Table of Contents
|
Notice
of
Annual
Meeting of Stockholders |
|
May 10, 2017; 9:00
a.m. |
|
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:
2016 was another successful year for CVS
Health as we continued to benefit from our focus on delivering affordable,
accessible and effective health care. Our unmatched suite of leading integrated
assets continues to create superior value for patients, payors and providers.
While we delivered significant growth in
Adjusted Earnings Per Share, this past year was also impacted by some headwinds
that weighed on our stocks performance. Thanks in part to the rhetoric
surrounding last years presidential election, our stock, as well as that of
others in our space, was affected by the public discussion regarding the rising
costs of prescription drugs, and the possible repeal and replacement of the
Affordable Care Act. Additionally, the loss of retail pharmacy prescriptions
associated with a few pharmacy network changes announced in late 2016 is
expected to challenge our retail pharmacy business and make this year a
rebuilding year.
However, we have implemented plans that
are expected to return us to more robust levels of earnings growth in the years
ahead. We remain well-positioned to be successful and achieve long-term growth
because of our ability to pivot as health care changes and deliver needed solutions that will enhance patient access, improve
health outcomes and lower overall health care costs. When you consider the
breadth of our assets, all of which are focused on making health care more
accessible, affordable and effective, our competitive advantage is
clear.
We continue to remain focused on our three
pillars that maximize stockholder value. First, we drive productive, long-term
growth as evidenced by our solid increases in revenues, operating profit and
earnings per share. Second, we generate substantial levels of free cash flow,
providing a solid platform to drive future growth. Third, we maintain a
disciplined approach to optimizing capital allocation, investing our free cash
opportunistically in value-enhancing projects while returning more than $6
billion to stockholders through dividends and share repurchases this past year
alone. In addition, we have embarked on an enterprise streamlining initiative
that will enable us to create significant savings that can be used to further
maximize stockholder value.
CVS Health works every day to provide
people with high quality pharmacy and basic health care services, and to make
these services accessible and affordable. We align our purpose of helping people
on their path to better health with our corporate social responsibility roadmap,
Prescription for a Better World. We have taken the roadmap a step further by
making our business operations, workplace, supply chain and communities more
sustainable. Some of the highlights of our progress can be found inside the back
cover of this proxy statement.
This past year we continued to engage
proactively with our stockholders to ensure that we understand your needs. We
pride ourselves on strong corporate governance practices and we believe that
accountability to our stockholders is a mark of good governance. Within this
proxy statement, you will find the details of the changes we have made as a
result of conversations with many of you. We certainly welcome your feedback on
the changes we have made.
Our 2017 Annual Meeting of Stockholders will be held
on Wednesday, May 10, 2017, 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.
We remain confident that our leadership
across the pharmacy spectrum will allow us to continue to drive superior value
for our health care partners and our shareholders. Thank you for investing in
CVS Health.
Sincerely,
|
|
|
David W. Dorman |
|
Larry J. Merlo |
Chairman of the Board |
|
President and Chief Executive
Officer |
cvshealthannualmeeting.com |
|
01 |
Table of Contents
TABLE OF CONTENTS
02 |
|
2017 Proxy
Statement |
Table of Contents
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
Date and Time
May 10, 2017, 9:00 A.M.
Place
CVS Health Corporation
Customer Support Center
One CVS Drive
Woonsocket,
Rhode Island 02895
Items to be Voted
● |
Elect 12 directors named in this
proxy statement; |
● |
Ratify the appointment of Ernst
& Young LLP as the Companys independent registered public accounting
firm for fiscal 2017; |
● |
Act, by non-binding vote, to approve
the Companys executive compensation as disclosed in this proxy
statement; |
● |
Recommend, by non-binding vote, the
frequency of future advisory votes on the Companys executive
compensation; |
● |
Adopt the Companys 2017 Incentive
Compensation Plan; |
● |
Act on three stockholder proposals,
if properly presented; and |
● |
Conduct any other business properly
brought before the Annual Meeting. |
Eligibility to Vote
Stockholders of record at the close of business on March 14,
2017 may vote at the Annual Meeting.
By Order of the Board of Directors,
Colleen M. McIntosh
Senior Vice President & Corporate Secretary
|
|
|
|
|
|
|
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 14, 2017. Even if you plan to attend the Annual 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 www.proxyvote.com |
|
|
|
|
|
|
|
|
|
|
|
Use a Mobile
Device Scan this QR Code |
|
|
|
|
|
|
|
|
|
|
|
Call
Toll-Free 1-800-690-6903 |
|
|
|
|
|
|
|
|
|
|
|
Mail
Your Proxy Card Follow the instructions on your voting
form |
|
|
|
|
|
|
|
|
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meeting to Be Held on May
10, 2017:
The proxy statement and annual
report to security holders are available at www.cvshealthannualmeeting.com
and at
www.proxyvote.com/cvs. |
|
|
|
|
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 31, 2017 to all stockholders entitled
to vote. Our 2016 Annual Report, which includes our financial statements, is
being sent with this proxy statement.
cvshealthannualmeeting.com |
|
03 |
Table of Contents
PROXY STATEMENT HIGHLIGHTS
This summary highlights selected
information in this Proxy Statement please review the entire document before
voting.
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. |
|
|
|
|
|
ITEM 1 |
●Our nominees are seasoned leaders who bring a mix of
skills and qualifications to the Board
See pages
10-19 for further information |
|
|
Election of 12 directors named
in this proxy statement |
|
|
|
The Board of Directors unanimously recommends a vote each
director nominee |
|
|
|
|
|
|
The CVS Health Board
You are asked to vote on the election of
the following 12 nominees to serve on the Board of Directors of CVS Health. All
directors are elected by a majority of votes cast.
|
|
|
|
|
|
|
CVS HEALTH
COMMITTEES |
|
NAME, PRIMARY
OCCUPATION |
AGE |
DIRECTOR SINCE |
INDEPENDENT |
OTHER PUBLIC COMPANY BOARDS |
|
A |
MP&D |
N&CG |
PS&CQ |
E |
|
Richard M.
Bracken Retired Chairman and CEO of HCA Holdings,
Inc. |
64 |
2015 |
YES |
None |
|
|
|
● |
● |
|
|
C. David Brown
II Chairman of Broad and Cassel |
65 |
2007 |
YES |
2 |
|
|
● |
● |
|
● |
|
Alecia A.
DeCoudreaux Retired President of Mills
College |
62 |
2015 |
YES |
None |
|
● |
|
|
● |
|
|
Nancy-Ann M.
DeParle Co-Founding Partner of Consonance Capital
Partners, LLC |
60 |
2013 |
YES |
1 |
|
● |
|
|
● |
|
|
David W.
Dorman Chairman of the Board of CVS Health Corporation,
Founding Partner of Centerview Capital Technology Fund |
63 |
2006 |
YES |
2 |
|
|
● |
● |
|
● |
|
Anne M. Finucane Vice
Chairman of Bank of America Corporation |
64 |
2011 |
YES |
None |
|
|
● |
● |
|
|
|
Larry J.
Merlo President and CEO of CVS Health
Corporation |
61 |
2010 |
NO |
None |
|
|
|
|
|
● |
|
Jean-Pierre
Millon Retired President and CEO of PCS Health Systems,
Inc. |
66 |
2007 |
YES |
None |
|
● |
|
|
● |
|
|
Mary L. Schapiro Vice
Chair, Advisory Board Promontory Financial Group |
61 |
---- |
YES |
2 |
|
|
|
|
|
|
|
Richard J.
Swift Retired Chairman of the Board, President and CEO
of Foster Wheeler Ltd. |
72 |
2006 |
YES |
4 |
|
● |
|
|
|
● |
|
William C.
Weldon Retired Chairman of the Board and CEO of Johnson
& Johnson |
68 |
2013 |
YES |
2 |
|
|
● |
● |
|
|
|
Tony L. White Retired Chairman of
the Board, President and CEO of Applied
Biosystems, Inc. |
70 |
2011 |
YES |
2 |
|
|
● |
|
● |
|
●: Committee Chair |
MP&D: Management Planning
& Development |
PS&CQ: Patient Safety &
Clinical Quality |
A: Audit |
N&CG: Nominating &
Corporate Governance |
E:
Executive |
04 |
|
2017 Proxy
Statement |
Table of Contents
PROXY STATEMENT
HIGHLIGHTS |
THE CVS HEALTH BOARD
2016 Board of
Directors
For more information about our
directors and our new nominee, please refer to pages 10-16 of this proxy
statement. |
BOARD AND CORPORATE GOVERNANCE
HIGHLIGHTS
The CVS Health Board continues to evaluate
the Companys corporate governance policies and practices 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. We are committed to maintaining
the highest standards of corporate governance, and have established a strong and
effective framework by which the Company is governed and reviewed.
|
|
|
|
FURTHER INFORMATION |
2016-2017 Board and
Corporate Governance Developments |
|
●Formation of a new Committee
focused on patient safety and clinical quality in March
2016 |
|
page 27 |
|
●We adopted a proxy access by-law that allows holders of
at least 3% of our stock for a period of three years the right to nominate
candidates for up to 20% of board seats, with a minimum of two
seats |
|
page 18 |
|
●In March 2017 we nominated Mary Schapiro for election to
our Board of Directors; if elected, Ms. Schapiro will strengthen our Board
and increase its gender diversity |
|
pages 16-17 |
Board Communication and
Stockholder Rights |
|
●Our Board supports our stockholder outreach program and
has responded to stockholder input with changes in our compensation
program and other areas
|
|
pages 6-7, 20, 32,
42 |
|
●Right to act by written consent and to call special
meetings |
|
page 20 |
|
●Majority voting in director elections |
|
page 18 |
|
●Annual election of all directors, annual say-on-pay
vote |
|
pages 10, 34-35 |
cvshealthannualmeeting.com |
|
05 |
Table of Contents
PROXY STATEMENT
HIGHLIGHTS |
|
|
|
|
FURTHER INFORMATION |
Director Alignment with
Stockholder Interests |
|
●At least 75% of our directors
annual retainer mix is paid in shares of CVS Health common
stock |
|
pages 32-33 |
|
●Directors must own at least 10,000 shares of CVS Health
common stock |
|
page 77 |
|
●All directors except one had 100% meeting
attendance |
|
page 28 |
Board
Oversight of Risk |
|
●Full Board and individual Committee focus on
understanding Company risks
|
|
page 19 |
|
●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 |
|
page 23 |
|
●The Management Planning and Development Committee is
responsible for reviewing and assessing potential risk arising from the
Companys compensation policies and practices |
|
page 26 |
|
●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 |
|
pages 19-20 |
STOCKHOLDER OUTREACH GOVERNANCE AND COMPENSATION
ACTIONS
During the fall of 2016, we reached out to
our 50 largest stockholders, holders of more than 50% of our outstanding common
stock in the aggregate, and offered to discuss corporate governance, our
compensation programs and any other matters of
interest. We had discussions with many stockholders and one of the leading proxy
advisory firms. During those discussions, we heard several themes that caused us
to take action:
What we heard |
|
What we have done in response |
|
Intended outcome |
|
When effective |
Proxy access is a right that is important to
stockholders |
|
Discussed our proxy access by-law, which was adopted early in 2016,
with our stockholders |
|
Provide stockholders the right to nominate candidates for
election to our Board and have their nominees included in our proxy
statement |
|
2016 |
Diversity of the Board may be improved by ensuring that
diverse candidates are included in director searches |
|
Amended
our Nominating and Corporate Governance Committee Charter to specifically
include a requirement for diverse candidates |
|
Memorialize and formalize our existing practice of including
diverse candidates in all director searches |
|
2017 |
Annual stockholder advisory votes on executive
compensation (say-on-pay) allow us to evaluate the Companys
compensation practices |
|
Recommended annual as the frequency for future stockholder
advisory votes on executive compensation |
|
Maintain a regular dialogue and receive annual feedback from our
stockholders on our executive compensation practices |
|
This
proxy statement |
Your ability to use discretion in determining bonus
payments is unclear and allows substantial increases |
|
Reduced cap on our Executive
Incentive Plan (EIP) to be aligned with the broad-based Management
Incentive Plan (MIP) and better articulated guidelines that the Committee
uses for discretionary adjustments |
|
Improved transparency; program design reflects the Management
Planning and Development (MP&D) Committees intentions |
|
The MP&D Committee applied the
new limits to the 2016 performance year EIP awards; improved disclosure in
this proxy statement related to the Committees use of
discretion |
06 |
|
2017 Proxy
Statement |
Table of Contents
PROXY STATEMENT
HIGHLIGHTS |
What we heard |
|
What we have done in response |
|
Intended outcome |
|
When effective |
Describe how the incentive plan metrics support the
Companys growth strategy |
|
Improved disclosure |
|
Improve
stockholders understanding of why we use certain incentive plan
metrics |
|
This
proxy statement |
Practice of paying dividend equivalents on unvested
restricted stock units (RSUs) at the same time and rate as stockholders is
inconsistent with time vesting requirements |
|
Dividend equivalents on unvested RSUs will be paid only to the
extent the underlying award vests |
|
Align
the dividend equivalent awards with the vesting provisions of RSUs;
simplify accounting treatment of awards |
|
Beginning with 2017 awards |
For
more information on corporate governance at CVS Health, please refer to
pages 17-29 of this proxy statement and to our website at
http://investors.cvshealth.com/corporate-governance. |
|
|
|
|
|
ITEM 2 |
●Based on its recent
evaluation, our Audit Committee believes that the retention of Ernst &
Young is in the best interests of the Company and its
stockholders
See page
30 for further information |
|
|
Ratify the appointment of
Ernst & Young LLP as the Companys independent registered public
accounting firm for fiscal 2017 |
|
|
|
The Board of Directors unanimously recommends a vote this
proposal |
|
|
|
|
|
|
|
|
|
|
|
ITEM 3 |
●Our executive
compensation program reflects our unwavering commitment to paying for
performance and reflects feedback received from stockholder
outreach
See pages
32-33 for further information |
|
|
Approve, on a non-binding
basis, the Companys executive compensation as disclosed in this proxy
statement |
|
|
|
The Board of Directors unanimously recommends a vote this
proposal |
|
|
|
|
|
|
|
|
|
|
|
ITEM 4 |
●We believe that an
annual vote on our executive compensation program provides us with
valuable and actionable feedback from our stockholders
See page
33 for further information |
|
|
Recommend, by a non-binding
vote, the frequency of future advisory votes Companys executive
compensation |
|
|
|
The Board of Directors unanimously recommends a vote every
(1) YEAR for this proposal |
|
|
|
|
|
|
|
|
|
|
|
ITEM 5 |
●Our ICP is an important tool to attract and
retain quality executives and employees
See pages 67-71 for
further information |
|
|
Approve the Companys 2017 Incentive Compensation Plan
(ICP) |
|
|
|
The Board of
Directors unanimously recommends a vote this proposal |
|
|
|
|
|
|
|
|
|
|
|
ITEMS 6-8 |
●See the Boards
statement of opposition AGAINST each stockholder proposal
See pages 72-76 for further
information |
|
|
Stockholder
proposals |
|
|
|
The Board of
Directors unanimously recommends a vote all stockholder
proposals |
|
|
|
|
|
|
cvshealthannualmeeting.com |
|
07 |
Table of Contents
PROXY STATEMENT
HIGHLIGHTS |
For CVS Health, 2016 was a successful
year. Here are some highlights:
NET
REVENUES ($ billions) 1 year growth of 15.8% |
|
OPERATING PROFIT ($
billions) 1 year growth of 9.3% |
|
2014-2016 RETURN
ON NET ASSETS (%) Exceeded target by 22% |
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREHOLDER RETURN (TSR) (%) LTIP Modifier (Percentile of S&P
500) |
|
ANNUAL CASH DIVIDENDS ($ PER SHARE) 1 year increase of
21.4% |
|
DILUTED EARNINGS PER
SHARE FROM CONTINUING OPERATIONS ($) 1 year growth of
6.2% |
|
|
|
|
|
For more information on our financial performance,
please refer to our Annual Report available at
www.cvshealthannualmeeting.com. Please also see page 56 of this proxy
statement for additional information about how we calculate Return on Net
Assets, a metric used in our Long-Term Incentive
Plan. |
08 |
|
2017 Proxy
Statement |
Table of Contents
PROXY STATEMENT
HIGHLIGHTS |
LEADING PRACTICES IN COMPENSATION
PROGRAMS
Our pay practices align with and support
our core compensation 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 Promote Company Growth
✓Performance Measures
Aligned with Stockholder Interests
✓Majority of the Total
Compensation Opportunity is Performance-Based
✓Long-Term Incentive Plan
(LTIP) Awards Settled in Common Stock that is Subject to Retention
Requirement (Holding Period)
✓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
✓SERP Closed to New
Participants
✓Double Trigger Vesting of
Equity Awards
✓Board Committee
Oversight of Comprehensive Annual Compensation Program Risk
Assessment |
New this
year |
✓Dividend Equivalents on
RSUs Paid Only When Awards Vest
✓Reduced Maximum Annual EIP
Award to Align with Broad-Based MIP
✓Limited Positive Discretion on Annual
Incentive Awards
✓Revised Total
Shareholder Return (TSR) Modifier for 2017-2019 LTIP to Adjust Above or
Below the 50th Percentile Relative
Ranking |
OUR
2016 EXECUTIVE PAY
The following shows the breakdown of
reported 2016 compensation for our CEO and our other named executive officers,
or NEOs.
CEO
|
89% Performance Aligned |
|
|
|
|
|
|
|
Base
Salary 7% |
Annual Incentive Awards 10% |
RSUs and
Options 33% |
LTIP 46% |
|
Other 4% |
|
|
|
|
|
|
|
|
79%
Long-Term |
|
All Other NEOs
|
85% Performance Aligned |
|
|
|
|
|
|
|
Base
Salary 12% |
Annual Incentive Awards 12% |
RSUs and Options 35% |
LTIP 38% |
|
Other 3% |
|
|
|
|
|
|
|
|
73%
Long-Term |
|
For more information on our executive
compensation practices, please refer to the Compensation Discussion and Analysis
section, beginning on page 35 of this proxy statement. |
cvshealthannualmeeting.com |
|
09 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED
MATTERS
ITEM 1: ELECTION OF
DIRECTORS |
Our Board of Directors has nominated 12
candidates for election as directors at the Annual Meeting. Eleven nominees
currently serve as directors and one nominee would be a new member of our Board.
If elected, each nominee will hold office until the next annual
meeting.
The Nominating and Corporate Governance
Committee believes that the Board, with Ms. Schapiro as a new nominee, 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, governmental and regulatory agencies 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 INCUMBENT BOARD
NOMINEES
|
|
|
|
|
|
Independent Director Age
64 Director since January 2015
CVS Health
Board Committees Patient Safety
and Clinical Quality (Chair); Nominating and Corporate
Governance Other Public
Boards None |
Richard M.
Bracken Retired Chairman and
CEO of HCA Holdings, Inc. |
Director Qualification
Highlights
●Leadership Former CEO
●Business Operations; Consumer Products or Services
●Finance
●Health Care/Regulated Industry
●Risk Management
●Corporate Governance |
|
Education B.A., San Diego State
University; M.H.A., Medical College of Virginia
Biography Mr. Bracken is the former Chairman and Chief Executive
Officer of HCA Holdings, Inc., one of the nations leading providers of
health care services. At the time of Mr. Brackens retirement, HCAs
facilities included 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 a complementary skill set for the Board. In fact, that experience led
the Board to appoint Mr. Bracken as Chair of the new Patient Safety and
Clinical Quality Committee in March 2016. |
|
|
|
|
|
10 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
ITEM
1 |
|
|
|
C. David Brown
II Chairman of Broad and
Cassel
Independent
Director CVS Health Board
Committees Management Planning and Development
(Chair), Nominating and Corporate Governance,
Executive Other Public
Boards Rayonier Advanced Materials
Inc. |
|
|
|
|
|
Alecia A.
DeCoudreaux Former
President of Mills College
Independent
Director CVS Health Board
Committees Audit; Patient Safety and Clinical
Quality Other Public
Boards None |
|
|
Age
65 Director since March 2007 |
|
|
|
|
Age
62 Director since March 2015 |
|
|
|
Director Qualification
Highlights |
|
|
|
Director Qualification
Highlights |
|
|
●Real Estate
●Business Development and Corporate
Transactions
●Finance
●Legal and Regulatory Compliance
●Risk Management
●Public Company Board Service
Education B.S.B.A., University
of Florida; J.D., University of Florida College of Law
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. He also served as a
director of ITT Educational Services, Inc., a national provider of
technology-oriented undergraduate and graduate degree programs, from April
2015 until September 2016. Mr. Brown also previously served on the board
of Caremark Rx, Inc. from March 2001 until the closing of the merger
transaction involving CVS Health and Caremark, when he became a director
of CVS Health.
Skills and
Qualifications of Particular Relevance to CVS Health Mr. Browns legal expertise and health care experience
are highly valued by the Board, as is his ability to analyze and interpret
complex issues and facilitate Board engagement. 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. The Board believes
that Mr. Browns experience adds knowledge and leadership depth to the
Board. |
|
|
|
●Business Development and Corporate
Transactions
●Legal and Regulatory Compliance
●Health Care/Regulated Industry
●Corporate Governance
●Public Policy and Government Affairs
Education B.A., Wellesley
College; J.D., Indiana University School of Law
Biography Ms. DeCoudreaux is
the former President of Mills College, a liberal arts college for women
with graduate programs for women and men, having served in that position
from July 2011 through June 2016. Previously, Ms. DeCoudreaux served in a
number of leadership roles at Eli Lilly and Company, 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 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 a great asset to
our Board. |
|
cvshealthannualmeeting.com |
|
11 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
ITEM
1 |
|
|
|
Nancy-Ann M.
DeParle Co-Founding
Partner of Consonance Capital Partners, LLC
Independent
Director CVS Health Board
Committees Audit; Patient
Safety and Clinical Quality Other Public
Boards HCA Holdings,
Inc. |
|
|
|
|
|
David W.
Dorman Chairman of the
Board of CVS Health Corporation, Founding Partner of Centerview Capital
Technology Fund
Independent
Director CVS Health Board
Committees Management Planning and Development,
Nominating and Corporate Governance (Chair), Executive Other Public Boards PayPal
Holdings, Inc.; Yum! Brands, Inc. |
|
|
Age
60 Director since September 2013 |
|
|
|
|
Age
63 Director since March 2006 |
|
|
|
Director Qualification
Highlights |
|
|
|
Director Qualification
Highlights |
|
|
●Business Development and Corporate
Transactions
●Finance
●Legal and Regulatory Compliance
●Health Care Industry
●Public Policy and Government Affairs
●Public Company Board Service
Education B.A., University of
Tennessee; B.A. and M.A., Balliol College, Oxford University; J.D.,
Harvard Law School
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. |
|
|
|
●Leadership Former CEO
●Finance
●International Business Operations; Consumer Products or
Services
●Technology and Innovation
●Risk Management
●Corporate Governance
●Public Company Board Service
Education B.S., Georgia Tech
University
Biography Mr. Dorman has been
the Chairman of the Board of CVS Health Corporation since May 2011. He has
also been a Founding Partner of Centerview Capital Technology Fund, a
private investment firm, since July 2013. He also served as Lead Director
of Motorola Solutions, Inc. (formerly Motorola, Inc.), a communications
products company, until his retirement from that board in May 2015, and
was Non-Executive Chairman of the Board of Motorola from May 2008 through
May 2011. 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 PayPal Holdings, Inc., a
leading digital and mobile payments company, and Yum! Brands, Inc., a
global quick service restaurant company, as well as Dell Technologies
Inc., the worlds largest privately controlled technology company. He was
also a director of SecureWorks Corp., an information security solutions
provider and a subsidiary of Dell, from the time of SecureWorks IPO in
April 2016 until he joined the board of Dell in September 2016.
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. |
|
12 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
ITEM
1 |
|
|
|
Anne M.
Finucane Vice Chairman of
Bank of America Corporation
Independent
Director CVS Health Board
Committees Nominating and Corporate Governance;
Management Planning and Development Other Public Boards
None |
|
|
|
|
|
Larry J.
Merlo President and Chief
Executive Officer of CVS Health Corporation
Independent
Director CVS Health Board
Committees Executive Other Public Boards
None |
|
|
Age
64 Director since January 2011 |
|
|
|
|
Age
61 Director since May 2010 |
|
|
|
Director Qualification
Highlights |
|
|
|
Director Qualification
Highlights |
|
|
●Consumer Products or Services
●Corporate Strategy Development and
Oversight
●Marketing, Brand Management
●Public Policy
●Public Relations
●Regulated Industry
Education B.A., University of
New Hampshire
Biography Ms. Finucane has
been Vice Chairman of Bank of America Corporation, an international
financial services company, since July 2015 and is a member of its
executive management team. From 2006 through July 2015 Ms. Finucane served
as Global Chief Strategy and Marketing Officer for Bank of America and
served as Northeast Market President from 2004 through July 2015. During
her twenty-plus years as a senior leader at Bank of America and its legacy
firms, Ms. Finucane has served as senior advisor to four chief executive
officers and the Board of Directors. Ms. Finucane is responsible for the
strategic positioning of Bank of America and oversees the public policy,
customer research and analytics, global marketing, communications and
corporate social responsibility efforts for the company. She is chair of
Bank of Americas Environmental, Social and Governance Committee, and is
also chair of the Bank of America Charitable Foundation.
Skills and
Qualifications of Particular Relevance to CVS Health Ms. Finucanes experience in the financial services
industry, consumer policy, strategy, marketing, corporate social
responsibility and government affairs provides the Board with valuable
insight in those key areas. |
|
|
|
●Leadership Current CEO
●Business Operations; Consumer Products or
Services
●Health Care/Regulated Industry
●Public Policy
●Retail, Retail Pharmacy and Pharmacy Benefit
Management
Education B.S., Pharmacy,
University of Pittsburgh
Biography Mr. Merlo has been
Chief Executive Officer of CVS Health 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 from January 2007
through May 2010, and Executive Vice President Stores from April 2000 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. |
|
cvshealthannualmeeting.com |
|
13 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
ITEM
1 |
|
|
|
Jean-Pierre
Millon Retired President
and Chief Executive Officer of PCS Health Systems, Inc.
Independent
Director CVS Health Board
Committees Audit; Patient Safety and Clinical
Quality Other Public
Boards None |
|
|
|
|
|
Richard J.
Swift Retired Chairman of
the Board, President and Chief Executive Officer of Foster Wheeler
Ltd.
Independent
Director CVS Health Board
Committees Audit (Chair), Executive
Other Public
Boards Ingersoll-Rand plc, Kaman Corporation,
Hubbell Incorporated, Public Service Enterprise Group
Incorporated |
|
|
Age
66 Director since March 2007 |
|
|
|
|
Age
72 Director since September 2006 |
|
|
|
Director Qualification
Highlights |
|
|
|
Director Qualification
Highlights |
|
|
●Leadership Former CEO
●Finance
●Corporate Strategy Development and
Oversight
●Health Care/Regulated Industry
●International Business Operations
●Pharmacy Benefit Management
●Public Company Board Service
Education B.S., Ecole Centrale
de Lyon (France); B.A., Université de Lyon (France); M.B.A., Kellogg
School of Business, Northwestern University
Biography Mr. Millon is the
retired former President and Chief Executive Officer of PCS Health
Systems, Inc. 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.
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. |
|
|
|
●Leadership Former CEO
●Finance
●International Business Operations
●Risk Management
●Corporate Governance
●Public Company Board Service
Education B.S., U.S. Military
Academy at West Point; M.S., Purdue University; M.B.A., Fairleigh
Dickinson University
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 Ingersoll-Rand plc, a diversified industrial company, and a
director of Kaman Corporation, a diversified manufacturer and distributor,
Hubbell Incorporated, an electrical and electronic products company, and
Public Service Enterprise Group Incorporated, an energy
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. |
|
14 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
ITEM
1 |
|
|
|
William C.
Weldon Retired Chairman of
the Board and Chief Executive Officer of Johnson &
Johnson
Independent
Director CVS Health Board
Committees Management Planning and Development,
Nominating and Corporate Governance Other Public Boards
JPMorgan Chase & Co., Exxon Mobil Corporation |
|
|
|
|
|
Tony L.
White Retired Chairman of
the Board, President and Chief Executive Officer of Applied Biosystems,
Inc.
Independent
Director CVS Health Board
Committees Management Planning and Development;
Patient Safety and Clinical Quality Other Public Boards
Ingersoll-Rand plc, C.R. Bard, Inc. |
|
|
Age
68 Director since March 2013 |
|
|
|
|
Age
70 Director since March 2011 |
|
|
|
Director Qualification
Highlights |
|
|
|
Director Qualification
Highlights |
|
|
●Leadership Former CEO
●Finance
●Health Care/Regulated Industry
●International Business Operations; Consumer Products or
Services
●Risk Management
●Corporate Governance
●Public Company Board Service
Education B.S., Quinnipiac
University
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 global
financial services company, and Exxon Mobil Corporation, an international
oil and gas company. He was formerly a director of The Chubb Corporation,
an international insurance company, until it was acquired by ACE Limited
in January 2016.
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. |
|
|
|
●Leadership Former CEO
●Finance
●Health Care/Regulated Industry
●Technology and Innovation
●Risk Management
●Corporate Governance
●Public Company Board Service
Education B.A., Western Carolina
University
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. |
|
cvshealthannualmeeting.com |
|
15 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS: ITEM
1 |
BIOGRAPHY OF OUR NEW BOARD
NOMINEE
|
|
|
|
|
|
Independent Nominee Age
61
CVS Health
Board Committees
None Other Public
Boards General Electric Company;
London Stock Exchange Group plc |
Mary L.
Schapiro Vice Chair of the
Advisory Board Promontory Financial Group |
Director Qualification
Highlights
●Leadership Former CEO
●Public Policy and Government Affairs
●Finance
●Risk Management
●Legal and Regulatory Compliance
●Public Company Board Service |
|
Education B.A., Franklin and
Marshall College; J.D., George Washington University
Biography Since January 2014, Ms. Schapiro has served as the Vice
Chair of Promontory Advisory Board, part of Promontory Financial Group, a
leading strategy, risk management and regulatory compliance firm that was
acquired by IBM Corporation in November 2016. She previously served as
managing director of Promontory Financial Group from March 2013 through
January 2014. From January 2009 through December 2012, Ms. Schapiro was
Chairman of the U.S. Securities and Exchange Commission, becoming the
first woman to serve as that agencys Chairman. Prior to becoming SEC
Chairman, Ms. Schapiro was Chairman and CEO of the Financial Industry
Regulatory Authority (FINRA) from 2006 through 2008, and prior to that
held a number of key executive positions at FINRA and its predecessor from
1996 through 2006, including Vice Chairman and President of NASD
Regulation. She also served as Chairman of the Commodity Futures Trading
Commission (CFTC) from 1994 to 1996, and was the first person to serve as
Chairman of both the CFTC and the SEC. Ms. Schapiro is also a director of
General Electric Company, a global diversified infrastructure company, and
of The London Stock Exchange Group plc, which engages in market
infrastructure and the capital markets business.
Skills and Qualifications of
Particular Relevance to CVS Health Ms. Schapiros experience in leading the SEC, FINRA and the CFTC
makes her extremely well qualified to join our Board. Ms. Schapiros
leadership of the SEC during the turbulent period that followed the 2008
financial crisis, one of the busiest rulemaking periods in the agencys
history, demonstrates her ability to navigate through a difficult and
complex regulatory and political environment. The Board believes that her
skills fill important needs in the areas of legal and regulatory
compliance, finance, risk management, and public policy and government
affairs. |
|
|
|
|
|
The Board of Directors unanimously recommends a vote the election of all nominees.
16 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
ITEM
1 |
SELECTING OUR DIRECTOR NOMINEES
Director Nominee Independence |
|
Director Nominee Gender |
|
Director Nominee Tenure |
|
|
|
|
|
11 nominees for Director, including
our Chairman, are independent of management. Mr. Merlo, our President and
CEO, is our only non-independent nominee. |
|
Three of the last four additions to
our Board, including our new nominee, are women. |
|
Our nominees bring a balance of
experience and fresh perspective to our boardroom. The average tenure of
current CVS Health directors is seven
years. |
In addition to our current
Directors, we have nominated Mary L. Schapiro for election to our Board.
Ms. Schapiro has been determined to be independent, and her election would
reduce average tenure to six
years. |
Director Skills and Experience
Our directors and our new nominee 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:
Director Qualification Criteria;
Diversity
Recognizing that the selection of
qualified directors is complex and crucial to the long-term success of the
Company, the Nominating and Corporate Governance Committee has established in
its charter guidelines for the identification and evaluation of candidates for
membership on the Board. Under its charter, the Committee recommends to the
Board criteria for Board membership and recommends individuals for membership on
our Board. The criteria used by the Committee in nominating directors are found
in the Committees charter and provide that 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 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 |
cvshealthannualmeeting.com |
|
17 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
ITEM
1 |
The Committee makes these determinations
in the context of the existing composition of the Board so as to achieve an
appropriate mix of characteristics. Consistent with this philosophy, the
Committee is committed to including in each search qualified candidates who
reflect diverse backgrounds, including diversity of gender and race. The
Committee also 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.
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 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. Our nominees
reflect that diversity, including in terms of race, gender and ethnic
background. In addition, to ensure that it has access to a broad range of
qualified, experienced and diverse candidates, the Committee may use the
services of an independent search firm to help identify and assist in the
evaluation of candidates.
Board Evaluation Process
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.
Board Refreshment; Retirement
Age
The Committee and the Board believe that
setting a retirement age for CVS Health directors is advisable to facilitate the
addition of new directors. Accordingly, our Corporate Governance Guidelines
provide that no director who is or would be over the age of 74 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.
In the event any waiver is provided, the Board will disclose the rationale for
its decision.
Majority Voting
As discussed elsewhere in this proxy
statement, directors are elected by a majority of the votes cast at the Annual
Meeting (assuming that the election is uncontested). Under our by-laws, each
nominee who is a current director is required to submit an irrevocable
resignation, which resignation would become
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. The Board, acting on the recommendation of the 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. In the event any resignation is not
accepted, the Board will disclose the rationale for its
determination.
Stockholder Submission of
Nominees
The Committee will consider any director
candidates proposed by stockholders who submit a written request to our
Corporate Secretary (including via our proxy access by-law, described below).
All candidates should meet the Director Qualification Criteria, discussed above.
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 by-laws and described in this proxy statement. The
notice must include 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 any other information that the SEC would require to be included in a
proxy statement when a stockholder submits a proposal. See Other Information
Stockholder Proposals and Other Business for our Annual Meeting in 2018 for
additional information related to proposals, including any nominations, for our
2018 Annual Meeting.
Proxy Access
In January 2016, following the receipt of a stockholder proposal and
extensive conversations with the proponent and several other stockholders, the
Nominating and Corporate Governance Committee recommended and the Board adopted
a proxy access by-law. Under the by-law a stockholder, or a group of up to 20
stockholders, owning at least three percent of the Companys outstanding common
stock continuously for at least three years, may nominate and include in the
Companys proxy materials director nominees constituting up to the greater of
two nominees or 20% of the Board, provided that the stockholders and the
nominees satisfy the requirements specified in the Companys by-laws.
18 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
THE BOARDS ROLE AND
ACTIVITIES IN 2016 |
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 New York Stock Exchange (NYSE) Listed Company Manual. Under NYSE Rules,
no director qualifies as independent unless the Board affirmatively determines
that the director has no material relationship with the Company.
Our Board has
adopted categorical standards to assist in making director independence
determinations. Any relationship that falls within the following standards or
relationships will not, in itself, preclude a determination of independence.
These categorical standards are set forth in
Annex A to the Companys Corporate Governance Guidelines, which are available on
our website at http://investors.cvshealth.com/corporate-governance/documents or
upon request to our Corporate Secretary.
2016 Determinations
The Nominating and Corporate Governance Committee of the Board
undertook its annual review of director and nominee independence in March 2017.
The Committee recommended and the Board determined that each of Mmes.
DeCoudreaux, DeParle, Finucane and Schapiro, and each of Messrs. Bracken, Brown,
Dorman, Millon, Swift, Weldon and White, is independent. Mr. Merlo is not an
independent director because of his employment as President and CEO of the
Company.
THE BOARDS ROLE AND ACTIVITIES IN
2016 |
The Board acts as the ultimate
decision-making body of the Company and advises and oversees management, which
is responsible for the day-to-day operations and management of the Company. In
carrying out its responsibilities, the Board reviews and assesses CVS Healths
long-term strategy and its strategic, competitive and financial
performance.
In 2016 the Board oversaw the return of
approximately $6 billion to our stockholders through a combination of cash
dividends and stock repurchases. The Board increased the cash dividend
significantly for both 2016 and 2017, taking the quarterly payment from $0.35
per share to $0.50 per share, an aggregate increase of over 40% from 2015. In
November 2016, the Board approved a new $15 billion share buyback program,
further showing its commitment to returning value to stockholders. The Board
also approved the refinancing of much of the Companys long-term debt, resulting
in significant ongoing savings in terms of interest rates and payments. In
addition, given the Companys expanded offerings throughout the spectrum of
health care, the Board formed a new Committee that is focused on the quality of
pharmacy and medical care being delivered by the Company.
The Boards Role in Strategy and
Succession Planning
The Board reviews the Companys financial
performance on a regular basis at Board meetings and through periodic updates,
with a particular focus on peer and competitive comparisons. The Board also
periodically reviews the Companys long-term strategy, and assesses its
strategic, competitive and financial performance, on both an absolute basis and
in relation to the performance, practices and policies of its peers and
competitors. While the Board receives updates regarding strategic matters
throughout the year, one Board meeting per year, typically in September, is
focused almost entirely on the Companys short- and long-term strategic
direction. The Board receives reports from management and expert speakers are
often engaged. At this meeting the Board provides input and oversight on
short-term strategic goals and sets the long-term strategic direction of the
Company.
The Board also reviews the Companys
succession planning, including succession planning in the case of the
incapacitation, retirement or removal of the CEO. In that regard, the CEO
provides an annual report to the Board recommending and evaluating potential
successors, along with a review of any development plans recommended for such
individuals. The CEO also provides to the Board, on an ongoing basis, his
recommendation as to a successor in the event of an unexpected emergency. The
Board also reviews succession planning with respect to the Companys key
executive officers, i.e., those who are members of the Business Planning
Committee, or BPC.
The Boards Role in Risk
Oversight
The Boards role in risk oversight
involves both the full Board and its Committees, as well as members of
management.
● |
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. The Audit Committee also 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. |
● |
Each of our 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. See Compensation Risk Assessment on page 26 for additional
information. |
cvshealthannualmeeting.com |
|
19 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
THE BOARDS ROLE AND
ACTIVITIES IN 2016 |
● |
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 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 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.
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. Again in 2016, 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. Additional details
regarding our outreach effort and the actions taken are found on pages
6,7 and 42
of this proxy statement.
Much of our dialogue with stockholders was
focused on compensation-related matters, including the results of our most
recent say-on-pay vote. The 80% vote in favor fell short of our expectations,
and we received a great deal of feedback on that subject. In addition to
compensation-related matters, a number of corporate governance matters were
discussed with our stockholders during the outreach process, including our proxy
access by-law amendment, frequency of our say-on-pay votes, board tenure and
composition, board evaluations and board diversity. As a result of these
discussions, in early 2017 the Board approved a change to the Nominating and
Corporate Governance Committee Charter, memorializing its existing practice of
including diverse candidates in each board search. Stockholders also were
appreciative and supportive of the Companys proxy access by-law, which was
adopted in January 2016. Based on stockholder input, the Board is recommending
the continuation of annual say-on-pay votes.
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 (Charter) and our Amended and Restated By-laws (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
stockholders also have the right to proxy access, as described below. Our
Charter and By-laws are available to stockholders at no charge upon request to
our Corporate Secretary.
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.
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.
Related Person Transaction
Policy
In accordance with SEC rules, the Board
has adopted a written Related Person Transaction Policy. The Audit Committee 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.
20 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
BOARD STRUCTURE AND
PROCESSES |
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
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 is 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.
The Audit Committee reviewed certain
transactions reported under the Policy and determined that no transactions
constituted reportable related person transactions under the Policy.
Corporate Governance Guidelines
The Board has adopted Corporate Governance
Guidelines, which are available on our investor relations website at http://
investors.cvshealth.com/corporate-governance/documents and are also available to
stockholders at no charge upon request to our Corporate Secretary. These
Guidelines meet the listing standards adopted by the NYSE, on which our common
stock is listed.
BOARD STRUCTURE AND
PROCESSES |
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 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;
|
● |
the responsibility to facilitate
communication and serve 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 maintained effectively through the
independent Chairman, the Boards composition and its Committee
system.
cvshealthannualmeeting.com |
|
21 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
COMMITTEES OF THE
BOARD |
In 2016, the Board utilized five standing
committees. The table below provides membership and meeting information for each
of the committees during 2016. For further details regarding current committee
membership and activities see pages 22-28.
NAME |
AUDIT COMMITTEE |
MANAGEMENT PLANNING
AND DEVELOPMENT COMMITTEE |
NOMINATING AND
CORPORATE GOVERNANCE COMMITTEE |
PATIENT SAFETY AND CLINICAL
QUALITY COMMITTEE |
EXECUTIVE COMMITTEE |
Richard M. Bracken |
|
|
● |
C |
|
C. David Brown II |
|
C |
● |
|
● |
Alecia A. DeCoudreaux |
● |
|
|
● |
|
Nancy-Ann M. DeParle |
● |
|
|
● |
|
David W. Dorman |
|
● |
C |
|
● |
Anne M. Finucane |
|
● |
● |
|
|
Larry J. Merlo |
|
|
|
|
● |
Jean-Pierre Millon |
● |
|
|
● |
|
Richard J. Swift |
C |
|
|
|
● |
William C. Weldon |
|
● |
● |
|
|
Tony L. White |
|
● |
|
● |
|
2016 Meetings |
9 |
5 |
5 |
4 |
0 |
C |
Committee Chair |
|
Audit Committee Financial
Expert |
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 designated each of Messrs. Swift and Millon 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.
Current Committee Members
(independent, photographed left to right)
● |
Jean-Pierre
Millon* |
● |
Nancy-Ann
DeParle |
● |
Richard Swift
(Chair)* |
● |
Alecia
DeCoudreaux |
* Audit Committee Financial
Expert
Meetings in 2016: 9
22 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
COMMITTEES OF THE
BOARD |
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; |
● |
the 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 the review and oversight of matters related to
compliance with Federal health care program
requirements. |
Audit Committee Activities in
2016
The Audit Committee met nine times in 2016
and each member of the Committee attended all of its meetings while he or she
was a member. Four of the Committees meetings were focused primarily on our
quarterly financial reports, including our Form 10-K, Forms 10-Q and our related
earnings releases. At each of these meetings the Committee reviewed the
documents in depth with our CFO and our Chief Accounting Officer, as well as our
Chief Compliance Officer, Chief Audit Executive, General Counsel and other key
members of management. The Committee also received reports from our internal
audit department and our independent outside audit firm, Ernst & Young. The
Committee regularly meets with Ernst & Young outside the presence of
management, and also meets individually with members of management, including
the CCO, the chief compliance officer for Omnicare and the head of Internal
Audit. 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, including oversight of the Companys compliance
with its Corporate Integrity Agreements, or CIAs. During 2016, the Committee
provided the required annual certification of compliance with the Companys 2014
CIA, and also assumed oversight of a new CIA related to its institutional
pharmacy services (long-term care) operations. The Committee provided the report
found on page 30 of this proxy statement, recommending the inclusion of the
Companys audited financial statements in its Form 10-K.
cvshealthannualmeeting.com |
|
23 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
COMMITTEES OF THE
BOARD |
NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE |
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.
Current Committee Members
(independent, photographed left to right)
● |
David Brown |
● |
Anne Finucane |
● |
David Dorman (Chair) |
● |
William Weldon |
● |
Richard
Bracken |
Meetings in 2016: 5
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 2016
The Nominating and Corporate Governance
Committee met five times in 2016 and, except for two absences for one member of
the Committee due to unavoidable conflicts, each member of the Committee
attended all of its meetings. Throughout the year the Committee evaluated and
continues to evaluate potential candidates for future election to the Board.
In addition, the Committee reviewed the Companys political activities and
expenditures in depth during two of its meetings, and reviewed the Companys
corporate social responsibility roadmap, Prescription for a Better World, as
well as the corporate social responsibility report itself. The Committee oversaw
the development of the Companys proxy access by-law, which was finalized and
recommended by the Committee, and adopted by the Board, in January 2016. The
Committee also oversaw the evaluation process for the Board and its Committees
in 2016, which consisted of an in-depth interview of each director by the
Companys General Counsel. At the completion of the interview process, the
General Counsel reviewed the results with the Committee and the Board, and a
number of enhancements to the Board and Committee meeting process resulted. In
addition, the Committee received updates regarding legal and regulatory
developments related to corporate governance, as well as updates on the proxy
season and stockholder communications.
24 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
COMMITTEES OF THE
BOARD |
MANAGEMENT PLANNING AND DEVELOPMENT COMMITTEE |
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.
|
Meetings in
2016: 5 |
Current Committee
Members (independent, photographed left to right) |
|
●David
Dorman
●Tony
White
●David Brown
(Chair)
●Anne
Finucane
●William
Weldon |
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 the Report of the Compensation Committee that
is found on page 34 of this proxy statement. |
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 2016
The Management Planning and Development
Committee met five times in 2016 and, except for one absence due to an
unavoidable conflict, each member of the Committee attended all of its meetings.
In addition to reviewing the independence of its advisor as described below, the
Committee devoted substantial time to its oversight of the Companys
compensation and benefit programs as part of its annual governance process. This
review is aimed at ensuring that the Company is providing its employees with
compensation and benefit programs that are appropriate. The Committee received
updates on compensation trends and legislative and regulatory developments. 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 35 of this proxy
statement.
cvshealthannualmeeting.com |
|
25 |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
COMMITTEES OF THE
BOARD |
Compensation Risk Assessment
The Committee is responsible for reviewing
and assessing potential risk arising from the Companys compensation policies
and practices. In 2016, the Company performed a comprehensive risk assessment of
its compensation policies and practices to ascertain any potential material
risks that may be created by the programs. Included in its assessment were all
major components of the Companys compensation programs, including: the mix
between annual and long-term compensation; short-term incentive program design;
long-term incentive program performance measures; incentive plan performance
criteria and corresponding objectives; a comparison of the Companys programs
with those of its peer group; the Companys severance and change-incontrol
policies; its recoupment policy; its share retention requirements and ownership
guidelines; and the Internal Audit Departments review of the controls regarding
the Companys long-term incentive program. 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 2016 were $244,763. During 2016, 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. |
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.
26 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE GOVERNANCE AND RELATED MATTERS:
COMMITTEES OF THE
BOARD |
PATIENT SAFETY AND CLINICAL
QUALITY COMMITTEE |
Each member of the Patient Safety and
Clinical Quality 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. 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.
In light of the Companys expanded
offerings throughout the spectrum of health care, this Committee was formed in
March 2016. Its focus is on the quality of pharmacy and medical care being
delivered by the Company.
2016 Committee
Members
(independent, photographed left to
right)
● |
Jean-Pierre
Million |
● |
Nancy-Ann
DeParle |
● |
Richard Bracken
(Chair) |
● |
Tony White |
● |
Alecia
DeCoudreaux |
Meetings in 2016: 4
Primary Responsibilities
Pursuant to its charter, the
Committee:
● |
assists the Board in its
oversight of the Companys policies and procedures relating to the
delivery of quality pharmacy and medical care to its customers and
patients, including clinical quality, patient safety and experience,
management of health care claims against the enterprise and regulatory
review by relevant authorities; |
● |
reviews matters and receives
reports concerning the quality performance of the Companys (1) pharmacy
and medical care, such as (a) dispensing, compounding, and infusion
services and (b) nursing and medical clinic operations; (2) patient safety
and experience; (3) the management of health care claims against the
enterprise; and (4) boards of pharmacy and nursing
activity; |
● |
reviews matters concerning
efforts to (1) improve the quality of pharmacy and medical care, patient
safety and experience, (2) reduce health care claims against the
enterprise, and (3) enhance boards of pharmacy and nursing activity; and
|
● |
takes such other actions and
performs such services as may be referred to it from time to time by the
Board, including the conduct of special reviews as it may deem necessary
or appropriate to fulfill its responsibilities. |
Patient Safety and Clinical Quality
Committee Activities in 2016
The Patient Safety and Clinical Quality
Committee met four times in 2016 and each member of the Committee attended all
of its meetings. The Committees meetings focused on a wide variety of matters
related to the Companys provision of health care services across the
enterprise, including retail, mail, specialty, specialty mail and long-term care
pharmacy, retail clinic services provided by MinuteClinic, and drug compounding
activities conducted by Coram and across the enterprise. The Committee received
reports regarding regulatory activity by boards of pharmacy and nursing related
to the Company and reviewed accreditations issued by various agencies to the
Companys various business lines. The Committee received updates on health
care-related claims against the Company, as well as steps being taken to
minimize and mitigate those claims. The Committee also provided oversight in the
development of a number of scorecards in various lines of business, and other
efforts to measure and improve patient safety and clinical-effectiveness.
cvshealthannualmeeting.com |
|
27 |
Table of Contents
CORPORATE
GOVERNANCE AND RELATED MATTERS: BOARD MEETINGS AND
ATTENDANCE |
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 did not meet
during 2016.
2016 Committee
Members
(photographed left to
right)
●Richard Swift
●David Dorman
●David Brown
●Larry Merlo
Meetings in
2016: None
BOARD MEETINGS AND
ATTENDANCE |
During 2016, there were seven 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 2016 Annual Meeting of
Stockholders attended that Annual Meeting. In 2016, all but one director
attended 100% of the meetings of the Board and the Committees of which he or she
was a member. Ms. Finucane attended 67% of the meetings of the Board and the
Committees of which she was a member, missing two sets of meetings due to
unavoidable conflicts that arose in connection with her role as a Vice Chairman
at Bank of America Corporation. The independent Chairman of the Board and the CEO use their best efforts
to schedule Board and Committee meetings far enough in advance to avoid such
conflicts, but they recognize unexpected and unresolvable conflicts sometimes
occur. The Nominating and Corporate Governance Committee fully considered
meeting attendance in its evaluation of nominees, and has reviewed dates for
meetings in future years to ensure maximum attendance.
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.
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 up to 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 our stock
ownership guidelines described below.
For the 2016-2017 Board year, the total
annual retainer for non-employee directors remained $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 up to 100% of
the annual retainer in shares of our common stock).
Additional retainers were paid to the
Chairs of the Committees and the Board as follows: Nominating and Corporate
Governance, $15,000; Patient Safety and Clinical Quality, $15,000; Management
Planning and Development, $20,000; Audit, $25,000; and Independent Chairman of
the Board, $275,000.
28 |
|
2017 Proxy
Statement |
Table of Contents
CORPORATE
GOVERNANCE AND RELATED MATTERS: NON-EMPLOYEE DIRECTOR
COMPENSATION |
At least 75% of each additional retainer
must be paid in shares of our common stock, with the remaining 25% paid in cash,
unless the director elects to be paid an additional percentage in shares. Each
retainer was paid in two equal installments, in May and November of 2016. Directors may elect to defer receipt of shares;
deferred shares are credited with dividend equivalents to the extent dividends
are paid to stockholders. There are no meeting fees.
|
|
|
|
NON-EMPLOYEE DIRECTOR RETAINER MIX |
|
|
|
|
ALL OTHER COMPENSATION
AND BENEFITS
Directors are eligible to participate in
the employee discount program and are subject to the same terms of the program
as our employees. Directors are generally reimbursed for business expenses
incurred directly in connection with their roles and duties on the Board, such
as services provided by an executive assistant, travel, meals and lodging. We
allow all directors to enroll themselves and their eligible dependents in
our prescription drug benefit program, paying the
same premium rates as employees. If a director retires from the Board with at
least five years of service, we will allow continued participation in the
prescription drug benefit plan for life, but the director must bear the full
cost of the premium after retirement.
The following table shows amounts paid to
each of our non-employee directors in 2016.
NON-EMPLOYEE DIRECTOR
COMPENSATION 2016 |
NAME |
|
FEES EARNED AND PAID IN
CASH
1 ($) |
|
CASH FEES ELECTED TO BE PAID IN STOCK
2 ($) |
|
STOCK AWARDS 2 ($) |
|
ALL
OTHER COMPENSATION 3 ($) |
|
TOTAL ($) |
Richard M. Bracken 4 |
|
74,524 |
|
|
|
222,976 |
|
200 |
|
297,700 |
C.
David Brown II |
|
|
|
75,000 |
|
225,000 |
|
2,056 |
|
302,056 |
Alecia A. DeCoudreaux |
|
|
|
70,000 |
|
210,000 |
|
200 |
|
280,200 |
Nancy-Ann M. DeParle |
|
70,075 |
|
|
|
209,925 |
|
200 |
|
280,200 |
David W. Dorman |
|
92 |
|
142,408 |
|
427,500 |
|
200 |
|
570,200 |
Anne M. Finucane |
|
70,075 |
|
|
|
209,925 |
|
|
|
280,000 |
Jean-Pierre Millon |
|
70,075 |
|
|
|
209,925 |
|
2,056 |
|
282,056 |
Richard J. Swift |
|
76,347 |
|
|
|
228,653 |
|
2,056 |
|
307,056 |
William C. Weldon |
|
|
|
70,000 |
|
210,000 |
|
200 |
|
280,200 |
Tony L. White |
|
70,075 |
|
|
|
209,925 |
|
2,056 |
|
282,056 |
1 |
The amounts shown include cash payments made in lieu of
fractional shares to Mmes. DeParle and Finucane and Messrs. Bracken,
Dorman, Millon and White. |
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 2016, each director received 2,290 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 762 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,
2016, our directors had deferred receipt of shares of common stock as
follows: Mr. Brown, 47,933 shares; Ms. DeCoudreaux, 6,409 shares; Ms.
DeParle, 3,283 shares; Mr. Dorman, 16,130 shares; Ms. Finucane, 2,678
shares; Mr. Swift, 52,921; and Mr. Weldon, 12,904 shares. |
3 |
Represents Company costs for director prescription
benefits for Messrs. Brown, Millon, Swift and White. Also represents
participation in our matching gifts program, under which director or
employee contributors to the CVS Health Employee Political Action
Committee may designate a charity to receive a matching contribution from
the Company of up to $200. Mmes. DeCoudreaux and DeParle and Messrs.
Bracken, Brown, Dorman, Millon, Swift, Weldon and White participated in
this program. |
4 |
Mr. Bracken became Chair of the Patient Safety and
Clinical Quality Committee in March 2016. His compensation includes a pro
rata retainer for the portion of the 2015-2016 Board year that he served
as Chair of that Committee. |
cvshealthannualmeeting.com |
|
29 |
Table of Contents
AUDIT COMMITTEE
MATTERS
ITEM 2: RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM |
The Audit Committee of the Companys Board
of Directors has appointed Ernst & Young LLP, an independent registered
public accounting firm, to audit the financial statements of the Company for the
fiscal year ending December 31, 2017, and
recommended to our full Board that it approve that appointment. We are
submitting the appointment by the Committee to you for your
ratification.
The Board of Directors unanimously recommends a vote this
proposal.
AUDIT COMMITTEE
REPORT
During most of 2016, Committee 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, 2016 (audited financial
statements).
● |
The Committee has reviewed and
discussed the audited financial statements with management;
|
● |
The Committee has discussed with
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, 2016, for filing with the SEC. |
|
|
|
Richard J.
Swift, Chair |
|
Alecia A.
DeCoudreaux |
|
|
|
|
|
|
Nancy-Ann M. DeParle |
|
Jean-Pierre
Millon |
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.
30 |
|
2017 Proxy
Statement |
Table of Contents
AUDIT COMMITTEE MATTERS: ITEM 2 |
FEES OF INDEPENDENT
ACCOUNTING FIRM
The following table summarizes the fees
paid to Ernst & Young for services rendered during fiscal 2016 and
2015.
|
|
FISCAL
YEAR ENDED 12/31/16 |
|
FISCAL
YEAR ENDED 12/31/15 |
Audit Fees 1 |
|
$10,360,000 |
|
$10,680,969 |
Audit Related Fees 2 |
|
$624,008 |
|
$228,564 |
Tax Fees 3 |
|
$2,985,026 |
|
$2,001,278 |
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. |
2 |
Represents the aggregate fees billed
for audit and other services that are typically performed by auditors,
including audits of our employee benefit plans, compliance reporting,
non-financial metric reporting and certain agreed upon
procedures. |
3 |
Represents the aggregate fees billed
for tax compliance, consulting and related
services. |
cvshealthannualmeeting.com |
|
31 |
Table of Contents
EXECUTIVE COMPENSATION
AND RELATED MATTERS
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, 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 reflect 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 2016 VOTE; STOCKHOLDER OUTREACH
Following our 2016 Annual Meeting of
Shareholders, the Committee reviewed the results of the shareholder advisory
vote on executive compensation that was held at the meeting with respect to the
2015 compensation actions and decisions for the named executive officers.
Approximately 80% of votes were cast in favor of the proposal; this was lower
than the support received in 2015 (94% in favor). During the fall of 2016, we
contacted our 50 largest stockholders, holders of more than 50% of our common
stock, to get their views on our program as well as the required vote on the
frequency of the say on pay vote. We conducted meetings with many investors and
one of the leading proxy advisory firms. The stockholders that we spoke with
generally approved of our core compensation principles and our executive
compensation program, but some of them offered suggestions for improvements to
our program or our disclosure. After careful
consideration, the Committee implemented several changes to our plan design
including:
● |
reducing maximum awards under the
Executive Incentive Plan (EIP); |
● |
implementing limits on discretion
under the EIP; |
● |
adopting vesting schedules for
dividend equivalents on restricted stock units (RSUs); and
|
● |
revising the total shareholder
return (TSR) modifier for the 2017-2019 cycle that adjusts for performance
above and below the 50th percentile.
|
We also improved the disclosure of our
performance metrics and how they correlate to the creation of long-term value
for our stockholders.
OUR 2016 PERFORMANCE
AND PAY ACTIONS
2016 was a successful year for the
Company. We had record revenues and cash flow from operations and generated
healthy profit growth across the enterprise. We also returned more than $6
billion to stockholders through dividends and share buybacks. However, we set
challenging internal goals which resulted in below-target level annual bonus
payments. Strong performance and our disciplined approach to capital allocation
contributed to the satisfaction of the maximum performance levels under the
2014-2016 long-term performance awards, despite a decline in our stock price due
to industry-wide pressures on reimbursement, drug pricing and headwinds created
by restricted networks adopted by payors in 2016.
The value of our named executive officers
compensation is significantly influenced by the value of our stock.
Approximately 70% of target total compensation is provided through stock-based
pay (stock options, RSUs and the performance-based Long-Term Incentive Plan
(LTIP)). As a result of our long vesting periods and the two-year holding
requirement for net shares issued under the LTIP, the members of our executive
team, like our stockholders, have been affected by the decrease in stock price
and only ultimately achieve the full value of their equity compensation by
creating long-term stockholder value.
32 |
|
2017 Proxy
Statement |
Table of Contents
EXECUTIVE COMPENSATION AND RELATED
MATTERS: ITEM
3 |
CONCLUSION;
RESOLUTION
We urge stockholders to read the letter
from the Committee found on page 34 and the CD&A beginning on page 35 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 57 through 66,
which provide detailed information on the compensation of our NEOs. 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 NEOs 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 this
proposal.
ITEM 4: PROPOSAL REGARDING THE
FREQUENCY OF ADVISORY VOTES ON EXECUTIVE
COMPENSATION |
BACKGROUND AND
RECOMMENDATION
As described in Item 3 above, our
stockholders have the opportunity to cast an advisory vote to approve the
compensation of our named executive officers, the so-called say-on-pay
proposal. This Item 4 affords stockholders the opportunity to cast an advisory
vote on how often we should include a say-on-pay proposal in our proxy materials
for future stockholder meetings for which we must include executive compensation
information in the proxy statement for that meeting (often referred to as the
say-when-on-pay proposal). Under this Item 4, stockholders may vote to have
the say-on-pay vote every year, every two years, or every three years.
Our stockholders voted on a similar
proposal in 2011, with a large majority voting to hold a say-on-pay vote every
year, as then recommended by the Board. Though we currently hold our say-on-pay
votes every year, there are valid arguments regarding the relative benefits of
both annual and less frequent say-on-pay votes. After considering input from our
stockholders, the preference evident from voting results at other
Fortune 500 companies, and practical commentary that has become widely available with
respect to the say-when-on-pay vote since its implementation, our Board is again
recommending that the say-on-pay vote be held on an annual basis.
As an advisory vote, this proposal is not
binding on the Company, the Board or the Management Planning and Development
Committee. However, the Board and the Committee value the opinions expressed by
stockholders in their votes on this proposal and will consider the outcome of
this vote when making future decisions regarding the frequency of conducting a
say-on-pay vote. Unless and until the Board determines otherwise, the next
say-when-on-pay vote will occur at our 2023 Annual Meeting, since this vote is
required to be held every six years.
Stockholders may cast a vote on the
preferred voting frequency by selecting the option of every one year, every two
years, or every three years (or abstaining) when voting in response to the
resolution set forth below.
RESOLVED, that the stockholders
recommend, on an advisory basis, that after the 2017 Annual Meeting of
Stockholders, the Company conduct any required stockholder advisory vote on the
executive compensation of the Companys named executive officers as set forth in
the Companys proxy statement should be every year, every two years, or every
three years in accordance with such frequency receiving the greatest number of
votes cast for this resolution.
The Board of Directors unanimously recommends a
vote every (1) YEAR for this
proposal.
cvshealthannualmeeting.com |
|
33 |
Table of Contents
DEAR CVS HEALTH
CORPORATION
STOCKHOLDER,
As the members of the
Management Planning and Development Committee of the Board of Directors, we are
responsible for overseeing the design and implementation of competitive
compensation programs that further the interests of stockholders and demonstrate
strong pay-for-performance. This responsibility includes listening to and
considering your views on executive compensation.
The Compensation Discussion & Analysis
(CD&A) that follows describes what we pay, why we pay it, and how we made
our pay decisions for 2016. It also demonstrates how our executive pay program
reflects our compensation philosophy and our long-term corporate strategy. In
addition, the program reflects the actions we took based on your feedback. For
example:
● |
Beginning with 2017 grants, dividend
equivalents on RSUs will only be paid if and when the underlying award
vests. |
● |
We reduced the maximum Executive
Incentive Plan (EIP) award opportunity to align with the broad-based
Management Incentive Plan (MIP) (maximum bonus is 200% of
target). |
● |
We formalized the guardrails we use
for discretionary adjustments for superior performance under the EIP (no
more than 25% of the calculated payout under the
MIP). |
● |
We revised the total shareholder
return (TSR) modifier for the 2017-2019 Long-Term Incentive Plan (LTIP)
award by adjusting awards by +/- 25% for performance above or below the
50th percentile. |
We remain firm in our belief that our
compensation programs drive the right behaviors for our executives, which in
turn benefits our stockholders by driving our business strategies and goals.
Though in the short-run the stock price may not correlate with these actions, we
believe our stockholders interests are best served over time by a balanced
compensation program that takes a long-term, holistic view of our business
strategy and emphasizes the drivers of long-term value creation.
You can find additional information in
this Proxy Statement as well as the Annual Report, both of which can be found on
the Companys website (www.cvshealth.com) or our annual meeting website
(www.cvshealthannualmeeting.com).
|
|
|
|
|
|
|
|
|
C. David Brown
II (Chairman) |
|
David W. Dorman |
|
Anne M. Finucane |
|
William C.
Weldon |
|
Tony L.
White |
REPORT OF THE COMPENSATION
COMMITTEE |
We met with management to review and
discuss the CD&A. Based on that review and discussion, we recommended to the
Board that the CD&A be included in this proxy statement.
34 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS SUMMARY |
COMPENSATION DISCUSSION AND ANALYSIS
SUMMARY |
Our 2016 compensation programs:
● |
Are tailored to our short- and
long-term business strategies and drive
performance, |
● |
Reflect the rapidly changing health care landscape, |
● |
Drive sustainable performance in an
era where human, social, natural, and intellectual capital are joining
financial and operating capital as performance drivers,
and |
● |
Operate within strong governance
parameters. |
Our business performance showcases our
financial discipline, conservative management, strong track record and focus on
stockholder returns. In 2016 we delivered:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8% net revenue
growth |
|
9.3% growth in operating profit |
|
GAAP EPS growth
of 6.2% |
|
|
Return of >$6 billion to
stockholders through dividends and share repurchases |
|
Return on net assets
that exceeded target
by 22% |
|
Outperformed
the S&P 500 and Dow Jones
Industrial Average for the
prior 5 and 10
years |
|
|
|
|
|
|
|
The rapidly changing health care landscape
includes uncertainties concerning health care policy and the exclusion of CVS
Pharmacy from certain health plan retail networks, resulting in the loss of
prescription volume beginning in late 2016. Together, these have created a
headwind for 2017. Our compensation, both the cash component and the value of
our outstanding stock awards, is and should be affected by such factors,
whether or not those factors are within managements ability to
influence.
We are committed to helping people on
their path to better health. Our values of innovation, collaboration, caring,
integrity and accountability affect how we drive performance. We are strongly
committed to evaluating and incenting management to remain focused on
drivers of sustainable
performance, even though we recognize that
this focus is not always reflected in the stock price. Our annual stockholder
outreach to holders of over 50 percent of our shares confirms strong support for
this commitment and for the value we place on other forms of capitalincluding
human, natural, social and intellectual:
● |
We include retail service and client
satisfaction in our pay calculations. |
● |
Our decision to remove tobacco from
pharmacy stores continues to show positive results by reinforcing the
value of our brand in health care. |
● |
We value the recruiting and
reputation advantages of placing first in our sector of Worlds Most
Admired Companies, of placing third in Fast Moneys list of 50 Most
Innovative Companies, and of being one of Forbes Most Admired
Brands. |
Finally, our compensation program is
implemented by a board that maintains good corporate governance
practices. For example:
● |
We have an independent board
chair, |
● |
We do not have a staggered board,
poison pill, supermajority voting requirements, or a dual class
capitalization structure, |
● |
Our stockholders have proxy access,
special meeting, written consent and majority voting
rights, |
● |
Our Board is characterized by
diversity of background, race, gender and ethnicity,
and |
● |
We engage in regular stockholder
engagement and are responsive to stockholder
input. |
We seek your voting support for our pay
programs. We encourage you to consider this summary in the context of the
important details that follow.
cvshealthannualmeeting.com |
|
35 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS SUMMARY |
EXECUTIVE COMPENSATION
What is your executive compensation
philosophy?
Our executive compensation program is
governed by five core principles that drive our executive compensation
philosophy:
Support, Communicate and Drive
Achievement |
Of our business strategies and
goals. |
Attract and Retain |
The highest-caliber executive officers by providing
compensation opportunities comparable to those offered by other companies
with which we compete for business and talent. |
Motivate
High Performance |
From executive officers in an incentive-driven culture by
delivering greater rewards for superior performance and reduced awards for
underperformance. |
Align Interests |
Of our executive officers and our stockholders, and
foster an equity ownership environment. |
Reward Achievement |
Of short-term results as well as long-term stockholder
value creation. |
Management and the Committee believe these
principles motivate our executive officers to take personal responsibility for
the performance of the business, continually improve our results and operations
and deliver long-term stockholder value, consistent with our core values. 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.
What were the specific elements of
compensation for 2016?
The main compensation elements of our executive
compensation program remained unchanged in 2016:
● |
competitive base
salaries, |
● |
annual cash incentives,
and |
● |
long-term incentive plan
awards. |
The majority of our executive compensation
program is at risk; no more than 15% of any named executive officers target
compensation is fixed.
Were there any changes in the Companys
executive compensation program in 2016?
Meaningful dialogue with our stockholders
continues to contribute to our decisions on compensation. Last fall, we
contacted our top institutional stockholders who collectively own more than 50 percent of
our shares and spoke with representatives of many large institutional
stockholders to get their views on our compensation program. Based on these
discussions and other input, we have made a number of enhancements to further
link the Companys compensation programs with the Companys business and talent
strategies and the long-term interests of our stockholders, such as:
● |
reducing the maximum award levels
under our EIP, |
● |
adopting guardrails for using
positive discretion, |
● |
improving disclosure around plan
metrics and discretionary elements of
compensation |
● |
adopting vesting schedules for
dividend equivalents commencing with grants made in 2017, and
|
● |
revising the TSR modifier for the
2017-2019 LTIP to reduce payouts for performance below the 50th
percentile. |
Did your NEOs get raises for
2016?
No, after consideration of competitive
market rates, the base salaries for our executive officers in 2016
remain unchanged from 2015 levels.
How do you determine bonuses under the
Executive Incentive Plan?
Our short-term bonus plan pool under the
Executive Incentive Plan (EIP) was equal to 0.5% of Adjusted Income from
Continuing Operations. However, actual awards were made with reference to our
broad-based plan (MIP), that relates payment to achievement with respect to
three performance metrics: (1) MIP Adjusted Operating Profit (weighted at 80%)
and a combination of (2) retail customer service and (3) PBM client satisfaction
(weighted together at 20%). Although our financial and service results were
strong in 2016, we did not meet our challenging internal targets for short-term
awards. As a result of stringent performance targets and lagging retail results,
the MIP funded at 81.2% of target. When approving bonuses for 2016, the
Committee considered the Companys strong consolidated financial performance
during 2016 in earnings growth, cash flow from operations and value returned to
stockholders in the form of dividends and share repurchases. However, the
Committee also considered that earnings performance fell shy of the higher
mid-year financial goals announced during our quarterly earnings call in August
2016. Finally, the Committee adjusted bonuses for executives in reflection of
the individual performance of each NEO together with the subjective achievement
of strategic and operational goals.
The annual bonus payments for the NEOs
were, on average, 15% below the MIP funding formula and 38% lower than they were in
2015.
36 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS SUMMARY |
Do you limit the amount by which an award
can exceed MIP funding?
Yes. The EIP is a pool-based plan for tax
deductibility purposes. As part of its determination of individual awards, the
Committee reviews all EIP awards with reference to the formula-driven results of
the broad-based MIP applied to each executives target award expressed as a
percent of salary: [salary × target % × MIP funding %]. Just as for our other
colleagues, individual awards may vary based on performance, but for our NEOs,
awards are limited to no more than 25% above MIP funding and no more than 200%
of target.
Do the 2016 equity grants reflect 2016
performance?
No, the equity grants reported in the
Summary Compensation Table were made in April 2016 and reflect strong company
and individual results in 2015. During 2015, the Company achieved superior
financial results and completed the acquisitions of Omnicare, Inc. and the
pharmacies and clinics of Target Corporation. Additional information about the
2016 equity awards for each of our NEOs, 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 59. Additional information about the 2015
performance of each NEO can be found in our 2016 Proxy Statement.
What was the payout for the 2014-2016 LTIP
cycle?
Our 2014-2016 long-term incentive awards paid out at the maximum level of
200% as a result of our exceeding the performance target for return on net
assets for the three year period. TSR over the same period was 35% resulting in
a modifier of 1.0. We are currently estimating a payout below target for the
2015-2017 award cycle. In addition, beginning with the 2017-2019 cycle, the TSR
modifier prorates for performance above and below the 50th
percentile.
Why cant we find the stock portion of the
2016-2018 LTIP in the Summary Compensation Table?
As we discussed in last years proxy,
during our fall 2015 stockholder outreach, our stockholders indicated a
preference that, on a going forward basis, our LTIP awards pay out in shares,
rather than cash and shares as had been our historical practice. After
considering this stockholder feedback, the MP&D Committee made this change
prospectively, beginning with the 2016-2018 LTIP performance cycle. We noted in
last years proxy that this change would result in different reporting of the
LTIP awards in this years Summary Compensation Table. The change results from
the application of the SEC disclosure rules to an LTIP award that is fully
denominated in cash until it vests and is then settled in stock. Specifically,
● |
The value of the LTIP award for the
three-year cycle beginning in 2016 (at threshold, target and maximum
performance levels) appears in the Grants of Plan-Based Awards Table
on page 59. |
● |
The value of the actual vested award
for that same three-year cycle will appear in the Summary Compensation
Table in the proxy reporting 2018 compensation, which will be the year the
award vests and the final performance-based payout is
calculated. |
● |
The full amount paid upon vesting
(in the form of shares of common stock subject to a two-year holding
requirement) will appear under the Non-Equity Incentive Compensation
column of the Summary Compensation Table in the proxy reporting 2018
compensation. The LTIP award is a cash denominated award even though it is
settled in shares. Under SEC disclosure rules, the award is reported upon
vesting, not at grant. |
Why is the reporting different?
Historically, the LTIP awards were
bifurcated in the Summary Compensation Table with half, the stock portion, being
reported at the time of grant (i.e., at the beginning of the cycle), and the
remaining half, the cash portion, reported three years later upon vesting (i.e.,
at the conclusion of the cycle). This reporting although performed in
accordance with the SEC rules did not fully reflect either the structure of
the grants as cash denominated awards or the results of the performance metrics
and TSR modifier for the stock portion of the LTIP reported at the time of
grant. By reporting the value of the LTIP award when it is actually paid, the
Summary Compensation Table will reflect the full value received by the
executives in the year of payment. We believe this insight is beneficial to our
stockholders. To assist you with a year over year comparison, we have included a
footnote to the Summary Compensation Table that identifies the additional
amounts that would have been reported for each NEO if no change to the LTIP
structure had been made to the 2016-2018 award.
Why do you award equity and
LTIP?
Our long-term executive compensation for
NEOs is split evenly between options and RSUs that vest over time, and the LTIP
that vests based on the attainment of internal performance measures modified by
TSR. This is consistent with the Committees desire to balance the types and
amounts of awards to support the Companys strategy, drive the creation of
long-term value, ensure that a substantial portion of long-term incentives are
performance-based, and promote the retention of key talent. See pages 46-52 for
more information about the elements of compensation and how they support the
Companys long-term strategy.
Why is Return on Net Assets an appropriate
metric for the Company?
Return on net assets is driven by
generating strong net operating profit after taxes, while efficiently managing
cash, inventory and accounts receivable. For the 2014-2016 cycle, net operating
profit was largely driven by strong earnings over
cvshealthannualmeeting.com |
|
37 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS OVERVIEW |
the performance period,
record increases in PBM net new sales, strong PBM client retention, and
improvements in tax rates. Net assets were efficiently managed over the period
including through strong performance of SilverScript (our Medicare Part D
prescription drug plan) and efficient cash management practices. These
operational and financial goals are directly aligned with the creation of
long-term stockholder value over the performance period by driving stockholder
return, controlling costs, and generating cash flow, which is then used in our
capital allocation strategy.
How is the compensation program aligned
with stockholder interests?
The value of our NEOs compensation is
significantly influenced by the value of our stock. Approximately 70% of target
total compensation is provided through stock-based pay (stock options, RSUs and
LTIP awards). As a result of our long vesting periods and the two-year holding
requirement for net shares issued under the LTIP, the members of our executive
team, like our stockholders, have been affected by the decrease in stock price
and only ultimately achieve the full value of their equity compensation by creating long-term stockholder value.
In 2016, our performance against
operational and financial goals was strong, shown in our solid earnings, record
cash flow from operations and significant cash returned to stockholders.
However, we set challenging internal goals which resulted in below-target level
annual bonus payments. Strong performance and our disciplined approach to
capital allocation contributed to the satisfaction of the maximum performance
levels under the 2014-2016 long-term performance awards, despite a decline in
our stock price due to industry-wide pressures on reimbursement, drug pricing
and headwinds created by restricted networks adopted by payors in
2016.
We believe the above supports our belief
that our compensation program drives the right behaviors and that this benefits
our stockholders by driving our business strategies and goals. We believe our
stockholders interests are best served over time by a balanced compensation
program that takes a long-term, holistic view of our business strategy and
emphasizes the drivers of long-term value creation.
COMPENSATION DISCUSSION AND ANALYSIS
OVERVIEW |
BUSINESS HIGHLIGHTS
Our Business
We are a pharmacy innovation company
helping people on their path to better health. At the forefront of a changing
health care landscape, we have an unmatched suite of capabilities and the
expertise needed to drive innovations that will help shape the future of health
care. Through our more than 9,700 retail stores, more than 1,100 walk-in health
care clinics, a leading pharmacy benefits manager
with more than 80 million plan members, a dedicated senior pharmacy care
business serving more than one million patients per year, expanding specialty
pharmacy services and a leading stand-alone Medicare Part D prescription drug
plan, we enable people, businesses, and communities to manage health in more
affordable, effective ways.
38 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS OVERVIEW |
2016 Business Highlights
For more information on our financial performance and
strategy, please refer to our Annual Report available at
www.cvshealthannualmeeting.com. Please also refer to page 56 of this proxy
statement for additional information about how we calculate Return on Net
Assets, a metric used in our Long-Term Incentive
Plan. |
cvshealthannualmeeting.com |
|
39 |
Table of
Contents
REPORT OF THE COMPENSATION
COMMITTEE: COMPENSATION
DISCUSSION AND ANALYSIS OVERVIEW |
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 Promote Company Growth
✓Performance Measures Aligned with Stockholder
Interests
✓Majority of the Total Compensation Opportunity is
Performance-Based
✓Long-Term Incentive Plan (LTIP) Awards Settled in Common
Stock that is Subject to Retention Requirement (Holding
Period)
✓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
✓SERP Closed to New Participants
✓Double Trigger Vesting of Equity Awards
✓Board Committee Oversight of Comprehensive Annual
Compensation Program Risk Assessment |
New this
year |
|
✓Dividend Equivalents on RSUs Paid Only When Awards
Vest
✓Reduced Maximum Annual EIP Award to Align with
Broad-Based MIP
✓Limited Positive Discretion on Annual Incentive Awards
✓Revised Total Shareholder Return (TSR) Modifier for
2017-2019 LTIP to Adjust Above or Below the 50th Percentile
Relative Ranking |
For more information on our compensation practices,
please refer to pages 42-56 of this proxy
statement. |
OUR COMPENSATION CORE
PRINCIPLES
Our executive compensation program has
five core principles that drive our executive compensation
philosophy.
● |
Support, Communicate and Drive
Achievement of our business strategies
and goals. |
● |
Attract and Retain
the highest-caliber executive officers by
providing compensation opportunities comparable to those offered by other
companies with which we compete for business and
talent. |
● |
Motivate High
Performance from executive officers in
an incentive-driven culture by delivering greater rewards for superior
performance and reduced awards for
underperformance. |
● |
Align Interest of our executive officers and our stockholders, and
foster an equity ownership environment. |
● |
Reward Achievement
of short-term results as well as long-term
stockholder value creation. |
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,
consistent with CVS Healths values of Innovation, Collaboration, Caring, Integrity and
Accountability.
40 |
|
2017 Proxy
Statement |
Table of
Contents
REPORT OF THE COMPENSATION
COMMITTEE: COMPENSATION
DISCUSSION AND ANALYSIS OVERVIEW |
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 RSUs and stock options generally vesting over three to five
years |
● |
Long-term incentives that reward
performance over a three-year period; beginning with the 2016 grant,
long-term incentive plan awards will be settled 100% in common stock that
will remain subject to a two-year holding
period |
● |
Retirement and health
benefits |
● |
Limited
perquisites |
For more information on our
compensation core principles, and how we pay our executives, please refer
to pages 43-44 of this proxy statement. |
Our 2016 Executive
Pay
The following shows the breakdown of
reported 2016 compensation for our CEO and our other named executive
officers.
CEO
|
89% Performance
Aligned |
|
|
|
|
|
|
|
|
Base Salary |
Annual Incentive Awards |
RSUs and Options |
LTIP |
|
Other |
7% |
10% |
33% |
46% |
|
4% |
|
|
|
|
|
|
|
|
79% Long-Term |
|
|
All Other
NEOs
|
85% Performance
Aligned |
|
|
|
|
|
|
|
|
Base Salary |
Annual Incentive Awards |
RSUs and Options |
LTIP |
|
Other |
12% |
12% |
35% |
38% |
|
3% |
|
|
|
|
|
|
|
|
73% Long-Term |
|
|
For more information on reported
2016 compensation for our CEO and our other named executive officers,
please refer to the Summary Compensation Table on page 57 of this proxy
statement. |
cvshealthannualmeeting.com |
|
41 |
Table of
Contents
REPORT OF THE COMPENSATION COMMITTEE: COMPENSATION DISCUSSION AND ANALYSIS
DETAILED DISCUSSION |
CONSIDERATION OF MOST
RECENT SAY ON PAY VOTE
Following our 2016 Annual Meeting of
Shareholders, the Committee reviewed the results of the shareholder advisory
vote on executive compensation that was held at the meeting with respect to the
2015 compensation actions and decisions for the named executive officers.
Approximately 80% of votes were cast in favor of the proposal; this was lower
than the support received in 2015 (94% in favor). During the fall of 2016, we
contacted our 50 largest stockholders, holders of more than 50% of our common
stock, to get their views on our compensation program as well as the required
vote on the frequency of say on pay. We conducted
meetings with many investors and one of the leading proxy advisory firms and
they were generally supportive of our executive compensation program. After
careful consideration, the Committee implemented several changes in both plan
design and disclosure including: reducing maximum awards under the EIP,
implementing limits on discretion under the EIP, adopting vesting schedules for
dividend equivalents on RSUs and revising the TSR modifier for the 2017-2019
LTIP cycle to adjust for performance above and below the 50th
percentile.
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. We believe that our major 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. |
COMPENSATION DISCUSSION AND ANALYSIS
DETAILED DISCUSSION |
INTRODUCTION
This section explains how our executive
compensation programs are designed and operate with respect to our named
executive officers, who for 2016 are:
Larry J. Merlo |
President and Chief Executive
Officer |
David M. Denton |
EVP and Chief Financial Officer |
Helena B. Foulkes |
EVP and President CVS
Pharmacy |
Jonathan C. Roberts |
EVP and President CVS
Caremark |
Thomas M. Moriarty |
EVP, Chief Strategy Officer and General
Counsel |
CVS HEALTH
VALUES
When determining compensation awards and
incentive payments, the Committee validates that results were achieved in line
with the Companys five core values:
Innovation |
Demonstrating openness,
curiosity and creativity in the relentless pursuit of delivering
excellence. |
Collaboration |
Sharing and partnering
with people to explore and create things that we could not do on our
own. |
Caring |
Treating people with
respect and compassion so they feel valued and appreciated. |
Integrity |
Delivering on our
promises; doing what we say and what is right. |
Accountability |
Taking personal ownership for our actions and their
results. |
42 |
|
2017 Proxy
Statement |
Table of
Contents
REPORT OF THE COMPENSATION
COMMITTEE: COMPENSATION
DISCUSSION AND ANALYSIS DETAILED DISCUSSION |
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:
|
BASE SALARY |
|
ANNUAL
CASH INCENTIVE |
|
LONG-TERM INCENTIVE PLAN
(LTIP) |
|
STOCK OPTIONS
AND RESTRICTED STOCK UNITS (RSUs) |
|
|
|
|
|
|
|
|
|
Fixed/Variable |
Fixed |
|
Variable |
Settled in |
Cash |
|
Stock |
Performance
Rewarded |
Near-term |
|
Multi-year |
|
Long-term |
Target Basis |
Level commensurate with experience,
role and responsibility |
|
Percentage of base salary based on
competitive pay information, level of responsibility and desired mix of
short- and long-term compensation |
|
Established at start of the three
year cycle based on competitive pay information, level of responsibility,
and desired mix of long-term incentive pay relative to other pay
components |
|
Based on competitive pay
information, level of responsibility and emphasis on long-term incentive
pay as key component of the executive pay program |
Support,
Communicate and Drive Achievement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attract and
Retain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motivate High
Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Align
Interests |
|
|
|
|
|
|
|
|
|
|
|
|
Reward
Achievement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Information |
●Reviewed annually and adjusted periodically based on
comparability to market peers, position responsibility and individual qualifications |
|
●Payments reflect performance against operating profit
target
●Maximum pool based on small percentage of Adjusted
Income from Continuing Operations and maximum payouts are capped as a
percentage of base salary
●Committee evaluates financial and customer service
metrics and individual performance |
|
●Starting with the 2016-2018 performance cycle, awards
will be settled 100% in common stock
●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 |
|
●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 provide value only to the
extent that stock price appreciates
●Annual RSU awards vest in two equal installments, on the
third and fifth anniversaries of grant date; dividend equivalents subject
to vesting beginning with 2017 awards |
|
cvshealthannualmeeting.com |
|
43 |
Table of
Contents
REPORT OF THE COMPENSATION
COMMITTEE: COMPENSATION
DISCUSSION AND ANALYSIS DETAILED DISCUSSION |
LINKING PAY TO
PERFORMANCE
For 2016, as in previous years, the
Committee reviewed a historical assessment of the relationship between CVS
Healths performance and executive pay relative to our 2016 Peer Group (as
described below). The following graphs illustrate the results of the Committees
core assessment and illustrate the relationship between:
● |
our CEOs realized compensation
(base salary earned, incentives earned, value of restricted shares or RSUs
that vest during the period, the value of stock options exercised during
the period, and changes in the value of unvested restricted shares/RSUs
and unexercised options held during the period);
and |
● |
CVS Healths performance as measured
by total shareholder return (TSR) over one-year (2015), three-year (2013
2015) and five-year (2011 2015) 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.
3-YEAR CEO COMPENSATION
REALIZED PERCENTILE VS. TOTAL SHAREHOLDER RETURN
PERCENTILE (2013-15) |
Similarly, the graph above
illustrates the relationship between CEO pay rank and the relative return
to stockholders for CVS Health and the 2016 Peer Group over the 3-year
period 2013 to 2015. Relative compensation rests within the range that
characterizes ideal pay-for-performance
alignment. |
1-YEAR CEO COMPENSATION
REALIZED PERCENTILE VS. TOTAL SHAREHOLDER RETURN PERCENTILE
(2015) |
In the graph above, compensation
realized by CVS Healths CEO in 2015 ranked at the 61st percentile, our
TSR ranked at the 39th percentile, indicating that our CEOs realized
compensation was just outside the range that characterizes an ideal
pay-for-performance alignment. |
5-YEAR CEO COMPENSATION
REALIZED PERCENTILE VS. TOTAL SHAREHOLDER RETURN
PERCENTILE (2011-15) |
Similarly, the graph above
illustrates the relationship between CEO pay rank and the relative return
to stockholders for CVS Health and the 2016 Peer Group over the 5-year
period 2011 to 2015. Relative compensation rests within the range that
characterizes ideal pay-for-performance
alignment. |
The Committee believes this historical
view validates that our executive compensation programs work as intended and
link pay and performance. The Committee reviews this analysis annually after
current data becomes available. |
44 |
|
2017 Proxy
Statement |
Table of
Contents
REPORT OF THE COMPENSATION
COMMITTEE: COMPENSATION
DISCUSSION AND ANALYSIS DETAILED DISCUSSION |
These assessments demonstrate the
Committees commitment to maintaining practices that ensure our executive
compensation aligns with results in a manner that benefits our
investors.
Executive Compensation Development and
Review |
|
MP&D
Committee Meeting
●Annual risk
assessment of compensation programs
●Peer group reviewed
and established for executive compensation
benchmarking
●Pay-for-performance
alignment for prior year reviewed
MP&D
Committee Meeting
●Total compensation
market data for our executives reviewed
●Stockholder comments
received on our executive compensation program
MP&D
Committee Meeting
●Preliminary
financial results with respect to TSR, growth in revenue, GAAP operating
income growth, and diluted GAAP EPS growth reviewed
●Preliminary
incentive award payouts calculated for the completed fiscal
year
CEO Performance
Review
●The CEO presents a
self-assessment of his performance against his Board-approved strategic,
operational and financial goals
●The Chairman of the
Board and the Committee Chair meet with the independent directors
privately to consider the CEOs performance
●Committee members
consult with their independent compensation consultant and consider the
independent directors assessments in reviewing the CEOs total
compensation and determining his annual incentive compensation award and
equity compensation grants
MP&D
Committee Meeting Other Named Executive Officer Final
Decisions
●For named executive
officers other than the CEO, final decisions on actual incentive awards
for the prior year are made in February after review of the CEOs
assessment of individual executive contribution and performance; as described above, the CEOs performance is reviewed
separately
MP&D
Committee Meeting Target Setting
●The Committee
establishes financial targets and approves any base salary changes and
individual target incentive award levels for the current performance
year |
The annual cycle of reviewing and
developing the Companys executive compensation program and pay levels is a
multi-step process that incorporates input from stockholders, management, peer
group information, consideration of say-on-pay results, and both short- and
long-term Company results compared to objectives, as well as consultation with
the Committees independent compensation consultant.
Throughout the annual compensation cycle,
Committee decisions incorporate and reflect our deep commitment to the Companys
five core values: Innovation, Collaboration, Caring,
Integrity, and Accountability. |
cvshealthannualmeeting.com |
|
45 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
Pay Positioning
CVS Health positions its aggregate target
total direct compensation (base salary plus annual and long-term incentives) for
its executive officers at competitive pay levels using the median of our peer
group for reference. Positioning varies by job and the Committee considers a
number of factors including market competitiveness, specific duties and
responsibilities of the executive versus those of peers and succession planning.
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 its variable pay programs are exceeded in a way that is
consistent with the Companys core values.
2016 Peer Group
The Committee assesses financial
performance and compensation competitiveness against a group of peer companies
that it selects based on input from its independent consultant. The 2016 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. The Committee reviews the peer group annually and
periodically makes changes. No changes were made to the peer group for
2017.
|
|
|
|
|
|
CVS Health 2016 Compensation
Peer Group |
|
CVS Health vs. Peer
Group |
|
|
|
|
|
|
|
|
● |
AmerisourceBergen
Corp. |
|
|
|
|
● |
The Boeing Company |
|
|
|
● |
Comcast Corporation |
|
|
|
● |
Costco Wholesale
Corporation |
|
|
|
● |
Express Scripts Holding
Company |
|
|
|
● |
The Home Depot, Inc. |
|
|
|
● |
Johnson & Johnson |
|
|
|
● |
The Kroger Co. |
|
|
|
● |
McKesson Corporation |
|
|
|
● |
Merck & Co., Inc. |
|
|
|
● |
PepsiCo, Inc. |
|
|
|
● |
Pfizer Inc. |
|
|
|
● |
The Procter & Gamble
Company |
|
|
|
● |
Target Corporation |
|
|
|
● |
UnitedHealth Group
Incorporated |
|
|
|
● |
Walgreens Boots Alliance,
Inc. |
|
|
|
● |
Wal-Mart Stores, Inc. |
|
|
|
● |
The Walt Disney
Company |
|
|
|
|
|
|
|
|
COMPONENTS OF EXECUTIVE COMPENSATION
PROGRAM
Fixed versus Variable Compensation; Cash
versus Equity
Our pay-for-performance philosophy places
a majority of an executive officers compensation at risk and emphasizes
long-term incentives tied to individual and company performance as well as
continued service. As a result, the only fixed compensation paid is base salary,
which represents no more than 15 percent of a named executive officers total
target compensation. Base salary and annual incentives are paid in cash.
Beginning with the 2016 LTIP cycle, all long-term awards are paid entirely in
stock. The greater focus on equity was adopted as the result of shareholder
feedback. The previously awarded 2014 and 2015 LTIP cycles that are payable in
2017 and 2018 will be paid 50% in cash. As a result of the shift to 100% stock
payments, the 2016 awards (for the 2016-2018 cycle) will be reported in the
Summary Compensation Table in our 2019 Proxy Statement in accordance with SEC
requirements.
Target Total Direct
Compensation Mix (%) |
|
46 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
Performance Metrics Support Corporate
Strategy and Long-Term Growth
The Committee recognizes that external
factors that are beyond CVS Healths influence may impact its stock price.
Consequently, 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. By using a
variety of pay vehicles and balancing short- and long-term awards, the Committee
believes the program supports retention and long term growth creation because
the metrics are measured independently and no one factor impacts all elements of
performance.
|
ADJUSTED
OPERATING PROFIT (MIP) |
|
RETAIL AND
PBM SERVICE METRICS (MIP) |
|
RETURN ON
NET ASSETS (LTIP) |
|
TOTAL
SHAREHOLDER RETURN (LTIP) |
|
|
|
|
|
|
|
|
Compensation
Element |
Annual Cash Incentive |
|
LTIP and Equity |
|
|
|
|
|
|
|
|
Short-Term/Long-Term |
Short-Term |
|
Long-Term |
|
|
|
|
|
|
|
|
How Metrics
Support Strategy and Growth |
●Measures performance that is tracked by investors
●Correlates to long-term growth |
|
●Measures client and customer satisfaction
●Correlates to strategic operational goals
|
|
●Measures performance in a way that is easily understood
by participants and valued by investors
●Captures both income and balance sheet impacts,
including capital management actions
●Provides a useful gauge of overall performance while
limiting the effects of factors management cannot influence
●Correlates to creation of long-term stockholder value
and free cash flow |
|
●Measures performance relative to the broad market in
which we compete for talent and capital |
|
|
|
|
|
|
|
Base Salary
The Committee annually reviews the base
salaries of all senior officers, including the named executive officers, and
adjusts them periodically as needed to maintain competitiveness and consistency
with evolving responsibilities. Upon consideration of this competitive market
analysis and input from its consultant the Committee did not raise base salaries
for our named executive officers.
EXECUTIVE NAME AND 2016
TITLE(S) |
2016
SALARY |
PERCENTAGE INCREASE |
Larry J. Merlo, President and CEO |
$1,630,000 |
0% |
David M. Denton, EVP and CFO |
$850,000 |
0% |
Helena B. Foulkes, EVP and President CVS Pharmacy |
$950,000 |
0% |
Jonathan C. Roberts, EVP and President CVS
Caremark |
$950,000 |
0% |
Thomas M. Moriarty, EVP, Chief Strategy Officer and General
Counsel |
$750,000 |
0% |
cvshealthannualmeeting.com |
|
47 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
Executive Incentive Plan Award
Opportunity
The Executive Incentive Plan (EIP) is our
annual cash bonus plan. Under the EIP, a maximum pool is created that can be
used to pay annual incentives to named executive officers. For 2016, the pool
formula was the lower of 0.5% of Adjusted Income from Continuing Operations
Attributable to CVS Health ($31,500,000) or the sum of the total maximum
potential awards under the EIP ($24,250,000). At the beginning of 2016, the
Committee established 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 2016 peer group practices and the desired ratios of cash
to non-cash and fixed to variable compensation for each named executive officer.
The Committee also set individual limits on awards, expressed as a percentage of
the pool and salary. EIP awards are not guaranteed and can range from 0% to 200%
of the referenced target.
In 2017, the Committee reduced the maximum
bonus under the EIP to align with the maximum bonus payable under the
broad-based Management Incentive Plan (MIP) (200% of target). The EIP allows for
individual performance-based discretionary adjustments. The Committee believes
that the use of discretion to increase payouts should be limited and has adopted
a policy limiting increases for superior performance to no more than 25% of the
calculated payout based on MIP results [salary × target % × MIP funding %].
However, there is no limit on the Committees ability to exercise negative
discretion to lower bonus payments for poor performance.
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.
EXECUTIVE NAME |
2016 TARGET OPPORTUNITY AS A PERCENTAGE OF
SALARY |
MAXIMUM PORTION OF POOL |
FORMER MAXIMUM PAYOUT AS A PERCENTAGE
OF SALARY |
NEW 2017
MAXIMUM PAYOUT AS A PERCENTAGE OF SALARY |
Larry J. Merlo |
200% |
30.0% |
500% |
400% |
David M. Denton |
150% |
15.0% |
400% |
300% |
Helena B. Foulkes |
150% |
15.0% |
400% |
300% |
Jonathan C. Roberts |
150% |
15.0% |
400% |
350%1 |
Thomas M. Moriarty |
150% |
15.0% |
400% |
300% |
1 |
In connection with his March 2, 2017
promotion to Chief Operating Officer, Mr. Roberts 2017 target opportunity
was increased to 175% of salary. |
2016 EIP results and decision
making
As a starting point for evaluating annual
EIP awards, the Committee considered performance results under our MIP, a
program maintained for a broad portion of the employee population, and for our
named executive officers prior to the establishment of the EIP. For 2016, the
MIP used MIP Adjusted Operating Profit, Retail Service and Client Satisfaction
as performance metrics which the Committee believes are appropriate for annual
incentives. The Committee 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 2016 performance targets and actual
results under the MIP were as follows:
48 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
The Committee exercises judgment in
determining individual EIP awards and does not assign specific weights to the
factors it considers. Its decisions were based primarily on the results of the
2016 MIP, which achieved funding of 81.2%. The below target MIP achievement was
primarily attributable to the challenging nature of the performance targets and
Retail performance. When approving bonuses for 2016, the Committee considered
the Companys financial performance in 2016 compared to internal goals and
guidance. The Committee adjusted bonuses for executives in reflection of the
individual performance of each named executive officer together with the
subjective achievement of certain strategic and operational goals. As a result,
bonuses for our NEOs in 2016, on average, were 15% below MIP funding, and 38%
lower than they were in 2015. See below for a summary of named executive officer
performance in 2016.
2016 Individual
Performance Assessment |
NEO |
PERFORMANCE ASSESSMENT CONSIDERED
BY THE COMMITTEE |
Larry J. Merlo President & Chief Executive Officer |
Mr. Merlo contributed to the strong,
overall financial results of the Company including PBM sales, cash flow
from operations and earnings growth. The Committee also considered that
performance was shy of mid-year guidance, TSR decreased, and the retail
network exclusions resulted in a headwind for 2017. Mr. Merlo implemented
a four part plan to return the Company to profitable growth in
2018. |
David M. Denton Executive Vice President, Chief Financial
Officer |
Mr. Denton produced strong financial
results in 2016 including record cash flow from operations and strong
revenue and earnings growth. Mr. Denton continued his strong capital
allocation plan that included returning over $6 billion to stockholders
and the 13th consecutive annual increase in dividends. The Committee also
considered that that performance was shy of mid-year guidance and TSR
decreased. |
Helena B. Foulkes Executive Vice President and President CVS
Pharmacy |
Ms. Foulkes delivered improved front
store margins as a result of her promotional strategy. She also made
significant progress on digital platforms and the initiative to provide
retail pharmacy services to other PBMs. The Committee also considered the
mixed financial results for Retail including revenue and profit levels
below plan. |
Jonathan C. Roberts Executive Vice President and President CVS
Caremark |
Mr. Roberts delivered above plan
performance for PBM revenue, sales, and profitability along with strong
client retention and satisfaction. These drove results under the MIP and
LTIP. Under Mr. Roberts leadership, PBM clients experienced the lowest
trend in four years as a result of adoption of innovative cost saving
measures. |
Thomas M. Moriarty Executive
Vice President, Chief Strategy Officer and General
Counsel |
Mr. Moriarty provided strong
leadership and continued success in case resolution and regulatory
compliance. Mr. Moriarty restructured the Government Affairs function and
positioned the Company as a thought leader in health care at the state and
federal level including advancing the value of the PBM and the role of the
pharmacist. The Committee also considered that the retail network
exclusions resulted in a headwind for
2017. |
|
|
|
RANGE OF POTENTIAL
PAYMENTS |
EXECUTIVE NAME |
BASE
SALARY |
|
MIP REFERENCE TARGET |
MINIMUM |
81.2% OF REFERENCE TARGET BASED
ON MIP RESULTS |
ACTUAL EIP AWARD FOR
2016 |
ACTUAL EIP AWARD AS A PERCENTAGE OF
REFERENCE TARGET |
Larry J. Merlo |
$1,630,000 |
|
200% |
$0 |
$2,647,120 |
$2,382,000 |
73% |
David M. Denton |
$850,000 |
|
150% |
$0 |
$1,035,300 |
$880,000 |
69% |
Helena B. Foulkes |
$950,000 |
|
150% |
$0 |
$1,157,100 |
$752,000 |
53% |
Jonathan C. Roberts |
$950,000 |
|
150% |
$0 |
$1,157,100 |
$1,157,000 |
81% |
Thomas M. Moriarty |
$750,000 |
|
150% |
$0 |
$913,500 |
$776,000 |
69% |
cvshealthannualmeeting.com |
|
49 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
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 and alignment with changes in
stock price; |
● |
Promote the achievement of long-term performance goals;
|
● |
Encourage executive retention; and |
● |
Promote meaningful levels of Company stock ownership by
executives. |
The key elements of the Companys
long-term incentive compensation plans (LTI plans) are:
● |
an
annual stock option and RSU grant, which vest upon continued employment
with the Company, and |
● |
long-term performance incentive awards under our Long-Term
Incentive Plan (LTIP) to reward financial progress over a three-year
period. |
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 Incentive Compensation Plan (2010 ICP).
To determine the overall LTI plan
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 2016 peer group, potential economic value
realized, timing of vesting and taxation. Along with a review of 2016 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.
2016 Long-Term Incentive Opportunities and
Awards
The Committee annually reviews the
weighting and components of our LTI plans. The structure currently in place
provides for an equal weighting of awards between performance-based (LTIP) and
time-based awards (RSUs and stock options) for Mr. Merlo and the other
NEOs.
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 LTIP
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. This approach supports a continuing focus on the creation of long-term
shareholder value and promotes retention.
|
|
|
|
|
|
Long-Term Incentive Target Mix
(%) |
|
|
|
|
|
|
|
|
|
CEO and All Other Named Executive
Officers |
|
|
|
|
|
|
|
|
Options 25% |
RSUs 25% |
LTIP - Paid in
Shares 50% |
|
|
|
|
|
|
50 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
Equity Awards - Option and RSU Grants
Equity grants are made on a predetermined
date consistent with the Committees equity grant practices. For 2016, 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 2016 is shown in the Summary Compensation Table on page
57. 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.
In determining the amount of individual
awards, the Committee considers the competitive benchmarking data described
above as well as an executives individual performance during the immediately
preceding year, potential future contributions, his or her prior years award
value, and retention considerations. Options and RSU grants may also reflect
changes in role or responsibilities. In the past, the Committee has made limited
use of special awards.
2016 Stock Option and RSU Grant
Decisions
The following table sets out the aggregate
value of stock options and RSUs granted on April 1, 2016. Each named executive
officer received a grant at or above their target based on their individual
performance in 2015 and the performance of the Company. In the case of Mr.
Roberts, the award also reflects the Committees desire to specifically retain
Mr. Roberts for a minimum of three years. During 2015, the Company achieved
superior financial results and completed the acquisition of Omnicare, Inc. as well
as the pharmacies and clinics of Target Corporation. Additional information
about the 2016 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 59. Additional information
about the 2015 performance of each named executive officer can be found in our
2016 Proxy Statement.
EXECUTIVE NAME |
2016
AGGREGATE EQUITY AWARD VALUE |
Larry J. Merlo |
$8,000,000 |
David M. Denton |
$2,000,000 |
Helena B. Foulkes |
$2,000,000 |
Jonathan C. Roberts |
$4,500,000 |
Thomas M. Moriarty |
$2,000,000 |
PERFORMANCE-BASED LONG-TERM INCENTIVES
2014-2016 LTIP Awards
All of the executive officers listed in
the Summary Compensation Table earned payments in 2016 for awards granted in
2014 for the 2014-2016 LTIP performance period. The Committee set the 2014-2016
LTIP Return on Net Assets (RoNA) goal in 2014 to be aligned with the Companys
long-term steady state targets communicated to investors in 2013 and at a level
expected to generate strong operational execution and asset management. Based on
strong performance against the RoNA metric throughout the three year cycle,
actual RoNA (40.56%) exceeded the goal by 730 basis points and earned a maximum
payout on this metric. The strong performance of RoNA closely correlates to the
Companys strong cash flow and is the result of our ongoing focus on working
capital. As a discussion point during our outreach in 2016, we specifically
reviewed the LTIP performance metrics with our top stockholders and received
positive feedback regarding the alignment with the Companys long-term strategy.
As a result of similar conversations in 2015, awards beginning with the
2016-2018 cycle will be paid 100% in shares of common stock subject to a
two-year holding requirement (net of taxes).
The Companys RoNA performance has
improved steadily since the Committee incorporated RoNA as a performance metric
for the LTIP. Below is a summary of performance over the past three
cycles.
|
|
|
|
RoNA Result for LTIP
Performance Cycles |
|
|
|
|
The following table sets forth threshold,
target and maximum goals, the range of potential payouts as a percent of target
and the actual results for the 2014-2016 performance period. The payout of the
LTIP award is formulaic, though under the terms of the 2010 ICP the Committee
has discretion to reduce the awards. Based on the strong performance throughout
the 2014-2016 performance cycle, the Committee did not exercise any discretion
with respect to the awards.
cvshealthannualmeeting.com |
|
51 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
|
% OF
RoNA TARGET |
PAYOUT LEVEL AS A % OF
TARGET |
Threshold (minimum level of
performance) |
96.2% |
40% |
Target (33.26%) |
100.0% |
100% |
Maximum |
106.5% |
200% |
Actual (40.56%) |
122% |
200% |
TSR Modifier 1.0 (reflecting 35th
percentile) |
|
200% |
2014 2016 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 MODIFIER (%
OF TARGET) |
ACTUAL TOTAL AWARD AT 200% |
ACTUAL CASH PORTION OF
AWARD ($) |
ACTUAL STOCK PORTION OF AWARD (#
OF SHARES) |
Larry J. Merlo |
0% |
40% |
100% |
200% |
250% |
$11,000,000 |
$5,500,000 |
68,255 |
David M. Denton |
0% |
40% |
100% |
200% |
250% |
$3,000,000 |
$1,500,000 |
18,615 |
Helena B. Foulkes |
0% |
40% |
100% |
200% |
250% |
$2,500,000 |
$1,250,000 |
15,512 |
Jonathan C. Roberts |
0% |
40% |
100% |
200% |
250% |
$3,500,000 |
$1,750,000 |
21,717 |
Thomas M. Moriarty |
0% |
40% |
100% |
200% |
250% |
$2,500,000 |
$1,250,000 |
15,512 |
2016-2018 Performance Period Target
Awards Decisions
The LTIP focuses on sustainable financial
progress and optimal use of the Companys assets to improve our working capital
and free cash flow. If earned, the awards below will be paid in stock in 2019
subject to a two-year holding requirement following certification of the
financial performance by the Committee. The
awards are not guaranteed and can range from 0%-250% of target. Payouts are
formulaic, though the Committee has discretion under the 2010 ICP to reduce
awards.
EXECUTIVE
NAME |
TARGET PERFORMANCE-BASED LTIP AWARD FOR
2016-2018 PERFORMANCE PERIOD; AWARDS ARE PAID IN STOCK SUBJECT
TO TWO-YEAR HOLDING REQUIREMENT |
Larry J. Merlo |
$6,750,000 |
David M. Denton |
$2,000,000 |
Helena B. Foulkes |
$2,000,000 |
Jonathan C. Roberts |
$3,000,000 |
Thomas M. Moriarty |
$1,875,000 |
2017-2019 LTIP Awards
LTIP awards have formulaically determined
payouts based on performance against our three-year RoNA goal modified by relative
TSR (S&P 500). As a result of feedback from our stockholders, the Committee
revised the TSR modifier for the cycle beginning in 2017 such that awards are
adjusted if performance is above or below the 50th percentile as
shown in the chart. In addition, the modifier will be applied in quartiles as
opposed to terciles to be more reflective of market practices.
52 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN
We maintain an unfunded supplemental
retirement plan (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, any increase to his benefit would be
primarily as a result of performance-based bonuses. See the Pension Benefits
Table on page 62 for more information.
OTHER BENEFITS
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 2016, that maximum was $18,000 plus
an additional $6,000 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 58.
We offer other benefits that are available
to eligible employees, including executive officers, as follows.
Deferred Compensation Plan and Deferred
Stock Plan
Eligible executive officers may choose to
defer earned and vested compensation into the Deferred Compensation Plan (DCP)
and the Deferred Stock Compensation Plan (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
2016 to the DCP and the DSP, including earnings on those contributions, any
distributions during 2016 and total account balances as of the end of 2016, are
shown in the Nonqualified Deferred Compensation Table on page 63.
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
that they maximize the efficiencies of our compensation and benefit
programs and are able to devote their full attention to the management of
the Company. |
● |
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
2016. |
● |
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. The aggregate incremental cost to the Company
of providing these personal benefits to each of the named
executive officers during fiscal 2016 is shown in the Summary
Compensation Table on page 57.
cvshealthannualmeeting.com |
|
53 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
KEY POLICIES RELATED TO COMPENSATION
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.
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 payment of 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, transfer or
promotion).
Insider Trading Policy, Including
Anti-Pledging and Hedging
A significant percentage of executive
compensation is payable in CVS Health common stock, in the form of RSUs and
stock options. 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, lnsiders), 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.
54 |
|
2017 Proxy
Statement |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
AGREEMENTS WITH EXECUTIVE
OFFICERS
As previously disclosed, we have an
employment agreement (Employment Agreement) with Mr. Merlo and change in control
agreements (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-incontrol provisions of
the Agreements are intended to eliminate, or at least reduce, the reluctance of
senior management to pursue potential change-in-control 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 2016 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
63.
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.
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 are not 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. 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.
cvshealthannualmeeting.com |
|
55 |
Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:
COMPENSATION DISCUSSION AND
ANALYSIS DETAILED DISCUSSION |
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, or 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 Income from Continuing
Operations
Adjusted Income from Continuing Operations
Attributable to CVS Health is defined as follows:
● |
Income before income tax
provision |
● |
Plus (minus): Non-GAAP adjustments
not part of the underlying business
performance |
● |
Less: Adjusted income tax provision
(using the adjusted effective tax rate, adjusted for the items
above) |
● |
Plus (minus): Net loss (income)
attributable to noncontrolling interest |
● |
Less: Earnings allocated to
participating securities |
Adjusted Operating Profit (MIP) or MIP
Adjusted Operating Profit
Adjusted Operating Profit (MIP) or MIP
Adjusted 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, store rationalization impairment charges 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
RoNA, or Return on Net Assets, is
calculated by dividing adjusted net operating profit after tax (Adjusted NOPAT)
by the most recent years Adjusted Average Net Assets. Adjusted NOPAT is
Operating Profit adjusted for certain permitted financial adjustments after tax
described below. Adjusted Average Net Assets for the purposes of this
calculation is defined as current assets plus net fixed assets less accounts
payable and accrued expenses. For the purposes of measuring performance against
established targets in any period, Adjusted NOPAT and Adjusted Average Net
Assets exclude after tax amounts related to newly acquired or divested
businesses and adjustments to legal reserves in connection with certain legal
settlements. Adjusted Average Net Assets also excludes cash associated with the
pre-funding for the 2017 accelerated share repurchase agreement, as well as the
financial impact of the change in accounting principle associated with the
classification of deferred tax assets.
56 |
|
2017 Proxy
Statement |
Table of Contents
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 2016 fiscal year.
SUMMARY COMPENSATION TABLE |
NAME &
PRINCIPAL 2016 POSITIONS 1 |
YEAR |
SALARY ($) |
BONUS ($) |
STOCK AWARDS ($) 2 3 4 |
OPTION AWARDS ($) 3 |
NON-EQUITY INCENTIVE PLAN COMPENSATION ($) 5 |
CHANGE
IN PENSION VALUE
AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($) 6 |
ALL OTHER COMPENSATION ($) 7 |
TOTAL ($) |
Larry
J. Merlo President and Chief Executive Officer |
2016 |
1,630,000 |
|
3,999,931 |
3,999,990 |
7,882,000 |
|
847,456 |
18,359,377 |
2015 |
1,560,000 |
|
6,749,900 |
3,999,993 |
9,692,596 |
6,087,680 |
852,885 |
28,943,054 |
2014 |
1,350,000 |
|
6,749,996 |
3,999,998 |
11,465,052 |
8,065,273 |
720,414 |
32,350,733 |
David
M. Denton Executive Vice President and Chief Financial
Officer |
2016 |
850,000 |
|
999,983 |
999,987 |
2,380,000 |
|
319,026 |
5,548,996 |
2015 |
843,750 |
|
1,874,937 |
874,999 |
3,077,597 |
|
289,298 |
6,960,581 |
2014 |
825,000 |
|
8,928,958 |
749,997 |
3,975,043 |
|
205,582 |
14,684,580 |
|
|
|
|
|
|
|
|
|
Helena B. Foulkes Executive Vice
President and President CVS Pharmacy |
2016 |
950,000 |
|
999,983 |
999,987 |
2,002,000 |
|
210,213 |
5,162,183 |
2015 |
925,000 |
|
1,749,937 |
874,999 |
2,283,078 |
|
232,314 |
6,065,328 |
2014 |
850,000 |
|
1,249,927 |
624,992 |
3,165,044 |
|
174,119 |
6,064,082 |
|
|
|
|
|
|
|
|
|
Jonathan C. Roberts Executive Vice
President and President CVS Caremark |
2016 |
950,000 |
|
2,249,961 |
2,249,999 |
2,907,000 |
|
274,147 |
8,631,107 |
2015 |
937,500 |
|
2,124,898 |
999,995 |
3,397,597 |
|
280,559 |
7,740,549 |
2014 |
900,000 |
|
1,749,988 |
874,991 |
3,915,058 |
|
246,386 |
7,686,423 |
|
|
|
|
|
|
|
|
|
Thomas M. Moriarty Executive Vice
President, Chief Strategy Officer and General Counsel |
2016 |
750,000 |
|
999,983 |
999,987 |
2,026,000 |
|
174,770 |
4,950,740 |
2015 |
730,000 |
|
1,624,975 |
749,989 |
2,656,298 |
|
163,131 |
5,924,393 |
2014 |
670,000 |
|
1,374,958 |
749,997 |
2,412,573 |
|
208,194 |
5,415,722 |
|
|
|
|
|
|
|
|
|
1 |
On March 2, 2017, the
Company announced that Mr. Roberts was appointed Executive Vice President
and Chief Operating Officer and Mr. Moriarty was appointed Executive Vice
President, Chief Policy and External Affairs Officer and General Counsel.
For purposes of 2016 disclosure, this proxy statement reflects each
executives title as of December 31, 2016. |
2 |
Included in the stock
award column is the full grant date fair value of all RSU awards made to
the executive in 2016. |
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 2016 Annual Report to Stockholders, Notes to Consolidated Financial
Statements at Note 9, Stock Incentive Plans. |
4 |
The amounts reported
for years 2014 and 2015 include 50% of the value of the LTIP award granted
in that year, representing the portion to be settled in stock at target
value. As discussed on page 46, in response to stockholder feedback,
beginning with the 2016-2018 performance cycle LTIP awards will be
denominated in cash and settled 100% in stock (rather than cash and
stock). As a result and consistent with SEC reporting rules, the LTIP
award will be reported in the Summary Compensation Table for the year it
vests, not the year of grant. If these changes had not been made to the
LTIP design, the following additional amounts would have been reported in
2016: Mr. Merlo $3,375,000; Mr. Denton $1,000,000; Ms. Foulkes $1,000,000;
Mr. Roberts $1,500,000; and Mr. Moriarty $937,500. |
5 |
The figures shown
include amounts earned in 2016 as annual cash incentive awards (see page
49) and the cash portion of the 2014 2016 LTIP cycle (see page 52).
Beginning with the 2016-2018 performance cycle, LTIP awards will be
settled in stock and reported for the final year of the cycle. Awards will
be reported in this column because they are denominated in cash and then
paid in common stock subject to a two-year holding
requirement. |
6 |
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 value of
Mr. Merlos pension benefit decreased by $669,139 in 2016 from the prior
years valuation; however, under SEC rules the negative change in the
pension value is disclosed as $0. The Company adopted a policy in 2010
stating that it will not offer SERP benefits to new participants. Mr.
Merlo is the only executive participant in the SERP. For additional
information on the SERP, see Pension Benefits beginning on page
61. |
7 |
Set forth below is
additional information regarding the amounts disclosed in the All Other
Compensation column for 2016. |
cvshealthannualmeeting.com |
|
57 |
Table of Contents
EXECUTIVE COMPENSATION TABLES: SUMMARY COMPENSATION
TABLE |
ALL OTHER
COMPENSATION 2016 |
|
|
COMPANY |
|
|
|
CONTRIBUTIONS |
|
|
PERQUISITES & |
TO DEFINED |
|
|
OTHER PERSONAL |
CONTRIBUTION |
|
|
BENEFITS A |
PLANS B |
OTHER C |
NAME & PRINCIPAL 2016
POSITIONS |
($) |
($) |
($) |
Larry J. Merlo |
66,737 |
267,750 |
512,969 |
President and Chief Executive Officer |
|
|
|
David M. Denton |
17,377 |
24,000 |
277,649 |
Executive Vice President and Chief Financial
Officer |
|
|
|
Helena B. Foulkes |
21,341 |
118,250 |
70,622 |
Executive Vice President and President CVS
Pharmacy |
|
|
|
Jonathan C. Roberts |
25,813 |
136,000 |
112,334 |
Executive Vice President and President CVS
Caremark |
|
|
|
Thomas M. Moriarty |
18,299 |
102,500 |
53,971 |
Executive Vice President, Chief Strategy Officer and
General Counsel |
|
|
|
A |
The amounts above reflect the
following: for Mr. Merlo, $13,840 for financial planning services, $564
for home security, $47,084 associated with personal use of company
aircraft and $5,249 associated with the CVS Health Charity Classic; for
Mr. Denton, $15,000 for financial planning services, $180 for home
security, and $2,197 associated with personal use of company aircraft; for
Ms. Foulkes, $15,000 for financial planning services, $1,092 for home
security and $5,249 associated with the CVS Health Charity Classic; for
Mr. Roberts, $15,000 for financial planning services, $292 for home
security, $5,272 associated with personal use of company aircraft and
$5,249 associated with the CVS Health Charity Classic; for Mr. Moriarty,
$15,000 for financial planning services and $3,299 associated with the CVS
Health Charity Classic. 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 2016, this amount includes
Company matching contributions to the CVS Health Future Fund of $13,250
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 $254,500; for Mr. Denton, $10,750; for Ms. Foulkes, $105,000; for
Mr. Roberts, $122,750; and for Mr. Moriarty, $89,250. |
C |
This amount includes cash
dividend equivalents paid by the Company on unvested RSUs as follows: for
Mr. Merlo, $369,023; for Mr. Denton, $277,649; for Ms. Foulkes, $70,622;
for Mr. Roberts, $102,430; and for Mr. Moriarty, $53,971. 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,
$143,946; and for Mr. Roberts, $9,904. |
58 |
|
2017 Proxy
Statement |
Table of Contents
EXECUTIVE COMPENSATION
TABLES: GRANTS OF PLAN-BASED AWARDS |
GRANTS OF PLAN-BASED
AWARDS |
This table reflects awards granted under our annual cash incentive plan for 2016, the
2016 2018 LTIP cycle, and the annual equity awards for 2016, which include stock options and RSUs.
GRANTS OF PLAN-BASED
AWARDS 2016 |
NAME & PRINCIPAL 2016
POSITIONS |
AWARD TYPE |
DATE
OF COMMITTEE ACTION |
GRANT DATE |
|
EST. FUTURE PAYOUTS UNDER
NON-EQUITY INCENTIVE PLAN AWARDS
1 |
|
|
EST. FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN
AWARDS |
|
ALL OTHER STOCK AWARDS: NUMBER
OF SHARES
OF STOCK
OR UNITS (#) |
ALL OTHER OPTION AWARDS: NUMBER
OF SECURITIES UNDERLYING OPTIONS (#) |
EXERCISE OR BASE PRICE
OF OPTION AWARDS ($ / SH) |
GRANT DATE FAIR VALUE
OF STOCK AND OPTION AWARDS ($) |
THRESHOLD ($) 2 |
TARGET ($) |
MAXIMUM ($) |
|
|
THRESHOLD (#) 2 |
TARGET (#) |
MAXIMUM (#) |
|
Larry J.
Merlo President and Chief Executive Officer |
Stock Options |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
|
286,787 |
104.82 |
3,999,990 |
Annual RSUs |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
38,160 |
|
|
3,999,931 |
Annual Cash |
|
|
|
978,000 |
3,260,000 |
8,150,000 |
|
|
|
|
|
|
|
|
|
|
LTIP (16-18) 1 |
2/19/2016 |
|
|
2,700,000 |
6,750,000 |
13,500,000 |
|
|
|
|
|
|
|
|
|
|
David M.
Denton Executive
Vice President and Chief
Financial Officer |
Stock Options |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
|
71,696 |
104.82 |
999,987 |
Annual RSUs |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
9,540 |
|
|
999,983 |
Annual Cash |
|
|
|
382,500 |
1,275,000 |
3,400,000 |
|
|
|
|
|
|
|
|
|
|
LTIP (16-18) 1 |
2/19/2016 |
|
|
800,000 |
2,000,000 |
4,000,000 |
|
|
|
|
|
|
|
|
|
|
Helena B.
Foulkes Executive
Vice President and President
CVS Pharmacy |
Stock Options |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
|
71,696 |
104.82 |
999,987 |
Annual RSUs |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
9,540 |
|
|
999,983 |
Annual Cash |
|
|
|
427,500 |
1,425,000 |
3,800,000 |
|
|
|
|
|
|
|
|
|
|
LTIP (16-18) 1 |
2/19/2016 |
|
|
800,000 |
2,000,000 |
4,000,000 |
|
|
|
|
|
|
|
|
|
|
Jonathan C.
Roberts Executive
Vice President and President
CVS Caremark |
Stock Options |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
|
161,318 |
104.82 |
2,249,999 |
Annual RSUs |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
21,465 |
|
|
2,249,961 |
Annual Cash |
|
|
|
427,500 |
1,425,000 |
3,800,000 |
|
|
|
|
|
|
|
|
|
|
LTIP (16-18) 1 |
2/19/2016 |
|
|
1,200,000 |
3,000,000 |
6,000,000 |
|
|
|
|
|
|
|
|
|
|
Thomas M.
Moriarty Executive
Vice President, Chief Strategy
Officer and General Counsel |
Stock Options |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
|
71,696 |
104.82 |
999,987 |
Annual RSUs |
2/19/2016 |
4/1/2016 |
|
|
|
|
|
|
|
|
|
|
9,540 |
|
|
999,983 |
Annual Cash |
|
|
|
337,500 |
1,125,000 |
3,000,000 |
|
|
|
|
|
|
|
|
|
|
LTIP (16-18) 1 |
2/19/2016 |
|
|
750,000 |
1,875,000 |
3,750,000 |
|
|
|
|
|
|
|
|
|
|
1 |
Represents the value, denominated in cash, at grant. Beginning with the 2016-2018 LTIP
cycle, awards will be settled 100% in CVS Health common stock adjusted for performance. At the end of the three
year cycle, final awards will be disclosed in the Summary Compensation Table under
the column
Non-Equity Incentive Plan Compensation
. Prior to the 2016-2018 LTIP cycle,
awards were
settled in equal portions of stock and cash and reported in the Option Exercises and Stock
Vested Table and the Summary Compensation
Table, respectively. |
2 |
Represents the threshold achievement in order to receive a payout under the respective plan;
performance
below threshold results in no payout. |
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 seven years from the date of grant. As described above, our policy is to establish the exercise price for stock options as the closing sale price of our common stock on the grant date. Annual RSU grants typically vest in increments of 50% on the third
anniversary of the
date of grant and 50% on the fifth anniversary of the date of grant.
cvshealthannualmeeting.com |
|
59 |
Table of Contents
EXECUTIVE COMPENSATION TABLES: OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END |
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, 2016.
OUTSTANDING
EQUITY AWARDS AT 2016 YEAR-END |
|
|
STOCK OPTION AWARDS |
|
|
STOCK AWARDS |
|
NAME & PRINCIPAL 2016 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 President
and Chief Executive Officer |
|
4/1/2010 |
76,494 |
2 |
36.23 |
4/1/2017 |
|
|
4/2/2012 |
41,602 5 |
3,282,814 |
|
|
|
|
4/1/2011 |
241,150 |
3 |
34.96 |
4/1/2018 |
|
|
4/1/2013 |
36,678 5 |
2,894,261 |
|
|
|
|
4/2/2012 |
332,736 |
3 |
45.07 |
4/2/2019 |
|
|
4/1/2014 |
53,843 5 |
4,248,751 |
|
|
|
|
4/1/2013 |
236,034 |
78,679 3 |
54.53 |
4/1/2020 |
|
|
4/1/2015 |
39,115 5 |
3,086,565 |
|
|
|
|
4/1/2014 |
167,848 |
167,849 3 |
74.29 |
4/1/2021 |
|
|
4/1/2016 |
38,160 5 |
3,011,206 |
|
|
|
|
4/1/2015 |
68,482 |
205,447 3 |
102.26 |
4/1/2022 |
|
|
2/18/2015 |
|
|
26,416 9 |
2,084,487 |
|
|
4/1/2016 |
|
286,787 3 |
104.82 |
4/1/2023 |
|
|
|
|
|
|
|
|
David M.
Denton Executive
Vice President and Chief Financial Officer |
|
3/5/2008 |
12,420 |
4 |
40.28 |
3/5/2018 |
|
|
4/1/2010 |
4,313 7 |
340,339 |
|
|
|
|
4/1/2010 |
95,618 |
2 |
36.23 |
4/1/2017 |
|
|
4/2/2012 |
13,868 5 |
1,094,324 |
|
|
|
|
4/1/2011 |
107,178 |
3 |
34.96 |
4/1/2018 |
|
|
4/1/2013 |
12,608 5 |
994,897 |
|
|
|
|
4/2/2012 |
110,912 |
3 |
45.07 |
4/2/2019 |
|
|
4/1/2014 |
10,095 5 |
796,596 |
|
|
|
|
4/1/2013 |
81,137 |
27,046 3 |
54.53 |
4/1/2020 |
|
|
4/1/2014 |
100,000 8 |
7,891,000 |
|
|
|
|
4/1/2014 |
31,471 |
31,472 3 |
74.29 |
4/1/2021 |
|
|
4/1/2015 |
8,556 5 |
675,154 |
|
|
|
|
4/1/2015 |
14,980 |
44,942 3 |
102.26 |
4/1/2022 |
|
|
4/1/2016 |
9,540 5 |
752,801 |
|
|
|
|
4/1/2016 |
|
71,696 3 |
104.82 |
4/1/2023 |
|
|
2/18/2015 |
|
|
9,606 9 |
758,009 |
|
Helena
B. Foulkes Executive Vice President
and President CVS Pharmacy |
|
4/1/2011 |
12,058 |
3 |
34.96 |
4/1/2018 |
|
|
4/1/2009 |
2,670 7 |
210,690 |
|
|
|
|
4/1/2011 |
28,607 |
4 |
34.96 |
4/1/2021 |
|
|
4/1/2010 |
2,416 7 |
190,647 |
|
|
|
|
4/2/2012 |
19,965 |
3 |
45.07 |
4/2/2019 |
|
|
4/2/2012 |
4,993 5 |
393,998 |
|
|
|
|
4/1/2013 |
29,505 |
9,835 3 |
54.53 |
4/1/2020 |
|
|
4/1/2013 |
4,585 5 |
361,802 |
|
|
|
|
4/1/2014 |
26,226 |
26,226 3 |
74.29 |
4/1/2021 |
|
|
4/1/2014 |
8,412 5 |
663,791 |
|
|
|
|
4/1/2015 |
14,980 |
44,942 3 |
102.26 |
4/1/2022 |
|
|
4/1/2015 |
8,556 5 |
675,154 |
|
|
|
|
4/1/2016 |
|
71,696 3 |
104.82 |
4/1/2023 |
|
|
4/1/2016 |
9,540 5 |
752,801 |
|
|
|
|
|
|
|
|
|
|
|
2/18/2015 |
|
|
8,405 9 |
663,239 |
|
Jonathan
C. Roberts Executive Vice President and President
CVS Caremark |
|
4/1/2010 |
61,196 |
2 |
36.23 |
4/1/2017 |
|
|
4/2/2012 |
9,708 5 |
766,058 |
|
|
|
|
4/1/2011 |
85,743 |
3 |
34.96 |
4/1/2018 |
|
|
9/4/2012 |
11,625 6 |
917,313 |
|
|
|
|
4/2/2012 |
77,639 |
3 |
45.07 |
4/2/2019 |
|
|
4/1/2013 |
8,024 5 |
633,174 |
|
|
|
|
9/4/2012 |
72,580 |
36,290 4 |
45.93 |
9/4/2022 |
|
|
4/1/2014 |
11,778 5 |
929,402 |
|
|
|
|
4/1/2013 |
51,633 |
17,211 3 |
54.53 |
4/1/2020 |
|
|
4/1/2015 |
9,778 5 |
771,582 |
|
|
|
|
4/1/2014 |
36,716 |
36,717 3 |
74.29 |
4/1/2021 |
|
|
4/1/2016 |
21,465 5 |
1,693,803 |
|
|
|
|
4/1/2015 |
17,120 |
51,362 3 |
102.26 |
4/1/2022 |
|
|
2/18/2015 |
|
|
10,806 9 |
852,701 |
|
|
4/1/2016 |
|
161,318 3 |
104.82 |
4/1/2023 |
|
|
|
|
|
|
|
|
Thomas
M. Moriarty Executive Vice President Chief
Strategy Officer and General Counsel |
|
10/1/2012 |
41,093 |
20,547 4 |
48.67 |
10/1/2022 |
|
|
10/1/2012 |
6,582 6 |
519,364 |
|
|
|
|
4/1/2013 |
36,880 |
12,294 3 |
54.53 |
4/1/2020 |
|
|
4/1/2013 |
5,731 5 |
452,233 |
|
|
|
|
4/1/2014 |
31,471 |
31,472 3 |
74.29 |
4/1/2021 |
|
|
4/1/2014 |
10,095 5 |
796,596 |
|
|
|
|
4/1/2015 |
12,840 |
38,521 3 |
102.26 |
4/1/2022 |
|
|
4/1/2015 |
7,334 5 |
578,726 |
|
|
|
|
4/1/2016 |
|
71,696 3 |
104.82 |
4/1/2023 |
|
|
4/1/2016 |
9,540 5 |
752,801 |
|
|
|
|
|
|
|
|
|
|
|
2/18/2015 |
|
|
8,405 9 |
663,239 |
|
1 |
The value of the RSUs is based on $78.91, which was the
closing sale price of our stock on December 30, 2016, the last trading day
of our fiscal year. |
2 |
The stock options vest in one-third increments on each
of the first, second and third anniversaries of the date of
grant. |
3 |
The stock options vest in one-quarter increments on each
of the first, second, third and fourth anniversaries of the date of
grant. |
4 |
The stock options vest in one-third increments on each
of the third, fourth and fifth anniversaries of the date of grant and
expire ten years from the date of grant. |
5 |
RSUs vest in increments of 50% on the third anniversary
of the grant date and on the fifth anniversary of the grant
date. |
6 |
RSUs vest on the fifth anniversary of the date of
grant. |
7 |
RSUs vest on the executives 55th birthday. |
8 |
RSUs vest on the seventh anniversary of the date of
grant. |
9 |
Represents share portion of the LTIP 2015-2017 cycle,
assuming target performance is achieved. For additional information
regarding the disclosure of LTIP cycles beginning in 2016, see the
CD&A section and the Grants of Plan-Based Awards
Table. |
60 |
|
2017 Proxy
Statement |
Table of Contents
EXECUTIVE COMPENSATION
TABLES: OPTION EXERCISES AND
STOCK VESTED |
OPTION EXERCISES AND STOCK
VESTED |
The table below reflects information for
the fiscal year ended December 31, 2016 concerning options exercised and the
vesting of previously granted RSUs and non-transferable shares for each of the
named executive officers. The value of the shares
acquired upon exercise of the options and the shares represented by the vesting
of RSUs is based on the closing sale price of our stock on the date of exercise
and the date of vesting, respectively.
OPTION
EXERCISES AND STOCK VESTED 2016 |
|
|
OPTION AWARDS |
|
STOCK AWARDS |
|
NAME & PRINCIPAL 2016
POSITIONS |
|
NUMBER OF SHARES ACQUIRED ON
EXERCISE (#) |
VALUE REALIZED ON
EXERCISE ($) |
|
NUMBER OF SHARES ACQUIRED ON
VESTING (#) 1 |
VALUE REALIZED ON VESTING ($)
2 |
|
Larry J. Merlo |
|
169,280 |
11,329,316 |
|
137,112 |
12,717,579 |
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
David M. Denton |
|
|
|
|
45,526 |
4,320,808 |
|
Executive Vice President and Chief Financial
Officer |
|
|
|
|
|
|
|
Helena B. Foulkes |
|
|
|
|
30,824 |
2,889,009 |
|
Executive Vice President and President CVS
Pharmacy |
|
|
|
|
|
|
|
Jonathan C. Roberts |
|
|
|
|
41,182 |
3,790,277 |
|
Executive Vice President and President CVS
Caremark |
|
|
|
|
|
|
|
Thomas M. Moriarty |
|
|
|
|
21,243 |
1,850,680 |
|
Executive Vice President, Chief Strategy Officer and
General Counsel |
|
|
|
|
|
|
|
1 |
Includes RSUs vested during 2016
and the share portion of the 2014-2016 LTIP cycle issued in early
2017. |
2 |
Includes the RSU value deferred
during 2016, which is also shown in the Nonqualified Deferred Compensation
Table: for Mr. Merlo $3,373,108; for Ms. Foulkes, $1,158,453; and for Mr.
Roberts, $2,040,321. |
We maintain an unfunded supplemental
retirement plan (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, 2016 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 SERP based on his more than 30 years with the
Company, any benefit increases are primarily as a result of performance-based
bonuses. In addition, because the SERP is a defined benefit plan, it is subject
to certain actuarial variations including discount rates and mortality table
assumptions. As a result, Mr. Merlos benefit decreased by $669,139 during 2016.
The accumulated value in the Pension Benefits Table and Summary Compensation
Table is based on the benefit accrued as of the measurement date payable as a
lump sum commencing on the earliest unreduced retirement age (55) using
assumptions which include a 2.50% discount rate as of December 31, 2016. Mr.
Merlo is fully vested in his accrued benefit. For further information regarding
pension assumptions, please see the Notes to the Consolidated Financial
Statements in our Annual Report to Stockholders for the fiscal year ended
December 31, 2016.
cvshealthannualmeeting.com |
|
61 |
Table of Contents
EXECUTIVE COMPENSATION TABLES: PENSION
BENEFITS |
NAME & PRINCIPAL 2016
POSITIONS |
PLAN NAME |
NUMBER
OF YEARS OF CREDITED SERVICE (#) |
PRESENT VALUE
OF ACCUMULATED BENEFIT ($) |
PAYMENTS DURING LAST FISCAL
YEAR ($) |
Larry J. Merlo |
SERP |
30 |
43,743,846 |
|
President and Chief Executive Officer |
|
|
|
|
David M. Denton |
N/A |
|
|
|
Executive Vice President and Chief Financial
Officer |
|
|
|
|
Helena B. Foulkes |
N/A |
|
|
|
Executive Vice President and President CVS
Pharmacy |
|
|
|
|
Jonathan C. Roberts |
N/A |
|
|
|
Executive Vice President and President CVS
Caremark |
|
|
|
|
Thomas M. Moriarty |
N/A |
|
|
|
Executive Vice President, Chief Strategy Officer and General
Counsel |
|
|
|
|
NONQUALIFIED DEFERRED
COMPENSATION |
Executive officers and selected members of
senior management may participate in the Deferred Compensation Plan (DCP) and
the Deferred Stock Plan (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, which is the Companys
401(k) plan. 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 compensation accounts.
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, Roberts and Moriarty
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.
62 |
|
2017 Proxy
Statement |
Table of Contents
EXECUTIVE COMPENSATION
TABLES: PAYMENTS/(FORFEITURES) UNDER TERMINATION
SCENARIOS |
NONQUALIFIED
DEFERRED COMPENSATION 2016 |
NAME & PRINCIPAL 2016
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 |
Larry J. Merlo President and Chief Executive
Officer |
Cash |
267,750 |
254,500 |
124,118 |
|
|
5,028,127 |
Stock |
3,373,108 |
|
(16,658,886 |
) |
143,946 |
75,813,116 |
|
|
|
|
|
|
|
David M. Denton Executive Vice President and Chief Financial Officer |
Cash |
|
10,750 |
661 |
|
|
25,927 |
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Helena B. Foulkes Executive Vice President and President CVS Pharmacy |
Cash |
118,250 |
105,000 |
91,526 |
|
|
1,947,330 |
Stock |
1,158,453 |
|
(694,574 |
) |
232,631 |
2,812,226 |
|
|
|
|
|
|
|
Jonathan C. Roberts Executive Vice President and President CVS Caremark |
Cash |
1,899,597 |
122,750 |
353,192 |
|
|
5,609,076 |
Stock |
3,667,724 |
|
(2,073,561 |
) |
9,904 |
8,917,542 |
|
|
|
|
|
|
|
Thomas M. Moriarty Executive Vice President, Chief
Strategy Officer and General
Counsel |
Cash |
1,300,000 |
89,250 |
444,772 |
|
|
5,565,717 |
Stock |
|
|
(118,929 |
) |
|
549,473 |
|
|
|
|
|
|
|
1 |
The cash contributions include amounts shown for 2016 in
the Salary column of the Summary Compensation Table as follows: for Mr.
Merlo, $81,500; for Ms. Foulkes, $47,500; and for Mr. Roberts, $95,000.
All other amounts represent non-equity incentive compensation deferred
during 2016. 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 2016. The stock contribution for Mr. Roberts
includes the deferred settlement under the DSP of shares granted under the
LTIP for the 2013-2015 cycle that were credited to his account in
2016. |
2 |
All amounts shown are also disclosed in the Summary
Compensation Table under All Other Compensation and reflect amounts
credited and/or earned in 2016. |
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
statements since 2007: |
|
CASH |
STOCK |
Mr. Merlo |
$3,292,173 |
$19,486,349 |
Mr. Denton |
31,675 |
|
Ms. Foulkes |
689,301 |
|
Mr. Roberts |
2,224,678 |
|
Mr. Moriarty |
3,172,750 |
|
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, 2016 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 2016
and disclosed in the Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table on page 57, the amounts payable under the pension
plans discussed beginning on page 61, and the amounts in the nonqualified
deferred compensation plans discussed beginning on page 62, are not included in
the tables below, nor is any amount for stock options that are vested and
exercisable as of December 31, 2016.
With respect to the tables
below:
● |
Messrs. Denton and Moriarty
and Ms. Foulkes were not eligible for retirement benefits as of December
31, 2016. |
● |
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. |
cvshealthannualmeeting.com |
|
63 |
Table of Contents
EXECUTIVE
COMPENSATION TABLES:
PAYMENTS/(FORFEITURES)
UNDER TERMINATION SCENARIOS |
● |
The option value
is determined by multiplying the number of unvested options outstanding as
of December 31, 2016 by the difference between the exercise price and
$78.91, the closing sale price on December 30, 2016, the last trading day
of the Companys fiscal year. Generally, the option 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
(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. |
● |
The value of the RSUs is determined
by multiplying the number of RSUs as of December 31, 2016 by $78.91, the
closing sale price on December 30, 2016, the last trading day of our
fiscal year. |
● |
Upon a CIC and subsequent
termination of employment, all outstanding unvested stock options will
vest in full and restrictions will lapse on all
RSUs. |
● |
The value of LTIP cycles assumes
that pro-rated payments are made for the outstanding 2015 2017 LTIP
cycle (two-thirds) and 2016 2018 LTIP cycle (one-third); all outstanding
performance cycles are assumed to be achieved at target and the value of
prorated payments are made at target. |
In the event of his covered termination
prior to a CIC, Mr. Merlo would receive a cash severance payment equal to two
times the sum of his annual base salary and his then-current annual cash
incentive at target. In the event of a covered termination following a CIC, Mr.
Merlo would receive a cash severance payment equal to three times the sum of his
annual base salary and his then-current annual cash incentive at target, but
under his amended employment contract such cash severance would be reduced to
avoid the excise tax under IRC Section 280G if that would give Mr. Merlo a
better after-tax result. Early retirement is defined in Mr. Merlos Employment
Agreement and in his various stock option and RSU agreements. See Agreements with Executive Officers on page 55 for
additional information.
LARRY J.
MERLO PRESIDENT AND CHIEF EXECUTIVE OFFICER |
DEATH ($) |
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 |
|
|
1,222,500 |
3,260,000 |
4,890,000 |
|
Bonus |
|
|
|
6,520,000 |
9,780,000 |
|
Immediate Vesting of
Equity |
|
|
|
|
|
|
Value of Options |
2,693,657 |
(2,693,657) |
(2,693,657) |
2,693,657 |
2,693,657 |
2,693,657 |
Value of RSUs |
16,523,597 |
(16,523,597) |
(16,523,597) |
16,523,597 |
16,523,597 |
11,737,152 |
Value of LTIP
Cycles |
5,916,667 |
(5,916,667) |
(5,916,667) |
5,916,667 |
12,250,000 |
5,916,667 |
Benefits and
Other |
|
|
|
|
|
|
Health Insurance |
|
|
|
26,826 |
40,240 |
|
SERP |
|
|
|
|
|
|
Excise Tax Gross-Up |
|
|
|
|
|
|
Total |
25,133,921 |
(25,133,921) |
(23,911,421) |
34,940,747 |
46,177,494 |
20,347,476 |
With respect to each of the remaining
named executive officers, in the event of his or her termination without cause
or constructive termination prior to a CIC, pursuant to a restrictive covenant
agreement and the Companys Severance Plan for Non-Store Employees, the named
executive officer is eligible for severance payments, provided that he or she
executes a separation agreement with the Company that includes, among other
things, standard restrictive covenants regarding non-competition and
non-solicitation of customers and employees. In the event the named executive
officer is terminated by the Company without
cause or experiences a constructive termination prior to a CIC, he or she is
eligible to receive up to 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 the Company 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
64 |
|
2017 Proxy
Statement |
Table of Contents
EXECUTIVE COMPENSATION TABLES: PAYMENTS/(FORFEITURES) UNDER TERMINATION
SCENARIOS |
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, full value at target achievement level for the
2015-2017 LTIP and 2016-2018 LTIP cycles, and immediate vesting of stock options
and RSUs. 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.
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 |
|
|
|
1,275,000 |
1,275,000 |
Bonus |
|
|
|
|
1,912,500 |
Immediate Vesting of
Equity |
|
|
|
|
|
Value of Options |
804,782 |
(804,782) |
(804,782) |
804,782 |
804,782 |
Value of RSUs |
12,545,112 |
(12,545,112) |
(12,545,112) |
2,825,057 |
12,545,112 |
Value of LTIP Cycles |
2,000,000 |
(2,000,000) |
(2,000,000) |
2,000,000 |
4,000,000 |
Benefits and
Other |
|
|
|
|
|
Health Insurance |
|
|
|
21,178 |
21,178 |
SERP |
|
|
|
|
|
Excise Tax Gross-Up |
|
|
|
|
|
Total |
15,349,894 |
(15,349,894) |
(15,349,894) |
6,926,017 |
20,558,572 |
|
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 ($) |
Cash Severance
Value |
|
|
|
|
|
Base Salary |
|
|
|
1,425,000 |
1,425,000 |
Bonus |
|
|
|
|
2,137,500 |
Immediate Vesting of
Equity |
|
|
|
|
|
Value of Options |
360,941 |
(360,941) |
(360,941) |
360,941 |
360,941 |
Value of RSUs |
3,248,883 |
(3,248,883) |
(3,248,883) |
1,425,272 |
3,248,883 |
Value of LTIP Cycles |
1,833,333 |
(1,833,333) |
(1,833,333) |
1,833,333 |
3,750,000 |
Benefits and
Other |
|
|
|
|
|
Health Insurance |
|
|
|
21,326 |
21,326 |
SERP |
|
|
|
|
|
Excise Tax Gross-Up |
|
|
|
|
|
Total |
5,443,157 |
(5,443,157) |
(5,443,157) |
5,065,872 |
10,943,650 |
cvshealthannualmeeting.com |
|
65 |
Table of Contents
EXECUTIVE COMPENSATION TABLES: PAYMENTS/(FORFEITURES) UNDER TERMINATION
SCENARIOS |
JONATHAN C.
ROBERTS EXECUTIVE VICE PRESIDENT AND PRESIDENT
CVS CAREMARK |
DEATH ($) |
TERMINATION FOR CAUSE ($) |
VOLUNTARY TERMINATION ($) |
TERMINATION W/O CAUSE
OR CONSTRUCTIVE TERMINATION W/O CAUSE PRIOR TO
CIC ($) |
TERMINATION W/O CAUSE
OR CONSTRUCTIVE TERMINATION W/O CAUSE AFTER
CIC ($) |
APPROVED RETIREMENT ($) |
Cash Severance
Value |
|
|
|
|
|
|
Base Salary |
|
|
|
1,425,000 |
1,425,000 |
|
Bonus |
|
|
|
|
2,137,500 |
|
Immediate Vesting of
Equity |
|
|
|
|
|
|
Value of Options |
1,786,081 |
(1,786,081) |
(1,786,081) |
1,786,081 |
1,786,081 |
1,786,081 |
Value of RSUs |
5,711,332 |
(5,711,332) |
(5,711,332) |
3,173,208 |
5,711,332 |
4,236,599 |
Value of LTIP Cycles |
2,500,000 |
(2,500,000) |
(2,500,000) |
2,500,000 |
5,250,000 |
4,500,000 |
Benefits and
Other |
|
|
|
|
|
|
Health Insurance |
|
|
|
21,326 |
21,326 |
|
SERP |
|
|
|
|
|
|
Excise Tax Gross-Up |
|
|
|
|
|
|
Total |
9,997,413 |
(9,997,413) |
(9,997,413) |
8,905,615 |
16,331,239 |
10,522,680 |
THOMAS M.
MORIARTY EXECUTIVE VICE PRESIDENT, CHIEF STRATEGY OFFICER AND
GENERAL COUNSEL |
DEATH ($) |
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 |
|
|
|
1,125,000 |
1,125,000 |
Bonus |
|
|
|
|
1,687,500 |
Immediate Vesting of
Equity |
|
|
|
|
|
Value of Options |
1,066,470 |
(1,066,470) |
(1,066,470) |
1,066,470 |
1,066,470 |
Value of RSUs |
3,099,721 |
(3,099,721) |
(3,099,721) |
1,662,713 |
3,099,721 |
Value of LTIP Cycles |
1,791,667 |
(1,791,667) |
(1,791,667) |
1,791,667 |
3,625,000 |
Benefits and
Other |
|
|
|
|
|
Health Insurance |
|
|
|
19,757 |
19,757 |
SERP |
|
|
|
|
|
Excise Tax Gross-Up |
|
|
|
|
|
Total |
5,957,858 |
(5,957,858) |
(5,957,858) |
5,665,607 |
10,623,448 |
66 |
|
2017 Proxy
Statement |
Table of Contents
ITEM 5: 2017 INCENTIVE COMPENSATION
PLAN |
ITEM 5: PROPOSAL TO APPROVE THE COMPANYS
2017 INCENTIVE COMPENSATION PLAN |
In May 2010, our stockholders approved our
2010 Incentive Compensation Plan (2010 Plan). Assuming current grant rates, we
believe that the shares currently available for issuance under the 2010 Plan
would be sufficient for awards that the Company plans to grant in 2017, but may
not be sufficient for awards to be granted in 2018. We are therefore requesting
that our stockholders approve a new 2017 Incentive Compensation Plan (2017 Plan)
in order to permit the Company to continue to grant awards. We are seeking an
additional 21 million shares for future grants.
On March 2, 2017 the Board adopted the
2017 Plan and is recommending it for your approval at this years annual meeting
of stockholders. If approved the 2017 Plan will be the only compensation plan
under which the Company grants stock options, restricted stock and other
equity-based awards (Awards) to its employees. These awards have enabled and
will continue to enable CVS Health 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 CVS Healths stockholders.
In the event this proposal is approved by
our stockholders, the shares that then remain available for issuance under the
2010 Plan will be transferred to the 2017 Plan and no further awards will be
made under the 2010 Plan. As of March 14, 2017, the closing sale price of CVS
Healths common stock on the NYSE was $79.89. If the 2017 Plan is not approved
by stockholders, the 2010 Plan will remain in full force and effect in
accordance with its terms.
Significant Historical Award
Information. The following table provides
information regarding the grant of equity awards under our 2010 Plan over the
past three completed fiscal years:
KEY EQUITY
METRICS |
2016 |
2015 |
2014 |
Percentage of equity awards granted to NEOs
(1) |
13.7% |
10.9% |
12.4% |
Equity burn rate
(2) |
0.59% |
0.57% |
0.62% |
Dilution
(3)(5) |
4.3% |
4.9% |
5.5% |
Overhang
(4)(5) |
2.7% |
2.7% |
2.9% |
1 |
Percentage of equity awards granted to individuals who
were named executive officers in the relevant year is calculated by
dividing the number of shares that were issuable pursuant to equity awards
that were granted to NEOs during the year by the number of shares issuable
pursuant to all equity awards granted during the year. |
2 |
Equity burn rate is calculated by dividing the number of
shares issuable pursuant to equity awards granted during the year by the
weighted average number of shares outstanding during the year, as
disclosed in our Form 10-K. |
3 |
Dilution is calculated by dividing the sum of (x) the
number of shares issuable pursuant to equity awards outstanding at the end
of the fiscal year and (y) the number of shares available under the 2010
Plan for future grants, by the number of shares outstanding at the end of
the year. |
4 |
Overhang is calculated by dividing the number of shares
issuable pursuant to equity awards outstanding at the end of the year by
the number of shares outstanding at the end of the year. |
5 |
The Company repurchased approximately 47.5 million
shares during 2016. If the Company had not repurchased these shares,
approximately 1.12 billion shares would have been outstanding at the end
of 2016, and dilution and overhang would have been 4.1% and 2.5%,
respectively, for 2016. |
The following table summarizes information
about the Companys common stock that may be issued upon the exercise of
options, warrants and rights under all of our equity compensation plans as of
December 31, 2016.
|
Number
of securities to be issued upon exercise
of outstanding options, warrants and rights (1) |
Weighted
average exercise price of outstanding options, warrants and
rights |
Number of securities remaining available
for future issuance under equity compensation plans
(excluding securities reflected in first column) (1) |
Equity compensation plans approved by
stockholders |
23,275 |
$68.60 |
17,645 |
Equity compensation plans not approved by
stockholders |
|
|
|
Total |
23,275 |
$68.60 |
17,645 |
1 Shares in thousands.
2017 Plan Features. The following is a brief description of the material features
of the 2017 Plan. The full text of the 2017 Plan is set forth in Exhibit A to
this Proxy Statement and the description set forth below is qualified in its
entirety by reference to Exhibit A.
HIGHLIGHTING IMPORTANT POLICIES
THAT WILL APPLY TO THE 2017 PLAN |
HIGHLIGHTING IMPORTANT PROVISIONS
OF THE 2017 PLAN |
✓ |
Performance Measures Aligned with Stockholder
Interests |
✓ |
Broad-based Plan that Benefits a Range of Employees |
✓ |
Stock
Ownership Guidelines |
✓ |
Minimum Three-year Vesting of Time-based Awards |
✓ |
LTI
Plan Share Award Retention |
✓ |
Minimum One-year Vesting of Performance-based
Awards |
✓ |
Broad
Anti-Pledging and Hedging Policies |
✓ |
No
Option or SAR Repricing or Cash Buyouts |
✓ |
Recoupment Policy for Clawback of Awards |
✓ |
No
Discounted Options or SARs May be Granted |
✓ |
Double Trigger Vesting Upon a Change in Control |
✓ |
No
Liberal Change in Control Provision |
✓ |
No
Payment of Dividends on Unvested Awards |
✓ |
No
Liberal Share Counting or Recycling of Shares |
✓ |
No
Excise Tax Gross-Ups |
✓ |
Limitations on Awards to Non-Employee
Directors |
cvshealthannualmeeting.com |
|
67 |
Table of Contents
ITEM 5: 2017 INCENTIVE COMPENSATION
PLAN |
Shares Subject to the 2017
Plan. Under the 2017 Plan, 21 million
shares of CVS Health common stock would be reserved and available for delivery
to participants in connection with Awards, plus the number of shares remaining
available for issuance under the 2010 Plan at the time it is terminated. As of
March 14, 2017, there were approximately 17 million shares available for grants
under the 2010 Plan. The Company anticipates utilizing approximately seven
million of those shares for its annual grants to be made in April 2017.
Therefore, at the time of the 2017 Annual Meeting, the 2010 Plan will have
approximately 10 million shares remaining
and, upon approval, the 2017 Plan will have a
total of 31 million shares available for issuance. We anticipate that number of
shares will be sufficient for approximately four years of grants, based on
current grant practices and share price.
No Liberal Share
Counting. The 2017 Plan includes
provisions that prohibit liberal share counting or recycling. For purposes of
determining the number of shares of stock that remain available for issuance
under the 2017 Plan, the number of shares corresponding to Awards that are
forfeited or cancelled or otherwise expire for any reason without having been
exercised or settled, or that are settled through the issuance of consideration
other than shares of stock (including, without limitation, cash), will be added
back to the Plan Limit (as defined in the 2017 Plan) and again be available for
the grant of Awards. The following shares of stock, however, will not be
available again for grant under the 2017 Plan:
(i) shares of CVS Health stock not issued
or delivered as a result of net settlement of an outstanding option or stock
appreciation right (SAR);
(ii) shares of CVS Health stock delivered
or withheld by the Company to pay the exercise price or withholding taxes with
respect to an Award; and
(iii) shares of CVS Health stock
repurchased with proceeds from the payment of the exercise price of an
option.
The administrator of the 2017
Plan has
discretion to 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.
Annual Per-Person
Limitations. The 2017 Plan imposes
individual limitations on the amount of certain Awards in order to comply with
Section 162(m) of the Internal Revenue Code (IRC). Under these limitations,
during any fiscal year the number of options, shares of restricted stock, RSUs,
shares of deferred stock, shares of CVS Health stock issued as a bonus or in
lieu of other obligations, and other stock-based Awards granted to any one
participant shall not exceed one million shares for each type of such Award,
subject to adjustment in certain circumstances. 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.
Non-Employee Director Award
Limits. The 2017 Plan limits the Awards
that may be made to a non-employee Director of the Company to $500,000 per
director, with an additional $500,000 for the independent chairman or lead
independent director, if any is so designated.
Eligibility. Executive officers and other officers and employees of CVS
Health or any subsidiary, and any person who is a non-employee director of CVS
Health, will be eligible to be granted Awards under the 2017 Plan. Based on
current grant practices, approximately 40,000 persons are eligible to receive
Awards under the 2017 Plan.
Administration. The 2017 Plan is administered by the Management Planning and
Development Committee, except to the extent the Board elects to administer the
2017 Plan. Subject to the terms and conditions of the 2017 Plan, the Committee
is authorized to select participants, determine the type and number of Awards to
be granted and the number of shares of CVS Health stock or dollar amounts to
which Awards will relate, specify times at which Awards will vest (including
performance conditions that may be required as a condition thereof), set other
terms and conditions of such Awards, prescribe forms of Award agreements,
interpret and specify rules and regulations relating to the 2017 Plan, and make
all other determinations that may be necessary or advisable for the
administration of the 2017 Plan.
Types of Awards.
●Stock Options and
SARs. The Committee is authorized to grant stock
options, including both incentive stock options (ISOs) that can result in
potentially favorable tax treatment to the participant and nonqualified stock
options (i.e., options not qualifying as ISOs) and SARs entitling the
participant to receive the excess of the fair market value of a share of CVS
Health stock on the date of exercise over the grant price of the SAR. The
exercise price per share subject to an option and the grant price of a SAR is
determined by the Committee, but must not be less than the fair market value,
i.e., the closing sale price on the NYSE, of a share of CVS Health stock as of
the date of grant. In the event the date of grant is a date on which the NYSE is
not open, the closing NYSE sale price on the last day prior to the grant date is
used. The maximum term of each option or SAR, the times at which each option or
SAR will be exercisable and provisions requiring forfeiture of unexercised
options or SAR at or following termination of employment generally is fixed by
the Committee, except
68 |
|
2017 Proxy
Statement |
Table of Contents
ITEM 5: 2017 INCENTIVE COMPENSATION
PLAN |
|
no option or SAR may have a term
exceeding ten years. Options may be exercised by payment of the exercise
price in cash, CVS Health stock, outstanding Awards, or other property
having a fair market value equal to the exercise price, as the Committee
may determine from time to time. |
● |
Restricted Stock, RSUs
and Deferred Stock. The Committee is authorized to
grant restricted stock, RSUs and deferred stock. Restricted stock is a
grant of CVS Health stock which may not be sold or
disposed of, and which may be forfeited in the event of certain
terminations of employment and/or failure to meet certain performance
requirements prior to the end of a restricted period specified by the
Committee. Restricted stock and RSUs typically vest over a three- to
five-year period, or if based on performance requirements vest over a
minimum period of one year. A participant granted restricted stock
generally has all of the rights of a stockholder of CVS Health, including
the right to vote the shares and to receive dividends thereon upon
vesting, unless otherwise determined by the Committee. An RSU or an award
of deferred stock confers upon a participant the right to receive shares
at the end of a specified restricted or deferral period, subject to
possible forfeiture of the Award in the event of certain terminations of
employment and/or failure to meet certain performance requirements prior
to the end of a specified restricted period (which restricted period need
not extend for the entire duration of the deferral period). Prior to
settlement, an RSU or an Award of deferred stock carries no voting or
dividend rights or other rights associated with share ownership, although
dividend equivalents may be granted, as discussed
below. |
● |
Dividend
Equivalents. The Committee is authorized to grant
dividend equivalents conferring on participants the right to receive, on
an accrual basis, cash, shares, or other property equal in value to
dividends paid on a specific number of shares or other periodic payments.
Dividend equivalents may not be granted in connection
with stock options and SARs, and shall be paid on an accrued basis only
upon the vesting of the Award, or may be deemed to have been reinvested in
additional shares, Awards, or other investment vehicles specified by the
Committee. |
● |
Bonus Stock and Awards in Lieu of
Cash Obligations. The Committee is
authorized to grant shares as a bonus free of restrictions, or to grant
shares or other Awards in lieu of obligations to pay cash under other
plans or compensatory arrangements, subject to such terms as the Committee
may specify. |
● |
Other Stock-Based
Awards. The 2017 Plan authorizes the
Committee to grant Awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to shares. Such Awards
might include convertible or exchangeable
debt securities, other rights convertible or exchangeable into shares,
purchase rights for shares, Awards with value and payment contingent upon
performance of CVS Health or any other factors designated by the
Committee, and Awards valued by reference to the book value of shares or
the value of securities of or the performance of specified subsidiaries.
The Committee determines the terms and conditions of such Awards,
including consideration to be paid to exercise Awards in the nature of
purchase rights, the period during which Awards will be outstanding and
forfeiture conditions and restrictions on Awards. Other stock-based awards
vest over a minimum three-year period, or if based on performance
requirements vest over a minimum period of one
year. |
● |
Performance Awards, Including
Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an Award, and
the timing thereof, may be subject to such performance conditions as may
be specified by the Committee. In addition, the 2017 Plan authorizes
specific annual incentive awards, which represent a conditional right to
receive cash, shares or other Awards upon achievement of pre-established
performance goals during a specified one-year period. Performance awards and annual incentive awards granted
to persons the Committee expects may, for the year in which a deduction
arises, be among the CEO and other highly-compensated executive officers
subject to the limitation on tax deductibility under IRC Section 162(m),
will, if so intended by the Committee, be subject to provisions that
should qualify such Awards as performance-based compensation under IRC
Section 162(m). |
● |
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 Section 162(m), the business criteria used must be one
of those specified in the 2017 Plan, although for other participants the
Committee may specify any other criteria. The business criteria specified
in the 2017 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 |
cvshealthannualmeeting.com |
|
69 |
Table of Contents
ITEM 5:
2017 INCENTIVE COMPENSATION
PLAN |
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 Committee including, but not limited to, Standard & Poors 500 Stock
Index or a group of comparable companies.
In granting annual incentive or
performance awards, the Committee may establish unfunded award
pools, the
amounts of which will be based upon the achievement of a performance goal or
goals using one or more of the business criteria described in the preceding
paragraph. During the first 90 days of a fiscal year or other performance period
(or such other period as permitted under IRC Section 162(m)), the Committee will
determine who will potentially receive annual incentive or performance awards
for that fiscal year or other performance period, either out of the pool or
otherwise. After the end of each fiscal year or other performance period, the
Committee will determine the amount, if any, of the pool, the maximum amount of
potential annual incentive or performance awards payable to each participant in
the pool, and the amount of any potential annual incentive or performance award
otherwise payable to a participant. The Committee may, in its discretion,
determine that the amount payable as a final annual incentive or performance
award will be increased or reduced from the amount of any potential Award, but
may not exercise discretion to increase any such amount intended to qualify
under IRC Section 162(m).
Subject to the requirements of the 2017
Plan, the Committee will determine other performance award and annual incentive
award terms, including the required levels of performance with respect to the
business criteria, the corresponding amounts payable upon achievement of such
levels of performance, termination and forfeiture provisions, and the form of
settlement.
No Repricing or Cash
Buyouts. The Committee may not, without
further approval of CVS Health stockholders, grant any Award under the 2017 Plan
or make any payment or exchange that would constitute a repricing of any
option or SAR granted under the 2017 Plan. The 2017 Plan also does not permit
cash buyouts of stock options or SARs.
Other Terms of
Awards. Awards may be settled in the form
of cash, CVS Health stock, other Awards, or other property, in the discretion of
the Committee. The Committee may require or permit participants to defer the
settlement of all or part of an Award in accordance with such terms and
conditions as the Committee may establish, including payment or crediting of
interest or dividend equivalents on deferred amounts, and the crediting of
earnings, gains and losses based on deemed investment of deferred amounts in
specified investment vehicles, provided, however, that
dividends or dividend equivalents may not be paid on unvested Awards. The
Committee may condition any payment relating to an Award on the withholding of
taxes and may provide that a portion of any shares or other property to be
distributed will be withheld (or previously acquired shares or other property
surrendered by the participant) to satisfy withholding and other tax
obligations. Awards granted under the 2017 Plan generally may not be pledged or
otherwise encumbered and are not transferable except by will or by the laws of
descent and distribution, or to a designated beneficiary upon the participants
death, except that the Committee may, in its discretion, permit transfers for
estate planning or other purposes.
Recoupment
Policy. Unless the Award agreement
specifies otherwise, the Committee may cancel or rescind Awards if the
participant fails to comply with certain non-competition, confidentiality,
intellectual property or other covenants. In addition, Awards under the 2017
Plan will be subject to the Recoupment Policy as in effect from time to time
(for more information on that policy see page 54 of this proxy statement), as
well as other recoupment policies or provisions as may be required under the
terms of any agreement between the Company and any regulatory authority or as
may be required under applicable law.
Double Trigger Change in
Control. The Committee may, in its
discretion, accelerate the exercisability, the lapsing of restrictions, or the
expiration of deferral or vesting periods of any Award, and such accelerated
exercisability, lapse, expiration and vesting shall occur automatically in the
case of an actual or constructive termination without cause within two years of
a Change in Control, as defined in the 2017 Plan. In addition, the Committee may
provide that performance goals relating to any performance-based award will be
deemed to have been met at actual performance or prorated to the date of
termination following a Change in Control.
No Liberal Definition of Change in
Control. Change in Control is defined
in the 2017 Plan to include the following
events:
● |
changes in the stock ownership of the Company, or a
subsidiary owning substantially all of the consolidated assets of the
Company (Significant Subsidiary), representing in excess of 30% of the
voting power of then outstanding securities of the Company or Significant
Subsidiary; |
● |
changes of a majority of CVS Healths board of directors
during a 12-month period; |
● |
mergers and consolidations of the Company or a
Significant Subsidiary, unless the voting securities of the Company or
Significant Subsidiary continue to represent more than 50% of the combined
voting power of the surviving or resulting entity; and |
70 |
|
2017 Proxy
Statement |
Table of Contents
ITEM 5:
2017 INCENTIVE COMPENSATION PLAN |
● |
sales or dispositions of all or substantially
all of the consolidated assets of CVS Health (in no event less than 40% of
the total gross fair market value of all consolidated assets of the
Company), in a single transaction or series of transactions over a
12-month period. |
Amendment and Termination of the
2017 Plan. The Board may amend, alter,
suspend, discontinue, or terminate the 2017 Plan or the Committees authority to
grant Awards without further stockholder approval, except stockholder approval
must be obtained for any amendment or alteration if required by law or
regulation or under the rules of any stock exchange or automated quotation
system on which the shares are then listed or quoted. Stockholder approval will
not be deemed to be required under laws or regulations, such as those relating
to ISOs, that condition favorable treatment of participants on such approval,
although the Board may, in its discretion, seek stockholder approval in any
circumstance in which it deems such approval advisable. Thus, stockholder
approval will not necessarily be required for amendments that might increase the
cost of the 2017 Plan. Unless earlier terminated by the Board or extended by the
stockholders, the 2017 Plan will have a term that expires on May 9, 2027, 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.
Additionally, the 2017 Plan will terminate at such time as no shares remain
available for issuance under the 2017 Plan and CVS Health has no further rights
or obligations with respect to outstanding Awards under the 2017
Plan.
Certain Federal Income Tax
Implications of the 2017 Plan. The
following is a brief description of the federal income tax consequences
generally arising with respect to Awards under the 2017 Plan.
The grant of an option will create no tax
consequences for the participant or CVS Health. A participant will not recognize
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply). Upon exercising an option other than an ISO, 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.
Upon a disposition of shares acquired upon
exercise of an ISO before the end of the applicable ISO holding periods, the
participant must generally recognize ordinary income equal to the lesser of (i)
the fair market value of the shares at the date of exercise of the ISO minus the
exercise price, or (ii) the amount realized upon the disposition of the ISO
shares minus the exercise price. Otherwise, a participants disposition of
shares acquired upon the exercise of an option (including an ISO for which the
ISO holding periods are met) generally will result in short-term or long-term
capital gain or loss measured by the difference between the sale price and the
participants tax basis in such shares (the tax
basis generally being the exercise price plus any amount previously recognized
as ordinary income in connection with the exercise of the option).
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. CVS Health generally is not entitled
to a tax deduction relating to amounts that represent a capital gain to a
participant. Accordingly, CVS Health will not be entitled to any tax deduction
with respect to an ISO if the participant holds the shares for the ISO holding
periods prior to disposition of the shares.
With respect to Awards granted under the
2017 Plan that result in the payment or issuance of cash or shares or other
property that is either not restricted as to transferability or not subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the cash or the fair market value of shares or other
property received. 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 generally will
be entitled to a deduction in an amount equal to the ordinary income recognized
by the participant.
With respect to Awards involving the
issuance of shares or other property that is restricted as to transferability
and subject to a substantial risk of forfeiture, the participant must generally
recognize ordinary income equal to the fair market value of the shares or other
property received at the first time the shares or other property becomes
transferable or is not subject to a substantial risk of forfeiture, whichever
occurs earlier. A participant may elect to be taxed at the time of receipt of
shares or other property rather than upon lapse of restrictions on
transferability or substantial risk of forfeiture, but if the participant
subsequently forfeits such shares or property, the participant would not be
entitled to any tax deduction, including as a capital loss, for the value of the
shares or property on which he previously paid tax. The participant must file
such election with the Internal Revenue Service within 30 days of the receipt of
the shares or other property. CVS Health generally will be 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 2017 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.
Awards under 2017
Plan. Awards to be granted after May 10,
2017 under the 2017 Plan are not determinable at this time. For information on
awards made to NEOs under the 2010 Plan, see the tables on pages
59-61.
The Board unanimously recommends a vote approval of the
2017 Incentive Compensation Plan.
cvshealthannualmeeting.com |
|
71 |
Table of Contents
STOCKHOLDER
PROPOSALS
ITEM 6: STOCKHOLDER PROPOSAL REGARDING THE
OWNERSHIP THRESHOLD FOR CALLING SPECIAL MEETINGS OF
STOCKHOLDERS |
On or about December 6, 2016, the Company
received the following proposal from Mr. William Steiner, 112 Abbottsford Gate,
Piermont, NY 10968, and his proxy John Chevedden, 2215 Nelson Avenue, No. 205,
Redondo Beach, CA 90278, who represent that Mr. Steiner is the beneficial owner
of no less than 100 shares of the Companys
stock. In accordance with SEC rules, we are reprinting the proposal and
supporting statement (William Steiner Proposal) in this proxy statement as they
were submitted to us:
Proposal 6 Special Shareowner
Meetings
Resolved, Shareowners ask our board to
take the steps necessary (unilaterally if possible) to amend our bylaws and each
appropriate governing document to give holders in the aggregate of 15% of our
outstanding common stock the power to call a special shareowner meeting. This
proposal does not impact our boards current power to call a special
meeting.
Dozens of Fortune 500 companies allow 10%
of shares to call a special meeting and this proposal is only asking that 15% of
our shares be enabled to call a special meeting. Special meetings allow
shareowners to vote on important matters, such as electing new directors that
can arise between annual meetings. Shareowner input on the timing of shareowner
meetings is especially important when events unfold quickly and issues may
become moot by the next annual meeting. This is important because there could be
15-months or more between annual meetings.
This proposal is of more importance to our
company. GMI Analyst said CEO Larry Merlos pay and perks were flagged as being
excessive relative to peers and other named executive officers, resulting in a
20% negative Say-on-Pay vote in 2016. If Merlo was fired without cause, unvested
equity awards would vest immediately. These provisions provide for excessive
levels of potential payments that are not linked to company
performance.
CVS Health Corp.s Audit Committee chair
and director Richard Swift served on 4 additional boards including as Lead
Director and Audit Committee chair at Ingersoll-Rand plc. In addition, CVSs
Audit Committee was not fully independent due to the membership of Richard
Bracken, a director (and retired chairman and CEO) of HCA Holdings, Inc. CVS
Health was also flagged for excessive asset-liability ratios, relative to
peers.
Please vote to enhance shareholder
value:
Special Shareowner Meetings
Proposal 6
STATEMENT OF THE BOARD RECOMMENDING A VOTE
AGAINST THE WILLIAM STEINER PROPOSAL
CVS Health is strongly committed to good
governance practices and is keenly interested in the views and concerns of our
stockholders. To that end, since 2010 the Company has included, in both its
Amended and Restated Certificate of Incorporation (Charter) and Amended and
Restated By-laws (By-laws), provisions that allow stockholders owning 25% of our
outstanding common stock the right to call a special meeting, provided certain
requirements are met. The Board put these Charter and By-law provisions to a
vote at its 2010 annual meeting and the Companys stockholders overwhelmingly
supported the provisions, with a vote in favor of over 97%. The Board continues
to believe that 25% is an appropriate threshold for this right, particularly
when viewed in connection with the many stockholder protections CVS Health has
adopted and our strong corporate governance practices in general. CVS Healths
25% ownership threshold is also a very common threshold among large public
companies that offer stockholders the right to call a special
meeting.
CVS Health has adopted many leading
corporate governance practices, including the annual election of all directors,
majority voting in director elections, the right of stockholders to act by
written consent that is less than unanimous, and a proxy access by-law. Our
current QualityScore ratings from Institutional Shareholder Services (ISS)
include a 1 in Board Structure and a 2 in Shareholder Rights, meaning that CVS
Health is in the top 10% and 20%, respectively, of ranked companies in those
categories. The Companys overall QualityScore is a 2 (top 20%), indicating that
ISS views our Company as among the lowest in terms of governance
risks.
If adopted, this proposal would have the
effect of allowing a relatively small minority of stockholders with narrow
interests to call special meetings to consider matters that may not be in the
best interests of all of our stockholders. We observe that calling a special
meeting of stockholders is not a matter to be taken lightly. We believe that a
special meeting should only be held to cover extraordinary events, when
fiduciary, strategic, significant
72 |
|
2017 Proxy
Statement |
Table of Contents
STOCKHOLDER PROPOSALS:
ITEM 7 |
transactional or similar considerations
dictate that the matter be addressed on an expeditious basis, rather than
waiting until the next annual meeting. Organizing and preparing for a special
meeting involves significant management commitment of time and focus, and
imposes substantial legal, administrative and distribution costs. Recognizing
the substantial administrative and financial burdens that a special meeting
imposes on the Company and its stockholders, the Board believes that CVS
Healths existing 25% ownership threshold strikes the appropriate balance between allowing stockholders to vote on important
matters that arise between annual meetings and protecting against the risk that
a small group of stockholders could call a meeting that serves only a narrow
agenda not favored by the majority of stockholders. We therefore continue to
believe that at least 25% of our stockholders should agree that a matter be
addressed before a special meeting is called.
The Board unanimously recommends a vote the
William Steiner Proposal.
ITEM 7: STOCKHOLDER PROPOSAL REGARDING A
REPORT ON EXECUTIVE PAY |
On or about December 2, 2016, the Company
received the following proposal from Zevin Asset Management, LLC (Zevin), 11
Beacon Street, Suite 1125, Boston, MA 02108, on behalf of its client the Claire
L. Bateman 1991 Trust. Zevin represents that its
client is the beneficial owner of 175 shares of the Companys stock. In
accordance with SEC rules, we are reprinting the proposal and supporting
statement (Bateman Proposal) in this proxy statement as they were submitted to
us:
TOP EXECUTIVES
PAY
WHEREAS: Recent events have increased concerns about the extraordinarily high
levels of executive compensation at many U.S. corporations. Concerns about the
structure of executive compensation packages have also intensified, with some
suggesting compensation systems incentivize excessive risk-taking.
In a Forbes article on Wall Street pay, the
director of the Program on Corporate Governance at Harvard Law School noted that
compensation policies will prove to be quite costly excessively costly to
shareholders. A study by Glass Lewis & Co. declared that compensation
packages for the most highly paid U.S. executives have been so over-the-top
that they have skewed the standards for whats reasonable. That study also
found CEO pay may be high even when performance is mediocre or dismal.
On July
25, 2015, The New York Times featured an extended front-page article entitled: Pay Gap
Widening as Top Workers Reap the Raises. A September 5, 2015 New York Times article
(Low-Income Workers See Biggest Drop in Paychecks) showed the decline in real
wages (2009-2014) for the lowest-paid quintile was -5.7 percent while that of
the highest-paid quintile was less than half of that: -2.6 percent.
A 2015 Harvard Business Review article cited
a recent global study finding that CEO-to-worker pay ratio in most countries is
at least 50 to one, but in the United States its 354 to one.
In a 2015
PayScale report, CVS Health had the largest ratio between CEO and employee pay
among all companies studied: approximately 434 to 1.
Some companies have begun disclosing
CEO-to-worker pay ratios in anticipation of the Pay Ratio Disclosure Rule
approved by the Securities and Exchange Commission in August 2015. Beginning in
2018, that rule will require issuers to report the ratio between median employee
compensation and the CEOs total compensation.
RESOLVED: Shareholders request the Boards Compensation Committee initiate a
review of our companys executive compensation policies and make available, upon
request, a summary report of that review by October 1, 2017 (omitting
confidential information and processed at a reasonable cost). We request that
the report include: 1) A comparison of the total compensation package of senior
executives and our employees median wage (including benefits) in the United
States in July 2007, July 2012 and July 2017; 2) an analysis of changes in the
relative size of the gap and an analysis and rationale justifying this trend; 3)
an evaluation of whether our senior executive compensation packages (including,
but not limited to, options, benefits, perks, loans and retirement agreements)
should be modified to be kept within boundaries, such as that articulated in the
Excessive Pay Shareholder Approval Act; and 4) an explanation of whether sizable
layoffs or the level of pay of our lowest paid workers should result in an
adjustment of senior executive pay to more reasonable and justifiable levels and
how the Company will monitor this comparison annually in the
future.
cvshealthannualmeeting.com |
|
73 |
Table of Contents
STOCKHOLDER PROPOSALS:
ITEM 7 |
STATEMENT OF THE BOARD RECOMMENDING A VOTE
AGAINST THE BATEMAN PROPOSAL
As required by the SEC, we provide a
detailed report on executive compensation in our annual proxy statement. The
compensation discussion and analysis (CD&A) section of this proxy statement
describes our executive compensation practices in detail, elaborating on all
material elements of our executive compensation program and policies with
accompanying tables that quantify our named executive officer pay in accordance
with SEC requirements. The CD&A also examines the compensation
decision-making process of the Management Planning and Development Committee
(for purposes of this statement, the Committee), describes the material
components of our executive compensation packages and discusses the goals and
underpinnings of our compensation program. The report requested by the Bateman
Proposal is duplicative of this required disclosure, which is provided at pages
35 through 56 above. Additionally, in 2018, as will then be required by SEC
rules, we will disclose the ratio of our CEOs pay to that of our median
employee. Given the extensive compensation-related disclosure already provided
to our stockholders, the requested review and report would divert our resources
and attention while providing stockholders with little or no incremental
information.
Putting aside the Bateman Proposals call
for information that is redundant with information that is already provided, or
that will be required to be provided under newly adopted SEC rules, we are
opposed to the Bateman Proposal in principle. The Committee, which is composed
entirely of independent directors, and the full
Board, are best placed to determine what factors should be considered when
making decisions on executive pay and to implement executive compensation
practices that are aligned with the interests of our stockholders. This proxy
statement highlights the Committees mandate under its charter and describes the
rigorous policies and practices we have implemented to provide appropriate
executive compensation. We believe that adoption of the policy requested by the
proponent does not serve to enhance a compensation decision-making process that
is focused on the long-term performance of CVS Health, taking into account best
practices, market competitiveness and our strategic, operational and financial
goals and other appropriate factors in the Committees judgment. Adoption of the
unnecessary and arbitrary Bateman Proposal would not support these objectives
and would not be in the best interests of our stockholders.
The Board also notes that the proponent
submitted this same proposal for a vote in 2016, and the Companys stockholders
overwhelmingly rejected it, by a vote of:
● |
For: 6.8% |
● |
Against: 87.5% |
● |
Abstain: 5.6% |
The Board unanimously recommends a vote the
Bateman Proposal.
74 |
|
2017 Proxy
Statement |
Table of Contents
STOCKHOLDER PROPOSALS:
ITEM 8 |
ITEM 8: STOCKHOLDER PROPOSAL REGARDING A
REPORT ON RENEWABLE ENERGY TARGETS |
On or about November 23, 2016, the Company
received the following proposal from Zevin Asset Management, LLC (Zevin), 11
Beacon Street, Suite 1125, Boston, MA 02108, on behalf of its client the Pamela
L Parker Trust. Zevin represents that its client
is the beneficial owner of 660 shares of the Companys stock. In accordance with
SEC rules, we are reprinting the proposal and supporting statement (Parker
Proposal) in this proxy statement as they were submitted to us:
Whereas: To limit the average global temperature increase to well below 2 degrees
Centigrade, a goal shared by nearly every nation, the Intergovernmental Panel on
Climate Change (IPCC) estimates that the United States needs to reduce annual
greenhouse gas (GHG) emissions approximately 80 percent. This will involve a
significant shift to renewable energy.
Costs of generating electricity from
sources like wind and solar have been declining rapidly and are influencing
companies response to climate change. The EPA currently lists 78 Fortune 500
companies as purchasing renewable energy (or certificates).
CVS Health
Corporation (CVS or the Company) has taken halting steps in this direction.
According to the 2015 Corporate Social Responsibility report, the Companys
renewable energy program includes solar panels at five stores and a sixth store
under construction. CVS states that it is constantly evaluating opportunities
through renewable technologies, renewable energy credits, power purchase
agreements, and tax credits.
In its response to the 2016 CDP Climate Change
questionnaire, CVS indicates that it will set a science-based target for
reducing greenhouse gas emissions in line with IPCC guidance.
Yet CVS still lacks a quantitative target
for renewable energy sourcing and/or production.
Investors are concerned that CVS may be
behind other large corporations which are developing quantitative renewable
energy goals in response to climate change. The RE100, a coalition pushing
companies to switch to 100 percent renewable energy, now includes Apple, General
Motors, Johnson & Johnson, Nestle, Procter & Gamble, Unilever, and
Walmart. Walmart has a goal of sourcing 100 percent of its electricity from
renewable energy and an interim target to produce or procure 7,000 GWh of
renewable energy globally by the end of 2020.
Investors seek clarity on how
renewable energy plays into CVSs overall response to climate change. Failure to
set a renewable energy target may impede the Companys GHG reduction strategy.
By setting quantitative goals on renewable energy, our Company can strengthen
its current climate change strategy, respond ably to energy market changes, move
closer to achieving GHG reductions, and help meet the global need for cleaner
energy.
Resolved: Shareholders request that CVS produce a report assessing the climate
benefits and feasibility of adopting enterprise-wide, quantitative, time-bound
targets for increasing CVSs renewable energy sourcing and/or production. The
report should be produced at reasonable cost, in a reasonable timeframe, and
omitting proprietary and confidential information. This proposal does not
prescribe matters of operational or financial management.
Supporting Statement: Shareholders request that the report consider and analyze
options and scenarios for achieving renewable energy targets, for example by
using on-site distributed energy, off-site generation, power purchases, and
renewable energy credits, or other opportunities management would like to
consider, at its discretion.
STATEMENT OF THE BOARD OF DIRECTORS
RECOMMENDING A VOTE AGAINST THE PARKER PROPOSAL
The Board has considered the Parker
Proposal and believes it is unnecessary in light of CVS Healths ongoing efforts
to reduce greenhouse gas emissions and pursue sustainability initiatives while
optimizing efficiency. The Board is committed to reducing the environmental
impact of the Companys business operations and to promote the conservation of
the natural resources used by the Company.
In addition to completing the
questionnaire from CDP (formerly known as the Carbon Disclosure Project) and
disclosing data around GHG emissions each year, the Company already provides
information on its sustainability efforts with its stockholders though the
Companys annual Corporate Social Responsibility
Report, which is available at https://cvshealth.
com/social-responsibility/corporate-social-responsibility-csr. The Corporate
Social Responsibility Report details our corporate sustainability goals on
energy efficiency, renewables, reducing GHG emissions, reducing waste, and
developing sustainable products and packaging, as well as the steps being taken
to achieve those goals, including the fact that we have been measuring and
reporting our GHG emissions since 2008. As detailed in the report, we set
specific internal and external targets that help reduce GHG emissions while
driving operational efficiency, including targets relating to the reduction of
energy use, water use and waste in its retail drug
cvshealthannualmeeting.com |
|
75 |
Table of Contents
STOCKHOLDER PROPOSALS: ITEM 8 |
stores. We pursue energy efficiency and
cost-savings through detailed, thoughtful and Company-specific measures that are
designed to address the particular impact our operations have on the environment
and the best ways to mitigate those effects. Our Board of Directors believes
that these measures more than adequately address the concerns underlying the
Parker Proposal.
As just a few examples of our
accomplishments that we believe have positively impacted the environmental
footprint and overall sustainability of our business, we ask that you consider
the following:
● |
In 2015, we achieved a 16% reduction
in carbon intensity, exceeding our internal target of reducing carbon
intensity by 15% per square foot of retail space by
2018. |
● |
In 2015, we retrofitted 349 stores
with LED lighting, which yields a 10% increase in efficiency compared to
high-efficiency florescent solutions. |
● |
We began implementing improved
routing software in our fleet in 2015, which saved approximately 34,450
gallons of fuel at only 50% program completion by the end of 2015;
|
● |
We maintained the same level of
electricity usage in 2015 as compared to 2014 despite an increase in
overall square footage of 1.8% and the introduction of open-air
refrigeration units in 450 stores, attributable to store energy efficiency
initiatives. |
● |
We decreased our usage of natural
gas by 12% in 2015 compared to 2014. |
We also have established committees and
task forces to provide guidance on sustainability-related decisions and
initiatives. These include the Energy Technology Assessment Committee, which
works to identify opportunities across our operations to reduce energy and GHG
emissions while also lowering costs. We continue to work towards further
reductions and seek to establish a new GHG emissions reduction target within the
next year.
We are proud of our environmental
leadership and thoughtful, business-appropriate initiatives that our management
works hard to integrate through measures to reduce GHG emissions, increase
energy efficiency, reduce cost and remain competitive, and we believe that these
measures compare favorably with the guidelines and requested practices embodied
in the Parker Proposal.
In light of our existing efforts,
accomplishments and reporting, we believe that a stand-alone report, as
described in the proposal, would be duplicative of the overall sustainability
reporting that we currently provide and would not be an effective use of our
Companys resources nor in the best interests of our Company or its
stockholders.
The Board
unanimously recommends a vote the Parker Proposal.
76 |
|
2017 Proxy
Statement |
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, as well as for the officers serving on the
Companys 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 57, 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 RSUs, shares held in the Deferred Stock Compensation Plan and
shares purchased through our 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 14, 2017 |
IN COMPLIANCE |
Larry J. Merlo |
5x |
79x |
Yes |
David M. Denton |
3x |
30x |
Yes |
Helena B. Foulkes |
3x |
11x |
Yes |
Jonathan C. Roberts |
3x |
19x |
Yes |
Thomas M. Moriarty |
3x |
9x |
Yes |
All non-employee directors must own a
minimum of 10,000 shares of CVS Health common
stock, which is worth approximately $800,000 based on the March 14, 2017 closing
sale price of $79.89, or 11 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 who has served in such capacity for at
least five years has timely attained the minimum ownership level. Mmes.
DeCoudreaux and DeParle and Mr. Bracken, 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.
cvshealthannualmeeting.com |
|
77 |
Table of Contents
OWNERSHIP OF AND TRADING IN OUR STOCK:
SHARE OWNERSHIP OF DIRECTORS
AND CERTAIN EXECUTIVE OFFICERS |
SHARE OWNERSHIP OF DIRECTORS AND CERTAIN
EXECUTIVE OFFICERS |
The following table shows the share
ownership, as of March 14, 2017, of each director, each executive officer
appearing in the Summary Compensation Table found on page 57 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 |
|
5,244 |
|
* |
C. David Brown II |
|
139,731 |
1 |
* |
Alecia A. DeCoudreaux |
|
6,452 |
1 |
* |
David M. Denton |
|
749,170 |
2
3 4 |
* |
Nancy-Ann M. DeParle |
|
9,900 |
1 |
* |
David W. Dorman |
|
89,142 |
1 |
* |
Anne M. Finucane |
|
19,705 |
1
5 |
* |
Helena B. Foulkes |
|
326,223 |
2 3 4 6 |
* |
Larry J. Merlo |
|
2,814,571 |
2
3 4 6 7 |
* |
Jean-Pierre Millon |
|
85,716 |
8 |
* |
Thomas M. Moriarty |
|
269,422 |
2
3 6 |
* |
Jonathan C. Roberts |
|
677,846 |
2
3 4 6 7 |
* |
Richard J. Swift |
|
59,353 |
1 |
* |
William C. Weldon |
|
14,582 |
1 |
* |
Tony L. White |
|
21,709 |
9 |
* |
All directors and executive officers as a
group (22 persons) |
|
6,434,630 |
|
0.61% |
* |
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, 48,479; Ms.
DeCoudreaux, 6,452; Ms. DeParle, 3,305; Mr. Dorman, 16,456; Ms. Finucane,
2,696; Mr. Swift, 53,595; Mr. Weldon, 12,991; and all non-employee
directors as a group, 143,973. |
2 |
Includes the following shares of
common stock not currently owned, but subject to options which were
outstanding on March 14, 2017 and were exercisable within 60 days
thereafter: Mr. Denton, 338,166; Ms. Foulkes, 187,193; Mr. Merlo,
1,349,031; Mr. Moriarty, 181,078; Mr. Roberts, 434,450; and all executive
officers as a group, 3,152,287. |
3 |
Includes the following shares of
common stock granted under the Companys 1997 and 2010 ICPs that remain
subject to certain restrictions regarding employment and transfer as
provided in the ICPs: Mr. Denton, 158,980; Ms. Foulkes, 41,172; Mr. Merlo,
209,398; Mr. Moriarty, 39,326; Mr. Roberts, 72,456; and all executive
officers as a group, 776,673. |
4 |
Includes shares of common stock
held by the Trustee of the ESOP that are allocated to the executive
officers as follows: Mr. Denton, 1,689; Ms. Foulkes 4,071; Mr. Merlo,
6,643; Mr. Roberts, 5,320; and all executive officers as a group,
18,300. |
5 |
Includes 17,009 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 the Companys Deferred Stock
Compensation Plan, and which do not have current voting rights: Ms.
Foulkes, 51,389; Mr. Merlo, 605,988; Mr. Moriarty, 22,522; Mr. Roberts,
135,442; and all executive officers as a group, 867,824. |
7 |
Includes the following
hypothetical shares of common stock held in notional accounts in the
Companys unfunded Deferred Compensation Plan, which do not have current
voting rights: Mr. Merlo, 5,140; Mr. Roberts, 1,419 and all executive
officers as a group, 7,026. |
8 |
Includes 85,716 shares held in a
family trust. |
9 |
Includes 7 shares held by Mr.
Whites wife. |
78 |
|
2017 Proxy
Statement |
Table of Contents
OWNERSHIP OF AND TRADING IN OUR STOCK:
SHARE OWNERSHIP OF PRINCIPAL
STOCKHOLDERS |
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 |
PERCENT OF CLASS OWNED
1 2 |
Common Stock |
BlackRock, Inc. 1 55 East 52nd
Street New
York, NY 10022 |
66,417,057 |
6.2% |
Common Stock |
The Vanguard Group, Inc. 2 100 Vanguard
Blvd. Malvern, PA 19355 |
74,381,078 |
7.0% |
1 |
Information based on a Schedule 13G/A filed January 23,
2017. 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 54,713,960 of these shares and sole dispositive
power with respect to 66,403,376 of these shares. |
2 |
Information based on a Schedule 13G/A filed February 9,
2017. The Vanguard Group, Inc. (Vanguard) directly or through its
subsidiaries, holds CVS Health common stock for the benefit of shared
various investors. Vanguard and/or its subsidiaries have sole voting power
with respect to 1,673,428 of these shares, shared voting power with
respect to 211,117 of these shares, sole dispositive power with respect to
72,512,905 of these shares and shared dispositive power with respect to
1,868,173 of these shares. |
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 2016.
cvshealthannualmeeting.com |
|
79 |
Table of Contents
OTHER INFORMATION
INFORMATION ABOUT THE ANNUAL MEETING AND
VOTING |
The Board of Directors of CVS Health is
soliciting your proxy to vote at our 2017 Annual Meeting of Stockholders (or at
any adjournment of the meeting, referred to as 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 31, 2017 to all stockholders entitled
to vote. CVS Healths 2016 Annual Report, which includes our financial
statements, is being sent with this proxy statement.
DATE, TIME AND PLACE OF THE ANNUAL
MEETING
Date: |
May 10, 2017 |
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. |
SHARES ENTITLED TO VOTE
Stockholders entitled to vote are those
who owned CVS Health common stock at the close of business on the record date,
which is March 14, 2017. As of the record date, there were 1,035,791,170 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 (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
8, 2017.
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, which is your 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.
VOTING
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.
80 |
|
2017 Proxy
Statement |
Table of Contents
OTHER INFORMATION: INFORMATION ABOUT THE ANNUAL MEETING AND
VOTING |
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.
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 14, 2017, 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 Morrow Sodali LLC, 470 West Avenue, Stamford, CT 06902,
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, or stockholders of record who are currently
participating in householding and would prefer to receive separate copies of our
proxy materials, 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.
QUORUM REQUIREMENT
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.
cvshealthannualmeeting.com |
|
81 |
Table of Contents
OTHER INFORMATION: STOCKHOLDER PROPOSALS AND OTHER BUSINESS FOR OUR
ANNUAL MEETING IN 2018 |
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. |
Item 4: Frequency of say-on-pay
votes |
Approval of the frequency of
advisory votes on executive compensation requires the favorable vote of
the majority of votes cast for one of the three options provided, unless
none of the three choices receives a majority, in which case we will
consider the choice that receives the greatest number of votes (every one,
two or three years) the frequency recommended by our stockholders.
Abstentions are counted as shares present or represented and voting and
have the effect of a vote against all of the frequencies. Broker non-votes
are not counted as shares present or represented and voting and have no
effect on the vote. |
All other items |
For Items 2, 3, 5, 6, 7 and 8,
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.
STOCKHOLDER PROPOSALS AND OTHER BUSINESS FOR OUR ANNUAL
MEETING IN 2018 |
If you want to submit a proposal for
possible inclusion in our proxy statement for the 2018 Annual Meeting of
Stockholders, you must ensure your proposal is received by us on or before
December 1, 2017 and is otherwise in compliance with SEC rules.
Under our proxy access by-law, if a
stockholder (or a group of up to 20 stockholders) who has owned at least 3% of
our shares for at least three years and has complied with the other requirements
set forth in the Companys by-laws wants us to include director nominees (up to
the greater of two nominees or 20% of the Board) in our proxy statement for the
2018 Annual Meeting of Stockholders, the nominations must be received by our
Corporate Secretary and must arrive at the Company in a timely manner, between
120 and 150 days prior to the anniversary of the date our proxy statement was
first sent to stockholders in connection with our last annual meeting, which
would be no earlier than November 1 and no later than December 1,
2017.
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 no earlier than January 10 and February 9, 2018. 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 Selecting Our Director Nominees Director
Nominations for a description of the information required for director
nominations.
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 31, 2017
82 |
|
2017 Proxy
Statement |
Table of Contents
EXHIBIT
A
2017 Incentive Compensation Plan
of
CVS Health Corporation
1. Purpose. The purpose of this 2017
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.
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) Constructive Termination Without
Cause shall have the meaning set forth in Section 10(c)(ii) hereof.
(j) Covered Employee means an Eligible
Person who is a Covered Employee as specified in Section 9(e) of the
Plan.
(k) Deferred Stock means a right,
granted to a Participant under Section 6(e) hereof, to receive Stock, cash or a
combination thereof at the end of a specified deferral period.
(l) Dividend Equivalent means a right,
granted to a Participant under Section 6(g), 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.
(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.
cvshealthannualmeeting.com |
|
A-1 |
Table of Contents
(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. In the event the date on which the determination is being made is a
date on which the New York Stock Exchange is closed, then the closing price of a
share of Stock, as quoted on the composite transactions table on the New York
Stock Exchange on the last date prior to such date on which the New York Stock
Exchange was open, shall be used.
(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(h) 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) Plan Limit means the maximum
aggregate number of shares of Stock that may be issued for all purposes under
the Plan as set forth is Section 4(a).
(y) 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).
(z) Recoupment Policy means the
Recoupment Policy of CVS Health Corporation as amended and restated on May 19,
2016, as it may be amended from time to time.
(aa) 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.
(bb) Restricted Stock Unit shall mean a
contractual right granted under Section 6(d) hereof 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.
(cc) 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.
(dd) Stock means the Corporations
Common Stock, and such other securities as may be substituted (or resubstituted)
for Stock pursuant to Section 11(c) hereof.
(ee) Stock Appreciation Rights or SAR
means a right granted to a Participant under Section 6(c) hereof.
(ff) 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.
(gg) Termination Without Cause shall
have the meaning set forth in Section 10(c)(i) hereof.
A-2 |
|
2017 Proxy
Statement |
Table of Contents
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
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 equal to: (i) twenty-one million
(21,000,000); plus (ii) such additional number of shares of Stock reserved for
issuance under the Corporations 2010 Incentive Compensation Plan, as amended on
January 15, 2013 (the Existing Plan) that remain available for grant under the
Existing Plan immediately prior to the Corporations 2017 Annual Meeting of
Stockholders; provided, however, that the total number of shares of Stock with
respect to which ISOs may be granted under the Plan shall not exceed three
million (3,000,000). Any shares of Stock delivered under the Plan shall consist
of authorized and unissued shares or treasury shares. Following approval of the
Plan by the Corporations stockholders, the Existing Plan shall be retired and
no further awards shall be granted from the Existing Plan; provided, however,
that awards previously granted under the Existing Plan shall continue to be
governed by the terms of the Existing Plan and any agreements pertaining to
those awards.
(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 after taking into account the number of
shares 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
cvshealthannualmeeting.com |
|
A-3 |
Table of Contents
Substitute Awards shall not count against
the limits of Section 4(a). Additionally, for purposes of determining the number
of shares of Stock that remain available for issuance under the Plan, the number
of shares of Stock corresponding to Awards under the Plan that are forfeited or
cancelled or otherwise expire for any reason without having been exercised or
settled, or that are settled through the issuance of consideration other than
shares of Stock (including, without limitation, cash), shall be added back to
the Plan Limit and again be available for the grant of Awards. The following
shares of Stock, however, shall not be available again for grant under the Plan:
(i) shares of Stock not issued or
delivered as a result of net settlement of an outstanding Option or SAR;
(ii) shares of Stock delivered or withheld
by the Corporation to pay the exercise price of or the withholding taxes with
respect to an Award; and
(iii) shares of Stock repurchased with
proceeds from the payment of the exercise price of an Option.
The Committee has discretion to 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 one million (1,000,000) 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).
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.
A-4 |
|
2017 Proxy
Statement |
Table of Contents
(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.
The exercise price of a SAR 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 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, provided that dividends shall accrue and
be paid only upon vesting, and may be subject to any mandatory reinvestment or
any other requirement that may 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 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, or shall require vesting of an Award prior to payment of
accrued cash dividends. 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.
cvshealthannualmeeting.com |
|
A-5 |
Table of Contents
(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 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, which shall not be eligible for Dividend
Equivalents, 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. The Committee shall
provide that Dividend Equivalents either shall accrue and be paid or distributed
upon the vesting of an Award 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 or Cash 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).
A-6 |
|
2017 Proxy
Statement |
Table of Contents
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 or SAR 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 or SAR. 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 or for
cash.
(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 or SAR 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.
(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.
cvshealthannualmeeting.com |
|
A-7 |
Table of Contents
(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, Options, SARs,
Restricted Stock, Restricted Stock Units, Deferred Stock, Dividend Equivalents
and Other Stock-Based Awards, as described in Sections 6(b), 6(c), 6(d), 6(e),
6(g) and 6(h) of the Plan, respectively, granted to employees, and Awards
granted to directors as described in Section 8 of the Plan, will vest over a
minimum period of three (3) years, except in the event of a Participants death
or disability, or in the event of a Change in Control and (i) Options, SARs,
Restricted Stock, Restricted Stock Units, Deferred Stock, Dividend Equivalents
and Other Stock-Based Awards as to which either the grant or the vesting is
based on the achievement of one or more performance conditions will vest over a
minimum period of one (1) year except in the event of a Participants death or
disability, or in the event of a Change in Control, and (ii) up to five percent
(5%) of the shares of Stock authorized under the Plan may be granted as Options,
SARs, Restricted Stock, Restricted Stock Units, Deferred Stock, Dividend
Equivalents or Other Stock-Based Awards without any minimum vesting
requirements. For purposes of this Section 7(f), vesting over a three (3)-year
period will include periodic vesting over such period if the rate of such
vesting is proportional throughout such period and in no event shall Awards
subject to a minimum vesting period vest any earlier than one (1) year from the
date of grant.
8. Special Rules for Directors.
(a) Awards; Per-Director Award Limitation. Eligible Directors may receive Awards, including without limitation
Awards in respect of their annual retainer and any additional retainers for
chairing the board or a committee of the board, or serving as lead independent
director.
The maximum number of shares of Stock
subject to Awards granted under the Plan during any one fiscal year to any one
Eligible Director, taken together with any cash fees paid or Stock otherwise
granted by the Company to such Eligible Director during such fiscal year for
service as a non-employee director, will not exceed the following in total value
(calculating the value of any such Awards based on the grant date fair value of
such Awards for financial reporting purposes): (i) five hundred thousand dollars
($500,000) for each Eligible Director, and (ii) an additional five hundred
thousand dollars ($500,000) for the Eligible Director designated as independent
chairman of the board or as lead independent director, in each such case
including the value of any Awards in Stock that are received in lieu of all or a
portion of any annual board chair, committee chair, or lead independent director
cash retainers or similar cash-based payments and excluding, for this purpose,
the value of any dividend equivalent payments paid pursuant to any Awards
granted in a previous year.
(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.
A-8 |
|
2017 Proxy
Statement |
Table of Contents
(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 Fair Market Value of Stock on the dividend payment
date. 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 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 at
least one (1) year and 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).
cvshealthannualmeeting.com |
|
A-9 |
Table of Contents
(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 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.
A-10 |
|
2017 Proxy
Statement |
Table of Contents
(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) Within two (2) years of a Change in Control, any Award
carrying a right to exercise that was not previously exercisable and vested
shall become fully exercisable and vested upon a Termination Without Cause or a
Constructive Termination Without Cause 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) Within two (2) years of a
Change in Control, 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 upon a Termination Without Cause or a
Constructive Termination Without Cause, 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 at actual performance or
prorated as of the date of termination.
(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 in 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;
cvshealthannualmeeting.com |
|
A-11 |
Table of
Contents
(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 Participants 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 Participants 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.
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.
A-12 |
|
2017 Proxy
Statement |
Table of
Contents
(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 to enable the Corporation to satisfy
obligations for the payment of withholding taxes relating to any Award. To the
extent permitted by applicable law, the Committee shall be entitled to deduct
and withhold additional amounts so long as such additional deductions would not
cause an Award classified as equity under applicable accounting principles and
standards to be classified as a liability award under such principles and
standards. The Committees authority shall also 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;
cvshealthannualmeeting.com |
|
A-13 |
Table of
Contents
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, except to the extent the Committee considers such amendment necessary or
advisable to comply with any law, regulation, ruling, judicial decision,
accounting standards, regulatory guidance or other legal requirement. 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. Each Award under the Plan
shall be subject to the terms of the Corporations Recoupment Policy, and to
such other recoupment policies or provisions as may be required under the terms
of any agreement between the Corporation and any regulatory authority or as may
be required under applicable law.
(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. The Committee may not accelerate
the payment or settlement of any Award that constitutes a deferral of
compensation for purposes of Code Section 409A except to the extent such
acceleration would not result in the Participant incurring interest or
additional tax under Code Section 409A. Notwithstanding 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.
A-14 |
|
2017 Proxy
Statement |
Table of
Contents
(m) Plan
Effective Date and Stockholder Approval; Expiration Date. The Plan has been initially adopted by the Board on March 2,
2017, subject to approval by the stockholders of the Corporation, in accordance
with applicable law. The Plan will become effective on the date of such
approval. Unless an extension is approved by the stockholders of the
Corporation, the Plan shall have a term that expires on May 9, 2027, 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.
cvshealthannualmeeting.com |
|
A-15 |
Table of
Contents
2016 CSR
Achievements |
Prescription for a Better
World
|
|
Awards & Recognition |
|
|
|
|
100 Best Corporate Citizens,
2016
(#29) CR Magazine
Americas Greenest Companies (#16) Newsweeks Green Rankings
Sustainability Index
Dow Jones
Change the World List
Fortune Magazine |
|
Most Admired Companies
(#27) Fortune Magazine
FTSE4Good Index FTSE Group
Corporate Equality Index
Human Rights Campaign
Achieved 100% score for third
consecutive year |
|
90/100 Disability Equality Index
score American Association of People
with Disabilities and US Business Leadership Network
25 Noteworthy Companies
DiversityInc
Americas Top 50 Organizations for
Multicultural Business DiversityBusiness.com |
|
|
|
|
|
|
|
|
|
|
|
Health in Action |
|
|
|
|
|
|
|
|
|
|
Project Health
$117M worth of free health
offerings provided since 2006
888,000 patients seen since
2006
101,000 participants reached in
2016 |
|
Tobacco
#BeTheFirst announced,
a 5-year, $50 million commitment to help deliver the nations first
tobacco-free generation
20 grants awarded to
U.S. colleges and universities as part of the Tobacco-Free Generation
Campus Initiative |
|
Prescription
Drug Abuse
170,000+ students
reached with prescription drug abuse education through Pharmacists
Teach
56.7 tons of
prescription drugs collected for disposal nationally at 639 units donated
to law enforcement agencies |
|
|
|
|
|
|
Planet in Balance |
|
|
Leader in Growth |
|
|
|
|
|
|
|
|
|
|
|
100% of the palm oil
we use in our products will come from verified, responsible sources; our
new goal is to accomplish this by 2020 |
|
$2.5M in value of employee
volunteer hours provided to communities |
|
$1B target of spending on diverse Tier I
suppliers, achieved |
|
60,000+ underserved young people introduced to
careers in health care |
Table of
Contents