannualmeeting.com 39
Table of Contents
EXECUTIVE COMPENSATION AND RELATED MATTERS
Stockholder
Outreach - Compensation Actions |
Prior to 2014, we experienced very high
and increasing levels of stockholder support for our executive compensation
program. Specifically, in 2011 we received 92.1% support, in 2012 support was
95.4% and in 2013 it was 96%. In 2014, the level of support declined to 70.6%.
As a result, we engaged in a robust shareholder outreach program and reviewed
our policies and programs against published guidelines of stockholders and
advisory firms, to help us understand and address any concerns stockholders
might have.
During the fall of 2014, we reached out
to 24 of our top stockholders, including 16 of our top 20 stockholders
(representing more than a third of shares outstanding) and offered to discuss
our compensation programs, corporate governance and any other matters. Eleven
stockholders representing approximately 28% of our outstanding shares agreed to
speak with us. We also had discussions with one of the leading proxy advisory
firms, and obtained feedback from our institutional investors by means of an
independent, third-party platform that provided collective data and comments. We
received positive feedback on our compensation program, with stockholders
approving of the alignment of pay and performance. Some of our stockholders
wanted to better understand tax payments made in 2013 in connection with the
termination of our death benefit only plan. CVS Health remains committed to
our existing policy against tax gross-ups. While not an excise tax gross up, the
2013 event was a one-time make-whole payment that was paid to a broad range of
employees in order to change our compensation practices and reduce perquisite levels.
This resulted in significant savings in annual life insurance expenses for CVS
Health, as well as a reduction in liabilities on our balance sheet, and was
therefore favorable to the Company and its stockholders. However, in light of
the feedback we received, CVS Health will carefully consider our stockholders
views in connection with the adoption or termination of any compensation
plan.
CVS Healths
Anti-Gross-up Policy |
CVS Health adopted a broad policy
against tax
gross-ups several years ago. It is notable that when the policy was first
adopted, there was an exception for gross-ups payable pursuant to pre-existing
agreements. However, in 2012 our executives amended their existing employment
and change in control agreements to eliminate any tax gross-ups potentially
payable in connection with a change in control. This was done voluntarily, and
without any additional compensation. The only current exception to our
anti-gross-up policy is for tax payments that may be due under our broad-based
relocation policy, which is applicable to a large number of employees (i.e.,
those who must relocate upon hire). No named executive officers are presently
eligible for a tax payment under the terms of the policy and, in light of the
feedback, we will carefully consider whether a current or future named executive
officer should ever receive a tax payment under the policy.
What we
heard |
|
What we have done in
response |
|
Intended
outcome |
When
effective |
It is hard to find important
information in your proxy statement |
|
Revised the presentation and
content of our proxy statement |
|
Ensure that key messages are more
easily identified |
Current proxy
statement |
You grossed up income tax
payments when you terminated your Death Benefit Only Plan in
2013 |
|
The tax payments were related to
that one-time event that will not occur again; excise tax gross ups are
prohibited |
|
Terminating the Death Benefit
Only Plan resulted in immediate and ongoing net savings to the Company, in
the future, we will carefully consider investor views on tax
payments in establishing and terminating programs |
One time event in 2013; excise
tax gross ups were eliminated by the Company in 2010, and removed from
pre-existing executive contracts in 2012 |
Your peer group includes
telecommunications and other companies that dont seem to align with what
you do |
|
Modified our peer
group |
|
Present a closer connection to
our retail and health care businesses |
2015 |
Although you havent repriced
options in the past, your policy on stock option grants permits re-pricing
of options |
|
Amended our policy on stock
option grants to specifically prohibit re-pricing without stockholder
approval |
|
Explicitly prohibit re-pricing of
stock options |
2014 |
Supporting our
Executive Compensation Program |
We
believe that our executive compensation program is consistent with our core
compensation principles and is structured to assure that those principles are
implemented. Through our stockholder outreach program, we have obtained helpful
feedback on the program and have made certain modifications to implement our
stockholders suggestions. With those changes, we believe that our stockholders
generally approve of our core compensation principles and our executive
compensation program, and we believe our stockholders as a whole should support
them as well.
40 CVS
Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
COMPENSATION DISCUSSION AND ANALYSIS
This section explains how our executive
compensation programs are designed and operate with respect to our named
executive officers, who for 2014 are:
● |
Larry J. Merlo, President and
Chief Executive Officer (CEO); |
● |
David M. Denton, Executive Vice
President (EVP) and Chief Financial Officer (CFO); |
● |
Helena B. Foulkes, EVP and
President CVS/pharmacy, who was promoted to that position effective
January 1, 2014; |
● |
Jonathan C. Roberts, EVP and
President CVS/caremark; and |
● |
Thomas M. Moriarty, EVP, Chief
Health Strategy Officer and General
Counsel. |
Executive
Compensation Philosophy and Core Principles |
The Committee establishes our executive
compensation philosophy and oversees its implementation. The Committee has
identified five core principles that drive our philosophy and that management
and the Committee believe motivate our executive officers to continually improve
our performance and operations, encourage personal responsibility for
performance and deliver long-term stockholder value.
Core
Principles
|
|
|
|
|
|
|
|
|
|
Support, Communicate and Drive Achievement |
Attract
and Retain |
Motivate
High Performance |
Align Interests |
Reward Achievement |
|
|
|
|
|
Of our business strategies and
goals. |
The highest-caliber executive
officers by providing compensation opportunities comparable to those
offered by other companies with which we compete for business and talent.
|
From executive officers in an
incentive-driven culture by delivering greater rewards for superior
performance and reduced awards for underperformance. |
Of our executive officers and our
stockholders, and foster an equity ownership environment. |
Of short-term results as well as
long-term stockholder value creation.
|
www.cvshealthannualmeeting.com 41
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Elements of
Compensation
The Committee believes each component
of our executive compensation program furthers one or more of our five core
principles, as outlined in the following chart:
|
Principles Supported |
Compensation Element and Key
Features |
Support, Communicate and
Drive Achievement |
Attract
and Retain |
Motivate
High Performance |
Align Interests |
Reward Achievement |
Base Salary
●Provides minimum, fixed level of cash compensation
commensurate with experience, role and responsibility
●Reviewed annually and adjusted periodically based on
comparability to market peers, position responsibility, individual
qualifications, performance and corporate profitability |
|
|
|
|
|
Annual Cash Incentive
●Rewards near-term value-added decisions
●Targets are set as percentage of base
salary
●Payments reflect performance against operating profit
target
●Maximum pool based on small percentage of Adjusted Net
Income and maximum payouts are capped |
|
|
|
|
|
Long-Term Incentives
●Rewards multi-year financial success
●Target awards are established at start of cycle based on
competitive pay information, level of responsibility, and desired mix of
long-term incentive pay relative to other pay components
●Generally paid equally in cash and common stock based on
meeting pre-established performance goals during performance cycles
●Minimum performance threshold (below which no payment
will be made) and capped maximum payouts
●Executive prohibited from selling or trading shares for
two years following payment date |
|
|
|
|
|
Stock Options and Restricted Stock Units (RSUs)
●Rewards creation of long-term value by encouraging
executives to focus on long-term financial progress
●Annual nonqualified stock option grants with seven-year
terms that vest in four equal installments on first, second, third and
fourth anniversaries of the grant date and return value only to extent
that stock price appreciates
●Annual RSU awards vest upon continued employment; annual
RSU awards for named executive officers vest in two equal installments, on
third and fifth anniversaries of grant date
●Target awards established based on competitive pay
information, level of responsibility and emphasis on long-term incentive
pay as key component of the executive pay program |
|
|
|
|
|
Deferred Compensation Plan and Deferred Stock
Compensation Plan (DSP)
●Provide savings in a tax-efficient manner and enhance
focus on stock ownership
●Offers variety of investment choices, none of which
represents an above-market return, with up to a 5% match on eligible
deferred compensation, offset by match under qualified defined
contribution plan
●DSP units fluctuate in value based on the performance of
common stock |
|
|
|
|
|
42 CVS
Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Linking Pay to
Performance |
For 2014, as in previous years, the
Committee reviewed an historical assessment of the relationship between CVS
Healths performance and executive pay relative to our 2014 Peer Group (as
defined below). The following graphs illustrate the results of the Committees
core assessment and illustrate the relationship between
|
(1) |
|
our CEOs real compensation (base
salary earned, incentives earned, value of restricted shares or RSUs that
vest during the period, value of stock options exercised during the
period, and changes in value of unvested restricted shares/RSUs and
unexercised options held during the period); and |
|
|
|
|
|
(2) |
|
CVS Healths
performance as measured by total shareholder return (TSR) over
one-year (2013) and three-year (2011 2013) periods (the most recent
periods for which financial and compensation data were available at the
time). |
In the following graphs, data points
that are within the shaded area designate ideal pay-performance relationships.
Data points below the shaded area identify peer companies where pay was lower
than expected given the organizations performance, and those data points above
the shaded area suggest the opposite.
1-Year CEO Compensation Realized
Percentile vs.
Total Shareholder Return Percentile
In the graph above, compensation
realized by CVS Healths CEO in 2013 ranked at the 63rd percentile,
our TSR ranked at the 79th percentile, indicating that our CEOs
realized compensation was lower than expected given our performance relative to
peer results.
www.cvshealthannualmeeting.com 43
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Similarly, the graph below illustrates
the relationship between CEO pay rank and the relative return to stockholders
for CVS Health and the Peer Group over the 3-year period 2011 to 2013. Relative
compensation is within the range that characterizes ideal pay for performance
alignment with the Peer Group.
3-Year CEO Compensation Realized
Percentile vs.
Total Shareholder Return Percentile
These assessments demonstrate the
Committees commitment to maintaining practices that ensure our executive
compensation aligns with results in a manner that benefits our investors.
Annual
Decision-Making Process |
Pay Positioning. Each year, our management recommends for Committee approval
financial performance targets that are challenging and, if achieved, would
deliver superior value to stockholders. Consistent with these ambitious
performance targets, CVS Health positions its aggregate target total direct
compensation (base salary plus annual and long-term incentives) for its
executive officers at the median of our Peer Group. The Committee believes it is
appropriate to reward the executive management team with compensation above the
competitive median if the ambitious financial targets associated with the
variable pay programs are exceeded. Conversely, if the financial targets are not
met, awards are reduced to levels that rest below the median.
Benchmarking. Each year, the Committee reviews the peer group against
which financial performance and compensation competitiveness are assessed. The
2014 peer group was constructed to recognize that CVS Health competes for talent
outside of its specific industry segments. The peer group consisted of the
following companies from across general industry that are similar to CVS Health
in terms of industry affiliation, labor market, and operating and character
image:
44 CVS
Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Peer Group Members |
|
Revenues for 12 Months Ended December 31, 2014
($B) |
|
Market Capitalization as of December 31, 2014
($B) |
AT&T Inc. |
|
$132.4 |
|
$174.2 |
The Boeing Company |
|
90.8 |
|
91.9 |
Comcast
Corporation |
|
68.8 |
|
149.5 |
Costco Wholesale Corporation |
|
114.5 |
|
61.5 |
Express Scripts Holding
Company |
|
100.9 |
|
51.8 |
The Home Depot, Inc. |
|
83.2 |
|
138.4 |
Johnson &
Johnson |
|
74.3 |
|
291.0 |
Lowes Companies, Inc. |
|
55.3 |
|
55.7 |
McKesson
Corporation |
|
174.0 |
|
48.2 |
Merck & Co., Inc. |
|
42.2 |
|
161.9 |
PepsiCo, Inc. |
|
66.7 |
|
140.7 |
Pfizer Inc. |
|
49.6 |
|
196.3 |
The Procter & Gamble
Company |
|
79.9 |
|
246.0 |
Target Corporation |
|
73.7 |
|
39.2 |
UnitedHealth Group
Incorporated |
|
130.5 |
|
96.4 |
Verizon Communications Inc. |
|
127.1 |
|
194.4 |
Walgreen Co. |
|
77.6 |
|
57.5 |
Wal-Mart Stores, Inc. |
|
485.7 |
|
277.1 |
The Walt Disney
Company |
|
49.9 |
|
161.6 |
CVS Health Corporation |
|
$139.4 |
|
$109.8 |
2015 Peer
Group
During our 2014 stockholder outreach
efforts, some stockholders commented on the number of telecommunications
companies included in our peer group.
In response to those comments,
effective as of January 1, 2015, we have reduced the number of
telecommunications companies and added companies that present a closer
connection to our retail and health care
businesses. |
The Committee believes that the updated
peer group better represents the market in which CVS Health competes for talent,
as well as accounting for CVS Healths size, industry affiliation, and operating
and character image. The new peer group for 2015 will include AmerisourceBergen
Corporation and The Kroger Company, replacing AT&T Inc. and Verizon
Communications Inc. The remainder of the peer group will be
unchanged.
Annual
Decision-Making
Preliminary financial results and total
compensation market data for our executives are reviewed in November of each
year, together with any stockholder comments received on our executive
compensation program.
The following January, the Committee
reviews preliminary financial results with respect to TSR, growth in revenue,
GAAP operating income growth, and diluted GAAP EPS growth and considers
incentive award payouts for the completed fiscal year. For named executive
officers other than the CEO, final decisions on actual incentive awards for the
prior year are made in February after Committee review of the CEOs assessment
of individual executive contribution and performance.
The CEOs performance is reviewed
separately. In January, the CEO presents to the independent directors a
self-assessment of his performance against his Board-approved strategic,
operational and financial goals. The Chairman of
the Board and the Committee Chair then meet privately with all of the
independent directors to consider the CEOs performance. Committee members
consider the independent directors assessments in reviewing the CEOs total
compensation and determining his annual incentive compensation award and equity
compensation grants.
The final step in the annual planning
and decision making process occurs in the February March timeframe, when the
Committee establishes financial targets for the current year and approves any
base salary changes and individual target incentive award levels for the current
year. The annual cycle of reviewing and developing the Companys executive
compensation programs and pay levels is a multi-step process that incorporates
peer group information, consideration of say-on-pay results, and both short- and
long-term Company results compared to objectives.
www.cvshealthannualmeeting.com 45
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Cash versus Non-Cash
Compensation
The Committee recognizes the
competitive need for an appropriate amount of cash compensation, comprised of
base salary, annual incentive and the cash portion of a long-term target
incentive award. As part of its annual review of the competitiveness and
effectiveness of our compensation program,
the Committee monitors the relative levels of cash and non-cash compensation to
ensure that the mix includes appropriate amounts of both components.
Fixed versus Variable
Compensation
The annual incentive program,
long-term target incentive plans and service-based equity award program tie a
significant amount of variable compensation to an executives continued
employment (subject to the vesting and forfeiture provisions of our incentive
plan and individual equity grant agreements)
and the performance of CVS Health common stock over the vesting and option
exercise periods.
For fiscal year 2014, the
percentage of target total direct compensation represented by at-risk pay
(target annual incentives and long-term incentives consisting of stock options,
RSUs and long-term performance incentive awards) for CVS Healths named
executive officers was as follows:
Target Total Direct Compensation Mix
(%) |
|
|
|
|
Components of Executive Compensation
Program and 2014 Compensation Decisions |
The Committee recognizes that
while stock prices are generally a good indicator of corporate performance over
time, external factors that are beyond CVS Healths influence may impact its
stock price. Consequently, in addition to stock price, the Committee believes
that other performance indicators, including profitability and sound financial management of our working capital,
should also be factored into our executive compensation program. The Committee
has designed its executive compensation program in a manner intended to achieve
these objectives by balancing fixed and variable pay, as well as long- and
short-term incentives.
Base Salary
The Committee annually reviews the
base salaries of all senior officers, including the named executive officers,
and adjusts them as needed to maintain competitiveness and consistency with
evolving responsibilities. Except for Ms. Foulkes, the base salaries for our
named executive officers were not increased in 2014. This reflects the
Committees determination that base salaries remained competitive and consistent with the executives
responsibilities. Ms. Foulkes base salary was increased upon her promotion to
President CVS/pharmacy, and reflects the outcome of our annual competitive
review of peer group compensation, as well as her contributions to the
Company and the critical role she continues to play in our future growth and
success.
46 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Executive Name and 2014 Title(s) |
|
2013 Salary |
|
2014 Salary |
|
Percentage Increase |
Larry J. Merlo, President
and CEO |
|
$1,350,000 |
|
$1,350,000 |
|
|
David M. Denton, EVP and CFO |
|
$825,000 |
|
$825,000 |
|
|
Helena B. Foulkes, EVP
and President CVS/pharmacy |
|
$650,000 |
|
$850,000 |
|
31% |
Jonathan C. Roberts, EVP and President
CVS/caremark |
|
$900,000 |
|
$900,000 |
|
|
Thomas M. Moriarty, EVP, Chief Health Strategy Officer and
General Counsel |
|
$670,000 |
|
$670,000 |
|
|
Annual Incentive
Awards
We established the Executive Incentive
Plan (the EIP) in 2014. The EIP is designed to provide flexibility around
incentive payouts to named executive officers by rewarding achievement of
certain objectives and strategic growth initiatives while preserving the tax
deductibility of those payments under IRC 162(m). Under the EIP, a maximum pool
is created that can be used to pay annual incentives to named executive
officers. For 2014, the pool formula was 0.5% of Adjusted Net Income from
Continuing Operations Attributable to CVS Health. At the beginning of 2014, the
Committee set:
● |
individual limits
on awards, expressed as a percentage of the pool and salary, so that
maximum payouts would remain competitive; and |
● |
a target for each
named executive officer as a reference point to determine actual payouts.
The target award opportunity is expressed as a percentage of base salary
and is determined using a variety of factors, including CVS Healths Peer
Group practices and the desired ratios of cash to non-cash and fixed to
variable compensation for each named executive
officer. |
Since market compensation practices,
including incentive opportunity, differ by job, our target bonus opportunities
as a percentage of base salary vary for our named executive officers, as
follows:
Executive Name |
|
Target Opportunity as a Percentage of Salary |
|
Maximum Portion of Pool |
|
Maximum Payout as a Percentage of Salary |
Larry J. Merlo |
|
200% |
|
30.0% |
|
500% |
David M. Denton |
|
150% |
|
15.0% |
|
400% |
Helena B.
Foulkes |
|
150% |
|
15.0% |
|
400% |
Jonathan C. Roberts |
|
150% |
|
15.0% |
|
400% |
Thomas M. Moriarty |
|
125% |
|
12.5% |
|
300% |
As a starting point for evaluating
annual EIP awards, the Committee considered performance results under our
Management Incentive Plan (the MIP), a program maintained for a broad portion
of the employee population and for our named executive officers through 2013.
The 2014 performance targets under the MIP were as follows:
2014 Management
Incentive Plan Funding
|
|
Operating Profit (80%
weighting) |
|
Customer Service
and Client Satisfaction (20% weighting) |
|
|
Level of Performance Achieved |
|
Level of Payout of Target |
|
Retail Customer Service (10%) |
|
PBM Client Satisfaction (10%) |
Below Minimum |
|
<96.9% of
Target |
|
0% |
|
0% |
|
0% |
Threshold |
|
96.9% of Target |
|
30% |
|
25% |
|
25% |
Target |
|
$8,657.0 million |
|
100% |
|
100% |
|
100% |
Maximum |
|
≥3% over Target |
|
200% |
|
100% |
|
100% |
Actual |
|
$8,799.0 million |
|
143% |
|
96.6% |
|
100% |
Funding (adjusted for Customer Service/Client
Satisfaction) |
|
|
|
141% |
|
|
|
|
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EXECUTIVE COMPENSATION AND RELATED
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The Committee used MIP funding of 141%
as its starting point for evaluating actual payments under the EIP because it
believes that Operating Profit, Customer Service and Retail Client Satisfaction
are appropriate performance metrics for annual incentives and that each named
executive officer is responsible for delivering on those metrics. The Committee
also believed that these metrics were challenging and would serve as an
appropriate measure of managements success in delivering short-term stockholder
value while maintaining momentum toward the achievement of longer-term financial
progress.
The Committee exercises judgment in
determining individual EIP awards and does not assign specific weights to the
factors it considers. When determining award levels, the Committee took into
account the operating profit performance results of 143% and specific events
such as progress in the entry into new markets, closings of strategic
acquisitions to complement CVS Healths existing businesses, new MinuteClinic
openings, retail operating margins, inventory management and streamlining
efforts in the pharmacy services segment, the strengthening of our cash flow
position, positioning for future growth and each executive officers individual
contributions during the year. After considering these factors and our overall
financial performance for 2014, the Committee determined that individual awards
would not exceed MIP results by more than 25%. With respect to Mr. Merlo, the
award reflects the Committees evaluation of Mr. Merlos performance during
2014. Actual awards for other named executive officers reflect the Committees
evaluation of the individuals overall performance as well as Mr. Merlos
evaluation and compensation recommendation.
Factors the Committee considered to
determine each named executive officers final incentive payment were:
● |
Mr. Merlo: significant level of achievement of
performance metrics described above; overall contribution to the
enterprise performance as President and CEO; leadership in positioning the
Company for future growth, including significant process on our strategic
growth initiatives. |
● |
Mr. Denton: continued strengthening our balance
sheet; generation of substantial free cash flow; continued improvement in
working capital position; level of achievement of performance metrics;
contributions toward our strategic initiatives; success in structuring key
business development transactions such as Coram and Navarro, as well as
our generic sourcing venture. |
● |
Ms. Foulkes: success in removing tobacco from our
stores and rebranding the Company as CVS Health, strategic moves that
positioned us for further growth in the evolving health care market;
strong results in continuing to grow pharmacy share; successful opening or
relocating of 211 new stores, including our first stores in three new
retail markets. |
● |
Mr. Roberts: significant level of achievement and
improvement of results in the pharmacy services business line, including
an outstanding 2015 selling season with $7 billion of gross client wins
and $3.6 billion of net new client business and unmatched success in
differentiating our products and services in the market. |
● |
Mr. Moriarty:
significant level of achievement in leading government affairs and
advancing our position on strategic matters; success in business
development including the successful launch of Red Oak Sourcing and the
successful closing of Coram and Navarro transactions; successful
management of litigation risk. |
The following table shows the actual
annual incentive award payouts earned based on the factors outlined above:
2014 Executive
Incentive Plan Awards
|
|
|
|
|
|
Range of Potential Payments |
|
|
Executive Name |
|
Base Salary |
|
Target in $ |
|
Minimum |
|
141% of Target Based on MIP Results |
|
Maximum Permitted under Cap as a % of
Salary |
|
Actual EIP Award for 2014 |
Larry J. Merlo |
|
$1,350,000 |
|
$2,700,000 |
|
$0 |
|
$3,807,000 |
|
$6,750,000 |
|
$4,590,000 |
David M. Denton |
|
$825,000 |
|
$1,237,500 |
|
$0 |
|
$1,744,875 |
|
$3,300,000 |
|
$2,100,000 |
Helena B.
Foulkes |
|
$850,000 |
|
$1,275,000 |
|
$0 |
|
$1,797,750 |
|
$3,400,000 |
|
$2,165,000 |
Jonathan C. Roberts |
|
$900,000 |
|
$1,350,000 |
|
$0 |
|
$1,903,500 |
|
$3,600,000 |
|
$2,290,000 |
Thomas M. Moriarty |
|
$670,000 |
|
$837,500 |
|
$0 |
|
$1,180,875 |
|
$2,010,000 |
|
$1,475,000 |
Long-Term Incentive
Compensation
The
Committee believes strongly in the use of long-term incentive compensation
for executives to reinforce four strategic objectives:
●Focus on the importance of returns to
stockholders;
●Promote the achievement of long-term performance
goals;
●Encourage executive retention; and
●Promote meaningful levels of Company stock ownership
by executives. |
48 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
The key elements of the Companys
long-term incentive compensation plans (the LTI plans) are:
(1) |
an annual stock option and RSU grant, which vest upon continued
employment with the Company, and |
(2) |
long-term performance incentive
awards, generally paid equally in cash and Company common stock, to reward
financial success over periods greater than one
year. |
The Committee believes that the LTI
plans properly balance the incentives required to drive achievement of the four
strategic objectives above, with the amount and timing of the rewards dependent
on the successful achievement of Company objectives. The structure also
reinforces the alignment between executive and stockholder interests. All three
of these long-term compensation elements are delivered under the provisions of
our 2010 ICP.
To determine the overall opportunity
and appropriate mix of equity instruments, the Committee considers a variety of
factors, including competitive market positioning against comparable executives
of the companies in the Peer Group, potential economic value realized, timing of
vesting and taxation. Along with a review of Peer
Group long-term incentive award practices, the Committee considers the retentive
value of the unvested equity awards held by each executive officer to determine
whether additional awards to secure continued employment with the Company are
warranted. For named executive officers other than the CEO, the Committee also
considers the CEOs recommendations.
2014 Long-Term Incentive Opportunities and Awards
The Committee reviewed all aspects of
our LTI plans and RSU and option grant programs, including competitiveness of
the executives target award opportunities, the impact on shares outstanding and
the timing and potential economic impact offered by future vesting of RSU grants
and vesting and exercise of stock option grants. Based on this review, the
Committee adopted the following target mixes for long-term incentives for named
executive officers in 2014. The target for LTI
plans reflects awards granted in 2014 for the 2014-2016 performance period.
Payment, if any, with respect to the award depends on performance against
long-term goals and would not be made until 2017. The targets for options and
restricted stock units reflect targets for awards that will be granted in 2015
based on 2014 performance. Actual awards vary based on individual performance.
Long-Term Incentive Target Mix
(%) |
|
|
|
|
As in the past, each of our performance-
and equity-based long-term incentives will continue to be earned independently,
meaning that successful achievement of any of the financial goals established
for any of the LTI plans will not trigger or accelerate vesting of the RSU or
stock option grants; similarly, any awards payable under the LTI plans will be
based solely on results as measured against the relevant performance metric and
will not be affected by any value realized by the RSU or stock option grants.
2014 Option and RSU Grants. Equity grants are made on a predetermined date consistent with the Committee’s equity grant practices. For fiscal 2014, the grant date was April 1, the first business day of the second quarter. The full grant date fair value of stock options and RSUs granted to each named executive officer during fiscal 2014 is shown in the Summary Compensation Table on page 54. Options have a term of seven years and typically vest in four equal annual installments. The annual RSU grants to our named executive officers vest in two equal installments: 50% on the third anniversary of the grant date and 50% on the fifth anniversary of the grant date. The Committee granted Mr. Denton, our Executive Vice President and Chief Financial Officer, a supplemental award of 100,000 RSUs, with a grant date value of $7.4 million. The award will cliff-vest in 2021 on the seventh anniversary of the grant date, subject to his continued employment. The Committee targeted an award that would deliver approximately $1.0 million of value on an annualized basis, representing less than 14% of Mr. Denton’s 2014 annual compensation. Mr. Denton is a highly skilled executive and the Committee believes the Company and its stockholders will strongly benefit from his ongoing leadership. Mr. Denton has contributed to the Company’s significant growth during his five-year tenure as CFO, including strengthening our balance sheet, generating substantial free cash flow and improving working
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EXECUTIVE COMPENSATION AND RELATED
MATTERS
capital. CVS Health’s financial performance has excelled during Mr. Denton’s tenure as CFO (see page 9 for highlights). This strong performance resulted in total shareholder returns of 36.6% in 2014, outperforming the S&P 500 Index and the Dow Jones Industrial Average, which returned 13.7% and 10.0%, respectively. In fact, while Mr. Denton has been CFO, CVS Health has outperformed these indices on a three- and five-year basis. The Committee believes that Mr. Denton’s award is aligned with stockholder interests because the ultimate value of the award is tied directly to the value of our stock and Mr. Denton’s continuing leadership will help drive long-term stockholder value. As a result, the Committee imposed an exceptionally long, cliff-vesting schedule to encourage Mr. Denton’s continued service. The award is forfeited in its entirety if Mr. Denton is terminated for any reason, resigns or retires prior to vesting. Additionally, the award is subject to double trigger vesting upon a change in control.
Additional information about the 2014 awards to each of our named executive officers, including stock option exercise price and the number of shares subject to each award, is shown in the Grants of Plan-Based Awards Table on page 56.
2014-2016 LTI Plan Awards. The
LTI plans focus on sustainable financial progress and optimal use of the
Companys assets, to improve our working capital and free cash flow, modified by
the markets view of the Companys achievements
through TSR. The LTI plan for the three-year performance period from 2014-2016
is based on performance against our three-year return on net assets goal. The
Committee included a relative shareholder return modifier to the LTI awards. As
a result, LTI awards will be reduced or increased if total shareholder return
over the three-year performance period relative to the S&P 500 falls outside
of a defined range. Specifically, after the return on net assets performance
results are certified, the award will be modified up or down as
follows:
If total
shareholder return over the three-year performance period
is: |
|
Then the
multiplier is: |
At or above 66th
percentile |
|
125% |
At or above the 33rd percentile and below the
66th percentile |
|
100% |
Below the 33rd percentile |
|
75% |
LTI awards are paid in a combination of stock and cash. The stock is subject to a mandatory two-year holding period which further reinforces an alignment of executives interests with that of stockholders. The cash portion is consistent with the overall pay mix determined by the Committee, and participants may elect to use some or all of the cash portion for payment of withholding taxes The target cash portion of the long-term incentive compensation component generally will not exceed 25% of the total target longterm compensation.
2014-2016 Performance
Period Target Awards
Executive Name |
|
Target LTI Plan Award for 2014-2016 Performance
Period |
Larry J. Merlo |
|
$5,500,000 |
David M. Denton |
|
$1,500,000 |
Helena B.
Foulkes |
|
$1,250,000 |
Jonathan C. Roberts |
|
$1,750,000 |
Thomas M. Moriarty |
|
$1,250,000 |
2012-2014 LTI Plan Awards -
Payments. All of the executive officers listed in the Summary Compensation
Table received payments in 2014 for awards granted in 2012 for the 2012-2014 LTI
plan performance period. The target performance goal was Return on Net Assets (RoNA) of 30.41%. The following table sets forth
minimum, threshold and maximum goals, the range of potential payouts as a
percent of target and the actual results for the 2012-2014 performance period:
|
|
% of RoNA Target |
|
Payout Level as a % of Target |
Minimum |
|
<98.2% |
|
0% |
Threshold |
|
98.5% |
|
50% |
Target |
|
100.0% |
|
100% |
Maximum |
|
103.2% |
|
200% |
Actual |
|
108.3% |
|
200% |
Relative total shareholder return vs.
the S&P 500 over the three-year period was at the 87th
percentile. When the 125% multiplier was applied, the resulting payout
percentage for the 2012-2014 LTI plan was 250%.
50 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
2012 2014 LTI Plan
Opportunities and Actual Award Payments
Executive Name |
|
Minimum Award (% of target) |
|
Threshold Award (% of target) |
|
Target Award (% of target) |
|
Maximum Award (% of target) |
|
Maximum Award after TSR Multiplier (% of
target) |
|
Actual Cash Award ($) |
|
Actual Stock Award (# of
Shares) |
Larry J. Merlo |
|
0% |
|
50% |
|
100% |
|
200% |
|
250% |
|
$6,875,052 |
|
66,188 |
David M. Denton |
|
0% |
|
50% |
|
100% |
|
200% |
|
250% |
|
$1,875,043 |
|
18,051 |
Helena B.
Foulkes |
|
0% |
|
50% |
|
100% |
|
200% |
|
250% |
|
$1,000,044 |
|
9,627 |
Jonathan C. Roberts |
|
0% |
|
50% |
|
100% |
|
200% |
|
250% |
|
$1,625,058 |
|
15,644 |
Thomas M. Moriarty |
|
0% |
|
50% |
|
100% |
|
200% |
|
250% |
|
$937,573 |
|
9,025 |
Supplemental
Executive Retirement Plan |
We
maintain an
unfunded supplemental retirement plan (the SERP), which is designed to
supplement the retirement benefits of selected executive officers. The SERP is a
legacy plan in which participation has decreased over the years as individuals
have retired, and we have not provided SERP benefits to new participants since
2010. Mr. Merlo is the only active executive officer in the SERP. Mr. Merlo has
reached the maximum amount of service under the SERP based on his more than 30
years with the Company. As a result, his benefit increases primarily as a result
of performance-based bonuses. See the Pension Benefits Table of page
60 for more
information.
Each year, as
part of the routine administration of our benefit plans, we carefully assess the
actuarial assumptions used to calculate our pension liability. A key assumption
is the interest rate we apply to convert the future estimated pension benefit
into a lump sum the lump-sum interest rate.
Given the sustained low interest rate environment over an extended period of
time and the potential for continued low interest rates in the foreseeable
future, in 2014 we lowered the lump-sum interest rate assumption from 3.5% to
2.5%. The effect of lowering this interest rate created a meaningful increase
in the estimated lump-sum value of Mr. Merlos pension benefit as reflected in
the 2014 Summary Compensation Table: an increase of $3.7 million is due to the
effect of the lower assumed interest rate and an additional $4.4 million
increase is due to performance-based bonuses. Any pension benefit paid as a lump
sum upon Mr. Merlos eventual retirement will be determined by the applicable
interest rate at the time of his actual separation. A detailed discussion of the
assumptions used for the calculation of Mr. Merlos benefit can be found in the
narrative to the Pension Benefits Table on page 59.
The Company
maintains medical and dental benefits, life insurance and short- and long-term
disability insurance programs for all of its employees. Executive officers are
eligible to participate in these programs on the same basis and with the same
level of financial subsidy as our other salaried employees.
Executive
officers may participate in the CVS Future Fund, which is our qualified defined
contribution, or 401(k), plan. An eligible CVS Health employee may defer up to
85% of his or her total eligible compensation, defined as salary plus annual
incentive, to a maximum defined by the IRS; in 2014, that maximum was $17,500
plus an additional $5,500 for those age 50 and
above. After the first full year of employment, CVS Health will match the
employees deferral dollar-for-dollar up to a maximum equaling 5% of total
eligible compensation. CVS Healths matching cash contributions into the CVS
Health Future Fund for the named executive officers who participated are a
component of the All Other Compensation Table on page 55.
We offer other
benefits that are available to eligible employees, including executive officers,
as follows.
Deferred Compensation
Plans and Deferred Stock Plan
Eligible executive officers may choose to defer earned and vested compensation into the CVS Health Deferred Compensation Plan (the DCP) and the CVS Health Deferred Stock Compensation Plan (the DSP), which are available to any U.S. employees meeting the Plans eligibility criteria. The plans are intended to provide retirement savings in a tax-efficient manner and to enhance stock ownership. The DCP offers a variety of investment crediting choices, none of which represents an above-market return. The individual contributions of each of the named executive officers during fiscal 2014 to the DCP and the DSP, including earnings on those contributions, any distributions during 2014 and total account balances as of the end of 2014, are shown in the Nonqualified Deferred Compensation Table on page 61.
Perquisites and Other
Personal Benefits
We provide the
following personal benefits to our named executive officers:
● |
Financial planning: An allowance
to cover the cost of a Company-provided financial planner to assist with
personal financial and estate planning. We believe it is important to
provide to our executives the professional expertise required to ensure
they maximize the efficiencies of our compensation and benefit programs
and are able to devote their full attention to the management of the
Company. |
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EXECUTIVE COMPENSATION AND RELATED
MATTERS
● |
Limited personal use of corporate
aircraft: We maintain corporate aircraft that may be used by our employees
to conduct Company business. Pursuant to an executive security program
established by the Board upon the Committees recommendation, the CEO is
required to use our aircraft for all travel needs, including personal
travel, in order to minimize and more efficiently use his travel time,
protect the confidentiality of his travel and our business, and enhance
his personal security. Certain other named executive officers were also
permitted to use our corporate aircraft for personal travel on a very
limited basis during fiscal 2014. |
|
|
● |
Home security: An allowance to
the named executive officers to cover the costs of the installation and
maintenance of home security monitoring systems; while the Committee
believes these security costs are business expenses, disclosure of these
costs as personal benefits is required. |
The value of
all of these items is treated as income taxable to the executives. We provide no
reimbursement for these costs nor do we pay the taxes or any other expenses
associated with these costs on behalf of the executives.
The aggregate
incremental cost to the Company of providing these personal benefits to each of
the named executive officers during fiscal 2014 is shown in the Summary
Compensation Table on page 54.
Other
Compensation Policies |
Recoupment
Effective with
performance cycles beginning in 2009, we have maintained a recoupment policy
that applies to all annual and long-term incentive awards granted to executive
officers. The policy applies in cases where financial or operational results
used to determine an award amount are meaningfully altered based on fraud or
material financial misconduct (collectively, Misconduct), as determined by the
Board, and apply to any executive officer determined to have been involved in
the Misconduct.
The policy
applies to Misconduct committed during the performance period that is discovered
during the performance period or the three-year period following the performance
period. The policy allows us to recoup the entire award, not only excess amounts
generated by the Misconduct, subject to the determination of the Board, and the
policy may apply even where there is no financial restatement.
Agreements with
Executive Officers |
As previously
disclosed, we have an employment agreement (the Employment Agreement) with Mr.
Merlo and change in control agreements (the CIC Agreements, and together with
the Employment Agreement, the Agreements) with Messrs. Denton,
Roberts and
Moriarty and Ms. Foulkes.
The Committee
believes that the interests of stockholders are best served by ensuring that the
interests of our senior management are aligned with our stockholders. The
change-in-control provisions of the Agreements are intended to eliminate, or at
least reduce, the reluctance of senior management to pursue potential
change-incontrol transactions that may be in stockholders best interests. The
Agreements serve to eliminate distraction caused by uncertainty about personal financial
circumstances during a period in which CVS Health requires focused and
thoughtful leadership to ensure a successful outcome. Accordingly, the
Agreements provide certain specified double trigger severance benefits to the
covered executives in the event of their termination under certain circumstances
following a change in control. The Committee believes a double trigger
severance benefit provision is more appropriate, as it provides an incentive for
greater continuity in management following a change in control. Double trigger
benefits require that two events occur in order for severance to be paid,
typically a change in control followed by the executives involuntary
termination of employment. The 2010 ICP was also amended in 2012 to require a
double trigger equity vesting of change in control benefits.
The Committee
reviews the severance benefits annually with the assistance of its compensation
consultant to evaluate both their effectiveness and competitiveness. The review
for fiscal 2014 found the current level of benefits to be within competitive
norms for design. Details of payments made to the executives upon a change in
control and various termination scenarios; provisions for the treatment of
equity awards, SERP and other benefits; and estimated payments that would be
made to the executives whose employment terminates following a change in control
may be found in Payments/(Forfeitures) Under Termination Scenarios beginning on
page 61.
In addition,
in early 2015, Mr. Merlo agreed to modify all outstanding and future stock
options in a manner that makes them more valuable to CVS Health as a retention
tool. Specifically under the new terms, Mr. Merlo is eligible for Approved
Early Retirement at or after attaining age of 60 (instead of age 55) if such
retirement is approved in advance by the Committee, and for Normal Retirement
at or after attaining age of 65 (instead of age 60). Also, Mr. Merlo is required
to provide at least 12 months advance notice to the Committee of his intent to
take Approved Early Retirement or Normal Retirement.
Compliance with
IRC 162(m) |
IRC 162(m)
generally disallows a tax deduction to public companies for compensation over $1
million paid to a companys chief executive officer and the three other most
highly compensated executive officers at year end, other than the chief
financial officer. However, qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met.
52 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
The Committee
considers the deductibility of executive compensation under IRC 162(m), but may
authorize certain non-deductible payments in excess of $1 million. As a matter
of compensation design, the Board adopted and stockholders approved the 2010
ICP, under which the Committee may grant annual equity awards, stock options and
certain other LTI plan awards to senior executives, including the named
executive officers. Certain of the awards granted thereunder are intended
to qualify as performance-based compensation and
therefore not be subject to the $1 million limitation on deductibility. Awards
under the EIP, which are earned based on performance relative to predetermined
financial and operating targets, are designed with the intention that amounts
paid to the named executive officers will qualify as performance-based
compensation and therefore be deductible by CVS Health. However, it is possible that payments under the LTI plans and/or the EIP could
be non-deductible.
The Committee
generally intends to design certain portions of named executive officer
compensation that are over $1 million in order to qualify such compensation as
performance-based compensation under IRC 162(m). The Committee believes it is
important to retain flexibility to structure the Companys executive compensation program and practices in a
manner that the Committee determines is in the best interests of the Company and
its stockholders. Although the Committee generally intends to preserve the tax
deduction under IRC 162(m) where possible, the Committee retains discretion to
operate the Companys executive compensation programs in a manner designed to
promote varying company goals. As a result, the Committee may from time to time
conclude that certain compensation arrangements
are in the best interest of CVS Health and its stockholders and consistent with
its compensation philosophy and strategy despite the fact that the arrangements
might not qualify for tax deductibility. Elements of the executive compensation
program that do not comply with the deduction rules of IRC 162(m) include base
salaries above $1 million and time-vested RSU awards.
Non-GAAP
Financial Measures Used in Compensation Discussion and
Analysis |
Throughout this Compensation Discussion and Analysis, we refer to various financial measures. The majority of these financial measures are calculated in accordance with U.S. generally accepted accounting principles (GAAP). However, there are some financial measures that management adjusts in order to assess our year-over-year performance. These adjusted financial measures are commonly referred to as non-GAAP. An explanation of how we calculate these non-GAAP financial measures is included below.
Adjusted
Net Income from Continuing Operations
Adjusted Net
Income from continuing operations attributable to CVS Health is defined as
income before income tax provision, plus amortization of intangibles, less
adjusted income tax provision and earnings allocated to participating
securities, plus (minus) net loss (income) attributable to non-controlling
interest.
EBIT or
Operating Profit
EBIT or
Operating Profit is defined as earnings before interest and taxes adjusted for
certain items. For the purposes of measuring performance against established
targets in any period, when applicable those excluded items comprise certain
legal settlements and activity related to newly acquired or divested businesses.
Free Cash
Flow
We define free
cash flow as net cash provided by operating activities less net additions to
property and equipment (i.e., additions to property and equipment plus proceeds
from sale-leaseback transactions).
RoNA or
Return on Net Assets
In
calculating RoNA, or return on net assets, we divide four quarter rolling
adjusted net income (loss) attributable to CVS Health (less the after-tax impact
of the excluded items outlined in the EBIT or Operating Profit description,
above) by the most recent eight quarters average net assets. Net assets for the
purposes of this calculation is defined as current assets plus net fixed assets
less accounts payable and accrued expenses, similarly adjusted to exclude, when
applicable, certain legal settlements and amounts related to newly acquired or
divested businesses.
www.cvshealthannualmeeting.com 53
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS |
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following Summary Compensation
Table shows information about the compensation received by our CEO, CFO and each
of our three other most highly compensated executive officers for services
rendered in all capacities during the 2014 fiscal year.
Summary Compensation
Table
Name &
Principal 2014 Positions
(1) |
Year |
Salary ($) |
Bonus ($) |
Stock Awards ($)
(2)(3) |
Option Awards ($)
(3) |
Non-Equity Incentive Plan Compensation ($)
(4) |
Change in Pension Value
and Nonqualified Deferred Compensation Earnings ($)
(5) |
All Other Compensation ($)
(6) |
Total ($) |
Larry J. Merlo |
2014 |
1,350,000 |
|
6,749,996 |
3,999,998 |
11,465,052 |
8,065,273 |
720,414 |
32,350,733 |
President and
Chief |
2013 |
1,337,500 |
|
6,750,048 |
4,000,002 |
8,501,412 |
8,467,509 |
2,273,691 |
31,330,162 |
Executive
Officer |
2012 |
1,287,500 |
|
6,500,004 |
3,750,001 |
6,373,092 |
2,210,254 |
209,246 |
20,330,097 |
David M.
Denton |
2014 |
825,000 |
|
8,928,958 |
749,997 |
3,975,043 |
|
205,582 |
14,684,580 |
Executive Vice
President |
2013 |
793,750 |
|
2,125,028 |
1,375,006 |
3,430,504 |
|
1,004,604 |
8,728,892 |
and Chief Financial
Officer |
2012 |
681,250 |
|
2,000,016 |
1,250,000 |
2,098,511 |
|
32,302 |
6,062,079 |
Helena B. Foulkes |
2014 |
850,000 |
|
1,249,927 |
624,992 |
3,165,044 |
|
174,119 |
6,064,082 |
Executive Vice
President |
|
|
|
|
|
|
|
|
|
and President |
|
|
|
|
|
|
|
|
|
CVS/pharmacy |
|
|
|
|
|
|
|
|
|
Jonathan C.
Roberts |
2014 |
900,000 |
|
1,749,988 |
874,991 |
3,915,058 |
|
246,386 |
7,686,423 |
Executive Vice
President |
2013 |
900,000 |
|
1,625,043 |
875,007 |
3,037,514 |
|
1,623,783 |
8,061,347 |
and President |
2012 |
766,667 |
|
2,025,074 |
2,141,742 |
2,835,034 |
|
94,906 |
7,863,423 |
CVS/caremark |
|
|
|
|
|
|
|
|
|
Thomas M. Moriarty |
2014 |
670,000 |
|
1,374,958 |
749,997 |
2,412,573 |
|
208,194 |
5,415,722 |
Executive Vice
President, |
|
|
|
|
|
|
|
|
|
Chief Health Strategy
Officer |
|
|
|
|
|
|
|
|
|
and General
Counsel |
|
|
|
|
|
|
|
|
|
(1) |
|
Ms. Foulkes became
President CVS/pharmacy effective January 1, 2014; she was previously
Chief Health Care Strategy and Marketing Officer. Mr. Moriarty was given
the additional title of Chief Health Strategy Officer in March 2014; he
was previously, and remains, Executive Vice President and General
Counsel. |
(2) |
|
Included in the stock
award column is the full grant date fair value of all restricted stock
unit awards (RSUs) made to the executive in 2014. Also included is the
portion of the LTIP award for performance years 2014 2016 that would be
made in non-transferable shares at the target level of performance at the
completion of the performance cycles. The amount of the 2014 2016 LTIP
award that is payable in cash at the completion of the performance cycles
will be reported in the 2017 proxy statement. For 2014, the amounts
reported with respect to 2014 RSUs and the LTIP award, respectively, for
each of the named executive officers are as follows: for Mr. Merlo,
$3,999,996 and $2,750,000; for Mr. Denton, $749,958 and $750,000; for Ms.
Foulkes, $624,927 and $625,000; for Mr. Roberts, $874,988 and $875,000;
and for Mr. Moriarty, $749,958 and $625,000. For Mr. Denton, the figure
also includes $7,429,000 for a supplemental award of 100,000 RSUs granted
to him in 2014 and vesting in 2021, in addition to the awards noted
above. |
(3) |
|
The figures shown are
the full fair value on the date of grant. For a discussion of the
assumptions and methodologies used to value the stock and option awards,
please see the discussion of stock awards and option awards contained in
our 2014 Annual Report to Stockholders, Notes to Consolidated Financial
Statements at Note 9, Stock Incentive Plans. |
(4) |
|
The figures shown
include amounts earned in 2014 as annual cash incentive awards and the
cash portion of the 2012 2014 LTIP cycle. |
(5) |
|
The amounts reported
in this column represent only changes in pension value, as the Company
does not pay above-market earnings on deferred compensation. The Company
adopted a policy in 2010 stating that it will not offer SERP
benefits to new participants. Mr. Merlo is the only executive participant
in the SERP. For additional information on the SERP, see Pension
Benefits beginning on page 59. |
(6) |
|
Set forth below is
additional information regarding the amounts disclosed in the All Other
Compensation column. |
54 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
All Other Compensation
2014
Name & Principal 2014
Positions |
Perquisites & Other
Personal Benefits (a) ($) |
Company Contributions
to Defined Contribution Plans (b) ($) |
Other
(c) ($) |
Larry J. Merlo |
69,687 |
267,570 |
383,157 |
President and |
|
|
|
Chief Executive
Officer |
|
|
|
David M.
Denton |
15,197 |
16,900 |
173,485 |
Executive Vice President
and |
|
|
|
Chief Financial
Officer |
|
|
|
Helena B. Foulkes |
23,394 |
108,271 |
42,454 |
Executive Vice President
and |
|
|
|
President
CVS/pharmacy |
|
|
|
Jonathan C.
Roberts |
23,197 |
148,123 |
75,066 |
Executive Vice President
and |
|
|
|
President
CVS/caremark |
|
|
|
Thomas M. Moriarty |
78,507 |
108,750 |
20,937 |
Executive Vice
President, |
|
|
|
Chief Health Strategy
Officer |
|
|
|
and General
Counsel |
|
|
|
(a) |
|
The amounts above
reflect the following: for Mr. Merlo, $15,000 for financial planning
services, $394 for home security, $46,293 associated with personal use of
company aircraft and $8,000 associated with the CVS Health Charity
Classic; for Mr. Denton, $15,000 for financial planning services and $197
for home security; for Ms. Foulkes, $15,000 for financial planning
services, $394 for home security and $8,000 associated with the CVS Health
Charity Classic; for Mr. Roberts, $15,000 for financial planning services,
$197 for home security and $8,000 associated with the CVS Health Charity
Classic; for Mr. Moriarty, $15,000 for financial planning services and
$63,507 associated with housing expenses. The Company determines the
amount associated with personal use of Company aircraft by calculating the
incremental cost to the Company based on the cost of fuel, trip-related
maintenance, deadhead flights, crew travel expenses, landing fees,
trip-related hangar costs and smaller variable expenses. |
(b) |
|
For 2014, this amount includes Company matching contributions to the CVS Health Future Fund of $13,000 for each of Messrs. Merlo, Denton, Roberts and Moriarty and Ms. Foulkes. It also includes Company matching contributions credited to notional accounts in the unfunded Deferred Compensation Plan equal to: for Mr. Merlo $254,570; for Mr. Denton, $3,900; for Ms. Foulkes, $95,271; for Mr. Roberts, $135,123; and for Mr. Moriarty, $95,750. |
(c) |
|
This amount includes cash dividend equivalents paid by the Company on unvested RSUs as follows: for Mr. Merlo, $290,016; for Mr. Denton, $173,485; for Ms. Foulkes, $42,454; for Mr. Roberts, $68,657; and for Mr. Moriarty, $20,937. Also includes cash dividend equivalents paid by the Company on deferred RSUs, as noted in the Nonqualified Deferred Compensation table, equal to: for Mr. Merlo, $93,141 and for Mr. Roberts, $6,409. |
www.cvshealthannualmeeting.com 55
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Grants of Plan-Based Awards
This table reflects awards granted
under our annual cash incentive plan for 2014, the 2014 2016 LTIP cycle, and
the annual equity awards for 2014, which include stock options and
RSUs.
Grants of Plan-Based
Awards 2014
|
|
|
|
Est. Future Payouts |
Est. Future Payouts |
All
Other |
All
Other |
|
|
|
|
|
|
Under Non-Equity |
Under Equity |
Stock |
Option |
|
Grant
Date |
|
|
|
|
Incentive
Plan Awards |
Incentive
Plan Awards (1) |
Awards: |
Awards: |
Exercise |
Fair |
|
|
|
|
|
|
|
|
|
|
Number
of |
Number
of |
or
Base |
Value
of |
|
|
|
|
|
|
|
|
|
|
Shares
of |
Securities |
Price
of |
Stock
and |
|
|
Date of |
|
|
|
|
|
|
|
Stock
or |
Underlying |
Option |
Option |
|
|
Committee |
Grant |
Threshold |
Target |
Maximum |
Threshold |
Target |
Maximum |
Units |
Options |
Awards |
Awards |
Name & Principal
2014 Positions |
Award Type |
Action |
Date |
($) |
($) |
($) |
(#) |
(#) |
(#) |
(#) |
(#) |
($ / Sh) |
($) |
Larry J. Merlo |
Stock Options |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
|
335,697 |
74.29 |
3,999,998 |
President and |
Annual RSUs |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
53,843 |
|
|
3,999,996 |
Chief Executive
Officer |
Annual Cash |
|
|
0 |
2,700,000 |
6,750,000 |
|
|
|
|
|
|
|
|
LTIP (14-16) |
2/18/2014 |
2/18/2014 |
1,100,000 |
2,750,000 |
5,500,000 |
15,642 |
39,106 |
78,212 |
|
|
|
2,750,000 |
David M.
Denton |
Stock
Options |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
|
62,943 |
74.29 |
749,997 |
Executive Vice President
and |
Annual
RSUs |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
10,095 |
|
|
749,958 |
Chief Financial
Officer |
Supplemental |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
100,000 |
|
|
7,429,000 |
|
Award
(RSUs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Cash |
|
|
0 |
1,237,500 |
3,300,000 |
|
|
|
|
|
|
|
|
LTIP
(14-16) |
2/18/2014 |
2/18/2014 |
300,000 |
750,000 |
1,500,000 |
4,266 |
10,665 |
21,330 |
|
|
|
750,000 |
Helena B. Foulkes |
Stock Options |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
|
52,452 |
74.29 |
624,992 |
Executive Vice President
and |
Annual RSUs |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
8,412 |
|
|
624,997 |
President
CVS/pharmacy |
Annual Cash |
|
|
0 |
1,275,000 |
3,400,000 |
|
|
|
|
|
|
|
|
LTIP (14-16) |
2/18/2014 |
2/18/2014 |
250,000 |
625,000 |
1,250,000 |
3,555 |
8,887 |
17,774 |
|
|
|
625,000 |
Jonathan C.
Roberts |
Stock
Options |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
|
73,433 |
74.29 |
874,991 |
Executive Vice President
and |
Annual
RSUs |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
11,778 |
|
|
874,988 |
President
CVS/caremark |
Annual
Cash |
|
|
0 |
1,350,000 |
3,600,000 |
|
|
|
|
|
|
|
|
LTIP
(14-16) |
2/18/2014 |
2/18/2014 |
350,000 |
875,000 |
1,750,000 |
4,977 |
12,443 |
24,886 |
|
|
|
875,000 |
Thomas M. Moriarty |
Stock Options |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
|
62,943 |
74.29 |
749,997 |
Executive Vice President,
Chief |
Annual RSUs |
2/18/2014 |
4/1/2014 |
|
|
|
|
|
|
10,095 |
|
|
749,958 |
Health Strategy Officer
and |
Annual Cash |
|
|
0 |
837,500 |
2,010,000 |
|
|
|
|
|
|
|
General Counsel |
LTIP (14-16) |
2/18/2014 |
2/18/2014 |
250,000 |
625,000 |
1,250,000 |
3,555 |
8,887 |
17,774 |
|
|
|
625,000 |
(1) |
|
Share numbers
determined based on the closing price of our stock on the applicable grant
date. |
The stock option awards shown above
vest in equal installments on the first, second, third and fourth anniversaries
of the date of grant and expire in seven years from the date of grant. As
described above, our policy is to establish the exercise price for stock options
as the closing price of our common stock on the grant date. Annual RSU grants
typically vest in increments of 50% on the third anniversary of the grant and
50% on the fifth anniversary of the grant. Mr. Dentons supplemental RSUs vest
100% on the seventh anniversary of the grant.
If earned, a portion of the 2014 2016
LTIP cycle awards will be reported in the Non-Equity Incentive Plan Compensation
column of the Summary Compensation Table for the relevant year in which payment
may be made.
56 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Outstanding Equity Awards at Fiscal Year-End
This table reflects stock option and RSU awards granted to our named executive officers under our 1997 and
2010 ICPs that were outstanding as of December 31, 2014.
Outstanding
Equity Awards at 2014
Year-End
|
|
Stock Option Awards |
|
Stock
Awards |
Name & Principal 2014
Positions |
|
Grant Date |
|
Number
of Securities Underlying Unexercised Options
(#) Exercisable |
|
Number
of Securities Underlying Unexercised Options
(#) Unexercisable |
|
Option Exercise Price ($) |
|
Option Expiration Date |
|
Grant Date |
|
Number of Shares or Units
of Stock that Have Not Vested (#) |
|
Market Value of Shares or
Units of Stock that Have Not Vested ($)
(1) |
|
Equity Incentive Plan
Awards: Number of Shares or Units of Stock that Have
Not Vested (#) |
|
Equity Incentive Plan
Awards: Market Value of Shares or Units of Stock that Have
Not Vested ($) (1) |
Larry J. Merlo |
|
4/1/2008 |
|
144,144 |
|
|
(2) |
|
41.17 |
|
4/1/2015 |
|
4/1/2010 |
|
20,702 |
(5) |
|
1,993,810 |
|
|
|
|
|
President and |
|
4/1/2009 |
|
92,786 |
|
|
(2) |
|
28.10 |
|
4/1/2016 |
|
4/1/2011 |
|
32,180 |
(5) |
|
3,099,256 |
|
|
|
|
|
Chief Executive
Officer |
|
4/1/2010 |
|
152,988 |
|
|
(2) |
|
36.23 |
|
4/1/2017 |
|
4/2/2012 |
|
83,204 |
(6) |
|
8,013,377 |
|
|
|
|
|
|
|
4/1/2011 |
|
180,862 |
|
60,288 |
(3) |
|
34.96 |
|
4/1/2018 |
|
4/1/2013 |
|
73,355 |
(6) |
|
7,064,820 |
|
|
|
|
|
|
|
4/2/2012 |
|
166,368 |
|
166,368 |
(3) |
|
45.07 |
|
4/2/2019 |
|
4/1/2014 |
|
53,843 |
(6) |
|
5,185,619 |
|
|
|
|
|
|
|
4/1/2013 |
|
78,678 |
|
236,035 |
(3) |
|
54.53 |
|
4/1/2020 |
|
3/6/2013 |
|
|
|
|
|
|
52,661 |
(9) |
|
5,071,781 |
|
|
4/1/2014 |
|
|
|
335,697 |
(3) |
|
74.29 |
|
4/1/2021 |
|
2/18/2014 |
|
|
|
|
|
|
39,106 |
(9) |
|
3,766,299 |
David M.
Denton |
|
3/5/2008 |
|
12,420 |
|
|
(4) |
|
40.28 |
|
3/5/2018 |
|
4/1/2010 |
|
4,313 |
(7) |
|
415,385 |
|
|
|
|
|
Executive Vice President
and |
|
4/1/2010 |
|
95,618 |
|
|
(2) |
|
36.23 |
|
4/1/2017 |
|
4/1/2011 |
|
14,303 |
(5) |
|
1,377,522 |
|
|
|
|
|
Chief Financial
Officer |
|
4/1/2011 |
|
80,383 |
|
26,795 |
(3) |
|
34.96 |
|
4/1/2018 |
|
4/2/2012 |
|
27,735 |
(6) |
|
2,671,158 |
|
|
|
|
|
|
|
4/2/2012 |
|
55,456 |
|
55,456 |
(3) |
|
45.07 |
|
4/2/2019 |
|
4/1/2013 |
|
25,216 |
(6) |
|
2,428,553 |
|
|
|
|
|
|
|
4/1/2013 |
|
27,045 |
|
81,138 |
(3) |
|
54.53 |
|
4/1/2020 |
|
4/1/2014 |
|
10,095 |
(6) |
|
972,249 |
|
|
|
|
|
|
|
4/1/2014 |
|
|
|
62,943 |
(3) |
|
74.29 |
|
4/1/2021 |
|
4/1/2014 |
|
100,000 |
(8) |
|
9,631,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/6/2013 |
|
|
|
|
|
|
14,362 |
(9) |
|
1,383,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/2014 |
|
|
|
|
|
|
10,665 |
(9) |
|
1,027,146 |
Helena B. Foulkes |
|
4/1/2011 |
|
|
|
12,058 |
(3) |
|
34.96 |
|
4/1/2018 |
|
4/1/2009 |
|
2,670 |
(7) |
|
257,148 |
|
|
|
|
|
Executive Vice President
and |
|
4/1/2011 |
|
|
|
28,607 |
(4) |
|
34.96 |
|
4/1/2021 |
|
4/1/2010 |
|
2,416 |
(7) |
|
232,685 |
|
|
|
|
|
President
CVS/pharmacy |
|
4/2/2012 |
|
|
|
19,965 |
(3) |
|
45.07 |
|
4/2/2019 |
|
4/1/2011 |
|
4,533 |
(5) |
|
436,573 |
|
|
|
|
|
|
|
4/1/2013 |
|
9,835 |
|
29,505 |
(3) |
|
54.53 |
|
4/1/2020 |
|
4/1/2011 |
|
6,436 |
(5) |
|
619,851 |
|
|
|
|
|
|
|
4/1/2014 |
|
|
|
52,452 |
(3) |
|
74.29 |
|
4/1/2021 |
|
4/2/2012 |
|
9,985 |
(6) |
|
961,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/2013 |
|
9,170 |
(6) |
|
883,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/2014 |
|
8,412 |
(6) |
|
810,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/6/2013 |
|
|
|
|
|
|
7,659 |
(9) |
|
737,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/2014 |
|
|
|
|
|
|
8,887 |
(9) |
|
855,907 |
www.cvshealthannualmeeting.com 57
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
|
|
Stock Option Awards |
|
Stock Awards |
Name & Principal 2014 Positions |
|
Grant Date |
|
Number
of Securities Underlying Unexercised Options
(#) Exercisable |
|
Number
of Securities Underlying Unexercised Options
(#) Unexercisable |
|
Option Exercise Price ($) |
|
Option Expiration Date |
|
Grant Date |
|
Number of Shares or Units of Stock
that Have Not Vested (#) |
|
Market Value of Shares or Units of Stock
that Have Not Vested ($) (1) |
|
Equity Incentive Plan Awards: Number
of Shares or Units of Stock that Have Not Vested
(#) |
|
Equity Incentive Plan Awards: Market Value
of Shares or Units of Stock that Have Not Vested ($)
(1) |
Jonathan C. Roberts |
|
4/1/2008 |
|
86,487 |
|
|
(2) |
|
41.17 |
|
4/1/2015 |
|
4/1/2010 |
|
2,761 |
(5) |
|
265,912 |
|
|
|
|
|
Executive Vice President and |
|
4/1/2010 |
|
61,196 |
|
|
(2) |
|
36.23 |
|
4/1/2017 |
|
4/1/2011 |
|
11,442 |
(5) |
|
1,101,979 |
|
|
|
|
|
President CVS/caremark |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/2011 |
|
64,307 |
|
21,436 |
(3) |
|
34.96 |
|
4/1/2018 |
|
4/2/2012 |
|
19,415 |
(6) |
|
1,869,859 |
|
|
|
|
|
|
|
4/2/2012 |
|
38,819 |
|
38,820 |
(3) |
|
45.07 |
|
4/2/2019 |
|
9/4/2012 |
|
11,259 |
(5) |
|
1,084,354 |
|
|
|
|
|
|
|
9/4/2012 |
|
|
|
108,870 |
(4) |
|
45.93 |
|
9/4/2022 |
|
4/1/2013 |
|
16,047 |
(6) |
|
1,545,487 |
|
|
|
|
|
|
|
4/1/2013 |
|
17,211 |
|
51,633 |
(3) |
|
54.53 |
|
4/1/2020 |
|
4/1/2014 |
|
11,778 |
(6) |
|
1,134,339 |
|
|
|
|
|
|
|
4/1/2014 |
|
|
|
73,433 |
(3) |
|
74.29 |
|
4/1/2021 |
|
3/6/2013 |
|
|
|
|
|
|
14,362 |
(9) |
|
1,383,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/2014 |
|
|
|
|
|
|
12,443 |
(9) |
|
1,198,385 |
Thomas M.
Moriarty |
|
10/1/2012 |
|
|
|
61,640 |
(4) |
|
48.67 |
|
10/1/2022 |
|
10/1/2012 |
|
6,375 |
(5) |
|
613,976 |
|
|
|
|
|
Executive Vice
President |
|
4/1/2013 |
|
12,293 |
|
36,881 |
(3) |
|
54.53 |
|
4/1/2020 |
|
4/1/2013 |
|
11,462 |
(6) |
|
1,103,905 |
|
|
|
|
|
Chief Health
Strategy Officer and |
|
4/1/2014 |
|
|
|
62,943 |
(3) |
|
74.29 |
|
4/1/2021 |
|
4/1/2014 |
|
10,095 |
(6) |
|
972,249 |
|
|
|
|
|
General
Counsel |
|
|
|
|
|
|
|
|
|
|
|
|
3/6/2013 |
|
|
|
|
|
|
11,968 |
(9) |
|
1,152,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2/18/2014 |
|
|
|
|
|
|
8,887 |
(9) |
|
855,907 |
(1) |
The value of the RSUs is based on $96.31, which was the closing
price of our stock on December 31, 2014, the last trading day of our
fiscal year. |
(2) |
The stock options vest in one-third increments on each of the
first, second and third anniversaries of the date of grant. |
(3) |
The stock options vest in one-quarter increments on each of the
first, second, third and fourth anniversaries of the date of
grant. |
(4) |
The stock options vest in one-third increments on each of the
third, fourth and fifth anniversaries of the date of grant and expire ten
years from the date of grant. |
(5) |
RSUs vest on the fifth anniversary of the date of
grant. |
(6) |
RSUs vest in increments of 50% on the third anniversary of the
grant date and on the fifth anniversary of the grant date. |
(7) |
RSUs vest on the executives 55th birthday. |
(8) |
RSUs vest on the seventh anniversary of the date of
grant. |
(9) |
Represents non-transferable
shares to be delivered to each of the executives for outstanding LTIP
performance cycles in effect for 2013-2015 cycle and 2014-2016 cycle,
assuming in each case that the target level of performance will be
achieved. |
58
CVS Health Notice of Annual Meeting of
Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Option Exercises and Stock
Vested
The table below reflects information
for the fiscal year ended December 31, 2014 concerning options exercised and the
vesting of previously granted RSUs and non-transferable shares for each of the
executive officers specified in the table. The value of the shares acquired upon
exercise of the options and the shares represented by the vesting of RSUs is
based on the closing price of our stock on the date of exercise and the date of
vesting, respectively.
Option Exercises and Stock Vested
2014
|
|
Option Awards |
|
Stock Awards |
Name & Principal 2014 Positions |
|
Number of Shares Acquired on
Exercise (#) |
|
Value Realized on Exercise ($) |
|
Number of Shares Acquired on Vesting (#)
(1) |
|
Value Realized on Vesting ($)
(2) |
Larry J.
Merlo President and Chief
Executive Officer |
|
228,875 |
|
8,904,220 |
|
121,500 |
|
10,984,076 |
David M.
Denton Executive Vice President
and Chief Financial Officer |
|
89,102 |
|
3,741,983 |
|
32,353 |
|
2,937,453 |
Helena B.
Foulkes Executive Vice President
and President CVS/pharmacy |
|
46,325 |
|
2,258,228 |
|
16,063 |
|
1,478,087 |
Jonathan C.
Roberts Executive Vice President
and President CVS/caremark |
|
162,192 |
|
6,514,141 |
|
31,312 |
|
2,788,918 |
Thomas M. Moriarty
Executive Vice President, Chief Health Strategy
Officer and General
Counsel |
|
|
|
|
|
9,025 |
|
937,427 |
(1) |
Includes RSUs vested and deferred during 2014: for Mr. Merlo,
55,312; for Ms. Foulkes, 6,436, and for Mr. Roberts, 11,442. |
(2) |
Includes the value of RSUs vested
and deferred during 2014 as of respective deferral dates also shown in the
Nonqualified Deferred Compensation Table: for Mr. Merlo, $4,109,128; for
Ms. Foulkes, $478,130, for Mr. Roberts,
$850,026. |
Pension Benefits
We maintain an unfunded supplemental
retirement plan (the SERP), which is designed to supplement the retirement
benefits of select executives in lieu of a qualified defined benefit plan. The
SERP is a legacy plan in which participation has decreased over the years as
participants have retired, and the Company has not provided SERP benefits to new
participants since 2010. Mr. Merlo is the only active executive officer
participating in the SERP.
Under the SERPs benefit formula,
participants (including Mr. Merlo and certain retired executives) will receive
an annual benefit commencing on the later of age 55 or retirement, equal to 1.6%
of a three-year average of final compensation (as defined in the SERP) for each
year of service up to 30 years, with no offset for any amounts provided by our
qualified plans, Social Security or other retirement benefits. Final
compensation for purposes of the SERP benefit formula is the average of the
executives three highest years of annual salary and annual cash bonus during
the last ten years of service. The estimated credited years of benefit service
for Mr. Merlo as of the measurement date of December 31, 2014 was 30 years (Mr.
Merlos years of service are capped at 30, in accordance with the terms of the
SERP). Benefits under the SERP formula are payable in annual installments for
the life of the executive, unless the executive has made an advance election in
accordance with plan and IRS rules to have the benefit paid in the form of a
lump sum or joint and survivor annuity of equivalent actuarial value. Mr. Merlo
has made an election to receive his entire benefit payable on account of
termination of employment in the form of a lump sum.
No benefits are payable to an eligible
executive until he terminates employment. As of the measurement date, Mr. Merlo
was eligible for an immediate benefit.
As Mr. Merlo has reached the maximum
amount of service under the plan based on his more than 30 years with the
Company, his benefit increases are primarily as a result of performance-based
bonuses. In addition, because the plan is a defined benefit plan, it is subject
to certain actuarial variations including discount rates and mortality table
assumptions. This means if interest rates increase, Mr. Merlos benefit will
decrease and if interest rates decrease, Mr. Merlos benefit will
increase.
Each year, as part of the
administration of our benefit plans, we review the actuarial assumptions used to
calculate our pension liability. CVS Health estimates a long-term rate to
calculate the value of Mr. Merlos SERP for purposes of this exercise. Given the
low interest-rate environment over past several years, we lowered the long-term
discount rate assumption from 3.5% to 2.5% during 2014. As discussed above, this
resulted in an increase in Mr. Merlos estimated benefit; $3.7 million of the
$8.1 million increase in the estimated lump-sum value of Mr. Merlos pension
benefit reflected in the 2014 Summary Compensation Table is due to the effect of
the lower assumed interest rate, with the remaining amount ($4.4 million) due to
performance-based bonuses. Any pension benefit paid as a lump sum upon the
eventual retirement of Mr. Merlo will be determined by the applicable interest
rate at the time of separation.
www.cvshealthannualmeeting.com 59
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
The accumulated value in the Pension
Benefits Table and Summary Compensation Table is based on the benefit accrued as
of the measurement date payable as a lump sum commencing on the earliest
unreduced retirement age (55) using assumptions which include a 2.50% discount
rate as of December 31, 2014. Mr. Merlo is fully
vested in his accrued benefit. For further information regarding pension
assumptions, please see the Notes to the Consolidated Financial Statements in
our Annual Report to Stockholders for the fiscal year ended December 31,
2014.
Pension Benefits 2014
Name & Principal 2014 Positions |
|
Plan Name |
|
Number of Years of Credited Service (#) |
|
Present Value of Accumulated Benefit ($) |
|
Payments During Last Fiscal Year ($) |
Larry J.
Merlo President
and Chief Executive
Officer |
|
SERP |
|
30 |
|
38,325,305 |
|
|
David M.
Denton Executive Vice President
and Chief Financial
Officer |
|
N/A |
|
|
|
|
|
|
Helena B.
Foulkes Executive Vice
President and President
CVS/pharmacy |
|
N/A |
|
|
|
|
|
|
Jonathan C. Roberts Executive Vice
President and President CVS/caremark |
|
N/A |
|
|
|
|
|
|
Thomas M. Moriarty Executive Vice President, Chief
Health Strategy Officer and General Counsel |
|
N/A |
|
|
|
|
|
|
Nonqualified Deferred
Compensation
Executive officers and selected members
of senior management may participate in the CVS Health Deferred Compensation
Plan (the DCP) and the CVS Health Deferred Stock Plan (the DSP). The DCP
allows participants to defer payment of a portion of their salary and all or a
portion of their annual cash incentive (and in the case of executive officers,
all or a portion of any LTI plan cash award) to facilitate their personal
retirement or financial planning. For participants in the DCP, we provide a
maximum match of up to 5% of the salary and annual cash incentive deferred, plus
an additional match for matching contributions only on amounts that cannot be
deferred into qualified 401(k) plans due to IRS plan limits.
The investment crediting options for
the DCP mirror those offered for the CVS Health Future Fund. Each year, the
amount of a participants deferred compensation account increases or decreases
based on the appreciation and/or depreciation in the value of the investment crediting alternatives selected by the participant.
There are no vesting requirements on deferred amounts or earnings on deferred
amounts.
Executive officers and selected members
of management are eligible to participate in the DSP, in which they may elect to
defer settlement of RSUs beyond the scheduled vesting date. Dividend equivalents
are reinvested during the deferral period. Messrs. Merlo and Roberts deferred
portions of their equity-based compensation in the DSP. Executive officers are
not permitted to defer proceeds of stock option exercises.
The amounts shown in the table below
for Cash and Stock were deferred pursuant to the DCP and the DSP,
respectively.
60
CVS Health Notice of Annual Meeting of
Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Nonqualified Deferred Compensation
2014
Name & Principal 2014 Positions |
|
Type |
|
Executive Contributions in Last
FY ($) (1) |
|
Registrant Contributions in Last
FY ($) (2) |
|
Aggregate Earnings in Last
FY ($) (3) |
|
Aggregate Withdrawals/ Distributions ($) (4) |
|
Aggregate Balance at Last
FYE ($) (5)(6) |
Larry J. Merlo |
|
Cash |
|
267,570 |
|
254,570 |
|
216,182 |
|
|
|
3,782,816 |
President and Chief
Executive Officer |
|
Stock |
|
8,609,116 |
|
|
|
22,611,187 |
|
93,141 |
|
84,844,937 |
David M. Denton |
|
Cash |
|
|
|
3,900 |
|
184 |
|
86,384 |
|
3,900 |
Executive Vice President and |
|
Stock |
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
Helena B.
Foulkes |
|
Cash |
|
298,280 |
|
95,271 |
|
41,645 |
|
|
|
1,332,743 |
Executive Vice President
and |
|
Stock |
|
1,278,091 |
|
|
|
662,821 |
|
|
|
2,508,114 |
President
CVS/pharmacy |
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan C. Roberts |
|
Cash |
|
588,761 |
|
135,123 |
|
122,864 |
|
|
|
2,382,955 |
Executive Vice President and |
|
Stock |
|
2,149,962 |
|
|
|
1,822,178 |
|
6,409 |
|
6,868,854 |
President CVS/caremark |
|
|
|
|
|
|
|
|
|
|
|
|
Thomas M.
Moriarty |
|
Cash |
|
1,505,000 |
|
95,750 |
|
169,169 |
|
|
|
2,152,862 |
Executive Vice
President, Chief Health |
|
Stock |
|
|
|
|
|
|
|
|
|
|
Strategy Officer and
General Counsel |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The cash contributions include amounts shown for 2014 in the Salary
column of the Summary Compensation Table as follows: for Mr. Merlo,
$67,500; for Ms. Foulkes, $42,500; and for Mr. Roberts, $90,000. All other
amounts represent non-equity incentive compensation deferred during 2014.
The stock contributions for Messrs. Merlo and Roberts and Ms. Foulkes
represent deferred settlement under the DSP of RSUs granted in prior years
that vested in 2014. |
(2) |
All amounts shown are also disclosed in the Summary Compensation
Table under All Other Compensation and reflect amounts credited and/or
earned in 2014. |
(3) |
All earnings shown on the Stock line are attributable to dividend
equivalents credited as additional deferred RSUs and an increase in our
common stock price. |
(4) |
All amounts distributed from the DSP include cash dividend
equivalent payments. |
(5) |
The following amounts included in
this column have been previously reported in the Summary Compensation
Tables of our annual proxy statement since 2007: |
|
|
|
Cash |
|
Stock |
Mr. Merlo |
|
$2,168,283 |
|
$13,586,299 |
Mr. Denton |
|
17,025 |
|
|
Ms. Foulkes |
|
|
|
|
Mr. Roberts |
|
623,655 |
|
|
Mr. Moriarty |
|
|
|
|
Payments/(Forfeitures) Under
Termination Scenarios
The tables below show the amounts that
would be received or forfeited by each named executive officer under various
termination scenarios, assuming (1) that the termination occurred on December
31, 2014 and (2) that amounts that have been paid or are payable in all events,
such as the non-equity incentive amounts earned with respect to fiscal year 2014
and disclosed in the Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table on page 54, the amounts payable under the pension
plans discussed beginning on page 59, and the amounts in the nonqualified
deferred compensation plans discussed beginning on page 60, are not included in
the tables below, nor is any amount for stock options that are vested and
exercisable as of December 31, 2014.
With respect to the tables below:
● |
Messrs. Denton and Moriarty and Ms. Foulkes were not eligible for
retirement benefits as of December 31, 2014. |
● |
The
amounts paid as base salary upon voluntary termination for Mr. Merlo
reflects the Companys option to continue to pay 50% of his
salary for 18 months in consideration for compliance with a
non-competition provision. |
● |
The option value is
determined by multiplying the number of unvested options outstanding as of
December 31, 2014 by the difference between the exercise price and $96.31,
the closing price on December 31, 2014, the last trading day of the
Companys fiscal year. Generally, the grant agreements provide for the
following post-termination exercise periods, but in no case will the
post-termination exercise period be longer than the original option
term: |
● |
In
the case of termination due to death, during the one-year period following
termination; |
● |
In
the case of constructive termination without cause prior to a change in
control of the Company (a CIC), during the severance
period; |
● |
In
the case of constructive termination without cause after a CIC, during the
remainder of the option term; and |
● |
In the cases of termination
for cause or voluntary termination, generally there is no post-termination
exercise period. |
www.cvshealthannualmeeting.com 61
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
● |
The
value of the RSUs is determined by multiplying the number of RSUs as of
December 31, 2014 by the closing price on that date, $96.31, which was the
last trading day of our fiscal year. |
● |
Upon a CIC and subsequent termination of employment, all
outstanding unvested stock options will vest in full and restrictions will
lapse on all RSUs. |
● |
The value of LTIP cycles
assumes pro-rated payments are made for the outstanding 2013 2015 LTIP
cycle (two-thirds) and 2014 2016 LTIP cycle (one-third); all outstanding
performance cycles are assumed to be achieved at target and the value of
payments are made at target. |
In the event of his covered termination
prior to a CIC, Mr. Merlo would receive a cash severance payment equal to two
times the sum of his annual base salary and his then-current annual cash
incentive at target. In the event of a covered termination following a CIC, Mr.
Merlo would receive a cash severance payment equal to three times the sum of his
annual base salary and his then-current annual cash incentive at target, but
under his amended employment contract such cash severance would be reduced to
avoid the excise tax under IRC Section 280G if that would give Mr. Merlo a
better after-tax result. Early retirement is defined in Mr. Merlos Employment
Agreement and in his various stock option and RSU agreements. See Agreements
with Executive Officers on page 52 for additional information.
Larry J. Merlo
President and Chief Executive
Officer |
|
Death ($) |
|
Termination for Cause ($) |
|
Voluntary Termination ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause Prior to
CIC ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause After
CIC ($) |
|
Approved Early Retirement ($) |
Cash Severance Value |
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
|
|
|
|
1,012,500 |
|
2,700,000 |
|
4,050,000 |
|
|
Bonus |
|
|
|
|
|
|
|
5,400,000 |
|
8,100,000 |
|
|
Immediate Vesting of
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Value of Options |
|
29,476,955 |
|
(29,476,955) |
|
(29,476,955) |
|
29,476,955 |
|
29,476,955 |
|
29,476,955 |
Value of RSUs |
|
25,356,882 |
|
(25,356,882) |
|
(25,356,882) |
|
25,356,882 |
|
25,356,882 |
|
15,303,370 |
Value of LTIP Cycles |
|
5,500,000 |
|
(5,500,000) |
|
(5,500,000) |
|
5,500,000 |
|
11,000,000 |
|
5,500,000 |
Benefits and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Health Insurance |
|
|
|
|
|
|
|
32,761 |
|
49,142 |
|
|
SERP |
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax
Gross-Up |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
60,333,837 |
|
(60,333,837) |
|
(59,321,337) |
|
68,466,598 |
|
78,032,979 |
|
50,280,325 |
With respect to each of the remaining
named executive officers, in the event of his or her termination prior to a CIC,
the named executive officer is eligible for severance payments, provided that he
or she executes a separation agreement with CVS Health that includes, among
other things, standard restrictive covenants regarding non-competition and
non-solicitation of customer and employees. In the event the named executive
officer is terminated by the Company without cause prior to a CIC, he or she is
eligible to receive 18 months of base salary as severance, paid in equal monthly
installments, in consideration for a general release of claims and compliance
with various restrictive covenants, including non-competition and
non-solicitation provisions. Each of the
remaining named executive officers has entered into a CIC Agreement with CVS
Health that specifies payments that would be made to him or her in the event of
a CIC. In the event of a covered termination, the named executive officer would
receive a cash severance payment equal to one and one-half times the sum of
annual base salary and then-current annual cash incentive at target, but under
the amended CIC Agreement such cash severance would be reduced to avoid the
excise tax under IRC Section 280G if that would give the named executive officer
a better after-tax result. Tables for each of the remaining named executive
officers are set forth below.
62
CVS Health Notice of Annual Meeting of
Stockholders
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
David M. Denton
Executive Vice President and Chief
Financial Officer |
|
Death ($) |
|
Termination for Cause ($) |
|
Voluntary Termination ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause Prior to
CIC ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause After
CIC ($) |
Cash Severance
Value |
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
|
|
|
|
|
|
1,237,500 |
|
1,237,500 |
Bonus |
|
|
|
|
|
|
|
|
|
1,856,250 |
Immediate Vesting of Equity |
|
|
|
|
|
|
|
|
|
|
Value of Options |
|
9,261,389 |
|
(9,261,389) |
|
(9,261,389) |
|
7,449,705 |
|
9,261,389 |
Value of RSUs |
|
17,495,867 |
|
(17,495,867) |
|
(17,495,867) |
|
3,927,377 |
|
17,495,867 |
Value of LTIP Cycles |
|
1,500,000 |
|
(1,500,000) |
|
(1,500,000) |
|
1,500,000 |
|
3,000,000 |
Benefits and
Other |
|
|
|
|
|
|
|
|
|
|
Health Insurance |
|
|
|
|
|
|
|
29,078 |
|
29,078 |
SERP |
|
|
|
|
|
|
|
|
|
|
Excise Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
Total |
|
28,257,256 |
|
(28,257,256) |
|
(28,257,256) |
|
14,143,660 |
|
32,880,084 |
|
|
|
|
|
|
|
|
|
|
|
Helena B.
Foulkes Executive Vice
President and President
CVS/pharmacy |
|
Death ($) |
|
Termination for Cause ($) |
|
Voluntary Termination ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause Prior to
CIC ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause After
CIC ($) |
Cash Severance
Value |
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
|
|
|
|
|
|
1,275,000 |
|
1,275,000 |
Bonus |
|
|
|
|
|
|
|
|
|
1,912,500 |
Immediate Vesting of Equity |
|
|
|
|
|
|
|
|
|
|
Value of Options |
|
5,905,516 |
|
(5,905,516) |
|
(5,905,516) |
|
4,921,223 |
|
5,905,516 |
Value of RSUs |
|
4,201,235 |
|
(4,201,235) |
|
(4,201,235) |
|
1,978,833 |
|
4,201,235 |
Value of LTIP Cycles |
|
950,000 |
|
(950,000) |
|
(950,000) |
|
950,000 |
|
2,050,000 |
Benefits and
Other |
|
|
|
|
|
|
|
|
|
|
Health Insurance |
|
|
|
|
|
|
|
23,842 |
|
23,842 |
SERP |
|
|
|
|
|
|
|
|
|
|
Excise Tax Gross-Up |
|
|
|
|
|
|
|
|
|
|
Total |
|
11,056,751 |
|
(11,056,751) |
|
(11,056,751) |
|
9,148,898 |
|
15,368,093 |
www.cvshealthannualmeeting.com 63
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS
Jonathan C. Roberts
Executive Vice President and
President CVS/caremark |
|
Death ($) |
|
Termination for Cause ($) |
|
Voluntary Termination ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause Prior to
CIC ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause After
CIC ($) |
Cash Severance Value |
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
|
|
|
|
|
|
1,350,000 |
|
1,350,000 |
Bonus |
|
|
|
|
|
|
|
|
|
2,025,000 |
Immediate Vesting of
Equity |
|
|
|
|
|
|
|
|
|
|
Value of Options |
|
12,563,327 |
|
(12,563,327) |
|
(12,563,327) |
|
7,368,082 |
|
12,563,327 |
Value of RSUs |
|
7,001,930 |
|
(7,001,930) |
|
(7,001,930) |
|
3,075,564 |
|
7,001,930 |
Value of LTIP Cycles |
|
1,583,333 |
|
(1,583,333) |
|
(1,583,333) |
|
1,583,333 |
|
3,250,000 |
Benefits and Other |
|
|
|
|
|
|
|
|
|
|
Health Insurance |
|
|
|
|
|
|
|
29,007 |
|
29,007 |
SERP |
|
|
|
|
|
|
|
|
|
|
Excise Tax
Gross-Up |
|
|
|
|
|
|
|
|
|
|
Total |
|
21,148,590 |
|
(21,148,590) |
|
(21,148,590) |
|
13,405,986 |
|
26,219,264 |
|
Thomas M. Moriarty
Executive Vice President, Chief
Health Strategy Officer and
General Counsel |
|
Death ($) |
|
Termination for Cause ($) |
|
Voluntary Termination ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause Prior to
CIC ($) |
|
Termination w/o Cause
or Constructive Termination w/o Cause After
CIC ($) |
Cash Severance Value |
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
|
|
|
|
|
|
1,005,000 |
|
1,005,000 |
Bonus |
|
|
|
|
|
|
|
|
|
1,256,250 |
Immediate Vesting of
Equity |
|
|
|
|
|
|
|
|
|
|
Value of Options |
|
5,863,423 |
|
(5,863,423) |
|
(5,863,423) |
|
2,694,452 |
|
5,863,423 |
Value of RSUs |
|
2,690,131 |
|
(2,690,131) |
|
(2,690,131) |
|
551,953 |
|
2,690,131 |
Value of LTIP Cycles |
|
1,250,000 |
|
(1,250,000) |
|
(1,250,000) |
|
1,250,000 |
|
2,500,000 |
Benefits and Other |
|
|
|
|
|
|
|
|
|
|
Health Insurance |
|
|
|
|
|
|
|
23,579 |
|
23,579 |
SERP |
|
|
|
|
|
|
|
|
|
|
Excise Tax
Gross-Up |
|
|
|
|
|
|
|
|
|
|
Total |
|
9,803,554 |
|
(9,803,554) |
|
(9,803,554) |
|
5,524,984 |
|
13,338,383 |
64 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
ITEM 5: STOCKHOLDER PROPOSAL REGARDING
CONGRUENCY OF CORPORATE VALUES AND POLITICAL
CONTRIBUTIONS |
On or about November 26, 2014, the
Company received the following proposal from NorthStar Asset Management, Inc.
Funded Pension Plan, P.O. Box 301840, Boston, MA 02130, beneficial owner of 447
shares of the Companys stock. In accordance with
SEC rules, we are reprinting the proposal and supporting statement (the
NorthStar Proposal) in this proxy statement as they were submitted to
us:
Alignment between Corporate Values and
Political Contributions |
Whereas:
The Supreme Court ruling in Citizens United v. Federal Election Commission interpreted the First Amendment right of
freedom of speech to include certain corporate political expenditures involving
electioneering communications, which resulted in greater public and
shareholder scrutiny;
Political contributions made by the
company include inconsistencies between donations and corporate values. For
instance, CVSs Environmental Commitment Statement declares that we are
committed to
reducing our environmental and climate-related impacts; and
contributing to the long-term sustainability of our business. Yet since 2009,
CVS EPAC designated over 30% of its contributions to politicians
voting against the American Clean Energy and Security Act of 2009 and for deregulating greenhouse gases;
CVS has an equal employment opportunity
policy which states that our continued success depends on the full
participation of all qualified persons regardless of age, gender, gender
identity or expression, marital status, sexual orientation
Yet since 2009, CVS
EPAC designated more than 38% of its contributions to politicians voting
against
hate crimes legislation and the repeal of Dont Ask Dont Tell, and sponsoring
the Federal Marriage Amendment Act, which would eliminate equal marriage rights
across the nation;
Additionally, CVS paid $187,500 in dues
used for political activities or advocacy to the U.S. Chamber of Commerce, a group from which other corporations have distanced
themselves due to its climate policies, raising shareholder concerns about the
Companys commitment to the environment;
Through contributions to the U.S.
Chamber of Commerce, CVS inadvertently supports the Institute for Legal Reform, which has
ties to the American Legislative Exchange
Council (ALEC). ALEC introduced and advocated for controversial and potentially
discriminatory Stand Your Ground laws, which are being investigated for racial
bias.
Resolved: Shareholders request that the Board of Directors report to shareholders
annually at reasonable expense, excluding confidential information, a congruency
analysis between corporate values as defined by CVSs stated policies (including
our Environmental Commitment Statement and our employment policy on Equal
Opportunity) and Company and CVS EPAC political and electioneering
contributions, including a list of any such contributions occurring during the
prior year which raise an issue of misalignment with corporate values, and
stating the justification for such exceptions.
Supporting
Statement: Proponents recommend that Company
management develop coherent criteria for determining congruency, such as
identifying legislative initiatives that are considered most germane to core
company values, and that the report include managements analysis of risks to
our companys brand, reputation, or shareholder value, as well as acts of
stewardship by the Company to inform funds recipients of company values, and
the recipients divergence from those values, at the time contributions are
made. Expenditures for electioneering communications means spending directly,
or through a third party, at any time during the year, on printed, internet or
broadcast communications, which are reasonably susceptible to interpretation as
in support of or opposition to a specific candidate.
Statement of the Board Recommending a
Vote AGAINST the NorthStar Proposal |
CVS Health is committed to supporting
the development of sound public policy in health care. To address legislation
that has a direct impact on the Company and to ensure that the interests of our
business, customers and stockholders are fairly represented at all levels of
government, we support candidates that we believe could help to address our
focus on enhancing access to care, lowering overall health care costs, and
improving health outcomes for patients.
We do not expect candidates who receive
contributions from our employee political action committee or our Company to
agree at all times with our positions on policy issues. When selecting
candidates for funding, priority is given to candidates views on issues that
concern the businesses of CVS Health. We work with federal and state
policymakers to ensure that people get the right care, at the right time and in
the right setting, reflecting our Companys purpose of helping people on their
path to better health.
www.cvshealthannualmeeting.com 65
Table of Contents
ITEM 5: STOCKHOLDER PROPOSAL REGARDING
CONGRUENCY OF CORPORATE VALUES AND POLITICAL CONTRIBUTIONS
The Board believes that adopting the
policy recommended by this proposal would restrict the ability of the Company to
make political contributions in support of those whose policy positions are
supportive of the legitimate business interests of the Company and its
stockholders, and that the report requested by the proponent would require
significant resources that could otherwise be spent on business needs.
Furthermore, the Board believes it is
in the best interests of the Company and its stockholders to continue to
participate in a transparent manner in the political process pursuant to its
current policies and procedures. CVS Health publishes an annual report on its
website of the political contributions it makes, along with the public policy
principles that outline the Companys priorities for participating in the public
policy sphere. Disclosure regarding the companys
political contributions, including the policies and procedures governing those
contributions, along with an annual report regarding its political
contributions, can be found at http://www.cvshealth.com/about-us/corporate-responsibility/political-activities-contributions.
In sum, the Board believes that the
current policies and disclosure are appropriate and effective for ensuring
transparency while preserving the Companys ability to contribute to shaping
public policy in a manner that benefits the interests of the Company, its
customers and its stockholders. Adoption of the NorthStar Proposal would
disadvantage the Company from a competitive standpoint, and would potentially
impact our ability to deliver maximum value to our stockholders.
The Board unanimously recommends a
vote AGAINST the NorthStar Proposal.
66 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
INFORMATION ABOUT THE ANNUAL MEETING
AND VOTING |
The Board of Directors of CVS Health is
soliciting your proxy to vote at our 2015 Annual Meeting of Stockholders (or at
any adjournment of the meeting; the Meeting or Annual Meeting). This proxy
statement summarizes the information you need to know to vote at the Meeting.
We began mailing this proxy statement
and the enclosed proxy card on or about March 27, 2015 to all stockholders
entitled to vote. CVS Health’s 2014 Annual Report, which includes our financial
statements, is being sent with this proxy statement.
DATE,
TIME AND PLACE OF THE ANNUAL MEETING
Date: |
|
May
7, 2015 |
Time: |
|
9:00 a.m. Eastern Time |
Place: |
|
CVS Health Customer Support
Center |
|
|
(Company Headquarters) |
|
|
One CVS Drive |
|
|
Woonsocket, Rhode Island
02895 |
Stockholders must present a form of
personal photo identification in order to be admitted to the Meeting. No cell
phones, cameras, recording equipment, electronic devices, large bags, briefcases
or packages will be permitted in the Meeting.
Stockholders entitled to vote are those
who owned CVS Health common stock at the close of business on the record date,
which is March 12, 2015. As of the record date, there were 1,135,266,201 shares
of common stock outstanding. Each share of CVS Health common stock that you own
entitles you to one vote.
The Bank of New York Mellon presently
holds shares of common stock as Trustee under the 401(k) Plan and the Employee
Stock Ownership Plan of CVS Health Corporation and Affiliated Companies (the
ESOP). Each participant in the ESOP instructs the Trustee of the ESOP how to vote his or her shares. As to shares with
respect to which the Trustee receives no timely voting instructions, the
Trustee, pursuant to the ESOP Trust Agreement, votes these shares in the same
proportion as it votes all the shares as to which it has received timely voting
instructions. The results of the voting will be held in strict confidence by the
Trustee. Please note that the cut-off date by which participants of the ESOP
must submit their vote to the tabulator in order to be counted is 12:00 p.m.
Eastern Time on May 5, 2015.
Types of Ownership of Our
Stock |
If your shares are registered in your
name with CVS Healths transfer agent, Wells Fargo Bank, N.A., you are the
stockholder of record of those shares. This proxy statement and any
accompanying materials have been provided directly to you by CVS Health.
If your shares are held in a stock
brokerage account or by a bank or other holder of record, you are considered the
beneficial owner of those shares, and this proxy statement and any
accompanying documents have been provided to you by
your broker, bank or other holder of record (the nominee). As the beneficial
owner, you have the right to direct your nominee how to vote your shares by
using the voting instruction card provided by your nominee or by following the
nominees instructions for voting by telephone or on the Internet.
Whether or not you plan to attend the
Annual Meeting, we urge you to vote. Stockholders of record may vote by calling
a toll-free telephone number, by using the Internet or by mailing your signed
proxy card in the postage-paid envelope provided. If you vote by telephone or
the Internet, you do NOT need to return your proxy card. Returning the proxy
card by mail or voting by telephone or Internet will not affect your right to
attend the Annual Meeting and change your vote, if desired.
If you are a beneficial owner, you will
receive instructions from your nominee that you must follow in order for your
shares to be voted. Many of these institutions offer telephone and Internet
voting.
The enclosed proxy card indicates the
number of shares that you own as of the record date.
Voting instructions are included on
your proxy card. If you properly fill in your proxy card and send it to us in
time to vote, or vote by telephone or the Internet, one of the individuals named
on your proxy card (your proxy) will vote your shares as you have directed. If
you sign the proxy card but do not make specific choices, your proxy will follow
the Boards recommendations and vote your shares:
●FOR the election of all 11 nominees for director (as described
beginning on page 11);
●FOR the ratification of the appointment of Ernst & Young LLP as our
independent registered public accounting firm for fiscal 2015 (as described on
page 32);
●FOR approval on an advisory basis of our executive compensation as
disclosed in this proxy statement (as described beginning on page 33);
www.cvshealthannualmeeting.com 67
Table of Contents
INFORMATION ABOUT THE ANNUAL MEETING
AND VOTING
●FOR approval of the performance criteria in our 2010 Incentive
Compensation Plan (as described beginning on page 35); and
●AGAINST the stockholder proposal to be presented (as described
beginning on page 65).
The Board of Directors and the
Companys management have not received notice of, and are not aware of, any
business to come before the Meeting other than the agenda items referred to in
this proxy statement.
Revoking your proxy card
If you are a stockholder of record, you
may revoke your proxy card by:
●sending in another signed proxy card with a later date;
●providing subsequent telephone or Internet voting
instructions;
●notifying our Corporate Secretary in writing before the Annual Meeting
that you have revoked your proxy card; or
●voting in person at the Annual Meeting. If you are a beneficial owner of
shares, you may submit new voting instructions by contacting your
nominee.
Voting in person
If you plan to attend the Annual
Meeting and vote in person, we will give you a ballot when you arrive. However,
if your shares are held in the name of a nominee, you must bring an account
statement or letter from the nominee indicating
that you were the beneficial owner of the shares on March 12, 2015, the record
date for voting.
Appointing your own proxy
If you want to give your proxy to
someone other than the individuals named as proxies on the proxy card, you may
cross out the names of those individuals and insert the name of the individual
you are authorizing to vote. Either you or that
authorized individual must present the proxy card at the Annual Meeting to vote.
Proxy solicitation
We are soliciting this proxy on behalf
of our Board of Directors and will bear the solicitation expenses. We are making
this solicitation by mail but we may also solicit by telephone, e-mail or in
person. We have hired Georgeson, Inc., 1290 Avenue of the Americas, New York, NY
10104, for a fee of $20,000, plus out-of-pocket expenses, to provide customary assistance to us in the solicitation. We
will reimburse banks, brokerage houses and other institutions, nominees and
fiduciaries, if they so request, for their expenses in forwarding proxy
materials to beneficial owners.
Householding
Under SEC rules, a single set of annual
reports and proxy statements may be sent to any household at which two or more
of our stockholders reside if they appear to be members of the same family. Each
stockholder continues to receive a separate proxy card. This procedure, referred
to as householding, reduces the volume of duplicate information stockholders
receive, conserves natural resources and reduces mailing and printing expenses
for the Company. Nominees with accountholders who are stockholders may be
householding our proxy materials. As indicated in the notice previously provided
by these nominees to our stockholders, a single annual report and proxy
statement will be delivered to multiple stockholders sharing an address unless
contrary instructions have been received from an affected stockholder. Once you
have received notice from your nominee that it will be householding
communications to your address, householding will
continue until you are notified otherwise or until you revoke your consent. If,
at any time, you no longer wish to participate in householding and would prefer
to receive a separate annual report and proxy statement, please notify your
nominee so that separate copies may be delivered to you. Beneficial owners who
currently receive multiple copies of the annual report and proxy statement at
their address who would prefer that their communications be householded should
contact their nominee. Stockholders of record who currently receive multiple
copies of the annual report and proxy statement at their address who would
prefer that their communications be householded should contact our transfer
agent, Wells Fargo Shareowner Services, by writing to P.O. Box 64874, St. Paul,
MN 55164-0874; by calling toll-free, 877-287-7526; or by e-mailing to stocktransfer@wellsfargo.com.
A quorum of stockholders is necessary
to hold a valid meeting. The presence in person or by proxy at the Annual
Meeting of holders of shares representing a majority of shares entitled to vote
constitutes a quorum. Abstentions and broker non-votes are counted as present for establishing a quorum. A broker
non-vote occurs on an item when a broker is not permitted to vote on that item
absent instruction from the beneficial owner of the shares and no instruction is
given.
68 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
INFORMATION ABOUT THE ANNUAL MEETING
AND VOTING
Vote Necessary to
Approve Proposals |
●Item 1, election of
directors. Each director is elected by a
majority of the votes cast with respect to that directors election (at a
meeting for the election of directors at which a quorum is present) by the
holders of shares of common stock present in person or by proxy at the meeting
and entitled to vote.
●A majority of votes cast means
that the number of votes for a directors election must exceed 50% of the
votes cast with respect to that directors election. Votes against a
directors election will count as a vote cast, but abstentions and broker
non-votes will not count as a vote cast with respect to that directors
election and will have no effect.
●All other items. For Items 2, 3, 4 and 5, approval is by affirmative vote (at
a meeting at which a quorum is present) of a majority of the votes represented
by the shares of common stock present at the meeting in person or by proxy and
entitled to vote. Abstentions are counted as shares present or represented and
voting and have the effect of a vote against. Broker non-votes are not counted
as shares present or represented and voting and have no effect on the vote.
●Broker voting. Under NYSE rules, if the record holder of your shares
(usually a nominee) holds your shares in its name, your nominee is permitted to
vote your shares on Item 2, Ratification of Auditors, in its discretion, even if
it does not receive voting instructions from you. On all other Items, your
nominee is not permitted to vote your shares without your instructions and
uninstructed shares are considered broker non-votes.
www.cvshealthannualmeeting.com 69
Table of Contents
|
STOCKHOLDER PROPOSALS AND OTHER BUSINESS FOR OUR ANNUAL MEETING
IN 2016 |
If you want to submit a proposal
for possible inclusion in our proxy statement for the 2016 Annual Meeting of
Stockholders, you must ensure your proposal is received by us on or before
November 28, 2015 and is otherwise in compliance with the requirements of SEC
rules.
In addition, if a stockholder
would like to present business at an annual meeting of stockholders that is not
to be included in our proxy statement, the stockholder must provide notice to
the Company as provided in its by-laws. Such notice must be addressed to our
Corporate Secretary and must arrive at the Company in a timely manner, between
90 and 120 days prior to the anniversary of our last annual meeting, which would
be between January 8 and February 7, 2016.
Under our by-laws, any stockholder notice for presenting business at a meeting
must include, among other things (1) the name and address, as they appear in our
books, of the stockholder giving the notice, (2) the class and number of shares
that are beneficially owned by the stockholder (including information concerning
derivative ownership and other arrangements concerning our stock), (3) a brief
description of the business to be brought before the meeting and the reasons for
conducting such business at the meeting, and (4) any material interest of the
stockholder in such business. See Corporate Governance and Related Matters
Director Nominations for a description of the information required for director
nominations.
|
OTHER MATTERS |
We do not know of any matters to
be acted upon at the Annual Meeting other than those discussed in this proxy
statement. If any other matter is presented, your proxy will vote on the matter
in his best judgment.
March 27, 2015
70 CVS Health Notice of Annual Meeting of Stockholders
Table of Contents
|
EXHIBIT A: 2010 INCENTIVE COMPENSATION PLAN OF CVS HEALTH
CORPORATION |
1.
Purpose. The purpose of this 2010 Incentive Compensation Plan
(the Plan) is to assist CVS Health Corporation, a Delaware corporation (the
Corporation), and its subsidiaries in attracting, retaining and rewarding
high-quality executives, employees, and other persons who provide services to
the Corporation and/or its subsidiaries, to enable such persons to acquire or
increase a proprietary interest in the Corporation in order to strengthen the
mutuality of interests between such persons and the Corporations stockholders
and to provide such persons with short- and long-term performance incentives to
expend their maximum efforts in the creation of stockholder value. The Plan is
also intended to qualify certain compensation awarded under the Plan for maximum
tax deductibility under Code Section 162(m) (as hereafter defined) to the extent
deemed appropriate by the Committee (or any successor committee) of the Board of
Directors of the Corporation. The Plan, initially adopted as of May 12, 2010, is
amended by the Board effective as of January 15, 2013 to read as
follows.
2.
Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) Annual Incentive Award means a conditional right
granted to a Participant under Section 9(c) hereof to receive a cash payment,
Stock or other Award, unless otherwise determined by the Committee, after the
end of a specified fiscal year.
(b) Award means any Option, Restricted Stock,
Restricted Stock Unit, Stock Appreciation Right, Deferred Stock, Stock granted
as a bonus or in lieu of another award, Stock awarded to a director pursuant to
Section 8, Dividend Equivalent, Other Stock-Based Award, Performance Award or
Annual Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
(c) Beneficiary means the person, persons, trust or
trusts which have been designated by a Participant in his or her most recent
written beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participants death or to which Awards or
other rights are transferred if and to the extent permitted under Section 11(b)
hereof. If, upon a Participants death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(d) Beneficial Owner shall have the meaning ascribed to
such term in Rule 13d-3 under the Exchange Act and any successor to such
Rule.
(e) Board means the Corporations Board of
Directors.
(f) Change in Control means Change in Control as
defined with related terms in Section 10 of the Plan.
(g) Code means the Internal Revenue Code of 1986, as
amended from time to time, including regulations thereunder and successor
provisions and regulations thereto.
(h) Committee means a committee of two or more
directors designated by the Board to administer the Plan.
(i) Covered Employee means an Eligible Person who is a
Covered Employee as specified in Section 9(e) of the Plan.
(j) Deferred Stock means a right, granted to a
Participant under Section 6(f) hereof, to receive Stock, cash or a combination
thereof at the end of a specified deferral period.
(k) Dividend Equivalent means a right, granted to a
Participant under Section 6(h), to receive cash, Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.
(l) Effective Date means May 12, 2010.
(m) Eligible Person means each Executive Officer and
other officers and employees of the Corporation or of any subsidiary, including
such persons who may also be directors of the Corporation, and any Eligible
Director. An employee on leave of absence may be considered as still in the
employ of the Corporation or a subsidiary for purposes of eligibility for
participation in the Plan.
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(n) Eligible Director means a director of the
Corporation who at the relevant time is not, and for the preceding twelve (12)
months was not, an employee of the Corporation or its subsidiaries.
(o) Exchange Act means the Securities Exchange Act of
1934, as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(p) Executive Officer means an executive officer of the
Corporation as defined under the Exchange Act.
(q) Fair Market Value means the fair market value of
Stock, Awards or other property as determined by the Committee or under
procedures established by the Committee. Unless otherwise determined by the
Committee, the Fair Market Value of Stock shall be the closing price of a share
of Stock, as quoted on the composite transactions table on the New York Stock
Exchange, on the date on which the determination of fair market value is being
made.
(r) Incentive Stock Option or ISO means any Option
intended to be and designated as an incentive stock option within the meaning of
Code Section 422 or any successor provision thereto; provided, however, that
only an Eligible Person who is an employee within the meaning of Code Section
422 and the regulations thereunder shall be eligible to receive an
ISO.
(s) Option means a right, granted to a Participant
under Section 6(b) hereof, to purchase Stock or other Awards at a specified
price during specified time periods.
(t) Other Stock-Based Awards means Awards granted to a
Participant under Section 6(i) hereof.
(u) Participant means a person who has been granted an
Award under the Plan that remains outstanding, including a person who is no
longer an Eligible Person.
(v) Performance Award means a right, granted to a
Participant under Section 9 hereof, to receive Awards based upon performance
criteria specified by the Committee.
(w) Person shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a group as defined in Section 13(d)
thereof.
(x) Qualified Member means a member of the Committee
who is a Non-Employee Director within the meaning of Rule 16b-3(b)(3) and an
outside director within the meaning of Regulation 1.162-27 under Code Section
162(m).
(y) Restricted Stock means Stock granted to a
Participant under Section 6(d) hereof, that is subject to certain restrictions
and to a risk of forfeiture.
(z) Restricted Stock Unit shall mean a contractual
right granted under Section 6(d) that represents a right to receive the value of
a share of Stock upon the terms and conditions set forth in the Plan and the
applicable Award agreement.
(aa) Rule 16b-3 means Rule 16b-3, as in effect from
time to time and applicable to the Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange
Act.
(bb) Stock means the Corporations Common Stock, and
such other securities as may be substituted (or resubstituted) for Stock
pursuant to Section 11(c) hereof.
(cc) Stock Appreciation Rights or SAR means a right
granted to a Participant under Section 6(c) hereof.
(dd) Substitute Award means an Award granted in
assumption of, or in substitution for, outstanding awards previously granted by
a company acquired by the Corporation or with which the Corporation
combines.
3.
Administration.
(a) Authority of
the Committee. The Plan shall be
administered by the Committee, except to the extent the Board elects to
administer the Plan, in which case references herein to the Committee shall be
deemed to include references to the Board. The Committee shall have full and
final authority, in each case subject to and consistent with the provisions of
the Plan, to select Eligible Persons to become Participants, grant Awards,
determine the type, number and other terms and conditions of, and all other
matters relating to, Awards, prescribe Award agreements (which need not be
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EXHIBIT A
identical for each Participant) and rules and regulations for the administration
of the Plan, construe and interpret the Plan and Award agreements and correct
defects, supply omissions or reconcile inconsistencies therein and to make all
other decisions and determinations as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) Manner of
Exercise of Committee Authority. At any
time that a member of the Committee is not a Qualified Member, any action of the
Committee relating to an Award granted or to be granted to a Participant who is
then subject to Section 16 of the Exchange Act in respect of the Corporation, or
relating to an Award intended by the Committee to qualify as performance-based
compensation within the meaning of Code Section 162(m) and regulations
thereunder, may be taken either (i) by a subcommittee, designated by the
Committee, composed solely of two or more Qualified Members, or (ii) by the
Committee but with each such member who is not a Qualified Member abstaining or
recusing himself or herself from such action; provided, however, that, upon such abstention or recusal, the Committee remains
composed solely of two or more Qualified Members. Such action, authorized by
such a subcommittee or by the Committee upon the abstention or recusal of such
non-Qualified Member(s), shall be the action of the Committee for purposes of
the Plan. Any action of the Committee shall be final, conclusive and binding on
all persons, including the Corporation, its subsidiaries, Participants,
Beneficiaries, transferees under Section 11(b) hereof or other persons claiming
rights from or through a Participant, and stockholders. The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. To
the extent permitted by applicable law, the Committee may delegate to officers
or managers of the Corporation or any subsidiary, or committees thereof, the
authority, subject to such terms as the Committee shall determine, to perform
such functions, including administrative functions, as the Committee may
determine, to the extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to
Section 16 of the Exchange Act in respect of the Corporation and will not cause
Awards intended to qualify as performance-based compensation under Code
Section 162(m) to fail to so qualify. The Committee may appoint agents to assist
it in administering the Plan.
(c) Limitation of
Liability. The Committee and each member
thereof shall be entitled to rely or act upon in good faith any report or other
information furnished to him or her by any executive officer, other officer or
employee of the Corporation or a subsidiary, the Corporations independent
auditors, consultants or any other agents assisting in the administration of the
Plan. Members of the Committee and any officer or employee of the Corporation or
a subsidiary acting at the direction or on behalf of the Committee shall not be
personally liable for any action or determination taken or made in good faith
with respect to the Plan and shall, to the extent permitted by law, be fully
indemnified and protected by the Corporation with respect to any such action or
determination.
4. Stock Subject to Plan.
(a) Overall Number of
Shares Available for Delivery. Subject to
adjustment as provided in Section 11(c) hereof, the total number of shares of
Stock reserved and available for delivery in connection with Awards under the
Plan shall be seventy-four million (74,000,000); provided, however, that the
total number of shares of Stock with respect to which ISOs may be granted shall
not exceed eight (8) million. Any shares of Stock delivered under the Plan shall
consist of authorized and unissued shares or treasury shares.
(b) Application of
Limitation to Grants of Awards. No Award may
be granted if the number of shares of Stock to be delivered in connection with
such Award exceeds the number of shares of Stock remaining available under the
Plan minus the number of shares of Stock issuable in settlement of Awards or
relating to then-outstanding Awards. Notwithstanding the foregoing, Awards
settleable only in cash shall not reduce the number of shares of Stock available
under the Plan and Stock issued for Substitute Awards shall not count against
the limits of Section 4(a). The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments if the
number of shares of Stock actually delivered differs from the number of shares
previously counted in connection with an Award.
5. Eligibility;
Per-Person Award
Limitations. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards relating to
more than three (3) million shares of Stock, subject to adjustment as provided
in Section 11(c), under each of Sections 6(b) through 6(h), 9(b) and 9(c). In
addition, the maximum cash amount that may be earned under the Plan as a final
Annual Incentive Award or other cash annual Award in respect of any fiscal year
by any one Participant shall be ten million dollars ($10,000,000), and the
maximum cash amount that may be earned under the Plan as a final Performance
Award or other cash Award in respect of a performance period other than an
annual period by any one Participant on an annualized basis shall be five
million dollars ($5,000,000).
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6. Specific Terms of Awards.
(a) General. Awards may be granted on the
terms and conditions set forth in this Section 6, and with respect to directors
of the Corporation, in Section 8. In addition, the Committee may impose on any
Award or the exercise thereof, at the date of grant or thereafter (subject to
Section 11(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment of the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion to
accelerate, waive or modify, at any time, any term or condition of an Award that
is not mandatory under the Plan. Except in cases in which the Committee is
authorized to require other forms of consideration under the Plan, or to the
extent other forms of consideration must be paid to satisfy the requirements of
the Delaware General Corporation Law, no consideration other than services may
be required for the grant of any Award.
(b) Options. The Committee is authorized
to grant Options to Participants on the following terms and
conditions:
(i) Exercise
Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee, provided that
such exercise price shall be not less than the Fair Market Value of a share of
Stock on the date of grant of such Option except as provided under the first
sentence of Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall determine the time or times at which
or the circumstances under which an Option may be exercised in whole or in part
(including based on achievement of performance goals and/or future service
requirements), the methods by which such exercise price may be paid or deemed to
be paid, the form of such payment, including, without limitation, cash, Stock,
other Awards or awards granted under other plans of the Corporation or any
subsidiary, or other property, and the methods by or forms in which Stock will
be delivered or deemed to be delivered to Participants.
(iii) ISOs. The terms
of any ISO granted under the Plan shall comply in all respects with the
provisions of Code Section 422. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be exercised, so as to disqualify either the Plan or any ISO under Code Section
422, unless the Participant has first requested the change that will result in
such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(i) Right to Payment.
A SAR shall confer on the Participant to whom it is granted a right to receive,
upon exercise thereof, the excess of (A) the Fair Market Value of one share of
Stock on the date of exercise over (B) the grant price of the SAR as determined
by the Committee.
(ii) Other Terms. The
Committee shall determine at the date of grant or thereafter, the time or times
at which and the circumstances under which a SAR may be exercised in whole or in
part (including based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, whether or not a SAR shall
be in tandem or in combination with any other Award and any other terms and
conditions of any SAR. SARs may be either freestanding or in tandem with other
Awards.
(d) Restricted Stock and Restricted Stock
Units. The Committee is authorized to
grant Restricted Stock or Restricted Stock Units to Participants on the
following terms and conditions:
(i) Grant and
Restrictions. Restricted Stock and
Restricted Stock Units shall be subject to such restrictions on transferability,
risk of forfeiture and other restrictions, if any, as the Committee may impose,
which restrictions may lapse separately or in combination at such times, under
such circumstances (including based on achievement of performance goals and/or
future service requirements), in such installments or otherwise, as the
Committee may determine at the date of grant or thereafter. Except to the extent
restricted under the terms of the Plan and any Award agreement relating to the
Restricted Stock, a Participant granted Restricted Stock shall have all of the
rights of a stockholder, including the right to vote the Restricted Stock and
the right to receive dividends thereon (subject to any mandatory reinvestment or
other requirement imposed by the Committee). During the restricted period
applicable to the Restricted Stock, subject to Section 11(b) below, the
Restricted Stock may not be sold, transferred, pledged, hypothecated, margined
or otherwise encumbered by the
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EXHIBIT A
Participant. Restricted Stock Units may be
settled in Stock, cash equal to the Fair Market Value of the specified number of
shares of Stock covered by the Units, or a combination thereof, as determined by
the Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable restriction period, Restricted
Stock and Restricted Stock Units that are at that time subject to restrictions
shall be forfeited, provided that the Committee may provide, by rule or
regulation or in any Award agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted Stock and
Restricted Stock Units shall be waived in whole or in part in the event of
terminations resulting from specified causes and the Committee may in other
cases waive in whole or in part the forfeiture of Restricted Stock and
Restricted Stock Units.
(iii) Certificates
for Stock. Restricted Stock granted
under the Plan may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Corporation retain physical
possession of the certificates and that the Participant deliver a stock power to
the Corporation, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and
Splits. As a condition to the grant of
an Award of Restricted Stock, the Committee may require that any cash dividends
paid on a share of Restricted Stock be automatically reinvested in additional
shares of Restricted Stock or applied to the purchase of additional Awards under
the Plan. Unless otherwise determined by the Committee, Stock distributed in
connection with a Stock split or Stock dividend, and other property distributed
as a dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock or other
property has been distributed. The Committee shall determine and specify in the
Restricted Stock Unit Agreement the effect, if any, of dividends paid on Stock
during the period such Award is outstanding.
(e) Deferred Stock. The Committee is
authorized to grant Deferred Stock to Participants, which are rights to receive
Stock, cash, or a combination thereof at the end of a specified deferral period,
subject to the following terms and conditions:
(i) Award and Restrictions. Satisfaction
of an Award of Deferred Stock shall occur upon expiration of the deferral period
specified for such Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred Stock shall be
subject to such restrictions (which may include a risk of forfeiture) as the
Committee may impose, if any, which restrictions may lapse at the expiration of
the deferral period or at earlier specified times (including based on
achievement of performance goals and/or future service requirements), separately
or in combination, in installments or otherwise, as the Committee may determine.
Deferred Stock may be satisfied by delivery of Stock, cash equal to the Fair
Market Value of the specified number of shares of Stock covered by the Deferred
Stock, or a combination thereof, as determined by the Committee at the date of
grant or thereafter.
(ii) Forfeiture. Except as otherwise
determined by the Committee, upon termination of employment during the
applicable deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award agreement evidencing the Deferred Stock), all
Deferred Stock that is at that time subject to deferral (other than a deferral
at the election of the Participant) shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Deferred Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Deferred Stock.
(iii) Dividend Equivalents. Unless otherwise
determined by the Committee at date of grant, Dividend Equivalents on the specified number of
shares of Stock covered by an Award of Deferred Stock shall be either (A) paid
with respect to such Deferred Stock at the dividend payment date in cash or in
shares of unrestricted Stock having a Fair Market Value equal to the amount of
such dividends, or (B) deferred with respect to such Deferred Stock and the
amount or value thereof automatically deemed reinvested in additional Deferred
Stock, other Awards or other investment vehicles, as the Committee shall
determine or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is authorized to grant Stock as a bonus, or to grant Stock
or other Awards in lieu of obligations to pay cash or deliver other property
under the Plan or under other plans or compensatory arrangements, provided that,
in the case of Participants subject to Section 16 of the Exchange Act, the
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amount of such grants remains within the discretion of the Committee to the
extent necessary to ensure that acquisitions of Stock or other Awards are exempt
from liability under Section 16(b) of the Exchange Act. Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee. In the case of any grant of Stock to an officer of the Corporation in
lieu of salary or other cash compensation, the number of shares granted in place
of such compensation shall be reasonable, as determined by the
Committee.
(g) Dividend Equivalents. Except with
respect to Options and SARs, the Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock, or other periodic payments. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.
(h) Other Stock-Based Awards. The
Committee is authorized, subject to limitations under applicable law, to grant
to Participants such other Awards that may be denominated or payable in, valued
in whole or in part by reference to, or otherwise based on, or related to,
Stock, as deemed by the Committee to be consistent with the purposes of the
Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Corporation or any other factors designated by the Committee and Awards valued
by reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine the terms
and conditions of such Awards. Stock delivered pursuant to an Award in the
nature of a purchase right granted under this Section 6(h) shall be purchased
for such consideration, paid for at such times, by such methods, and in such
forms, including, without limitation, cash, Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards granted under the Plan may, in the discretion of the
Committee, be granted at any time, either alone or in addition to, in tandem
with, or in substitution or exchange for, any other Award or any award granted
under another plan of the Corporation, any subsidiary, or any business entity to
be acquired by the Corporation or a subsidiary, or any other right of a
Participant to receive payment from the Corporation or any subsidiary, but if an
Award is granted in substitution or exchange for another Award or award, the
Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be granted
in lieu of cash compensation, including in lieu of cash amounts payable under
other plans of the Corporation or any subsidiary, in which the value of Stock subject to the
Award (for example, Deferred Stock or Restricted Stock) is equivalent in value
to the cash compensation, provided, however, that any such Award that is an
Option shall have an exercise price that is at least one hundred percent (100%)
of the Fair Market Value of a share of Stock on the date of grant of such
Option. Notwithstanding the foregoing language of this Section 7(a), no
outstanding Option or SAR may be amended to decrease the exercise price except
in accordance with Section 11(c) and no outstanding Option or SAR may be
surrendered in exchange for another Award.
(b) Term
of Awards. The term of each Award shall be
for such period as may be determined by the Committee; provided that in no event
shall the term of any Option exceed a period of ten (10) years (or such shorter
term as may be required in respect of an ISO under Code Section 422).
(c) Form
and Timing of Payment under Awards; Deferrals. Subject to the terms of the Plan, including but not limited to Section
11(l), and any applicable Award agreement, (i) payments to be made by the
Corporation or a subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis, (ii) the settlement of any Award may be accelerated, and
cash paid in lieu of Stock in connection with such settlement, in the discretion
of the Committee or upon occurrence of one or more specified events (in addition
to a Change in Control), (iii) installment or deferred payments may be required
by the Committee (subject to Section 11(e) of the Plan, including the consent
provisions thereof in the case of any deferral of an outstanding Award not
provided for in the original Award agreement) or permitted at the election of
the Participant on terms and conditions established by the Committee, and (iv)
payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
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(d) Exemptions from Section 16(b) Liability. It is the intent of the Corporation that the grant of any Awards to or
other transaction by a Participant who is subject to Section 16 of the Exchange
Act shall be exempt under Rule 16b-3 (except for transactions acknowledged in
writing to be non-exempt by such Participant). Accordingly, if any provision of
this Plan or any Award agreement does not comply with the requirements of Rule
16b-3 as then applicable to any such transaction, such provision shall be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 so that such Participant shall avoid liability under
Section 16(b).
(e) Cancellation and Rescission of Awards.
Unless the Award agreement specifies otherwise, the Committee may cancel any
unexpired, unpaid, or deferred Awards at any time, and the Corporation shall
have the additional rights set forth in Section 7(e)(iv) below, if the
Participant is not in compliance with all applicable provisions of the Award
agreement and the Plan including the following conditions:
(i) While employed by the Corporation or
one of its subsidiaries, a Participant shall not render services for any
organization or engage directly or indirectly in any business that, in the
judgment of the Chief Executive Officer of the Corporation or other senior
officer designated by the Committee, is or becomes competitive with the
Corporation.
(ii) A Participant shall not, without
prior written authorization from the Corporation, disclose to anyone outside the
Corporation, or use in other than the Corporations business, any confidential
information or material relating to the business of the Corporation that is
acquired by the Participant either during or after employment with the
Corporation.
(iii) A Participant shall disclose
promptly and assign to the Corporation all right, title, and interest in any
invention or idea, patentable or not, made or conceived by the Participant
during employment by the Corporation, relating in any manner to the actual or
anticipated business, research or development work of the Corporation and shall
do anything reasonably necessary to enable the Corporation to secure a patent
where appropriate in the United States and in foreign countries.
(iv) (A) Upon exercise, settlement,
payment or delivery pursuant to an Award, the Participant shall certify on a
form acceptable to the Committee that he or she is in compliance with the terms
and conditions of the Plan. Failure to comply with the provisions of this
Section 7(e) prior to, or during the six (6) months after, any exercise, payment
or delivery pursuant to an Award shall cause such exercise, payment or delivery
to be rescinded. The Corporation shall notify the Participant in writing of any
such rescission within two (2) years after such exercise, payment or delivery.
Within ten (10) days after receiving such a notice from the Corporation, the
Participant shall pay to the Corporation the amount of any gain realized or
payment received as a result of the rescinded exercise, payment or delivery
pursuant to an Award. Such payment shall be made either in cash or by returning
to the Corporation the number of shares of Stock that the Participant received
in connection with the rescinded exercise, payment or delivery.
(B) To the extent determined by the
Committee, all Awards shall be subject to the terms and conditions of the
Corporations recoupment policy as it exists from time to time.
(f) Limitation of Vesting of Certain Awards. Notwithstanding anything in this Plan to the contrary, Restricted Stock,
Restricted Stock Units, Deferred Stock, and Other Stock-Based Awards, as
described in Section 6(d), 6(e) and 6(h) of the Plan, respectively, granted to
employees generally will vest over a minimum period of three (3) years, except
in the event of a Participants death, disability, or retirement, or in the
event of a Change in Control or other special circumstances and (i) Restricted
Stock, Restricted Stock Units, Deferred Stock, and Other StockBased Awards as
to which either the grant or the vesting is based on the achievement of one or
more performance conditions generally will vest over a minimum period of one (1)
year except in the event of a Participants death, disability, or retirement, or
in the event of a Change in Control or other special circumstances, and (ii) up
to five percent (5%) of the shares of Stock authorized under the Plan may be
granted as Restricted Stock, Restricted Stock Units, Deferred Stock, or Other
Stock-Based Awards without any minimum vesting requirements. For purposes of
this Section 7(f), vesting over a three (3)-year period or one (1)-year period
will include periodic vesting over such period if the rate of such vesting is
proportional throughout such period.
8. Special Rules for Directors.
(a) Awards. Eligible Directors may receive
Awards, including without limitation Awards in respect of their annual retainer
and any additional retainers for chairing a committee of the board or serving as
lead independent director.
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(b) Deferral of Shares by Directors. Each
Eligible Director may elect to defer the receipt of shares otherwise currently
payable to such Eligible Director under Section 8(a) of this Plan until such
Eligible Director terminates service as a director or such other date or event
as permitted under rules established by the Board and uniformly applied. In that
event, such Eligible Director shall be granted an award of share credits equal
to the number of shares of Stock elected to be deferred, including fractional
share credits to not less than three decimal places.
(c) Settlement. As soon as practicable
after an Eligible Director has ceased being a Director of the Corporation or
such other date or event elected by an Eligible Director under Section 8(b), all
awards shall be paid to the Eligible Director or, in the case of the death of
the Eligible Director, the Eligible Directors designated beneficiary or
beneficiaries, or in the absence of a designated beneficiary, to the estate of
the Eligible Director, in a single payment or installments as elected by the
Eligible Director.
(d) Dividend Equivalents.
(i) In addition to the payment provided
for in Section 8(c), each Eligible Director (or beneficiary) entitled to payment
under this Section 8(d) shall receive at the same time the dividend equivalent
amounts calculated under subsection (ii) below.
(ii) The dividend equivalent amount is the
number of additional share credits attributable to the number of share credits
originally granted plus additional share credits previously calculated
hereunder. Such additional share credits shall be determined and credited as of
each dividend payment date by dividing the aggregate cash dividends that would
have been paid had share credits awarded or credited (but not yet paid) under
this Section 8(d), as the case may be, been actual shares of Stock on the record
date for such dividend by the market price per share of Stock on the dividend
payment date. For this purpose, the market price on any day shall be the average
of the highest and lowest sales price of Stock as quoted on the composite
transactions table for such day, unless the Board determines that another
procedure for determining market price would be more appropriate. Fractional
share credits shall be calculated to not less than three decimal
places.
(e)
Payment; Fractional Shares.
Payments pursuant to Sections 8(c) and 8(d)
above shall be made in shares of Stock, except that there shall be paid in cash
the value of any fractional share.
9. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a
Participant to exercise or receive a grant or settlement of any Award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Committee. The Committee may use such business criteria and
other measures of performance as it may deem appropriate in establishing any
performance conditions and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions, except as
limited under Sections 9(b) and 9(c) hereof in the case of a Performance Award
or Annual Incentive Award intended to qualify under Code Section
162(m).
(b) Performance Awards Granted to Designated Covered
Employees. If the Committee determines that a
Performance Award to be granted to an Eligible Person who is designated by the
Committee as likely to be a Covered Employee should qualify as
performance-based compensation for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance Award shall be contingent upon
achievement of pre-established performance goals and other terms set forth in
this Section 9(b).
(i) Performance Goals Generally. The
performance goals for such Performance Awards shall consist of one or more
business criteria and a targeted level or levels of performance with respect to
each of such criteria, as specified by the Committee consistent with this
Section 9(b). Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the Committee
result in the achievement of performance goals being substantially uncertain.
The Committee may determine that such Performance Awards shall be granted,
exercised and/or settled upon achievement of any one performance goal or that
two or more of the performance goals must be achieved as a condition to grant,
exercise and/or settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to different
Participants.
(ii) Business Criteria. One or more of the
following business criteria for the Corporation, on a consolidated basis, and/or
for specified subsidiaries or business units of the Corporation (except with
respect to the total stockholder return and earnings per share criteria), shall
be used by the Committee in establishing performance goals for such Performance
Awards: (1) earnings per share; (2) revenues; (3) cash flow; (4) cash
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flow
return on investment; (5) return on net assets, return on assets, return on
investment, return on capital, return on equity; (6) economic value added; (7)
operating margin; (8) Common Knowledge Retail Customer Service score or a
similar customer service measurement as measured by a third-party administrator;
(9) Pharmacy Benefit Services Customer Satisfaction score; (10) net income;
pretax earnings; pretax earnings before interest, depreciation and amortization;
pretax operating earnings after interest expense and before incentives, service
fees and extraordinary or special items; operating earnings; (11) total
stockholder return; or (12) any of the above goals as compared to the
performance of a published or special index deemed applicable by the Committee
including, but not limited to, the Standard & Poors 500 Stock Index or a
group of comparator companies. One or more of the foregoing business criteria
shall also be exclusively used in establishing performance goals for Annual
Incentive Awards granted to a Covered Employee under Section 9(c)
hereof.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in
respect of such Performance Awards shall be measured over a performance period
of up to ten (10) years, as specified by the Committee. Performance goals shall
be established not later than ninety (90) days after the beginning of any
performance period applicable to such Performance Awards, or at such other date
as may be required or permitted for performance-based compensation under Code
Section 162(m).
(iv) Performance Award Pool. The Committee
may establish a Performance Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Corporation in connection with
Performance Awards. The amount of such Performance Award pool shall be based
upon the achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 9(b)(ii) hereof during the given
performance period, as specified by the Committee in accordance with Section
9(b)(iii) hereof. The Committee may specify the amount of the Performance Award
pool as a percentage of any of such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount that need not bear a strictly
mathematical relationship to such business criteria. The maximum amount payable
to any Participant shall be a stated percentage of the pool; provided the sum of
such percentages shall not exceed one hundred percent (100%) and the payment
does not exceed the per-person award limit set forth in Section 5.
(v) Settlement of Performance Awards; Other Terms. Settlement of such Performance Awards shall be in cash, Stock, other
Awards or other property, at the discretion of the Committee. The Committee may,
in its discretion, reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise discretion to
increase any such amount payable to a Covered Employee in respect of a
Performance Award subject to this Section 9(b). The Committee shall specify the
circumstances in which such Performance Awards shall be paid or forfeited in the
event of termination of employment of the Participant prior to the end of a
performance period or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. If the Committee determines that
an Annual Incentive Award to be granted to an Eligible Person who is designated
by the Committee as likely to be a Covered Employee should qualify as
performance-based compensation for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Annual Incentive Award shall be contingent
upon achievement of pre-established performance goals and other terms set forth
in this Section 9(c).
(i) Annual Incentive Award Pool. The
Committee may establish an Annual Incentive Award pool, which shall be an
unfunded pool, for purposes of measuring performance of the Corporation in
connection with Annual Incentive Awards. The amount of such Annual Incentive
Award pool shall be based upon the achievement of a performance goal or goals
based on one or more of the business criteria set forth in Section 9(b)(ii)
hereof during the given performance period, as specified by the Committee in
accordance with Section 9(b)(iii) hereof. The Committee may specify the amount
of the Annual Incentive Award pool as a percentage of any of such business
criteria, a percentage thereof in excess of a threshold amount, or as another
amount that need not bear a strictly mathematical relationship to such
business criteria. The maximum amount
payable to any Participant shall be a stated percentage of the pool; provided
the sum of such percentages shall not exceed one hundred percent (100%) and the
payment does not exceed the per-person award limit set forth in Section
5.
(ii) Potential Annual Incentive Awards. Not
later than the end of the ninetieth (90th) day of each fiscal year, or at such
other date as may be required or permitted in the case of Awards intended to be
performance-based compensation under Code Section 162(m), the Committee shall
determine the Eligible Persons who will potentially receive Annual Incentive
Awards, and the amounts potentially payable thereunder, for that fiscal year,
either out of an Annual Incentive Award pool established by such date under
Section 9(c)(i) hereof or as individual Annual Incentive Awards. In the case of
individual Annual Incentive Awards intended to qualify under Code Section
162(m), the amount potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 9(b)(ii) hereof in the given performance
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year, as specified by
the Committee; in other cases, such amount shall be based on such criteria as
shall be established by the Committee. In all cases, the maximum Annual
Incentive Award of any Participant shall be subject to the limitation set forth
in Section 5 hereof.
(iii) Payout of Annual Incentive Awards.
After the end of each fiscal year, the Committee shall determine the amount, if
any, of (A) the Annual Incentive Award pool, and the maximum amount of potential
Annual Incentive Award payable to each Participant in the Annual Incentive Award
pool, or (B) the amount of potential Annual Incentive Award otherwise payable to
each Participant. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Annual Incentive Award shall be
increased or reduced from the amount of his or her potential Annual Incentive
Award, including a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount in the case of an Annual
Incentive Award intended to qualify under Code Section 162(m). The Committee
shall specify the circumstances in which an Annual Incentive Award shall be paid
or forfeited in the event of termination of employment by the Participant prior
to the end of a fiscal year or settlement of such Annual Incentive
Award.
(d) Written Determinations. All
determinations by the Committee as to the establishment of performance goals,
the amount of any Performance Award pool or potential individual Performance
Awards and as to the achievement of performance goals relating to Performance
Awards under Section 9(b), and the amount of any Annual Incentive Award pool or
potential individual Annual Incentive Awards and the amount of final Annual
Incentive Awards under Section 9(c), shall be made in writing in the case of any
Award intended to qualify under Code Section 162(m). The Committee may not
delegate any responsibility relating to such Performance Awards or Annual
Incentive Awards.
(e) Status of Section 9(b) and Section 9(c) Awards under Code Section
162(m). It is the intent of the Corporation
that Performance Awards and Annual Incentive Awards under Sections 9(b) and 9(c)
hereof granted to persons who are designated by the Committee as likely to be
Covered Employees within the meaning of Code Section 162(m) and regulations
thereunder (including Regulation 1.162-27 and successor regulations thereto)
shall, if so designated by the Committee, constitute performance-based
compensation within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 9(b) through (e), including the
definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with Code Section 162(m) and regulations
thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee
with respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the Committee, at
the time of grant of Performance Awards or an Annual Incentive Award, as likely
to be a Covered Employee with respect to that fiscal year. If any provision of
the Plan as in effect on the date of adoption or any agreements relating to
Performance Awards or Annual Incentive Awards that are designated as intended to
comply with Code Section 162(m) does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements.
10. Change in Control.
(a) Effect of Change in Control. In the
event that a Participant experiences a Termination Without Cause or a Constructive Termination Without Cause
within two (2) years following a Change in Control, the following provisions
shall apply unless otherwise provided in the Award agreement:
(i) Any Award carrying a right to exercise
that was not previously exercisable and vested shall become fully exercisable
and vested as of the time of the Change in Control and shall remain exercisable
and vested for the balance of the stated term of such Award without regard to
any termination of employment by the Participant, subject only to applicable
restrictions set forth in Section 11(a) hereof;
(ii) The restrictions, deferral of
settlement and forfeiture conditions applicable to any other Award granted under
the Plan shall lapse and such Awards shall be deemed fully vested as of the time
of the Change in Control, except to the extent of any waiver by the Participant
and subject to applicable restrictions set forth in Section 11(a) hereof;
and
(iii) With respect to any outstanding
Award subject to achievement of performance goals and conditions under the Plan,
such performance goals and other conditions will be deemed to be met if and to
the extent so provided by the Committee in the Award agreement relating to such
Award.
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(b) Definition of Change in Control. A
Change in Control shall be deemed to have occurred if:
(i) any Person (other than (w) the
Corporation, (x) any trustee or other fiduciary holding securities under any
employee benefit plan of the Corporation, (y) any corporation owned, directly or
indirectly, by the stockholders of the Corporation immediately after the
occurrence with respect to which the evaluation is being made in substantially
the same proportions as their ownership of the common stock of the Corporation
immediately prior to such occurrence, or (z) any surviving or resulting entity
from a merger or consolidation referred to in clause (iii) below that does not
constitute a Change of Control under clause (iii) below) becomes the Beneficial
Owner (except that a Person shall be deemed to be the Beneficial Owner of all
shares that any such Person has the right to acquire pursuant to any agreement
or arrangement or upon exercise of conversion rights, warrants or options or
otherwise, without regard to the sixty (60) day period referred to in Rule 13d-3
under the Exchange Act), as directly or indirectly, of securities of the
Corporation or of any subsidiary owning directly or indirectly all or
substantially all of the consolidated assets of the Corporation (a Significant
Subsidiary), representing thirty percent (30%) or more of the combined voting
power of the Corporations or such Significant Subsidiarys then outstanding
securities;
(ii) during any period of twelve (12)
consecutive months, individuals who at the beginning of such period constitute
the Board, and any new director whose election by the Board or nomination for
election by the Corporations stockholders was approved by a vote of at least a
majority of the directors then still in office who either were directors at the
beginning of the twelve (12)-month period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority of the Board;
(iii) the consummation of a merger or
consolidation of the Corporation or any Significant Subsidiary with any other
entity, other than a merger or consolidation which would result in the voting
securities of the Corporation or a Significant Subsidiary outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving or
resulting entity) more than fifty percent (50%) of the combined voting power of
the surviving or resulting entity outstanding immediately after such merger or
consolidation; or
(iv) the consummation of a transaction (or
series of transactions within a twelve (12)-month period) which constitutes the
sale or disposition of all or substantially all of the consolidated assets of
the Corporation but in no event assets having a gross fair market value of less
than forty percent (40%) of the total gross fair market value of all of the
consolidated assets of the Corporation (other than such a sale or disposition
immediately after which such assets will be owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as their
ownership of the common stock of the Corporation immediately prior to such sale
or disposition.
(c) Definition of Termination Without Cause and Constructive Termination
Without Cause.
(i) Termination Without Cause shall mean
the involuntary termination of a Participants employment by the Corporation or
a subsidiary without Cause.
(ii) Constructive Termination Without
Cause shall mean the Participants termination of his or her employment
following the occurrence, without the Participant's written consent, of one or
more of (A) an assignment of any duties to the Participant that is materially
inconsistent with Participants position, (B) a material decrease in
Participants annual base salary or target annual incentive award opportunity,
or (C) a relocation of Participants principal place of employment more than
thirty-five (35) miles from Executives place of employment before such
relocation. In all cases, no Constructive Termination Without Cause shall be
deemed to have occurred if any such event occurs as a result of a prior
termination. In addition, no Constructive termination Without cause shall be
deemed to have occurred unless the Participant provides written notice to the
Corporation that any such event has occurred, which notice identifies the event
and is provided within thirty (30) days of the initial occurrence of such event,
a cure period of forty-five (45) days following the Corporations receipt of
such notice expires and the Corporation has not cured such event within such
cure period, and the Participant actually terminates his/her employment within
thirty (30) days of the expiration of the cure period.
(iii) Cause shall be deemed to occur if
the Participant (A) willfully and materially breaches any of his or her
obligations to the Corporation with respect to confidentiality, cooperation with
regard to litigation, non-disparagement and non-solicitation; (B) is convicted
of a felony involving moral turpitude; or (C) engages in conduct that
constitutes willful gross neglect or willful gross misconduct in carrying out
Participants duties to the Corporation, resulting, in either case, in material
harm to the financial condition or reputation of the
Corporation.
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11. General Provisions.
(a) Compliance with Legal and Other Requirements. The Corporation may, to the extent deemed necessary or advisable by the
Committee, postpone the issuance or delivery of Stock or payment of other
benefits under any Award until completion of such registration or qualification
of such Stock or other required action under any federal or state law, rule or
regulation, listing or other required action with respect to any stock exchange
or automated quotation system upon which the Stock or other securities of the
Corporation are listed or quoted, or compliance with any other obligation of the
Corporation, as the Committee may consider appropriate, and may require any
Participant to make such representations, furnish such information and comply
with or be subject to such other conditions as it may consider appropriate in
connection with the issuance or delivery of Stock or payment of other benefits
in compliance with applicable laws, rules, and regulations, listing
requirements, or other obligations. The foregoing notwithstanding, in connection
with a Change in Control, the Corporation shall take or cause to be taken no
action, and shall undertake or permit to arise no legal or contractual
obligation, that results or would result in any postponement of the issuance or
delivery of Stock or payment of benefits under any Award or the imposition of
any other conditions on such issuance, delivery or payment, to the extent that
such postponement or other condition would represent a greater burden on a
Participant than existed on the ninetieth (90th) day preceding the
Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan
shall be pledged, hypothecated or otherwise encumbered or subject to any lien,
obligation or liability of such Participant to any party (other than the
Corporation or a subsidiary), or assigned or transferred by such Participant
otherwise than by will or the laws of descent and distribution or to a
Beneficiary upon the death of a Participant, and such Awards or rights that may
be exercisable shall be exercised during the lifetime of the Participant only by
the Participant or his or her guardian or legal representative, except that
Awards and other rights (other than ISOs in tandem therewith) may be transferred
(without receipt of value from the transferee) to one or more Beneficiaries,
family members or other permitted transferees designated by the Committee during
the lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent such
transfers are permitted by the Committee pursuant to the express terms of an
Award agreement (subject to any terms and conditions which the Committee may
impose thereon). A Beneficiary, transferee, or other person claiming any rights
under the Plan from or through any Participant shall be subject to all terms and
conditions of the Plan and any Award agreement applicable to such Participant,
except as otherwise determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the Committee.
(c) Adjustments. In the event that any
dividend or other distribution (whether in the form of cash, Stock, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event affects the Stock
such that an adjustment is determined by the Committee to be appropriate under
the Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may be
delivered in connection with Awards granted thereafter, (ii) the number and kind
of shares of Stock by which annual per-person Award limitations are measured
under Section 5 hereof, (iii) the number and kind of shares of Stock subject to
or deliverable in respect of outstanding Awards, and (iv) the exercise price,
grant price or purchase price relating to any Award and/or make provision for
payment of cash or other property in respect of any outstanding Award. In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance
Awards and performance goals, and Annual Incentive Awards and any Annual
Incentive Award pool or performance goals relating thereto) in recognition of
unusual or nonrecurring events (including, without limitation, events described
in the preceding sentence, as well as acquisitions and dispositions of
businesses and assets) affecting the Corporation, any subsidiary or any business
unit, or the financial statements of the Corporation or any subsidiary, or in
response to changes in applicable laws, regulations, accounting principles, tax
rates and regulations or business conditions or in view of the Committees
assessment of the business strategy of the Corporation, any subsidiary or
business unit thereof, performance of comparable organizations, economic and
business conditions, personal performance of a Participant, and any other
circumstances deemed relevant; provided that no such adjustment shall be
authorized or made if and to the extent that such authority or the making of
such adjustment would cause Performance Awards granted under Section 9(b) hereof
or Annual Incentive Awards granted under Section 9(c) hereof to Participants
designated by the Committee as Covered Employees and intended to qualify as
performance-based compensation under Code Section 162(m) and regulations
thereunder to otherwise fail to qualify as performance-based compensation
under Code Section 162(m) and regulations thereunder.
(d) Taxes. The Corporation and any
subsidiary is authorized to withhold from any Award granted, any payment
relating to an Award under the Plan, including from a distribution of Stock, or
any payroll or other payment to a Participant, amounts of withholding and other
taxes required to be withheld by the applicable employment tax rules in
connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable
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to enable the Corporation to satisfy
obligations for the payment of withholding taxes relating to any Award. This
authority shall include authority to withhold or receive Stock or other property
and to make cash payments in respect thereof in satisfaction of such withholding
tax obligations.
(e) Changes to the Plan and Awards. The
Board may amend, alter, suspend, discontinue or terminate the Plan or the
Committees authority to grant Awards under the Plan without the consent of
stockholders or Participants, except that any amendment or alteration to the
Plan shall be subject to the approval of the Corporations stockholders not
later than the annual meeting next following such Board action
if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, or if the amendment increases the
number of shares of Stock reserved and available for delivery in connection with
Awards, materially modifies the requirements as to eligibility for participation
in the Plan, or materially increases the benefits accruing to Participants, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided that, without the
consent of an affected Participant, no such Board action may materially and
adversely affect the rights of such Participant under any previously granted and
outstanding Award. Subject to the provisions of Section 7(a) the Committee may
waive any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award agreement relating
thereto, except as otherwise provided in the Plan; provided that, without the
consent of an affected Participant, no such Committee action may materially and
adversely affect the rights of such Participant under such Award.
(f) Limitation on Rights Conferred under Plan. Neither the Plan nor any action taken hereunder shall be construed as
(i) giving any Eligible Person or Participant the right to continue as an
Eligible Person or Participant or in the employ or service of the Corporation or
a subsidiary, (ii) interfering in any way with the right of the Corporation or a
subsidiary to terminate any Eligible Persons or Participants employment or
service at any time, (iii) giving an Eligible Person or Participant any claim to
be granted any Award under the Plan or to be treated uniformly with other
Participants and employees, or (iv) conferring on a Participant any of the
rights of a stockholder of the Corporation unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the terms of an
Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an unfunded plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or obligation to deliver Stock pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the Corporation; provided
that the Committee may authorize the creation of trusts and deposit therein
cash, Stock, other Awards or other property, or make other arrangements to meet
the Corporations obligations under the Plan. Such trusts or other arrangements
shall be consistent with the unfunded status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant. The trustee
of such trusts may be authorized to dispose of trust assets and reinvest the
proceeds in alternative investments, subject to such terms and conditions as the
Committee may specify and in accordance with applicable law.
(h) Non-exclusivity of the Plan. Neither
the adoption of the Plan by the Board nor its submission to the stockholders of
the Corporation for approval shall be construed as creating any limitations on
the power of the Board or a committee thereof to adopt such other incentive
arrangements as it may deem desirable including incentive arrangements and
awards which do not qualify under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise determined by the Committee, in the event
of a forfeiture of an Award with respect to which a Participant paid cash or
other consideration, the Participant shall be repaid the amount of such cash or
other consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
other Awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
(j) Governing Law. The validity,
construction and effect of the Plan, any rules and regulations under the Plan,
and any Award agreement shall be determined in accordance with the Delaware
General Corporation Law, without giving effect to principles of conflicts of
laws, and applicable federal law.
(k) Recoupment Policy. Except as may be
specifically provided in the Award agreement, each Award under the Plan shall be
subject to the terms of the Corporations Recoupment Policy as it exists from
time to time.
(l) Code
Section 409A. With respect to Awards subject
to Code Section 409A, the Plan is intended to comply with the requirements of
Code Section 409A, and the provisions hereof shall be interpreted in a manner
that satisfies the requirements of Code Section 409A and the related
regulations, and the Plan shall be operated accordingly. If any provision of the
Plan or any term or condition of any Award would otherwise frustrate or conflict
with this intent, the provision, term or condition will be interpreted and
deemed amended so as to avoid this conflict. Notwithstanding
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anything in the
Plan to the contrary, if a Participant is determined under rules adopted by the
Committee to be a specified employee within the meaning of Code Section
409A(a)(2)(B)(i) and as defined in the Corporations Universal 409A Definition
Document, payment under any Award hereunder shall be delayed to the extent
necessary to avoid a violation of Code Section 409A.
(m) Plan
Effective Date and Stockholder Approval; Expiration Date. The Plan has been initially adopted by the Board effective
May 12, 2010, subject to approval by the stockholders of the Corporation, and
amended by the Board effective as of January 15, 2013. Unless an extension is
approved by the stockholders of the Corporation, the Plan shall have a term that
expires on May 11, 2020, after which no further Awards may be made, provided,
however, that the provisions of the Plan shall continue to apply to Awards made
prior to such date.
A-14
CVS Health Notice of Annual Meeting of
Stockholders
Table of Contents
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Our National Presence |
REINVENTING
PHARMACY
Were reinventing pharmacy
to have a more active, supportive role in each persons unique health experience
and in the greater health care environmentfrom advising on prescriptions to
helping manage chronic and specialty conditions to providing quality walk-in
medical care and pharmacy benefits management.
7,800+
Retail
drugstores
217K+
Colleagues
in 46 states, Puerto Rico , District of
Columbia and Brazil
24,000+
Pharmacists
HEALTH IS EVERYTHING
Through our unique integrated model of retail pharmacies,
walk-in medical clinics, pharmacy benefits management, and expanding specialty
pharmacy services, we are increasing access to quality care and delivering
better health outcomes, while effectively managing pharmaceutical costs and
lowering overall health care costs.
970+
MinuteClinic
locations
in 31 states
and District of Columbia
24M+
Patient visits since 2000
at MinuteClinic
2,400+
Nurses, Nurse
Practitioners and
Physician Assistants
Leading Pharmacy
Benefits Manager
(PBM)
65M
PBM Plan
Members
2,200+
CVS/caremark Clients
82M+
Prescriptions
delivered via mail
and Maintenance
Choice® |
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THE FUTURE OF HEALTH CARE
CVS
Health is a pharmacy innovation company that is shaping the future of health
care for people, businesses and communities across the United States.
9.3.2014
CVS
QUITS FOR GOOD
Eliminated the sale of tobacco
products, to better align with payors
and providers
Table of Contents
Table of Contents
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CVS HEALTH
CORPORATION C/O WELLS FARGO SHAREOWNER SERVICES P.O. BOX 64945 ST. PAUL,
MN 55164-0945 |
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SCAN TO VIEW
MATERIALS & VOTE |
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VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above |
Use the Internet to transmit your voting
instructions and for electronic delivery of information up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Follow
the instructions to obtain your records and to create an electronic voting
instruction form. |
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ELECTRONIC DELIVERY OF FUTURE
PROXY MATERIALS |
If you would like to reduce the costs incurred
by our company in mailing proxy materials, you can consent to receiving
all future proxy statements, proxy cards and annual reports electronically
via e-mail or the Internet. To sign up for electronic delivery, please
follow the instructions above to vote using the Internet and, when
prompted, indicate that you agree to receive or access proxy materials
electronically in future years. |
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VOTE BY PHONE -
1-800-690-6903 |
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you call
and then follow the instructions. |
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VOTE BY MAIL |
Mark, sign and date your proxy card and return
it in the postage-paid envelope we have provided or return it to Vote
Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY
11717. |
TO VOTE, MARK BLOCKS BELOW IN
BLUE OR BLACK INK AS FOLLOWS: |
M85802-P60821-Z64918 |
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION
ONLY |
THIS PROXY CARD IS VALID ONLY
WHEN SIGNED AND DATED. |
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CVS
HEALTH CORPORATION |
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The Board of Directors recommends you vote
FOR the following proposal: |
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1. |
Election of Directors |
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For |
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Against |
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Abstain |
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Nominees: |
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1a. |
Richard M. Bracken |
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1b. |
C. David Brown II |
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1c. |
Alecia A. DeCoudreaux |
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1d. |
Nancy-Ann M. DeParle |
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1e. |
David W. Dorman |
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1f. |
Anne M. Finucane |
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1g. |
Larry J. Merlo |
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1h. |
Jean-Pierre Millon |
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1i. |
Richard J. Swift |
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1j. |
William C. Weldon |
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1k. |
Tony L. White |
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For address changes and/or comments,
please check this box and write them on the back where indicated. |
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☐ |
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For |
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Against |
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Abstain |
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The Board of Directors
recommends you vote FOR the following proposals: |
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2. |
Proposal to ratify independent public
accounting firm for 2015. |
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3. |
Say on Pay - An advisory vote on the approval
of executive compensation. |
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4. |
Proposal to approve performance
criteria in the Company's 2010 Incentive Compensation Plan. |
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The Board of
Directors recommends you vote AGAINST the following proposal: |
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5. |
Stockholder proposal regarding
congruency of corporate values and political contributions. |
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NOTE:
In their discretion, the proxies may vote on such other business as may
properly come before the meeting or any adjournment thereof. |
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Please sign exactly as your name(s) appear(s) hereon. When
signing as attorney, executor, administrator, or other fiduciary, please
give full title as such. Joint owners should each sign personally. All
holders must sign. If a corporation or partnership, please sign in full
corporate or partnership name by authorized officer. |
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Signature [PLEASE SIGN WITHIN BOX] |
Date |
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Signature (Joint Owners) |
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Table of Contents
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available
at
www.proxyvote.com and at www.cvshealthannualmeeting.com.
CVS HEALTH CORPORATION
Annual Meeting of
Stockholders
May 7, 2015, 9:00 AM
This proxy is solicited by the Board of
Directors
The stockholder(s) hereby appoint(s)
Larry J. Merlo and David W. Dorman, or either of them, as proxies, each with the
power to appoint his substitute, and hereby authorizes them to represent and to
vote, as designated on the reverse side of this ballot, all of the shares of
Common Stock of CVS HEALTH CORPORATION that the stockholder(s) is/are entitled
to vote at the Annual Meeting of Stockholders to be held at 9:00 AM, EDT, on May
7, 2015 at the CVS Health Customer Support Center, One CVS Drive, Woonsocket, RI
02895, and any adjournment or postponement thereof.
Additional Voting Instructions
for Certain CVS Health Employees: To the
extent the undersigned is a participant in the 401(k) Plan and Employee Stock
Ownership Plan of CVS Health Corporation and Affi liated Companies (the "Plan"),
the undersigned hereby instructs The Bank of New York Mellon, as trustee under
the Plan, to vote as indicated on the reverse side, all shares of CVS Health
common stock held in the Plan, as to which the undersigned would be entitled to
give voting instructions if present at the Meeting. Shares held under the Plan
for which voting instructions are not properly completed or signed, or received
in a timely manner, will be voted in the same proportion as those shares for
which voting instructions were properly completed and signed and received in a
timely manner, so long as such vote is in accordance with the provisions of the
Employment Retirement Income Security Act of 1974, as amended.
This proxy, when properly executed,
will be voted in the manner directed herein. If no such direction is made, this
proxy will be voted in accordance with the Board of Directors'
recommendations.
Address Changes/Comments:
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(If you noted any Address
Changes/Comments above, please mark corresponding box on the reverse
side.)
Continued and to be signed on reverse
side
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