The Committee believes this historical view validates that our executive compensation programs work as intended and link pay and performance.
The Committee believes this historical view validates that our executive compensation programs work as intended and link pay and performance while demonstrating the Committee’s commitment to maintaining design and administration practices that ensure alignment with stockholder interests. The Committee reviews this analysis annually after current data becomes available. | cvshealthannualmeeting.com | 53 |
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These assessments demonstrateCompensation Discussion and Analysis Detailed Program Discussion
EXECUTIVE COMPENSATION PLANNING AND REVIEW PROCESS The Committee follows the Committee’s commitmentframework below to maintaining practices that ensurereview, discuss and approve all aspects of our executive compensation aligns with results in a manner that benefits our investors.program. Executive Compensation Development and Review |
  | MP&D Committee MeetingOCTOBER |  ●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 CEO’s performance
●Committee members consult with their independent compensation consultant and consider the independent directors’ assessments in reviewing the CEO’s 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 CEO’s assessment of individual executive contribution and performance;as described above, the CEO’s 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 Company’s 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 Committee’s independent compensation consultant.
Throughout the annual compensation cycle, Committee decisions incorporate and reflect our deep commitment to the Company’s five core values:Innovation, Collaboration, Caring, Integrity, andAccountability.
| | | | 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 | | | NOVEMBER | | | | MP&D Committee Meeting | | | ● | Total compensation market data for our executives reviewed | | | ● | Review compensation policies | | | | ● | In 2018, we updated our Stock Ownership Guidelines and our Recoupment Policy | | | JANUARY | | | | MP&D Committee Meeting | | | ● | Review stockholder comments received on our executive compensation program | | | ● | Preliminary financial results reviewed | | | ● | Preliminary incentive award payouts for the completed fiscal year reviewed | | | CEO Performance Review | | | ● | The CEO presents a self-assessment of his performance against his Board-approved strategic, operational and financial goals | | | ● | The Chair of the Board and the Committee Chair meet with the independent directors privately to consider the CEO’s performance | | | ● | Committee members consult with the independent compensation consultant and consider the independent directors’ assessments in reviewing the CEO’s total compensation and determining his annual incentive compensation award and equity compensation grants | | | FEBRUARY-MARCH | | | | MP&D Committee Meeting
Other NEOs Final Pay Decisions | | | ● | For NEOs other than the CEO, final decisions on actual incentive awards for the prior year are made in February after review of the CEO’s assessment of individual executive contribution and performance;as described above, the CEO’s performance is reviewed separately | | | Target Setting | | | ● | The Committee establishes financial targets and approves any base salary changes and individual target incentive award levels for the current performance year |
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Table of Contents REPORT OF THE COMPENSATION COMMITTEE:COMPENSATION DISCUSSION AND ANALYSIS – DETAILED DISCUSSION |
Compensation Discussion and Analysis Detailed Program Discussion Pay Positioning CVS Health positions its aggregate target total direct compensation opportunity (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 Company’s core values. 20162018 Compensation 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 compensation consultant. The 20162018 peer group consisted of the following companies from across general industryindustries that are similar to CVS Health in terms of industry affiliation, labor market, and operatingoperations and character image. The Committee reviews the peer group annually and periodically makes changes. No changes were made to the peer group for 2017.2018. | | | | | | CVS Health 20162018 Compensation Peer Group |
| ● | | CVS Health vs. Peer Group
| AmerisourceBergen Corporation | | | | | | | | ● | AmerisourceBergen Corp.
| |  | | | ● | The Boeing Company | | | | ● | Comcast Corporation | | ● | Comcast Corporation
| | | | ● | Costco Wholesale Corporation | | | | ● | Express Scripts Holding Company | | | | ● | The Home Depot, Inc. | | | | ● | Johnson & Johnson | | | | ● | The Kroger Co. | | | | ● | McKesson Corporation | | ● | McKesson Corporation
| | | | ● | Merck & Co., Inc. | | | | ● | PepsiCo, Inc. | | ● | PepsiCo,Pfizer Inc.
| | | | ● | Pfizer Inc.
| | | | ● | The Procter & Gamble Company | | | | ● | Target Corporation | | ● | Target Corporation
| | | | ● | UnitedHealth Group Incorporated | | | | ● | Walgreens Boots Alliance, Inc. | | | | ● | Walmart Inc. | | ● | Wal-Mart Stores, Inc.
| | | | ● | The Walt Disney Company |
| CVS Health vs. 2018 Peer Group |
 | * | Revenue reported for four most recent quarters as of February 28, 2019 | | ** | | | | | |
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
Fixed versus Variable Compensation; Cash versus Equity
Our pay-for-performance philosophy places a majority of an executive officer’s 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 officer’s 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 andMarket capitalization as of December 31, 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 (%) |  |
2019 Compensation Peer Groups In consideration of the Aetna Transaction, the Committee has determined that two compensation peer groups are appropriate for 2019 considering our diverse business segments and aggregate revenues. The Committee used the compensation peer groups described below as reference points when reviewing and setting compensation levels in 2019. A list of the companies included in the 2019 peer groups can be found on page 62. 46
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Health Care and Retail Group - 20 companies with operations comparable to CVS Health’s, 13 of which are health care organizations and 7 of which are retailers. The median revenue for companies in this group is $100 billion. |
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Performance Metrics Support Corporate Strategy and Long-Term Growth
The Committee recognizes that external factors that are beyond CVS Health’s 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% |
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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 Health’s 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 Committee’s 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 management’s 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:
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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 Company’s 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% |
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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 Company’s 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 CEO’s 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% | | | | | | |
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Equity Awards - Option and RSU Grants
Equity grants are made on a predetermined date consistent with the Committee’s 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 executive’s individual performance during the immediately preceding year, potential future contributions, his or her prior year’s 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 Committee’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.
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| | % 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 35thpercentile) | | 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 Company’s 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 performanceby 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 RoNACompensation Discussion and Analysis 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.Detailed Program Discussion
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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 executiveofficer 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 COMPENSATION ARRANGEMENTS AND 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 cash incentive, to a maximum defined by the IRS; in 2016,IRS. In 2018, that maximum was $18,000$18,500, plus an additional $6,000 for those age 50 and above. After the first full year of employment, CVS Health will match the employee’s deferral dollar-for-dollar up to a maximum equaling 5% of total eligible compensation. CVS Health’s matching cash contributions into the CVS Health Future Fund for the named executive officersNEOs who participated are a component ofincluded in “All Other Compensation” and described in the All Othernotes following the Summary Compensation Table beginning on page 58.64. 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, noneofnone of which represents an above-market return. The individual contributions of each of the named executive officersNEOs during fiscal 20162018 to the DCP and the DSP, including earnings on those contributions, any distributions during 20162018 and their respective total account balances as of the end of 2016,2018, are shown in the Nonqualified Deferred Compensation Table on page 63.71. Perquisites and Other Personal Benefits We provide the following personal benefits to our named executive officers:NEOs: | ● | Financial planning: An allowance of $15,000 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 Committee’s recommendation, the CEO is required to use our aircraft for all travel needs, including personal travel, in order to minimize and more efficiently use histravel time, protect the confidentiality of his travel and our business, and enhance his personal security. Certain other named executive officersNEOs were also permitted to use our corporate aircraft for personal travel on a very limited basis during fiscal 2016.
2018. The cost of such personal use is included in “All Other Compensation” and described in the notes following the Summary Compensation Table. | | ● | Home security: An allowance to the named executive officersNEOs 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.NEOs. The aggregate incremental cost to the Company of providing these personal benefits to each of the named executive officersNEOs during fiscal 20162018 is shown in the Summary Compensation Table beginning on page 57.63. cvshealthannualmeeting.com | | 53
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Table of Contents
REPORT OF THE COMPENSATION COMMITTEE:COMPENSATION DISCUSSION AND ANALYSIS – DETAILED DISCUSSION |
KEY POLICIES RELATED TO COMPENSATIONPartnership Equity Program
Recoupment
Effective with performance cycles beginning in 2009, we have maintained a recoupment policy that appliesIn addition to all annual andthe core long-term incentive awards grantedcompensation plans described above (collectively, the ICPs), since 1997 the Company has maintained the Partnership Equity Program (the PEP). The PEP is designed to executive officers. The policy applies in cases where financial or operational results used to determine an award amount are meaningfully altered basedensure that those executives with significant impact 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 determinationfuture success of the Board, and the policy may apply even where there is no financial restatement.
CVS Health’s Anti-Gross-Up Policy
CVS Health adoptedhave 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 wasdone 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 payablesubstantial “at-risk” personal equity investment in CVS Health common stock and is generally provided to selected newly-hired or newly-promoted senior executives in critical positions who can drive the strategic objectives of the Company. The Committee believes that the PEP strongly links the economic interests of
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Table of Contents Compensation Discussion and Analysis Detailed Program Discussion senior executives with CVS Health stockholders, provides future long-term compensation opportunities that are competitive in the formexternal marketplace and reflect internal responsibility levels, and assures key management stability, retention, motivation and long-term focus on corporate strategy. To invest in the PEP, an executive chooses to purchase a number of “Employee-Purchased RSUs,” which are matched by CVS Health on a one-for-one basis (Company-Matching RSUs) and stock options. The Board andvest on the fifth anniversary of the purchase date. In addition, the executive managementreceives an option to purchase shares of CVS Health take seriously their responsibilities and obligationscommon stock equal 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 onten times the number of plans an individual can maintain, a prohibitionCompany-Matching RSUs. The stock option grant vests ratably on trading outsideeach of the plan,third, fourth and pre-approvalfifth anniversaries of plans (and any modificationthe grant date. The vesting for each of plans) by the General Counsel or Corporate Secretary.stock option grant and the Company-Matching RSU award is contingent upon the executive retaining the Employee-Purchased RSUs until all of the stock options and Company-Matching RSUs are vested and upon the continued employment of the executive through the vesting period.
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Upon his hire in March 2018, Mr. Rice was provided the opportunity to participate in the PEP and credited with an initial pre-tax amount to be invested in the PEP. The investment value provided to Mr. Rice is reflected as a sign-on bonus in the Summary Compensation Table on page 63 and in the Grants of ContentsPlan-Based Awards Table on page 66. REPORT OF THE COMPENSATION COMMITTEE:Agreements with Named Executive Officers
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,Rice, Roberts and Moriarty, and Ms. Foulkes.Boratto. Mr. Denton had a CIC Agreement, but left the Company in November 2018. In addition, CVS Health entered into a Separation Agreement with Mr. Denton on June 25, 2018 in connection with his termination of employment with the Company. Under the Separation Agreement, during the twenty-four month period immediately following his November 2018 separation date (the Severance Period), Mr. Denton will continue to (i) receive his base salary (as in effect immediately prior to the separation date) and (ii) subject to a valid COBRA election, participate in the Company’s medical and other health benefit plans and programs that he participated in immediately prior to the separation date at Company-subsidized rates, subject to the terms and conditions of each such plan or program. During the Severance Period, Mr. Denton is entitled to: (i) a reimbursement of up to $15,000 per year for tax preparation and financial planning services during 2018 and 2019 (reduced by amounts previously reimbursed for 2018), and (ii) a one-time payment of $15,000 of attorneys’ fees in connection with the negotiation of his Separation Agreement. The last paragraph under “Payments/(Forfeitures) Under Termination Scenarios” reflects the provisions of Mr. Denton’s Separation Agreement with respect to his annual bonus, previously-granted CVS Health stock options, RSUs, PSUs and LTIP awards. The Separation Agreement also contains a release of claims against the Company and customary confidentiality and cooperation covenants and incorporates by reference any other covenants to which Mr. Denton already is subject, including his Restrictive Covenant Agreement. In accordance with his Offer Letter dated January 17, 2018, Mr. Rice’s base salary is $1,050,000, and his annual cash incentive target is 150% of his annual base salary. In addition, Mr. Rice’s annual equity grant target opportunity for 2018 was established at $2,000,000 and his 2018-2020 LTIP PSU target opportunity was set at $2,125,000. Further, Mr. Rice received a $700,000 sign-on bonus, paid $200,000 in March 2018, $250,000 within the first 60 days of employment, and $250,000 within 60 days of the first anniversary of his hire date. In addition, Mr. Rice received a sign-on RSU grant valued at $1,500,000 and was credited with an initial pre-tax amount of $500,000 to be invested in the PEP (described above), which is reflected as a bonus in the Summary Compensation Table. Mr. Rice also received standard relocation benefits under the Company’s broad-based relocation program that included tax assistance. If Mr. Rice voluntarily terminates his employment and is not receiving severance, or if his employment is terminated by the Company for Cause (as defined in his Offer Letter), prior to the two-year anniversary of his hire date, Mr. Rice must repay $500,000 of the sign-on bonus promptly upon termination of his employment. 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 theCIC Agreements with NEOs (other than Mr. Merlo) 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 CommitteebelievesCommittee 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 of the Company followed by the executive’s involuntary termination of employment. The 2010 ICP wasand 2017 Incentive Compensation Plans that govern the terms of outstanding equity awards to all NEOs also amended in 2012 to require a “double trigger” equityfor vesting of equity change in control benefits. | cvshealthannualmeeting.com | 57 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion The Committee reviews the Company’s severance benefits annually with the assistance of its independent compensation consultant to evaluate both their effectiveness and competitiveness. The review for fiscal 20162018 found the current level of benefits to be within competitive norms for design. Details of hypothetical payments that would have been made to the executivesNEOs upon a change in control on December 31, 2018 and under various termination scenarios; provisions for the treatment of equity awards, SERPsupplemental executive retirement plan 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/“Payments/(Forfeitures) Under Termination ScenariosScenarios” beginning on page 63.72. COMPLIANCE WITH IRC 162(m)
IRC 162(m) generally disallowsSupplemental Executive Retirement Plan
We maintain an unfunded supplemental executive retirement plan (SERP), which is designed to supplement the retirement benefits of selected executive officers. The SERP is a tax deductionlegacy plan in which participation has decreased over the years as individuals have retired. We have not provided SERP benefits to public companies for compensation over $1 million paid to a company’s chiefnew 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 benefits would be primarily as a result of performance-based bonuses. See the Pension Benefits Table on page 70 for more information.
KEY POLICIES RELATED TO COMPENSATION Recoupment Since 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 three other most highly compensatedBoard, and applies to any executive officers at year end, other thanofficer determined to have been involved in the chief financial officer. However, qualifying performance-based compensationMisconduct. 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 deduction limit if certain requirementsdetermination of the Board, and the policy may apply even where there is no financial restatement. In addition, in March 2019 the Board approved an amendment to the Recoupment Policy to increase transparency of the policy. The amendment requires CVS Health to publicly disclose the circumstances of any recoupment from any “executive officer” under the Recoupment Policy to the extent the underlying event already has been publicly disclosed in CVS Health’s filings with the SEC and the disclosure would not violate applicable law, violate legal privilege, breach contractual obligations or be likely to result in, or exacerbate any existing or threatened, employee, stockholder or other litigation, arbitration, investigation or proceeding against the Company. Anti-Gross-Up Policy CVS Health maintains a broad policy against tax gross-ups. 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 has been and continues to be payable in CVS Health common stock. The Board and executive management of CVS Health take seriously their responsibilities and obligations to exhibit the highest standards of behavior relative to trading our stock. All transactions in our stock 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, the Corporate Secretary, or their designee. 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, | 58 | | 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion 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 of our stock; | | ● | Buying or selling puts, calls, exchange traded options or other derivative securities based on our stock; or | | ● | Engaging in any other hedging transactions with respect to our stock, 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 use a 10b5-1 trading plan to sell our stock, and our other executives are encouraged to use 10b5-1 trading plans. A 10b5-1 trading plan is a contract that allows the individual to sell a pre-determined number of shares at a time in the future when pre-determined 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 after the plan is entered into 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. Stock Ownership Guidelines The Committee oversees the Company’s stock ownership guidelines, which require the Company’s directors and executive officers to maintain ownership of a minimum number of shares, in the case of directors, or stock valued at a multiple of annual salary, in the case of executive officers. In 2018, the Committee increased the multiple of salary for the CEO and BPC members, and expanded the ownership requirement to cover all corporate-level executive vice presidents and senior vice presidents. For additional details, see “Executive Officer and Director Stock Ownership Requirements” on page 80. COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE With exceptions only for compensation paid pursuant to certain binding contracts as described in Section 162(m) of the Internal Revenue Code (IRC 162(m)), the tax deduction for annual compensation of each of our NEOs is limited to $1 million. While the Committee considers the tax deductibility of executive compensation under IRC 162(m), but may authorize certain non-deductible payments in excess of $1 million. Asas a matter of compensation design,factor, 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-basedcompensation 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 Company’s executive compensation program and practices in a manner that the Committee determines is in the best interests of the CompanyCVS Health and its stockholders. This includes the establishment of objective performance criteria at the beginning of a performance cycle, before results are known, and the certification of financial results by an independent Committee of the Board. The Committee retains discretion to operate the Company’s executive compensation programs in a manner designed to promote varying companyCompany goals. As a result, the Committee may from time to time conclude that certain compensation arrangements are in the best interestinterests 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.
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Table of Contents REPORT OF THE COMPENSATION COMMITTEE:COMPENSATION DISCUSSION AND ANALYSIS – DETAILED DISCUSSION |
Compensation Discussion and Analysis Detailed Program Discussion NON-GAAP FINANCIAL MEASURES USED IN COMPENSATION DISCUSSION AND ANALYSIS Throughout this Compensation Discussion and Analysis,CD&A, we refer to various financial measures. The majorityMany 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 adjustsin orderadjusts and uses 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 financial 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 andinclude 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 additionsbusinesses, goodwill and long-lived asset impairment charges, the impact of hurricanes, and adjustments to property and equipment (i.e., additions to property and equipment plus proceeds from sale-leaseback transactions).
legal reserves in connection with certain legal settlements. 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 two year’s Adjusted Average Net Assets. Adjusted NOPAT is Operating Profitoperating profit adjusted for certain permitted financial adjustments after taxitems 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.expenses adjusted for certain financial items described below. For the purposes of measuring performance against established targets in any period, Adjusted NOPAT and Adjusted Average Net Assets exclude from operating profit and average net assets, respectively, after tax amounts related to newly acquired or divested businesses, goodwill and long-lived asset impairment charges, the impact of hurricanes, and adjustments to legal reserves in connection with certain legal settlements. The impact of tax reform is also reversed. Adjusted Average Net Assets are also excludes cashadjusted for funding to our captive insurance entity related to a tax planning strategy associated with the pre-fundingtax reform. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) We define EBITDA as income before interest expense, income tax provision, depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for certain financial items including amounts related to newly acquired or divested businesses, adjustments to legal reserves in connection with certain legal settlements, restructuring and/or impairment charges, the 2017 accelerated share repurchase agreement, as well as the financial impact of the changechanges in accounting principle associated with the classificationprinciples, Federal and/or state regulations, and other items of deferred tax assets.gain, loss or expense determined to be unusual or infrequent in occurrence. 56
60 | | 2017 2019 Proxy Statement
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Table of Contents Compensation Discussion and Analysis Detailed Program Discussion RELATIVE TSR PEER GROUP FOR 2018-2020 LTIP GRANTS | Abbott Laboratories | Danaher Corporation | Merck & Co., Inc. | | AbbVie Inc. | DaVita Inc. | Mettler-Toledo International Inc. | | Agilent Technologies, Inc. | DENTSPLY SIRONA Inc. | Mylan N.V. | | Alexion Pharmaceuticals, Inc. | Edwards Lifesciences Corporation | Patterson Companies, Inc. | | Align Technology, Inc. | Eli Lilly and Company | PerkinElmer, Inc. | | Allergan plc | Envision Healthcare Corporation | Perrigo Company plc | | AmerisourceBergen Corporation | Gilead Sciences, Inc. | Pfizer Inc. | | Amgen Inc. | HCA Healthcare, Inc. | Quest Diagnostics Incorporated | | Anthem, Inc. | Henry Schein, Inc. | Regeneron Pharmaceuticals, Inc. | | Baxter International Inc. | Hologic, Inc. | Stryker Corporation | | Becton, Dickinson and Company | Humana Inc. | The Cooper Companies, Inc. | | Biogen Inc. | IDEXX Laboratories, Inc. | Thermo Fisher Scientific Inc. | | Boston Scientific Corporation | Illumina, Inc. | UnitedHealth Group Incorporated | | Bristol-Myers Squibb Company | Incyte Corporation | Universal Health Services, Inc. | | Cardinal Health, Inc. | Intuitive Surgical, Inc. | Varian Medical Systems, Inc. | | Celgene Corporation | Johnson & Johnson | Vertex Pharmaceuticals Incorporated | | Centene Corporation | Laboratory Corporation of America Holdings | Waters Corporation | | Cerner Corporation | Mallinckrodt plc | Zimmer Biomet Holdings, Inc. | | Cigna Corporation | Medtronic Public Limited Company | |
| Altria Group, Inc. | Kellogg Company | The Estée Lauder Companies Inc. | | Archer-Daniels-Midland Company | Kimberly-Clark Corporation | The Hershey Company | | Brown-Forman Corporation | McCormick & Company, Incorporated | The J. M. Smucker Company | | Campbell Soup Company | Molson Coors Brewing Company | The Kraft Heinz Company | | Church & Dwight Co., Inc. | Mondelēz International, Inc. | The Kroger Co. | | Colgate-Palmolive Company | Monster Beverage Corporation | The Procter & Gamble Company | | Conagra Brands, Inc. | PepsiCo, Inc. | Tyson Foods, Inc. | | Constellation Brands, Inc. | Philip Morris International Inc. | Walmart Inc. | | Costco Wholesale Corporation | Reynolds American Inc. | Walgreens Boots Alliance, Inc. | | Coty Inc. | Sysco Corporation | | | General Mills, Inc. | The Clorox Company | | | Hormel Foods Corporation | The Coca-Cola Company | |
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Table of Contents Compensation Discussion and Analysis Detailed Program Discussion 2019 COMPENSATION PEER GROUP | General Industry Comparator Companies |
| Walmart Inc. | Costco Wholesale Corporation | Phillips 66 | | Exxon Mobil Corporation | Chevron Corporation | Valero Energy Corporation | | Apple Inc. | Verizon Communications Inc. | Comcast Corporation | | McKesson Corporation | The Kroger Co. | International Business Machines Corporation | | UnitedHealth Group Incorporated | General Electric Company | Johnson & Johnson | | AT&T Inc. | Walgreens Boots Alliance, Inc. | Target Corporation | | Ford Motor Company | Microsoft Corporation | Lowe’s Companies, Inc. | | AmerisourceBergen Corporation | The Home Depot, Inc. | United Parcel Service, Inc. | | General Motors Company | The Boeing Company | PepsiCo, Inc. | | Cardinal Health, Inc. | Anthem, Inc. | |
| Health Care and Retail Comparator Companies |
| Walmart Inc. | Walgreens Boots Alliance, Inc. | Centene Corporation | | McKesson Corporation | The Home Depot, Inc. | HCA Healthcare, Inc. | | UnitedHealth Group Incorporated | Anthem, Inc. | Cigna Corporation | | AmerisourceBergen Corporation | Target Corporation | Aflac Incorporated | | Cardinal Health, Inc. | Lowe’s Companies, Inc. | Centene Corporation | | Costco Wholesale Corporation | MetLife, Inc. | | | The Kroger Co. | Humana Inc. | |
| 62 | | 2019 Proxy Statement |
Table of Contents Compensation of Named Executive Officers EXECUTIVE COMPENSATION TABLES
SUMMARY COMPENSATION TABLE Important Information Regarding the Presentation of Executive Compensation |
As discussed in detail on pages 40-41, we changed our approach to the denomination of our LTIP awards, which resulted in an overlap in disclosure of both awards granted and earned during a fiscal year. During the transition period, which will continue through the payment of the 2017-2019 performance cycle, there will be timing issues that occur as awards for multiple years will appear in the SCT. The following table shows the Committee’s compensation determinations for our CEO when removing the double reporting. | CEO Annual Compensation Determinations | | Salary
($) | Annual
Cash
Incentive
Award1
($) | RSU
($) | EBITDA
PSU
Grant
Value
($) | Stock
Option
Grant Value
($) | LTIP Grant
Value2
($) | All Other
Compensation
($) | Total
Compensation1
($) | | 2018 | 1,630,000 | 2,605,000 | 0 | 3,374,955 | 3,374,995 | 6,749,992 | 667,156 | 18,402,098 | | 2017 | 1,630,000 | 2,128,800 | 3,374,960 | 0 | 3,374,998 | 6,750,000 | 754,106 | 18,012,859 | | 2016 | 1,630,000 | 2,382,000 | 3,991,931 | 0 | 3,999,990 | 6,750,000 | 847,456 | 19,601,377 |
| 1 | Excludes payout of LTIP awards granted for the following three-year performance periods: 2014-2016, 2015-2017, and 2016-2018. Such payouts were reported in the “Non-Equity Incentive Plan Compensation” column of the SCT for each of the respective years. | | 2 | Includes the LTIP award granted in each respective year at target performance. For 2016 and 2017, the awards were cash-denominated with settlement in shares following the three-year performance period. For 2018, the award was granted as LTIP PSUs. |
| Summary Compensation Table |
The following Summary Compensation Table shows information about the compensation received by our CEO, CFOour CFOs and each of our three other most highly compensated executive officers for services rendered in all capacities during the 2018 fiscal year and the applicable comparable data for the 2017 and 2016 fiscal year.years. | SUMMARY COMPENSATION TABLESummary Compensation Table |
NAME & PRINCIPAL
2016 POSITIONS1 | YEAR | SALARY
($) | 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
($) | Larry J. Merlo
President and Chief
Executive Officer | 2016 | 1,630,000 | – | 3,999,931 | 3,999,990 | 7,882,000 | – | 847,456 | 18,359,377 | | 2015 | 1,560,000 | – | 6,749,900 | 3,999,993 | 9,692,596 | 6,087,680 | 852,885 | 28,943,054 | | 2014 | 1,350,000 | – | 6,749,996 | 3,999,998 | 11,465,052 | 8,065,273 | 720,414 | 32,350,733 | David M. Denton
Executive Vice
President and Chief
Financial Officer | 2016 | 850,000 | – | 999,983 | 999,987 | 2,380,000 | – | 319,026 | 5,548,996 | | 2015 | 843,750 | – | 1,874,937 | 874,999 | 3,077,597 | – | 289,298 | 6,960,581 | | 2014 | 825,000 | – | 8,928,958 | 749,997 | 3,975,043 | – | 205,582 | 14,684,580 | | | | | | | | | | | Helena B. Foulkes
Executive
Vice President
and President –
CVS Pharmacy | 2016 | 950,000 | – | 999,983 | 999,987 | 2,002,000 | – | 210,213 | 5,162,183 | | 2015 | 925,000 | – | 1,749,937 | 874,999 | 2,283,078 | – | 232,314 | 6,065,328 | | 2014 | 850,000 | – | 1,249,927 | 624,992 | 3,165,044 | – | 174,119 | 6,064,082 | | | | | | | | | | | Jonathan C. Roberts
Executive
Vice President
and President –
CVS Caremark | 2016 | 950,000 | – | 2,249,961 | 2,249,999 | 2,907,000 | – | 274,147 | 8,631,107 | | 2015 | 937,500 | – | 2,124,898 | 999,995 | 3,397,597 | – | 280,559 | 7,740,549 | | 2014 | 900,000 | – | 1,749,988 | 874,991 | 3,915,058 | – | 246,386 | 7,686,423 | | | | | | | | | | Thomas M. Moriarty
Executive
Vice President,
Chief Strategy
Officer and General
Counsel | 2016 | 750,000 | – | 999,983 | 999,987 | 2,026,000 | – | 174,770 | 4,950,740 | | 2015 | 730,000 | – | 1,624,975 | 749,989 | 2,656,298 | – | 163,131 | 5,924,393 | | 2014 | 670,000 | – | 1,374,958 | 749,997 | 2,412,573 | – | 208,194 | 5,415,722 |
| | | | | | | | |
Name & Principal 2018
Positions1 | Year | Salary
($) | Bonus
($)2 | Stock
Awards
($)3 | Option
Awards
($)4 | | Non-Equity
Incentive Plan
Compensation
($)6 | Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)7 | All
Other
Compensation
($)8 | Total
($) | | Larry J. Merlo | 2018 | 1,630,000 | — | 10,124,947 | 3,374,995 | | 6,142,000 | — | 667,156 | 21,939,098 | | President and Chief | 2017 | 1,630,000 | — | 3,374,960 | 3,374,998 | | 3,118,800 | — | 754,106 | 12,252,864 | | Executive Officer | 2016 | 1,630,000 | — | 3,999,931 | 3,999,990 | | 7,882,000 | — | 847,456 | 18,359,377 | | Eva C. Boratto | 2018 | 630,303 | — | 4,799,831 | 299,997 | | 1,164,200 | — | 78,090 | 6,972,421 | | Executive Vice | 2017 | | | | | | | | | | | President and Chief | 2016 | | | | | | | | | | | Financial Officer | | | | | | | | | | | | Jonathan C. Roberts | 2018 | 1,162,500 | — | 9,624,917 | 2,124,994 | | 2,927,000 | — | 227,557 | 16,066,968 | | Executive Vice | 2017 | 1,033,333 | — | 1,999,953 | 1,999,994 | | 1,605,000 | — | 244,484 | 6,882,764 | | President and Chief | 2016 | 950,000 | — | 2,249,961 | 2,249,999 | | 2,907,000 | — | 274,147 | 8,631,107 | | Operating Officer | | | | | | | | | | | | Derica W. Rice | 2018 | 791,477 | 950,000 | 8,124,848 | 1,705,312 | 5 | 949,000 | — | 285,436 | 12,806,073 | | Executive Vice | 2017 | | | | | | | | | | | President and | 2016 | | | | | | | | | | | President – | | | | | | | | | | | | CVS Caremark | | | | | | | | | | |
| cvshealthannualmeeting.com | 63 |
Table of Contents Compensation of Named Executive Officers Summary Compensation Table Name & Principal 2018
Positions1 | | Year | | Salary
($) | | Bonus
($)2 | | Stock
Awards
($)3 | | Option
Awards
($)4 | | Non-Equity
Incentive Plan
Compensation
($)6 | | Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)7 | | All
Other
Compensation
($)8 | | Total
($) | | Thomas M. Moriarty | | 2018 | | 825,000 | | — | | 6,749,933 | | 1,249,993 | | 2,081,500 | | — | | 77,430 | | 10,983,856 | | Executive | | 2017 | | 750,000 | | — | | 1,249,971 | | 1,249,998 | | 1,160,000 | | — | | 102,585 | | 4,512,554 | Vice President,
Chief Policy and
External Affairs Officer
and General Counsel | | 2016 | | 750,000 | | — | | 999,983 | | 999,987 | | 2,026,000 | | — | | 174,770 | | 4,950,740 | | David M. Denton | | 2018 | | 781,818 | | — | | 2,999,935 | | 999,993 | | — | | — | | 782,805 | | 5,564,551 | | Former Executive Vice | | 2017 | | 850,000 | | — | | 999,977 | | 999,997 | | 1,193,000 | | — | | 334,979 | | 4,377,953 | President and Chief
Financial Officer | | 2016 | | 850,000 | | — | | 999,983 | | 999,987 | | 2,380,000 | | — | | 319,026 | | 5,548,996 | | | | | | | | | | | | | | | | | | | |
| 1 | On March 2, 2017, the Company announced that Mr. RobertsMs. Boratto was appointed Executive Vice President and Chief OperatingFinancial Officer andin November 2018; she was not a NEO in prior years. Mr. Moriarty was appointedRice began serving as Executive Vice President Chief Policy and External Affairs OfficerPresident – CVS Caremark in March 2018 and General Counsel. For purposes of 2016 disclosure, this proxy statement reflects each executive’s title as of December 31, 2016.was formally appointed to those positions in June 2018. Mr. Denton left the Company effective November 19, 2018. | | 2 | In connection with joining the Company Mr. Rice received cash sign-on bonus payments of $450,000 in 2018 and an additional $500,000 bonus which he used to purchase RSUs under the PEP. | | 3 | Included in the stock awardthis column is the full grant date fair value of all RSU and PSU awards made to each NEO in the executive in 2016. | 3 | applicable year. Also includes sign-on RSUs and RSUs granted under the Company’s PEP Program to Mr. Rice on May 31, 2018. Mr. Rice’s PEP RSUs will cliff vest on the fifth anniversary of the grant date. The figures shown are the fullgrant date fair value onof each grant is computed in accordance with FASB ASC Topic 718, excluding forfeiture estimates. The grant date fair values for PSUs granted in 2018 are based upon the probable outcome of the performance conditions associated with these PSUs as of the grant date, and specifically, the values of grant.the LTIP PSUs and Additional LTIP PSUs are calculated using a Monte Carlo Model. For afurther discussion of the relevant assumptions and methodologies used to value the 2018 stock and option awards in this column, please see the discussion of stock awards and option awards contained in our 20162018 Annual Report, to Stockholders, Notes to Consolidated Financial Statements at Note 9,11, “Stock Incentive Plans”. | 4 | The amounts reported for years 2014 Additional details regarding the grants of stock awards and 2015 include 50%option awards can be found in the Grants of the valuePlan-Based Awards Table. Each PSU represents one share of the LTIP award grantedour common stock and upon vesting will be paid in that year, representing the portionshares of our common stock, net of applicable withholding taxes, subject to be settled in stock at target value.a two-year holding period. As discussed on page 46,40, in response to stockholder feedback, beginning with the 2016-20182018-2020 performance cycle LTIP awards will be denominated in cash and settled 100% in stock (rather than cash and stock).PSUs. As a result, and consistent with SEC reporting rules, the LTIP awardawards will be reported in the Summary Compensation Table for the year it vests, notin the year of grant. If these changes had not been madeThe grant date fair value of the LTIP PSUs and Additional LTIP PSUs granted to the LTIP design,NEOs in 2018, assuming 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;highest level of performance conditions associated with these PSUs occurs and Mr. Moriarty $937,500.prior to the application of the rTSR modifier, which can range from -25% to +25%, is as follows: |
| Name | | Award Type | | Date of Grant | | Grant Date Fair Value Assuming
Highest Level of Performance
Conditions Achieved
($) | | Larry J. Merlo | | EBITDA PSUs | | April 1, 2018 | | 6,749,909 | | | LTIP PSUS | | April 1, 2018 | | 13,499,985 | | Eva C. Boratto | | EBITDA PSUs | | April 1, 2018 | | 599,953 | | | LTIP PSUs | | April 1, 2018 | | 999,957 | | | LTIP PSUs | | November 28, 2018 | | 2,999,965 | | | Additional LTIP PSUs | | August 31, 2018 | | 2,499,898 | | | Additional LTIP PSUs | | November 28, 2018 | | 2,499,888 | | Jonathan C. Roberts | | EBITDA PSUs | | April 1, 2018 | | 4,249,938 | | | LTIP PSUs | | April 1, 2018 | | 7,499,904 | | | Additional LTIP PSUs | | August 31, 2018 | | 7,499,991 | | Derica W. Rice | | EBITDA PSUs | | April 1, 2018 | | 1,999,927 | | | LTIP PSUs | | April 1, 2018 | | 4,249,987 | | | Additional LTIP PSUs | | August 31, 2018 | | 5,999,874 | | Thomas M. Moriarty | | EBITDA PSUs | | April 1, 2018 | | 2,499,971 | | | LTIP PSUs | | April 1, 2018 | | 3,999,941 | | | Additional LTIP PSUs | | August 31, 2018 | | 6,999,952 | | David M. Denton | | EBITDA PSUs | | April 1, 2018 | | 1,999,927 | | | LTIP PSUs | | April 1, 2018 | | 3,999,941 |
| 4 | Grant date fair value of the options granted to the NEOs on April 1, 2018, except as described in note 5. These options have an exercise price of $62.21 (the closing price of our common stock on April 1, 2018) and will 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. The option values are calculated using a modified Black-Scholes Model for pricing options. Refer to our 2018 Annual Report, Notes to Consolidated Financial Statements at Note 11, “Stock Incentive Plans,” for all relevant valuation assumptions used to determine the grant date fair value of these options. |
| 64 | | 2019 Proxy Statement |
Table of Contents Compensation of Named Executive Officers Summary Compensation Table | 5 | Also includes the grant date fair value of the options granted to Mr. Rice on May 31, 2018 under the PEP. These PEP options have an exercise price of $63.39 (the closing price of our common stock on May 31, 2018) and will vest in three equal installments on the third, fourth and fifth anniversaries of the date of grant and expire in ten years from the date of grant. The option values are calculated using a modified Black-Scholes Model for pricing options. The assumptions used to determine the grant date fair value of these options were: |
| Dividend Yield | | 3.16% | | Volatility | | 19.92% | | Risk Free Interest Rate | | 2.58% | | Expected Life | | 4.75 | | Fair Value | | $8.9428 |
| 6 | The figures shown include amounts earned in 20162018 as annual cash incentive awards (see page 49) and the cash portion of the 2014 – 2016 LTIP cycle (see page 52)48). Beginning withFor the 2016-2018 performance cycle, LTIP awards will bewere settled in stock and are reported forin the final year of the cycle. Awards will beThis cycle is reported in thisthe Non-Equity Incentive Plan column because they are denominated in cash and then paid in common stock that is subject to a two-year holding requirement. Beginning with the 2018-2020 performance cycle, LTIP awards will be granted in PSUs and reported in the “Stock Awards” column in the year of grant. | 67 | 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. Merlo’s pension benefit decreased by $669,139$1,273,824 in 20162018 from the prior year’s valuation; however under SEC rules the negative change in the pension value is disclosed as $0. The Company adopted a policy in 2010 stating that it will not offer SERP benefits to new participants. Mr. Merlo is the only active executive participantofficer participating in the SERP. For additional information on the SERP, see “Pension Benefits” beginning on page 61.69. | 78 | Set forth below is additional information regarding the amounts disclosed in the All“All Other CompensationCompensation” column for 2016.2018. |
cvshealthannualmeeting.com | | 57
|
Table of ContentsAll Other Compensation – 2018
EXECUTIVE COMPENSATION TABLES:SUMMARY COMPENSATION TABLE |
ALL OTHER COMPENSATION – 2016 |
| | COMPANY | | | | CONTRIBUTIONS | | | PERQUISITES & | TO DEFINED | | | OTHER PERSONAL | CONTRIBUTION | | | BENEFITSA | PLANSB | OTHERC | | NAME & PRINCIPAL 2016 POSITIONS | ($) | ($) | ($) | | 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 | | | |
| Name & Principal 2018 Positions | | Perquisites &
Other Personal
Benefits A
($) | | Company
Contributions
to Defined
Contribution
Plans B
($) | | Termination
Payments C
($) | | Other D
($) | Larry J. Merlo
President and Chief Executive Officer | | 112,470 | | 187,940 | | — | | 366,746 | Eva C. Boratto
Executive Vice President and Chief Financial Officer | | 15,844 | | 46,215 | | — | | 16,031 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | 26,837 | | 118,125 | | — | | 82,595 | Derica W. Rice
Executive Vice President and President – CVS Caremark | | 285,436 | | — | | — | | — | Thomas M. Moriarty
Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | 22,471 | | 13,750 | | — | | 41,209 | David M. Denton
Former Executive Vice President and Chief Financial Officer | | 21,562 | | — | | 506,442 | | 254,801 |
| A | The amounts abovein this column reflect the following: for Mr. Merlo, $13,840$13,500 for financial planning services, $564 forcosts associated with home security, $47,084and $96,017 associated with personal use of companyCompany aircraft; for Ms. Boratto, $15,000 for financial planning services, and costs associated with personal use of Company aircraft; for Mr. Roberts, $15,000 for financial planning services, $3,104 associated with personal use of Company aircraft, and $5,249$8,278 associated with the CVS Health Charity Classic;Classic, and costs associated with home security; for Mr. Rice, $153,513 associated with relocation benefits under the Company’s broad-based relocation program, $116,091 in tax assistance provided in connection with the relocation benefits, $15,000 for financial planning services, and costs associated with personal use of Company aircraft; for Mr. Moriarty $15,000 for financial planning services, $2,150 associated with personal use of Company aircraft, $5,000 associated with the CVS Health Charity Classic, and costs associated with home security; and for Mr. Denton, $15,000 for financial planning services, $180 for home security, and $2,197$6,472 associated with personal use of company aircraft; for Ms. Foulkes, $15,000 for financial planning services, $1,092 for home securityCompany aircraft, and $5,249costs 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.security. 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,The amounts in this amount includescolumn include Company matching contributions to the CVS Health Future Fund of $13,250$13,750 for each of Messrs. Merlo, Denton, Roberts and Moriarty and Ms. Foulkes. ItBoratto. These amounts also includesinclude Company matching contributions credited to notional accounts in the unfunded Deferred Compensation Plan equal to: $174,190 for Mr. Merlo $254,500;Merlo; $32,465 for Ms. Boratto; and $104,375 for Mr. Denton, $10,750; for Ms. Foulkes, $105,000; for Mr. Roberts, $122,750; and for Mr. Moriarty, $89,250.Roberts. | | C | This amount includesThe amounts in this column reflect the following for Mr. Denton: salary continuation of $105,682 received in the 2018 calendar year, $385,760 representing the realized value of accelerated PSUs and $15,000 in attorneys’ fees all paid pursuant to his Separation Agreement. For a description of the Separation Agreement, see the last paragraph under “Payments/(Forfeitures) Under Termination Scenarios”. | | D | The amounts in this column include cash dividend equivalents paid by the Company on unvested RSUs as follows: for Mr. Merlo, $369,023;$197,398; for Ms. Boratto, $16,031; for Mr. Roberts, $70,943; for Mr. Moriarty, $41,209; and for Mr. Denton, $277,649; for Ms. Foulkes, $70,622; for Mr. Roberts, $102,430; and for Mr. Moriarty, $53,971.$254,801. Also includes cash dividend equivalentsdividends paid by the Company on deferred RSUs, as noted in the NonqualifiedNon-Qualified Deferred Compensation Table, equal to: for Mr. Merlo, $143,946;$169,348 and for Mr. Roberts, $9,904.$11,652. |
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cvshealthannualmeeting.com | | 2017 Proxy Statement
65 |
Table of Contents Executive Compensation Tables Grants of Plan-Based Awards | EXECUTIVE COMPENSATION TABLES: Grants of Plan-Based Awards |
This table reflects awards granted under the CVS Health Corporation 2017 Incentive Compensation Plan (the 2017 ICP) in the respective amounts listed. The Management Planning and Development Committee approved the grants for 2018, which include stock options, PSU and, for Mr. Rice, stock options and RSUs granted in connection with his participation in the PEP. | GRANTS OF PLAN-BASED AWARDSGrants of Plan-Based Awards – 2018 |
GRANTS OF PLAN-BASED AWARDS |
This tablereflectsawardsgranted under our annual cashincentive plan for 2016, the 2016 – 2018 LTIP cycle, and the annual equityawards for 2016, whichinclude stockoptions and RSUs.
GRANTS OF PLAN-BASED AWARDS – 2016 |
NAME & PRINCIPAL
2016 POSITIONS | AWARD TYPE | DATE OF
COMMITTEE
ACTION | GRANT
DATE | |
EST. FUTURE PAYOUTS
UNDER NON-EQUITY
INCENTIVE PLAN AWARDS1 | | |
EST. FUTURE PAYOUTS
UNDER EQUITY
INCENTIVE PLAN AWARDS | | ALL OTHER
STOCK
AWARDS:
NUMBER OF
SHARES OF
STOCK OR
UNITS
(#) | ALL OTHER
OPTION
AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS
(#) | EXERCISE
OR BASE
PRICE OF
OPTION
AWARDS
($ / 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 | | | – | – | – | | | | | – |
Name &
Principal
2018 Positions | | Award Type | | |
Date of
Committee
Action | |
Grant
Date | |
Est. Future Payouts
Under Non-Equity
Incentive Plan Awards | | 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
($) | | | | | | | Threshold
($)1 | | Target
($) | | Maximum
($) | | Threshold
(#)1 | | Target
(#) | | Maximum
(#) | | | | | Larry J. Merlo
President and Chief Executive Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 394,091 | | 62.21 | | 3,374,995 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 27,126 | | 54,251 | | 108,502 | | | | | | | | 3,374,955 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 48,051 | | 120,128 | | 240,256 | | | | | | | | 6,749,992 | | Annual Cash | | | | | | | 1,630,000 | | 3,260,000 | | 6,520,000 | | — | | — | | — | | | | | | | | — | Eva C. Boratto
Executive Vice President and Chief Financial Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 35,030 | | 62.21 | | 299,997 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 2,411 | | 4,822 | | 9,644 | | | | | | | | 299,977 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 3,559 | | 8,898 | | 17,796 | | | | | | | | 499,979 | | LTIP (18-20) | 3,4 | | 8/16/2018 | | 8/31/2018 | | | | | | | | 6,729 | | 16,823 | | 33,646 | | | | | | | | 1,249,949 | | LTIP (18-20) | 3,5 | | 11/6/2018 | | 11/28/2018 | | | | | | | | 7,261 | | 18,153 | | 36,306 | | | | | | | | 1,499,982 | | LTIP (18-20) | 3,4,5 | | 11/6/2018 | | 11/28/2018 | | | | | | | | 6,051 | | 15,127 | | 30,254 | | | | | | | | 1,249,944 | | Annual Cash | | | | | | | 472,727 | | 945,455 | | 1,890,909 | | — | | — | | — | | | | | | | | — | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 248,131 | | 62.21 | | 2,124,994 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 17,079 | | 34,158 | | 68,316 | | | | | | | | 2,124,970 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 26,695 | | 66,737 | | 133,474 | | | | | | | | 3,749,952 | | LTIP (18-20) | 3,4 | | 8/16/2018 | | 8/31/2018 | | | | | | | | 20,188 | | 50,471 | | 100,942 | | | | | | | | 3,749,995 | | Annual Cash | | | | | | | 1,017,188 | | 2,034,375 | | 4,068,750 | | — | | — | | — | | | | | | | | — | Derica W. Rice
Executive Vice President and President – CVS Caremark | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 116,767 | | 62.21 | | 999,993 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 8,037 | | 16,074 | | 32,148 | | | | | | | | 999,963 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 15,127 | | 37,818 | | 75,636 | | | | | | | | 2,124,993 | | PEP Stock
Options | 6 | | 11/8/2017 | | 5/31/2018 | | | | | | | | | | | | | | | | 78,870 | | 63.39 | | 705,319 | | RSUs | 6 | | 11/8/2017 | | 5/31/2018 | | | | | | | | | | | | | | 23,663 | | | | | | 1,499,998 | | PEP RSUs | 6 | | 11/8/2017 | | 5/31/2018 | | | | | | | | | | | | | | 7,887 | | | | | | 499,957 | | LTIP (18-20) | 3,4 | | 11/6/2017 | | 8/31/2018 | | | | | | | | 16,150 | | 40,376 | | 80,752 | | | | | | | | 2,999,937 | | Annual Cash | | | | | | | 593,608 | | 1,187,216 | | 2,374,432 | | — | | — | | — | | | | | | | | — | Thomas M.Moriarty
Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 145,959 | | 62.21 | | 1,249,993 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 10,047 | | 20,093 | | 40,186 | | | | | | | | 1,249,986 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 14,237 | | 35,593 | | 71,186 | | | | | | | | 1,999,971 | | LTIP (18-20) | 3,4 | | 8/16/2018 | | 8/31/2018 | | | | | | | | 18,842 | | 47,106 | | 94,212 | | | | | | | | 3,499,976 | | Annual Cash | | | | | | | 618,750 | | 1,237,500 | | 2,475,000 | | — | | — | | — | | | | | | | | — | David M. Denton
Former Executive Vice President and Chief Financial Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 116,767 | | 62.21 | | 999,993 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 8,037 | | 16,074 | | 32,148 | | | | | | | | 999,964 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 14,237 | | 35,593 | | 71,186 | | | | | | | | 1,999,971 | | Annual Cash | | | | | | | 586,364 | | 1,172,727 | | 2,345,455 | | — | | — | | — | | | | | | | | — |
| 1 | Represents the value,denominated in cash, at grant.Beginning with the 2016-2018 LTIP cycle,awards will be settled 100% in CVS Healthcommon stockadjusted forperformance. At the end of the three year cycle, finalawards will bedisclosed in theSummaryCompensation Table under thecolumn “Non-EquityIncentive PlanCompensation”. Prior to the 2016-2018 LTIP cycle,awards were settled in equalportions of stock and cash andreported in the OptionExercises and Stock Vested Table and theSummaryCompensationTable,respectively. | 2 | Represents thethresholdthreshold achievement in order to receive a payout under therespectivethe respective plan;performance belowthresholdbelow the threshold results in nopayout.no payout. | | 2 | Beginning with the 2018-2020 LTIP cycle, awards will be denominated 100% in PSUs. These awards are included in the SCT in the “Stock Awards” column. For the 2016-2018 and 2017-2019 LTIP cycles, awards were denominated in cash and have been or will be settled 100% in CVS Health common stock adjusted for performance. At the end of the three-year cycle, final awards are or will be disclosed in the SCT in the “Non-Equity Incentive Plan Compensation” column. |
| 66 | | 2019 Proxy Statement |
ThestockTable of Contents
Executive Compensation Tables Outstanding Equity Awards at Fiscal Year-End | 3 | The award earned, based on the performance of the Company against the applicable performance metrics, will be modified by up to +/- 25% based on CVS Health’s performance as measured by relative TSR. All “Est. Future Payouts Under Equity Incentive Plan Awards” assume a relative TSR modifier of 0%. | | 4 | Aetna Transaction-related Additional LTIP PSU award for the respective NEOs. | | 5 | Awards granted in connection with Ms. Boratto’s promotion to Executive Vice President and Chief Financial Officer. | | 6 | Represents sign-on options and RSU awards granted under the PEP and the 2017 ICP. Mr. Rice’s PEP options will vest one-third on each of the third, fourth and fifth anniversaries of the grant date. Mr. Rice’s PEP RSUs will cliff vest on the fifth anniversary of the grant date. |
The stock optionawardsshownabove vest in equalinstallmentsequal installments on the first,second, third andfourthand fourth anniversaries of the grant date of grant andexpireand expire seven years from the grant date, ofgrant. Asdescribedexcept for Mr. Rice’s PEP options, which vest one-third on each of the third, fourth and fifth anniversaries of the grant date and expire ten years from the grant date. As described above, ourpolicythe Company’s policy is toestablish theexerciseto establish the exercise price forstockfor stock options as theclosing salethe closing price of ourcommonthe Company’s common stock on the grant date.Annual RSUgrantsdate. Annual RSU grants typically vest inincrementsin increments of 50% on the thirdanniversarythird anniversary of the grant date of grant and 50% on the fifthanniversaryfifth anniversary of the date ofgrant.grant date. Mr. Rice’s PEP RSUs will cliff vest on the fifth anniversary of the grant date. cvshealthannualmeeting.com | | 59
|
Table of Contents Outstanding Equity Awards at Fiscal Year-End
EXECUTIVE COMPENSATION TABLES:OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
This table reflects stock option, PSU and RSU awards granted to our named executive officersNamed Executive Officers under our 1997 and 2010 ICPs that were outstanding as of December 31, 2016.2018. | OUTSTANDING EQUITY AWARDS AT 2016 YEAR-ENDOutstanding Equity Awards at 2018 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 | 41,6025 | 3,282,814 | | | | | 4/1/2011 | 241,150 | –3 | 34.96 | 4/1/2018 | | | 4/1/2013 | 36,6785 | 2,894,261 | | | | | 4/2/2012 | 332,736 | –3 | 45.07 | 4/2/2019 | | | 4/1/2014 | 53,8435 | 4,248,751 | | | | | 4/1/2013 | 236,034 | 78,6793 | 54.53 | 4/1/2020 | | | 4/1/2015 | 39,1155 | 3,086,565 | | | | | 4/1/2014 | 167,848 | 167,8493 | 74.29 | 4/1/2021 | | | 4/1/2016 | 38,1605 | 3,011,206 | | | | | 4/1/2015 | 68,482 | 205,4473 | 102.26 | 4/1/2022 | | | 2/18/2015 | | | 26,4169 | 2,084,487 | | | 4/1/2016 | – | 286,7873 | 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 | 4,3137 | 340,339 | | | | | 4/1/2010 | 95,618 | –2 | 36.23 | 4/1/2017 | | | 4/2/2012 | 13,8685 | 1,094,324 | | | | | 4/1/2011 | 107,178 | –3 | 34.96 | 4/1/2018 | | | 4/1/2013 | 12,6085 | 994,897 | | | | | 4/2/2012 | 110,912 | –3 | 45.07 | 4/2/2019 | | | 4/1/2014 | 10,0955 | 796,596 | | | | | 4/1/2013 | 81,137 | 27,0463 | 54.53 | 4/1/2020 | | | 4/1/2014 | 100,0008 | 7,891,000 | | | | | 4/1/2014 | 31,471 | 31,4723 | 74.29 | 4/1/2021 | | | 4/1/2015 | 8,5565 | 675,154 | | | | | 4/1/2015 | 14,980 | 44,9423 | 102.26 | 4/1/2022 | | | 4/1/2016 | 9,5405 | 752,801 | | | | | 4/1/2016 | – | 71,6963 | 104.82 | 4/1/2023 | | | 2/18/2015 | | | 9,6069 | 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 | 2,6707 | 210,690 | | | | | 4/1/2011 | 28,607 | –4 | 34.96 | 4/1/2021 | | | 4/1/2010 | 2,4167 | 190,647 | | | | | 4/2/2012 | 19,965 | –3 | 45.07 | 4/2/2019 | | | 4/2/2012 | 4,9935 | 393,998 | | | | | 4/1/2013 | 29,505 | 9,8353 | 54.53 | 4/1/2020 | | | 4/1/2013 | 4,5855 | 361,802 | | | | | 4/1/2014 | 26,226 | 26,2263 | 74.29 | 4/1/2021 | | | 4/1/2014 | 8,4125 | 663,791 | | | | | 4/1/2015 | 14,980 | 44,9423 | 102.26 | 4/1/2022 | | | 4/1/2015 | 8,5565 | 675,154 | | | | | 4/1/2016 | – | 71,6963 | 104.82 | 4/1/2023 | | | 4/1/2016 | 9,5405 | 752,801 | | | | | | | | | | | | 2/18/2015 | | | 8,4059 | 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 | 9,7085 | 766,058 | | | | | 4/1/2011 | 85,743 | –3 | 34.96 | 4/1/2018 | | | 9/4/2012 | 11,6256 | 917,313 | | | | | 4/2/2012 | 77,639 | –3 | 45.07 | 4/2/2019 | | | 4/1/2013 | 8,0245 | 633,174 | | | | | 9/4/2012 | 72,580 | 36,2904 | 45.93 | 9/4/2022 | | | 4/1/2014 | 11,7785 | 929,402 | | | | | 4/1/2013 | 51,633 | 17,2113 | 54.53 | 4/1/2020 | | | 4/1/2015 | 9,7785 | 771,582 | | | | | 4/1/2014 | 36,716 | 36,7173 | 74.29 | 4/1/2021 | | | 4/1/2016 | 21,4655 | 1,693,803 | | | | | 4/1/2015 | 17,120 | 51,3623 | 102.26 | 4/1/2022 | | | 2/18/2015 | | | 10,8069 | 852,701 | | | 4/1/2016 | – | 161,3183 | 104.82 | 4/1/2023 | | | | | | | | | Thomas M.
Moriarty
Executive Vice
President
Chief Strategy
Officer and
General Counsel | | 10/1/2012 | 41,093 | 20,5474 | 48.67 | 10/1/2022 | | | 10/1/2012 | 6,5826 | 519,364 | | | | | 4/1/2013 | 36,880 | 12,2943 | 54.53 | 4/1/2020 | | | 4/1/2013 | 5,7315 | 452,233 | | | | | 4/1/2014 | 31,471 | 31,4723 | 74.29 | 4/1/2021 | | | 4/1/2014 | 10,0955 | 796,596 | | | | | 4/1/2015 | 12,840 | 38,5213 | 102.26 | 4/1/2022 | | | 4/1/2015 | 7,3345 | 578,726 | | | | | 4/1/2016 | – | 71,6963 | 104.82 | 4/1/2023 | | | 4/1/2016 | 9,5405 | 752,801 | | | | | | | | | | | | 2/18/2015 | | | 8,4059 | 663,239 | |
| | Stock Option Awards1 | | Stock Awards | Name & Principal
2018 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
($)2 | | Equity
Incentive
Plan
Awards:
Number
of Shares
or Units of
Stock that
Have Not
Vested
(#) | | | Equity
Incentive
Plan
Awards:
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)2 | Larry J. Merlo
President and Chief Executive Officer | | 4/2/2012 | | 332,736 | | — | 3 | | 45.07 | | 4/2/2019 | | 4/1/2014 | | 26,922 | 4 | | 1,763,929 | | | | | | | 4/1/2013 | | 314,713 | | — | 3 | | 54.53 | | 4/1/2020 | | 4/1/2015 | | 19,558 | 4 | | 1,281,440 | | | | | | | 4/1/2014 | | 335,697 | | — | 3 | | 74.29 | | 4/1/2021 | | 4/1/2016 | | 38,160 | 4 | | 2,500,243 | | | | | | | 4/1/2015 | | 205,446 | | 68,483 | 3 | | 102.26 | | 4/1/2022 | | 4/3/2017 | | 43,241 | 4 | | 2,833,150 | | | | | | | 4/1/2016 | | 143,393 | | 143,394 | 3 | | 104.82 | | 4/1/2023 | | 4/1/2018 | | | | | | | 54,251 | 5 | | 3,554,526 | | 4/3/2017 | | 84,526 | | 253,579 | 3 | | 78.05 | | 4/3/2024 | | 4/1/2018 | | | | | | | 120,128 | 6 | | 7,870,787 | | 4/1/2018 | | — | | 394,091 | 3 | | 62.21 | | 4/1/2025 | | | | | | | | | | | | | Eva C. Boratto
Executive Vice President and Chief Financial Officer | | 4/1/2013 | | 17,703 | | — | 3 | | 54.53 | | 4/1/2020 | | 4/1/2014 | | 1,514 | 4 | | 99,197 | | | | | | | 4/1/2014 | | 18,882 | | — | 3 | | 74.29 | | 4/1/2021 | | 4/1/2015 | | 1,956 | 4 | | 128,157 | | | | | | | 4/1/2015 | | 20,554 | | 6,848 | 3 | | 102.26 | | 4/1/2022 | | 2/29/2016 | | 472 | 7 | | 30,925 | | | | | | | 4/1/2016 | | 10,754 | | 10,755 | 3 | | 104.82 | | 4/1/2023 | | 4/1/2016 | | 2,862 | 4 | | 187,518 | | | | | | | 4/3/2017 | | 8,765 | | 26,297 | 3 | | 78.05 | | 4/3/2024 | | 2/28/2017 | | 924 | 7 | | 60,540 | | | | | | | 4/1/2018 | | — | | 35,030 | 3 | | 62.21 | | 4/1/2025 | | 4/3/2017 | | 4,484 | 4 | | 293,792 | | | | | | | | | | | | | | | | | | 4/1/2018 | | | | | | | 4,822 | 5 | | 315,937 | | | | | | | | | | | | | 4/1/2018 | | | | | | | 8,898 | 6 | | 582,997 | | | | | | | | | | | | | 8/31/2018 | | | | | | | 16,823 | 8 | | 1,102,243 | | | | | | | | | | | | | 11/28/2018 | | | | | | | 18,153 | 6 | | 1,189,385 | | | | | | | | | | | | | 11/28/2018 | | | | | | | 15,127 | 8 | | 991,121 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | 4/2/2012 | | 77,639 | | — | 3 | | 45.07 | | 4/2/2019 | | 4/1/2014 | | 5,889 | 4 | | 385,847 | | | | | | | 9/4/2012 | | 108,870 | | — | 9 | | 45.93 | | 9/4/2022 | | 4/1/2015 | | 4,889 | 4 | | 320,327 | | | | | | | 4/1/2013 | | 68,844 | | — | 3 | | 54.53 | | 4/1/2020 | | 4/1/2016 | | 21,465 | 4 | | 1,406,387 | | | | | | | 4/1/2014 | | 73,433 | | — | 3 | | 74.29 | | 4/1/2021 | | 4/3/2017 | | 25,624 | 4 | | 1,678,884 | | | | | | | 4/1/2015 | | 51,361 | | 17,121 | 3 | | 102.26 | | 4/1/2022 | | 4/1/2018 | | | | | | | 34,158 | 5 | | 2,238,032 | | 4/1/2016 | | 80,658 | | 80,660 | 3 | | 104.82 | | 4/1/2023 | | 4/1/2018 | | | | | | | 66,737 | 6 | | 4,372,608 | | 4/3/2017 | | 50,089 | | 150,269 | 3 | | 78.05 | | 4/3/2024 | | 8/31/2018 | | | | | | | 50,471 | 8 | | 3,306,860 | | 4/1/2018 | | — | | 248,131 | 3 | | 62.21 | | 4/1/2025 | | | | | | | | | | | | |
| cvshealthannualmeeting.com | 67 |
Table of Contents Executive Compensation Tables Outstanding Equity Awards at Fiscal Year-End | Stock Option Awards1 | | Stock Awards | Name & Principal
2018 Positions | Grant
Date | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | Option
Exercise
Price
($) | Option
Expiration
Date | | Grant
Date | Number of
Shares or
Units of
Stock
That Have
Not
Vested
(#) | | Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)2 | 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
($)2 | | Derica W. Rice | 4/1/2018 | — | 116,7673 | 62.21 | 4/1/2025 | | 4/1/2018 | | | | 16,074 | 5 | 1,053,168 | | Executive Vice President and President – CVS Caremark | 5/31/2018 | — | 78,8709 | 63.39 | 5/31/2028 | | 4/1/2018 | | | | 37,818 | 6 | 2,477,835 | | | | | | | 5/31/2018 | 8,001 | 10 | 524,226 | | | | | | | | | | 5/31/2018 | 23,663 | 10 | 1,550,400 | | | | | | | | | | 8/31/2018 | | | | 40,376 | 8 | 2,645,436 | | Thomas M. Moriarty | 4/1/2014 | 62,943 | —3 | 74.29 | 4/1/2021 | | 4/1/2014 | 5,048 | 4 | 330,745 | | | | | Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | 4/1/2015 | 38,520 | 12,8413 | 102.26 | 4/1/2022 | | 4/1/2015 | 3,667 | 4 | 240,262 | | | | | 4/1/2016 | 35,848 | 35,8483 | 104.82 | 4/1/2023 | | 4/1/2016 | 9,540 | 4 | 625,061 | | | | | 4/3/2017 | 31,306 | 93,9183 | 78.05 | 4/3/2024 | | 4/3/2017 | 16,015 | 4 | 1,049,303 | | | | | 4/1/2018 | — | 145,9593 | 62.21 | 4/1/2025 | | 4/1/2018 | | | | 20,093 | 5 | 1,316,493 | | | | | | | 4/1/2018 | | | | 35,593 | 6 | 2,332,053 | | | | | | | 8/31/2018 | | | | 47,106 | 8 | 3,086,385 | | David M. Denton | 4/1/2014 | 32,618 | —3 | 74.29 | 4/1/2021 | | 4/1/2010 | 2,765 | 11 | 181,163 | | | | | Former Executive Vice President and Chief Financial Officer | 4/1/2015 | 23,927 | 10,4553 | 102.26 | 4/1/2022 | | 4/1/2014 | 3,323 | 4 | 217,723 | | | | | 4/1/2016 | 20,538 | 28,4423 | 104.82 | 4/1/2023 | | 4/1/2014 | 75,595 | 12 | 4,952,984 | | | | | 4/3/2017 | 19,827 | 69,4833 | 78.05 | 4/3/2024 | | 4/1/2015 | 3,244 | 4 | 212,547 | | | | | 4/1/2018 | — | 116,7673 | 62.21 | 4/1/2025 | | 4/1/2016 | 6,595 | 4 | 432,104 | | | | | | | | | | 4/3/2017 | 6,722 | 4 | 440,425 | | | | | | | | | | | 4/1/2018 | | | | 10,875 | 13 | 712,530 |
| 1 | The Company had no equity incentive plan awards that were securities underlying unexercised, unearned options at fiscal year end, so that column is intentionally omitted from this table | 12 | The value of the RSUs and PSUs is based on $78.91,a price of $65.52 per share, which was the closing sale price of ourthe Company’s stock on December 30, 2016,31, 2018, the last trading day of ourthe Company’s fiscal year. | 23 | The stock options vest in one-third increments on each of the first, second and third anniversaries of the date of grant. | 3 | TheThese stock options vest in one-quarter increments on each of the first, second, third and fourth anniversaries of the date of grant and expire seven years from the date of grant. | | 4 | RSUs vest in increments of 50% on the third anniversary of the grant date and 50% on the fifth anniversary of the grant date. | 45 | Represents the value of the EBITDA PSUs granted in 2018, assuming target performance is achieved. | | 6 | Represents the value of the 2018-2020 LTIP PSUs, assuming target performance is achieved and a 0% rTSR modifier. | | 7 | Represents the unvested portion of a performance-based RSU grant that vests in one-third increments on the first, second and third anniversaries of the grant date. | | 8 | Represents the value of the Aetna Transaction-related Additional LTIP PSU award for the respective individuals, assuming target performance is achieved and a 0% rTSR modifier. | | 9 | 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. | 510 | RSUsRepresents sign-on RSU and stock option awards. Mr. Rice’s PEP options will vest in increments of 50% on the third, anniversaryfourth and fifth anniversaries of the grant date, and his PEP RSUs will cliff vest on the fifth anniversary of the grant date. | 611 | RSUs vest on the fifth anniversary of the date of grant. | 7 | RSUs vest on the executive’s 55th birthday. | 812 | RSUs vest on the seventh anniversary of the date of grant. | 913 | Represents share portionthe value of the 2018-2020 LTIP 2015-2017 cycle, assumingPSUs at target performance is achieved. For additional information regardingand with a 0% rTSR modifier, pro-rated for the disclosure of LTIP cycles beginningexecutive’s service during the performance period in 2016, see the CD&A section and the Grants of Plan-Based Awards Table.accordance with Mr. Denton’s Separation Agreement. |
60
68 | | 2017 2019 Proxy Statement
|
Table of Contents Executive Compensation Tables Option Exercises and Stock Vested | EXECUTIVE COMPENSATION TABLES:OPTION EXERCISES AND STOCK VESTED Option Exercises and Stock Vested |
OPTION EXERCISES AND STOCK VESTED |
The table below reflects information for the fiscal year ended December 31, 20162018 concerning options exercised and the vesting of previously granted RSUs and non-transferable shares for each of the named executive officers.NEOs. The value of thesharesthe shares acquired upon exercise of options is based on the optionsmarket price of our common stock at exercise and the value of shares represented by the vesting of RSUs is based on the closing sale price of our common stock on the date of exercise and the date of vesting, respectively.vesting. | OPTION EXERCISES AND STOCK VESTEDOption Exercises and Stock Vested – 20162018 |
| | 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
($)2 | | | Larry J. Merlo | | 169,280 | 11,329,316 | | 137,112 | 12,717,579 | | | President and Chief Executive Officer | | | | | | | | | David M. Denton | | – | – | | 45,526 | 4,320,808 | | | Executive Vice President and Chief Financial Officer | | | | | | | | | Helena B. Foulkes | | – | – | | 30,824 | 2,889,009 | | | Executive Vice President and President – CVS Pharmacy | | | | | | | | | Jonathan C. Roberts | | – | – | | 41,182 | 3,790,277 | | | Executive Vice President and President – CVS Caremark | | | | | | | | | Thomas M. Moriarty | | – | – | | 21,243 | 1,850,680 | | | Executive Vice President, Chief Strategy Officer and General Counsel | | | | | | | |
| Option Awards | | Stock Awards | | Name & Principal 2018 Positions | Number of
Shares
Acquired
on Exercise
(#) | Value
Realized
on Exercise
($) | | Number of
Shares
Acquired
on Vesting
(#)1 | | Value
Realized
on Vesting
($)2 | Larry J. Merlo
President and Chief Executive Officer | 0 | 0 | | 117,397 | | 7,035,378 | Eva C. Boratto
Executive Vice President and Chief Financial Officer | 17,737 | 539,864 | | 6,180 | | 381,170 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | 0 | 0 | | 40,096 | | 2,375,311 | Derica W. Rice
Executive Vice President and President – CVS Caremark | 0 | 0 | | 0 | | 0 | Thomas M. Moriarty
Executive Vice President, Chief Policy and External Affairs Officer
and General Counsel | 0 | 0 | | 26,387 | | 1,567,123 | | David M. Denton | 0 | 0 | | 9,594 | 3 | 2,541,7873 | | Former Executive Vice President and Chief Financial Officer | 89,4504 | — | | 38,836 | 5 | — |
| 1 | Includes RSUs that vested during 20162018 and, except with respect to Mr. Denton, the share portionshares of common stock issued in settlement of the 2014-20162016-2018 LTIP cycle issued in early 2017.2019. | | 2 | Includes the RSU value deferred during 2016,2018, which is also shown in the NonqualifiedNon-Qualified Deferred Compensation Table: for Mr. Merlo $3,373,108; for Ms. Foulkes, $1,158,453; andTable, for Mr. Roberts $2,040,321.of $803,318. | | 3 | The 2016-2018 LTIP cycle value was paid to Mr. Denton in cash after his separation from the Company. No shares were acquired, but the cash equivalent payment is included in the Value Realized on Vesting column. | | 4 | Represents stock options that are held in constructive trust for the benefit of Mr. Denton’s ex-spouse pursuant to a divorce decree. | | 5 | Represents RSUs that are held in constructive trust for the benefit of Mr. Denton’s ex-spouse pursuant to a divorce decree. |
PENSION BENEFITS | Pension Benefits |
We maintain an unfunded supplemental executive retirement plan (SERP), which is designed to supplement the retirement benefits of select executives in lieu of a tax 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 SERP’s 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 tax qualified plans, Social Security or other retirement benefits. Final compensation for purposes of the SERP benefit formula is the average of the executive’s 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, 20162018 was 30 years (Mr. Merlo’s 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 benefitpaidbenefit 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 SERP benefits are payable to an eligible executive until he terminates employment. As of the measurement date, Mr. Merlo was eligible for an immediate benefit.SERP benefit upon termination. | cvshealthannualmeeting.com | 69 |
Table of Contents Executive Compensation Tables Nonqualified Deferred Compensation 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, the present value of Mr. Merlo’s accumulated benefit decreased by $669,139$1,273,824 during 2016.2018. The accumulated value in the Pension Benefits Table and the change in value reflected in the Summary Compensation Table is based on the benefit accrued as of the measurement date payable as a lump sum commencing on the earliest unreduced retirement age (55)(age 55, or current age if later) using assumptions which include a 2.50% discount rate as of December 31, 2016.2018. Mr. Merlo is fully vested in his accrued benefit. For further information regarding pension assumptions, please see the Notes to the Consolidated Financial StatementsNote 9, “Pension Plans and Other Postretirement Benefits”, in our 2018 Annual Report to Stockholders for the fiscal year ended December 31, 2016.Report. cvshealthannualmeeting.com | | 61
|
Table of ContentsPension Benefits – 2018
EXECUTIVE COMPENSATION TABLES:PENSION BENEFITS |
| Name & Principal 2018 Positions | Plan
Name | PENSION BENEFITSNumber of
Years of
Credited
Service
(#) | Present
Value of
Accumulated
Benefit
($) | Payments
During
Last
Fiscal Year
($) | | Larry J. Merlo | Supplemental Executive | 301 | 41,718,178 | — | | President and Chief Executive Officer | Retirement Plan for Select Senior | | | | | Management | | | | | Eva C. Boratto | N/A | — | — | — | | Executive Vice President and | | | | | | Chief Executive Officer | | | | | | Jonathan C. Roberts | N/A | — | — | — | | Executive Vice President and | | | | | | Chief Operating Officer | | | | | | Derica W. Rice | N/A | — | — | — | | Executive Vice President and | | | | | President – 2016CVS Caremark | | | | | | Thomas M. Moriarty | N/A | — | — | — | | Executive Vice President, Chief Policy and | | | | | | External Affairs Officer and General Counsel | | | | | | David M. Denton | N/A | — | — | — | | Former Executive Vice President and | | | | | | Chief Financial Officer | | | | |
| 1 | Mr. Merlo has been with the Company for more than 30 years, but his years of service is capped at 30 years under the SERP. |
| NAME & PRINCIPAL 2016 POSITIONS | PLAN
NAME | NUMBER OF
YEARS OF
CREDITED
SERVICE
(#) | PRESENT
VALUE OF
ACCUMULATED
BENEFIT
($) | 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 | Nonqualified Deferred Compensation |
Executive officers and selectedselect 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 LTIlong-term incentive 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 one of the Company’s 401(k) plan.plans. Each year, the amount of a participant’s deferredcompensationdeferred 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 selectedselect 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. During 2018, 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. | 70 | | 2019 Proxy Statement |
Table of Contents Executive Compensation Tables Nonqualified Deferred Compensation The amounts shown in the table below for “Cash” and “Stock” were deferred pursuant to the DCP and the DSP, respectively. 62
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Nonqualified Deferred Compensation – 2018 |
Name & Principal
2018 Positions | Type | Executive
Contributions
in Last FY
($)1 | Registrant
Contributions
in Last FY
($)2 | Aggregate
Earnings
in Last FY
($)3 | | Aggregate
Withdrawals/
Distributions
($)3 | Aggregate
Balance at
Last FYE
($)4 | | Larry J. Merlo | Cash | 237,440 | 174,190 | (422,931 | ) | — | 6,473,298 | | President and | Stock | 989,942 | — | (4,984,520 | ) | 169,348 | 67,181,711 | | Chief Executive Officer | | | | | | | | | Eva C. Boratto | Cash | 46,215 | 32,465 | (35,244 | ) | — | 482,080 | | Executive Vice President and | Stock | — | — | — | | — | — | | Chief Financial Officer | | | | | | | | | Jonathan C. Roberts | Cash | 276,750 | 104,375 | (339,805 | ) | — | 6,955,048 | | Executive Vice President and | Stock | 1,208,275 | — | (729,959 | ) | 11,652 | 11,773,064 | | Chief Operating Officer | | | | | | | | | Derica W. Rice | Cash | — | — | — | | — | — | | Executive Vice President and | Stock | — | — | — | | — | — | | President – CVS Caremark | | | | | | | | | Thomas M. Moriarty | Cash | 315,000 | — | (522,691 | ) | — | 8,109,971 | | Executive Vice President, | Stock | 314,945 | — | (187,703 | ) | — | 2,772,186 | | Chief Policy and External Affairs Officer | | | | | | | | | and General Counsel | | | | | | | | | David M. Denton | Cash | — | — | (2,460 | ) | — | 37,228 | | Former Executive Vice President and | Stock | — | — | — | | — | — | | Chief Financial Officer | | | | | | | |
Table of Contents
EXECUTIVE COMPENSATION TABLES:PAYMENTS/(FORFEITURES) UNDER TERMINATION SCENARIOS |
NONQUALIFIED DEFERRED COMPENSATION – 20161 |
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 contributionsExecutive Contributions in Last FY include amounts shown for 20162018 in the Salary column of the Summary Compensation Table as follows: for Mr. Merlo, $81,500; for Ms. Foulkes, $47,500;Boratto, $31,515; and for Mr. Roberts, $95,000.$116,250. All other amountscash Executive Contributions in Last FY represent non-equity incentive compensationNon-Equity Incentive Plan Compensation deferred during 2016.2018. The stock contributionsExecutive Contributions in Last FY for Messrs. Merlo andMr. Roberts and Ms. Foulkes representincludes deferred settlement under the DSP of RSUs granted in prior years that vested in 2016.2018. The stock contributionExecutive Contributions in Last FY for Mr.Messrs. Merlo, Roberts, includesand Moriarty include the deferred settlement under the DSP of shares of common stock granted under the LTIP for the 2013-20152015-2017 performance cycle that were credited to his accounttheir accounts in 2016.2018. | | 2 | All amounts shown are also disclosed in the Summary Compensation Table underin the “All Other Compensation” column and reflect amounts credited and/or earned in 2016.2018. | | 3 | All earningsAggregate Earnings in Last FY shown on the Stock line are attributable to dividend equivalents credited as additional deferred RSUs and an increase inthe performance of our common stock price. | 4 | stock. All amounts distributed from the DSP include cash dividend equivalent payments. | 54 | 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 | Cash | Stock | | Mr. Merlo | $3,292,173 | $19,486,349 | $4,477,123 | $19,486,349 | | Ms. Boratto | | — | — | | Mr. Roberts | | 4,737,075 | 4,252,515 | | Mr. Rice | | — | — | | Mr. Moriarty | | 5,822,500 | 1,249,957 | | Mr. Denton | 31,675 | – | 42,175 | — | | Ms. Foulkes | 689,301 | – | | | Mr. Roberts | 2,224,678 | – | | | Mr. Moriarty | 3,172,750 | – | |
| cvshealthannualmeeting.com | PAYMENTS/(FORFEITURES) UNDER TERMINATION SCENARIOS71 |
Table of Contents Executive Compensation Tables Payments/(Forfeitures) Under Termination Scenarios | Payments/(Forfeitures) Under Termination Scenarios |
The tables below show the amounts that would be received or forfeited by each named executive officerNamed Executive Officer under various termination scenarios, assuming (1) that the termination occurred on December 31, 20162018 and (2) that amounts that have been paid or are payable in all events, such as the non-equity incentive plan amounts earned with respect to fiscal year 20162018 and disclosed in the Non-Equity“Non-Equity Incentive Plan CompensationCompensation” column of the Summary Compensation Table beginning on page 57,63, the amounts payable under the pension plansSERP discussed beginning on page 61,69, and the amounts in the nonqualified deferred compensation plans discussed beginning on page 62,70, are not included in the tables below, nor is any amount for stock options that are vested and exercisable as of December 31, 2016.2018. With respect to the tables below: | ● | Messrs. DentonRice and Moriarty and Ms. FoulkesBoratto were not eligible for retirement benefits as of December 31, 2016.
2018. | | ● | The amounts paid as base salary upon voluntary termination for Mr. Merlo reflectsreflect the Company’s option to continue to pay 50% of his salary for 18 months in consideration for compliance with a non-competition provision. |
cvshealthannualmeeting.com | | 63
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Table of Contents
EXECUTIVE COMPENSATION TABLES:PAYMENTS/(FORFEITURES) UNDER TERMINATION SCENARIOS |
| ● | The option value of options is determined by multiplying the number of unvested options outstanding as of December 31, 20162018 by the difference between the exercise price and $78.91,$65.52, the closing sale price of our common stock on December 30, 2016,31, 2018, the last trading day of the Company’sour 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 casescase of a voluntary termination, awards granted in 2017 and later include a 90-day post-termination option exercise period; options granted before 2017 expire immediately upon a voluntary termination; and | | ● | In the case 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, 20162018 by $78.91,$65.52, the closing sale price of our common stock on December 30, 2016,31, 2018, 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 PSUs and LTIP cycles assumes that pro-rated payments are made for the outstanding 20152017 – 20172019 LTIP cycle (two-thirds) and 20162018 – 20182020 LTIP cycle (one-third); a share price of $65.52, the closing price of our common stock on December 31, 2018, the last trading day of our fiscal year; all outstanding performance cycles are assumed to be achieved and paid at targettarget; and the value of prorated paymentsall applicable rTSR modifiers are made at target. 0%. |
In the event of his covered termination prior to a CIC, Mr. Merlo would receive a cash severance payment equal to two times the sum of his annual base salary and his then-current annual cash incentive at target. In the event of a covered termination following a CIC, Mr. Merlo would receive a cash severance payment equal to three times the sum of his annual base salary and his then-current annual cash incentive at target, but under his amended employment contractEmployment Agreement such cash severance would be reduced to avoid the excise tax under IRC Section 280G if that would give Mr. Merlo a better after-tax result. EarlyApproved early retirement is defined in Mr. Merlo’s Employment Agreement and in his various stock option, PSU and RSU agreements. See “Agreements with Larry J. Merlo
President and Chief
Executive Officer | | Death
($) | | 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
($) | | Cash Severance Value | | | | | | | | | | | | | | | | Base Salary | | — | | — | | | 1,222,500 | | | 3,260,000 | | 4,890,000 | | — | | Bonus | | — | | — | | | — | | | 6,520,000 | | 9,780,000 | | — | | Immediate Vesting of Equity | | | | | | | | | | | | | | | | Value of Options | | 1,304,441 | | (1,304,441 | ) | | (1,304,441 | ) | | 1,304,441 | | 1,304,441 | | 1,304,441 | | Value of RSUs | | 8,378,763 | | (8,378,763 | ) | | (8,378,763 | ) | | 8,378,763 | | 8,378,763 | | 6,581,221 | | Value of PSUs | | 3,554,526 | | (3,554,526 | ) | | (3,554,526 | ) | | 1,184,842 | | 3,554,526 | | 1,184,842 | | Value of LTIP Cycles | | 11,250,000 | | (13,500,000 | ) | | (13,500,000 | ) | | 6,750,000 | | 13,500,000 | | 6,750,000 | | Benefits and Other | | | | | | | | | | | | | | | | Health Insurance | | | | — | | | — | | | 27,885 | | 41,827 | | — | | SERP | | | | — | | | — | | | — | | — | | — | | Excise Tax Gross-Up | | | | — | | | — | | | — | | — | | — | | Total | | 24,487,730 | | (26,737,730 | ) | | (25,515,230 | ) | | 27,425,931 | | 41,449,557 | | 15,820,504 |
| 72 | | 2019 Proxy Statement |
Table of Contents Executive Officers” on page 55 for additional information.Compensation Tables Payments/(Forfeitures) Under Termination Scenarios LARRY J. MERLO
PRESIDENT AND
CHIEF EXECUTIVE
OFFICER | DEATH
($) | 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,Named Executive Officers other than Mr. Denton, 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 Company’s Severance Plan for Non-Store Employees, the named executive officerNamed Executive Officer is eligible forto receive up to 18 months of base salary as severance, payments,paid in equal monthly installments, 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 bythe 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 officersNamed 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
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Table of Contents
EXECUTIVE COMPENSATION TABLES:PAYMENTS/(FORFEITURES) UNDER TERMINATION SCENARIOS |
Named Executive Officer would receive a cash severance payment equal to one and one-half times the sum of annual base salary and then-current annual cash incentive at target, full value at target achievement level for the 2015-20172017-2019 LTIP and 2016-20182018-2020 LTIP cycles, and immediate vesting of stock options and RSUs. Underthe amendedUnder their CIC AgreementAgreements, such cash severance would be reduced to avoid the excise tax under IRC Section 280G if that would give the named executive officerNamed Executive Officer a better after-tax result. Tables for each of the remaining named executive officersNamed Executive Officers other than Mr. Denton 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
($) | TERMINATION
W/O CAUSE OR
CONSTRUCTIVE
TERMINATION
W/O CAUSE
AFTER CIC
($) | | Eva C. Boratto
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
($) | | Cash Severance Value | | | | | | | | | | | | | | | Base Salary | – | – | 1,275,000 | 1,275,000 | | — | | — | | — | | 1,275,000 | | 1,275,000 | | Bonus | – | – | 1,912,500 | | — | | — | | — | | — | | 1,912,500 | | Immediate Vesting of Equity | | | | | | | | Value of Options | 804,782 | (804,782) | 804,782 | 804,782 | | 115,949 | | (115,949 | ) | | (115,949 | ) | | 57,971 | | 115,949 | | Value of RSUs | 12,545,112 | (12,545,112) | 2,825,057 | 12,545,112 | | 800,130 | | (800,130 | ) | | (800,130 | ) | | 559,475 | | 800,130 | | Value of PSUs | | | 315,937 | | (315,937 | ) | | (315,937 | ) | | 105,312 | | 315,937 | | Value of LTIP Cycles | 2,000,000 | (2,000,000) | 2,000,000 | 4,000,000 | | 4,833,333 | | (5,000,000 | ) | | (5,000,000 | ) | | 1,833,333 | | 5,000,000 | | Benefits and Other | | | | | | | | Health Insurance | – | – | 21,178 | 21,178 | | — | | — | | — | | 21,793 | | 21,793 | | SERP | – | – | – | | — | | — | | — | | — | | — | | Excise Tax Gross-Up | – | – | – | | — | | — | | — | | — | | — | | Total | 15,349,894 | (15,349,894) | 6,926,017 | 20,558,572 | | 6,065,349 | | (6,232,016 | ) | | (6,232,016 | ) | | 3,852,884 | | 9,441,309 | | | | HELENA B. FOULKES
EXECUTIVE VICE PRESIDENT AND
PRESIDENT – CVS PHARMACY | DEATH
($) | 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 | | | Value of RSUs | 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 | 3,750,000 | | | Benefits and Other | | | | | | Health Insurance | – | – | 21,326 | 21,326 | | | SERP | – | – | – | | | Excise Tax Gross-Up | – | – | – | | | Total | 5,443,157 | (5,443,157) | 5,065,872 | 10,943,650 | |
Jonathan C. Roberts
Executive Vice President
and Chief Operating 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
($) | | Approved
Retirement
($) | | Cash Severance Value | | | | | | | | | | | | | | | | Base Salary | | — | | — | | | — | | | 1,800,000 | | 1,800,000 | | — | | Bonus | | — | | — | | | — | | | — | | 3,150,000 | | — | | Immediate Vesting of Equity | | | | | | | | | | | | | | | | Value of Options | | 821,314 | | (821,314 | ) | | (821,314 | ) | | 615,984 | | 821,314 | | 615,984 | | Value of RSUs | | 3,791,446 | | (3,791,446 | ) | | (3,791,446 | ) | | 3,791,446 | | 3,791,446 | | 3,691,986 | | Value of PSUs | | 2,238,032 | | (2,238,032 | ) | | (2,238,032 | ) | | 2,238,032 | | 2,238,032 | | 2,238,032 | | Value of LTIP Cycles | | 10,000,000 | | (11,250,000 | ) | | (11,250,000 | ) | | 5,000,000 | | 11,250,000 | | 11,250,000 | | Benefits and Other | | | | | | | | | | | | | | | | Health Insurance | | — | | — | | | — | | | 21,971 | | 21,971 | | — | | SERP | | — | | — | | | — | | | — | | — | | — | | Excise Tax Gross-Up | | — | | — | | | — | | | — | | — | | — | | Total | | 16,850,792 | | (18,100,792 | ) | | (18,100,792 | ) | | 13,467,433 | | 23,072,763 | | 17,796,002 |
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Table of Contents EXECUTIVE COMPENSATION TABLES:PAYMENTS/(FORFEITURES) UNDER TERMINATION SCENARIOS |
Executive Compensation Tables Payments/(Forfeitures) Under Termination Scenarios Derica W. Rice
Executive Vice President
and President – CVS Caremark | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Cash Severance Value | | | | | | | | | | | | | | Base Salary | | — | | — | | | — | | | 1,575,000 | | 1,575,000 | | Bonus | | — | | — | | | — | | | — | | 2,362,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | Value of Options | | 554,492 | | (554,492 | ) | | (554,492 | ) | | 193,248 | | 554,492 | | Value of RSUs | | 2,074,625 | | (2,074,625 | ) | | (2,074,625 | ) | | 1,033,578 | | 2,074,625 | | Value of PSUs | | 1,053,168 | | (1,053,168 | ) | | (1,053,168 | ) | | 351,056 | | 1,053,168 | | Value of LTIP Cycles | | 5,990,741 | | (6,423,611 | ) | | (6,423,611 | ) | | 2,574,074 | | 6,423,611 | | Benefits and Other | | | | | | | | | | | | | | Health Insurance | | — | | — | | | — | | | 1,188 | | 1,188 | | SERP | | — | | — | | | — | | | — | | — | | Excise Tax Gross-Up | | — | | — | | | — | | | — | | — | | Total | | 9,673,026 | | (10,105,896 | ) | | (10,105,896 | ) | | 5,728,144 | | 14,044,584 |
JONATHAN C. ROBERTS
EXECUTIVE VICE PRESIDENT
AND PRESIDENT – CVS
CAREMARK | DEATH
($) | 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 |
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Thomas M. Moriarty
Executive Vice President,
Chief Policy and External Affairs 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 | | — | | — | | | — | | | 1,275,000 | | 1,275,000 | | Bonus | | — | | — | | | — | | | — | | 1,912,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | Value of Options | | 483,124 | | (483,124 | ) | | (483,124 | ) | | 241,560 | | 483,124 | | Value of RSUs | | 2,245,370 | | (2,245,370 | ) | | (2,245,370 | ) | | 1,408,156 | | 2,245,370 | | Value of PSUs | | 1,316,493 | | (1,316,493 | ) | | (1,316,493 | ) | | 438,831 | | 1,316,493 | | Value of LTIP Cycles | | 6,750,000 | | (7,375,000 | ) | | (7,375,000 | ) | | 3,083,333 | | 7,375,000 | | Benefits and Other | | | | | | | | | | | | | | Health Insurance | | — | | — | | | — | | | 20,735 | | 20,735 | | SERP | | — | | — | | | — | | | — | | — | | Excise Tax Gross-Up | | — | | — | | | — | | | — | | — | | Total | | 10,794,987 | | (11,419,987 | ) | | (11,419,987 | ) | | 6,467,615 | | 14,628,222 |
TableOn June 6, 2018, the Company announced that Mr. Denton would be leaving CVS Health at the close of Contents
ITEM 5:2017 INCENTIVE COMPENSATION PLAN |
ITEM 5: PROPOSAL TO APPROVE THE COMPANY’S 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 issuancepreviously announced acquisition of Aetna. The Company entered into a Separation Agreement with him and, on November 19, 2018, Mr. Denton separated under the 2010 Plan would be sufficientterms of his Separation Agreement. In connection with Mr. Denton’s departure, CVS Health agreed to provide him 24 months of continued base salary as severance following his last day of employment, as well as subsidized benefits continuation for those 24 months (the Severance Period). He also received a pro-rated bonus for calendar year 2018 based on his actual time worked. Mr. Denton’s stock options and RSU 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 towill continue to grant awards. We are seeking an additional 21 million shares for future grants.
On March 2, 2017vest through the Board adoptedend of the 2017 PlanSeverance Period, other than his retention RSU award, which fully vested on his last day of employment and is recommending it for your approval at this year’s 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 continueto 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 Health’s 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 Health’s 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 effectsettled in accordance with its terms.
Significant Historical Award Information.The following table provides information regarding His outstanding PSU awards and LTIP awards vested on a pro-rated basis through his last day of employment, at target performance levels, and will be settled in accordance with their existing terms. Subject to his compliance with the grantrestrictive covenants and other obligations in the Separation Agreement, Mr. Denton will receive salary continuation of $1,800,000, vesting 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 Company’s commonvalued as follows: stock that may be issued upon the exercise of options, warrants$289,873; RSUs, $8,426,855; EBITDA PSUs, $385,760; 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 |
1Shares in thousands.
2017 Plan Features. The following isLTIP cycles, $3,814,459; a brief description of the material features of the 2017 Plan. The full text of the 2017 Plan is set forth inExhibit A to this Proxy Statement and the description set forth below is qualified in its entirety by reference toExhibit 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
|
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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 remainingand, 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 theone-time payment of the exercise price of an option.
The administrator of the 2017 Planhas discretion to adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards)attorney’s fees, $15,000; 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 earnedas 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 Awardpayment in respect of a performance period other than anpro-rated 2018 annual period by any one participantbonus, $1,073,925. The value of Mr. Denton’s stock options, RSUs and LTIP cycles is determined on an annualizedthe same 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 $500,000as 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,NEOs, 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
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| 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 CVSHealth 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 includeconvertible 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 |
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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 & Poor’s 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 participant’s 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 followingevents:
● | 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 Health’s 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 |
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● | 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 Committee’s 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 participant’s 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 participant’s tax basisin 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, forhis Separation Agreement, the value of the shares or property on which he previouslyEBITDA PSUs was pro-rated for his service time during the performance cycle and reflects the cash amount paid tax. The participant must file such election withto Mr. Denton during 2018, and the Internal Revenue Service within 30 days ofLTIP cycles are pro-rated for his service time during 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.applicable performance cycle.
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.
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Table of Contents STOCKHOLDER PROPOSALSCEO Pay Ratio
ITEM 6: STOCKHOLDER PROPOSAL REGARDING THE OWNERSHIP THRESHOLD FOR CALLING SPECIAL MEETINGS OF STOCKHOLDERS |
On or about December 6, 2016,We invest in our employees at all levels of the Company received the following proposal from Mr. William Steiner, 112 Abbottsford Gate, Piermont, NY 10968,by rewarding performance that balances risk and his proxy John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, who represent that Mr. Steinerreward, is the beneficial owner of noless than 100 shares of the Company’s stock. In accordanceconsistent with SEC rules, we are reprinting the proposalour values 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 bylawssupports short 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 board’s current power to call a special meeting.
Dozens of Fortune 500 companies allow 10% of shares to call a special meetinglong term goals 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 Merlo’s 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 provideultimately, value creation 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, CVS’s 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 Company’s 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 Health’s 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 Company’s 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 observeprovide opportunities for professional growth and development, and offer affordable benefits and programs that calling a special meetingmeet the diverse needs of stockholders is not a matterour employees and their families. In 2018, we made significant investments in our colleagues including increasing the starting wage to be taken lightly. We believe that a special meeting should only be held to cover extraordinary events, when fiduciary, strategic, significant
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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 Health’s existing 25% ownership threshold strikes theappropriate 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%$11 per hour effective in April 2018, and by increasing pay ranges and rates for many of our stockholders should agreeretail employees, to ensure a competitive compensation structure 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 thatits client is the beneficial owner of 175 shares ofsupports the Company’s stock.plans to evolve its retail stores into a health care destination. In accordance with SEC rules, wetotal, these programs are reprinting the proposal and supporting statement (Bateman Proposal) in this proxy statement as they were submittedexpected 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 aForbes 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 what’s 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, 2015New 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 2015Harvard 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 it’s 354 to one.”
In a 2015 PayScale report,cost 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 CEO’s total compensation.
RESOLVED: Shareholders request the Board’s Compensation Committee initiate a review of our company’s 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.
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STATEMENT OF THE BOARD RECOMMENDING A VOTE AGAINST THE BATEMAN PROPOSAL$425 million annually.
As required by the Dodd-Frank Act, we are disclosing the ratio of compensation of Mr. Merlo, our Chief Executive Officer, to that of the employee who has been identified as having annual compensation that is the median of all of our employees. We identified the median employee by ranking the total compensation based on W-2 information for all employees, excluding Mr. Merlo, who were employed by the Company on December 31, 2018. The population of our approximately 238,000 employees includes many part-time, temporary and seasonal workers. Adjustments were made to annualize the compensation of full-time and part-time employees who were not employed by the Company for the entire year. We did not apply any cost-of-living adjustments as part of the calculation. As permitted by SEC rules under thede minimisexception, we provideexcluded approximately 1,350 employees located in Brazil, who represent less than 5% of our total employees. Consistent with our 2017 practice, we also excluded employees who joined CVS Health through businesses that we acquired during 2018, including those from our acquisition of Aetna. Using this methodology, our median employee was determined to be a detailed reportfull-time, hourly employee. The annual compensation for our median employee was $35,529, calculated in accordance with the rules applicable to the Summary Compensation Table (SCT) found beginning on executive compensation in our annualpage 63 of this proxy statement. The annual compensation discussion and analysis (CD&A) sectionfor our median employee includes the company-paid portion of this proxy statement describeshealth benefits plus company contributions to our executive401(k) plan, if applicable. For 2018, the annual compensation practicesfor Mr. Merlo was $21,953,040, which is $13,942 higher than the amount shown in detail, elaborating on all material elementsour SCT because of our executive compensation program and policies with accompanying tables that quantify our named executive officer paythe inclusion of company-paid medical benefits, which are not reflected in the SCT in accordance with SEC requirements.rules. 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 CEO’s payMr. Merlo’s annual compensation to that of our median employee. employee for 2018 is 618-to-1. Given the extensive compensation-related disclosure already provideddifferent methodologies that various public companies use to our stockholders, the requested reviewdetermine their estimates of pay ratio, including different methodologies, exclusions, estimates and report would divert our resources and attention while providing stockholders with little or no incremental information. Putting aside the Bateman Proposal’s call for information that is redundant with information that is already provided, or that will be required to be providedassumptions allowed under newly adopted SEC rules, and different employment and compensation practices among companies, the ratio reported above should not be used as a basis for comparison between CVS Health and other companies.
Please note that in 2018, Mr. Merlo’s 2016-2018 performance-based Long-Term incentive Plan (LTIP) award was cash-denominated at grant and thus included as 2018 SCT compensation based on the timing of the final value being earned (rather than in 2016, as it would have been had the award been denominated in shares), per SEC reporting requirements. In 2018, as a result of changing the denomination of the 2018-2020 LTIP awards to PSUs, and in accordance with SEC reporting requirements, Mr. Merlo’s SCT compensation also includes the 2018-2020 LTIP PSU grant. As shown above in the supplemental table on page 41 in the CD&A, Mr. Merlo’s 2018 SCT compensation would have been $3,537,000 lower had we are opposed to the Bateman Proposalhistorically been denominating LTIP compensation in principle. The Committee, which is composed entirely of independentdirectors,shares, and the full Board, are best placedresulting ratio for Mr. Merlo’s 2018 compensation 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 Committee’s mandate under its charter and describes the rigorous policies and practices wemedian employee would 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 Committee’s 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 Company’s stockholders overwhelmingly rejected it, by a vote of:been 518-to-1.
●cvshealthannualmeeting.com | For: 6.8%
| ● | Against: 87.5%
| ● | Abstain: 5.6% |
The Board unanimously recommends a vote 75the Bateman Proposal.74
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Table of Contents Stockholder Proposal | | | STOCKHOLDER PROPOSALS:Item 4: Stockholder Proposal Regarding Exclusion of Legal or Compliance Costs from Financial Performance Adjustments for Executive Compensation
| | | On or about December 19, 2018, the Company received the following proposal from The City of Philadelphia Public Employees Retirement System (the “PPERS”), Sixteenth Floor, Two Penn Center Plaza, Philadelphia, PA 19102-1712, which represents that PPERS has held more than $2,000 worth of the Company’s stock. In accordance with SEC rules, we are reprinting the proposal and supporting statement (which we refer to as the “PPERS Proposal”) in this proxy statement as they were submitted to us: RESOLVED that shareholders of CVS Health Corporation (“CVS”) urge the Board of Directors to adopt a policy that no financial performance metric shall be adjusted to exclude Legal or Compliance Costs when evaluating performance for purposes of determining the amount or vesting of any senior executive Incentive Compensation award. “Legal or Compliance Costs” are expenses or charges associated with any investigation, litigation or enforcement action related to drug manufacturing, sales, marketing or distribution, including legal fees; amounts paid in fines, penalties or damages; and amounts paid in connection with monitoring required by any settlement or judgment of claims of the kind described above. “Incentive Compensation” is compensation paid pursuant to short-term and long-term incentive compensation plans and programs. The policy should be implemented in a way that does not violate any existing contractual obligation of the Company or the terms of any compensation or benefit plan. SUPPORTING STATEMENT As CVS shareholders, we support compensation arrangements that incentivize senior executives to drive growth while safeguarding company operations and reputation over the long-term. CVS adjusts certain financial metrics when calculating progress on goals for the purposes of awarding incentive compensation. While some adjustments may be appropriate, we believe senior executives should not be insulated from legal risks, particularly on matters that are core to the company’s business. These considerations are especially critical at CVS given the potential reputational, legal and regulatory risks CVS faces over its role in the nation’s opioid epidemic. In June 2018, the U.S. Attorney’s Office for the Eastern District of New York announced that CVS agreed to settle claims that a number of its pharmacy stores located in Long Island violated the federal Controlled Substances Act (“CSA”) by failing to timely report the loss or theft of controlled substances, including hydrocodone. Pharmacies, such as CVS, are required by the CSA to promptly report the loss or theft of controlled substances to the DEA. (https://www.justice.gov/usao-edny/pr/cvs-pharmacy-inc-pay-15-million-settle-civil-penalty-claims-violations-controlled) In its August 2018 quarterly report, CVS disclosed that it is named in more than 200 federal court cases filed by counties, cities, hospitals, Indian tribes, and others, asserting claims regarding the impacts of prevalent opioid abuse. Approximately 25 similar cases that name the Company in some capacity are pending in state courts. ITEM 8As of July 2018, theWall Street Journal reported that over 600 lawsuits have been filed by municipalities, states and Native American tribes related to the opioid epidemic. The majority of these lawsuits have been consolidated to the Northern District Court of Ohio, where CVS is one of the named defendants. (https:/www.wsj.com/articles/ new-front-on-opioid-litigation-suits-over-rising-premiums-1525279402)
In the midst of such scrutiny, we take issue with CVS’s use of adjusted operating profit and adjusted return on net assets, each of which exclude legal settlements, according to page 52 of CVS’s 2018 proxy statement. We believe a superior approach is to include Legal and Compliance Costs, particularly those associated with opioid litigation. We urge shareholders to vote for this proposal. |
ITEM 8: STOCKHOLDER PROPOSAL REGARDING A REPORT ON RENEWABLE ENERGY TARGETS76 | | 2019 Proxy Statement |
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 behalfTable of its client the Pamela L Parker Trust. Zevin represents that itsclient is the beneficial owner of 660 shares of the Company’s 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:Contents 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 Company’s 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 CVS’s overall response to climate change. Failure to set a renewable energy target may impede the Company’s 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:Stockholder Proposal Shareholders request that CVS produce a report assessing the climate benefits and feasibility of adopting enterprise-wide, quantitative, time-bound targets for increasing CVS’s 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.Item 4
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 PARKERPHILADELPHIA PUBLIC EMPLOYEES RETIREMENT SYSTEM PROPOSAL The PPERS Proposal requests that the Board hasadopt a policy that would require that all financial performance metrics used to determine performance for calculating senior executive incentive compensation award not exclude expenses or charges associated with any investigation, litigation or enforcement action related to drug manufacturing, sales, marketing or distribution, including legal fees, amounts paid in fines, penalties or damages. By imposing a broad and indiscriminate restriction, the PPERS Proposal does not provide the Board and its Management Planning and Development Committee (the “MP&D Committee”) with any flexibility to address factors that would be critical in assessing whether such costs should in fact be considered in calculating executive incentive compensation. The PPERS Proposal unduly restricts the Parker Proposal and believes it is unnecessary in light of CVS Health’s ongoing efforts to reduce greenhouse gas emissions and pursue sustainability initiatives while optimizing efficiency. The Board is committed to reducing the environmental impactability of the Company’sBoard and the MP&D Committee to distinguish between matters that relate to an action for which the Company was successful in its defense, matters that arise from a business operations anddispute in the ordinary course or a matter that relates to promote the conservation of the natural resources used by the Company.a decision attributable to a prior management team for whom compensation decisions are not being made. In addition to completing the questionnaire from CDP (formerly known as the Carbon Disclosure Project) and disclosing data around GHG emissions each year,ordinary course of business, the Company already provides information on its sustainability efforts with its stockholders thoughis subject to a number of frivolous and meritless suits which the Company’s annual Corporate SocialResponsibility 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
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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.
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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 Company’s resources norCompany, in the best interests of its shareholders, aggressively defends. Under the PPERS Proposal, the costs and expenses of a successful defense of any such matter, as well as the costs and expenses associated with a business dispute with a supplier or a contractual party that breach the terms of an agreement, could not be excluded from calculations necessary to determine executive incentive compensation. In including, for example, all possible litigation claims that could be made against the Company, the PPERS Proposal, which is predicated on the idea that “senior executives should not be insulated from legal risks” is a standard that goes far beyond the stated objective. The Company believes that decisions related to legal risks faced by the Company and the responsibility for managing those risks are nuanced and an arbitrary policy reflected by the PPERS Proposal ignores many important considerations. The Company believes the Board is best suited to address these matters.
The MP&D Committee is composed entirely of independent, non-management directors who are best equipped to make decisions about metric selection and adjustments for use in our incentive compensation program, which is currently aligned with our stated strategic objectives and the long-term interests of our stockholders. The MP&D Committee carefully selects performance metrics for executive compensation, taking into account feedback from our annual stockholder engagement efforts, and sets goals based on available information at the time the goals are set. The PPERS Proposal would unduly restrict the MP&D Committee’s judgment in determining executive compensation levels and structure, and limit the Committee’s ability to be flexible and responsive. The MP&D Committee has selected certain non-GAAP metrics for our compensation program. It believes that adjustments to some financial measures are necessary to assess our year-over-year performance and can provide a more accurate view of our core operational performance. The Committee cannot anticipate extraordinary matters that may occur in the future, and each year has consistently applied adjustments, both positively and negatively, when evaluating the Company’s performance at the end of a period. In the event any additional adjustments are made, we disclose the circumstances and rationale. Further, we are transparent about our use of non-GAAP measures and provide a detailed explanation regarding how non-GAAP measures have been calculated. For an explanation of non-GAAP measures included in this proxy statement, see page 60 and Annex A. The MP&D Committee considers risk management criteria, but it does so in a holistic manner by considering the facts and circumstances of events, including litigation brought against or by the Company. Our businesses operate in highly regulated and litigious industries. As disclosed in our quarterly and annual securities filings, we are currently subject to various litigation matters, investigations, audits, inspections, government inquiries, and regulatory and legal proceedings, including the matters described in the PPERS Proposal. The Company or its stockholders. Theis defending all such matters and we believe that our commitment to compliance mitigates compliance risk and litigation exposure. Our President and Chief Executive Officer and our Board unanimously recommends a vote Parker Proposal.importance of compliance. Our compliance program, including our Code of Conduct adopted by the Board of Directors, incorporates the seven elements of an effective program as outlined in the Federal Sentencing Guidelines, and applies broadly to all colleagues, vendors and the Board of Directors.76
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Table of Contents Stockholder Proposal Item 4 CVS Health has made addressing the opioid abuse epidemic a cornerstone of our social responsibility initiatives. We have enhanced the Company’s broad commitment to fighting the national opioid abuse epidemic and are dedicated to helping the communities we serve address and prevent opioid abuse. We have implemented company-wide initiatives supporting safe drug disposal, utilization management of pain medications and funding for treatment and recovery programs. Additional information about these initiatives can be found inside the back cover of this proxy statement, in our 2018 Corporate Social Responsibility Report, available at https://cvshealth.com/social-responsibility/corporate-social-responsibility-csr, and on our opioid response website page, available at http://www.cvshealth.com/OpioidResponse. Our investments work to ensure clear, safe and effective protocols for opioid prescriber practices, to strengthen and systematize partnerships with specialists and community-based organizations, and to help create safe, non-judgmental environments for all patients. We are not alone in making these kinds of investments and taking positive steps to address the opioid abuse epidemic – many in our industry are doing the same. The opioid abuse epidemic requires these kinds of efforts, along with partnerships with local, state and federal policymakers. A policy like the PPERS Proposal is not an appropriate or effective response to the opioid abuse epidemic facing our country. In summary, the Board believes the PPERS Proposal is overly broad and would unnecessarily limit the ability of the Board and its MP&D Committee to design and administer the Company’s incentive compensation program. We also believe that the PPERS Proposal is not an appropriate response to the opioid abuse epidemic facing our country. Further, 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 Committee’s judgment. Adoption of the PPERS Proposal would not support these objectives and would not be in the best interests of our stockholders. |  | The Board unanimously recommends a voteAGAINST the PPERS Proposal. |
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Table of Contents Executive Officers and Ownership of and Trading in Our Stock | | Executive Officers of CVS Health |
The following sets forth the name, age and biographical information for each of CVS Health’s executive officers as of April 5, 2019. In each case the officer’s term of office extends to the date of the Board meeting following the next Annual Meeting of Stockholders of the Company. Previous positions and responsibilities held by each of the executive officers over the past five years or more are indicated below: OWNERSHIP OF AND TRADING IN OUR STOCKLisa G. Bisaccia, age 62, Executive Vice President of CVS Health since March 2016 and Chief Human Resources Officer of CVS Health since January 2010; Senior Vice President of CVS Health from January 2010 through February 2016. Ms. Bisaccia is also a member of the board of directors of Aramark, a leading global provider of food, facilities and uniform services.
Eva C. Boratto, age 52, Executive Vice President and Chief Financial Officer of CVS Health since November 2018; Executive Vice President – Controller and Chief Accounting Officer of CVS Health from March 2017 through November 2018; Senior Vice President – Controller and Chief Accounting Officer of CVS Health from July 2013 through February 2017. Troyen A. Brennan, M.D., age 64, Executive Vice President and Chief Medical Officer of CVS Health since November 2008; Executive Vice President and Chief Medical Officer of Aetna from February 2006 through November 2008. James D. Clark, age 54, Senior Vice President – Controller and Chief Accounting Officer of CVS Health since November 2018; Vice President – Finance and Accounting of CVS Pharmacy, Inc. (CVS Pharmacy) from September 2009 through October 2018. Joshua M. Flum, age 49, Executive Vice President, Enterprise Strategy and Digital of CVS Health since November 2018; Executive Vice President, Corporate Strategy and Business Development of CVS Pharmacy from June 2016 through October 2018; Executive Vice President – Pharmacy Services of CVS Pharmacy from March 2015 through May 2016; Senior Vice President of Retail Pharmacy of CVS Pharmacy from December 2010 through February 2015. Mr. Flum is a member of the board of directors of CreditRiskMonitor.com, Inc., a company that facilitates the analysis of corporate financial risk, mostly in the context of the extension of trade credit from one business to another. Kevin P. Hourican, age 45, Executive Vice President of CVS Health and President of CVS Retail since April 2018; Executive Vice President – Retail Pharmacy and Supply Chain of CVS Pharmacy from June 2016 through March 2018; Senior Vice President, Field Operations and Supply Chain of CVS Pharmacy from June 2014 through May 2016; Senior Vice President, Field Operations of CVS Pharmacy from June 2012 through May 2014. Alan M. Lotvin, M.D., age 57, Executive Vice President — Transformation of CVS Health since June 2018; Executive Vice President – Specialty Pharmacy, CVS Caremark from November 2012 through May 2018. Karen S. Lynch, age 56, Executive Vice President of CVS Health and President of the Aetna Business Unit since November 2018; President of Aetna from January 2015 to the present; Executive Vice President, Local and Regional Businesses of Aetna from February 2013 through December 2014; Executive Vice President, Head of Specialty Products of Aetna from July 2012 through January 2013. Ms. Lynch is a member of the board of directors of U.S. Bancorp, a banking and financial services company. Larry J. Merlo, age 63, President and Chief Executive Officer of CVS Health since March 2011; President and Chief Operating Officer of CVS Health from May 2010 through March 2011; President of CVS Pharmacy from January 2007 through August 2011; Executive Vice President of CVS Health from January 2007 through May 2010; also a director of CVS Health since May 2010. See Mr. Merlo’s Director biography on page 15. Thomas M. Moriarty, age 55, Executive Vice President and General Counsel of CVS Health since October 2012 and Chief Policy and External Affairs Officer since March 2017; Chief Strategy Officer from March 2014 through February 2017. Derica W. Rice, age 54, Executive Vice President of CVS Health and President of CVS Caremark since March 2018; Executive Vice President of Global Services and Chief Financial Officer of Eli Lilly and Company from May 2006 through December 2017. Mr. Rice was formerly a director of Target Corporation from September 2007 until January 2018, and became a director of The Walt Disney Company in March 2019. Jonathan C. Roberts, age 63, Executive Vice President and Chief Operating Officer of CVS Health since March 2017; Executive Vice President of CVS Health and President of CVS Caremark from September 2012 through February 2017; Executive Vice President of CVS Health and Chief Operating Officer of CVS Caremark from October 2010 through August 2011. | cvshealthannualmeeting.com | EXECUTIVE OFFICER AND DIRECTOR STOCK OWNERSHIP REQUIREMENTS79 |
Table of Contents Executive Officers and Ownership of and Trading in Our Stock Executive Officer and Director Stock Ownership Requirements | 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 Company’s Business Planning Committee (BPC),BPC, and requires that directors and BPC members achieve compliance with the ownership requirements within five years of becoming a director or BPC member. In November 2018, the Management Planning and Development Committee voted to increase the multiples for the CEO and the members of the BPC and also expanded ownership requirements to include minimum ownership levels for all corporate-level executive vice presidents and senior vice presidents. Our named executive officers,Named Executive Officers, who appear in the Summary Compensation Table beginning on page 57,63, must maintain ownership levels as set forth in the table below. Shares included in thecalculationthe 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 thethis policy and compliance by directors and executives. EXECUTIVE NAMEExecutive Name | MULTIPLE OF SALARY
REQUIRED | MULTIPLE OF SALARYMultiple of Salary
HELD AS OF MARCH 14, 2017Required | | IN COMPLIANCEIn Compliance | | Larry J. Merlo | 5x | 79x7x | | Yes | David M. DentonEva C. Boratto | 3x | 30x4x | | Yes | Helena B. FoulkesJonathan C. Roberts | 3x | 11x4x | | Yes | Jonathan C. RobertsDerica W. Rice | 3x | 19x4x | | Yes | | Thomas M. Moriarty | 3x | 9x4x | | Yes | | David M. Denton | | 4x | | Yes |
All non-employee directors must own a minimum of10,000of 10,000 shares of CVS Health common stock, which is worth approximately $800,000$574,000 based on the March 14, 201721, 2019 closing sale price of $79.89,our common stock of $57.40, or 11approximately 8.2 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 payinpay in the director’s 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. DeCoudreauxlevel, as have Messrs. Aguirre, Bertolini, and DeParleLudwig. Ms. Schapiro 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,Farah are on track to meet this requirement. cvshealthannualmeeting.com80 | | 77
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Table of Contents Executive Officers and Ownership of and Trading in Our Stock Share Ownership of Directors and Certain Executive Officers | OWNERSHIP OF AND TRADING IN OUR STOCK:SHARE OWNERSHIP OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS 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, 2017,21, 2019, of each director, each executive officerNamed Executive Officer appearing in the Summary Compensation Table foundbeginning on page 5763 and all directors and executive officers as a group, based on information provided by these individuals. Each individualbeneficiallyindividual 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 STOCK1 | | Ownership of Common Stock1 | | NAME | | NUMBER | | PERCENT | | | Name | | | Number | | | Percent | | Fernando Aguirre | | | 16,890 | 2 | | * | | Mark T. Bertolini | | | 110,072 | 3 | | * | | Eva C. Boratto | | | 153,634 | 1,4 | | * | | Richard M. Bracken | | 5,244 | | * | | 11,392 | | | * | | C. David Brown II | | 139,731 | 1 | * | | 170,807 | 5 | | * | | Alecia A. DeCoudreaux | | 6,452 | 1 | * | | 13,718 | 5 | | * | | David M. Denton | | 749,170 | 2 3 4 | * | | 279,306 | 1,4,6,7 | | * | | Nancy-Ann M. DeParle | | 9,900 | 1 | * | | 15,879 | 5 | | * | | David W. Dorman | | 89,142 | 1 | * | | 139,478 | 5 | | * | | Roger N. Farah | | | 3,821 | | | * | | Anne M. Finucane | | 19,705 | 1 5 | * | | 25,773 | 5,8 | | * | | Helena B. Foulkes | | 326,223 | 2 3 4 6 | * | | | Edward J. Ludwig | | | 18,457 | 9 | | * | | Larry J. Merlo | | 2,814,571 | 2 3 4 6 7 | * | | 2,943,106 | 1,4,6,10,11 | | * | | Jean-Pierre Millon | | 85,716 | 8 | * | | 91,504 | 12 | | * | | Thomas M. Moriarty | | 269,422 | 2 3 6 | * | | 382,385 | 1,4,10 | | * | | Derica W. Rice | | | 68,977 | 1,4 | | * | | Jonathan C. Roberts | | 677,846 | 2 3 4 6 7 | * | | 909,610 | 1,4,6,10,11 | | * | | Mary L. Schapiro | | | 7,947 | 5 | | * | | Richard J. Swift | | 59,353 | 1 | * | | 66,102 | 5 | | * | | William C. Weldon | | 14,582 | 1 | * | | 23,279 | 5 | | * | | Tony L. White | | 21,709 | 9 | * | | 27,497 | 13 | | * | | All directors and executive officers as a group (22 persons) | | 6,434,630 | | 0.61% | | | All directors and executive officers as a group (28 persons) | | | 6,888,177 | 2,3,4,5,6,7,8,9,10,11,12,13 | | 0.53% |
| * | 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, 201721, 2019 and were exercisable within 60 days thereafter: Ms. Boratto, 97,544; Mr. Denton, 338,166; Ms. Foulkes, 187,193;172,684; Mr. Merlo, 1,349,031;1,407,003; Mr. Moriarty, 181,078;267,177; Mr. Rice, 29,191; Mr. Roberts, 434,450;602,827; and all executive officers as a group, 3,152,287.3,440,719. | | 2 | Includes a total of 668 shares held by Mr. Aguirre’s spouse and adult children. | | 3 | Includes 100,072 shares held in a Charitable Lead Annuity Trust, for which Mr. Bertolini is the grantor and serves as investment advisor. | | 4 | Includes the following shares of common stock granted under the Company’s 19972010 Incentive Compensation Plan and 2017 Incentive Compensation Plan and, for legacy Aetna employees, the Aetna Inc. 2010 ICPsStock Incentive Plan (together, the Plans), that remain subject to certain restrictions regarding employment and transfer as provided in the ICPs:Plans: Ms. Boratto, 11,278; Mr. Denton, 158,980; Ms. Foulkes, 41,172;104,447; Mr. Merlo, 209,398;127,881; Mr. Moriarty, 39,326;34,270; Mr. Rice, 31,724; Mr. Roberts, 72,456;57,867; and all executive officers as a group, 776,673.589,318. | 45 | Includes the following shares of common stock constituting deferred non-employee director compensation, which do not have voting rights: Mr. Brown, 59,555; Ms. DeCoudreaux, 10,748; Ms. DeParle, 3,496; Mr. Dorman, 17,176; Ms. Finucane, 5,794; Ms. Schapiro, 7,947; Mr. Swift, 62,844; Mr. Weldon 21,688; and all non-employee directors as a group, 189,248. | | 6 | Includes shares of common stock held by the Trustee of the ESOPCVS Health Future Fund 401(k) Plan that are allocated to the executive officers as follows: Mr. Denton, 1,689; Ms. Foulkes 4,071;1,772; Mr. Merlo, 6,643;6,917; Mr. Roberts, 5,320;5,539; and all executive officers as a group, 18,300.14,829. | 57 | Excludes stock options, RSUs and restricted shares held in constructive trust for the sole benefit of Mr. Denton’s ex-wife. Mr. Denton has no beneficial ownership of these securities. | | 8 | Includes 17,00919,979 shares held in a family trust. | 69 | Includes 11,079 shares held in a revocable trust. | | 10 | 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 Company’s Deferred Stock Compensation Plan, and which do not have current voting rights: Ms. Foulkes, 51,389; Mr. Merlo, 605,988;651,164; Mr. Moriarty, 22,522;42,632; Mr. Roberts, 135,442;208,188; and all executive officers as a group, 867,824.948,148. | 711 | Includes the following hypothetical shares of common stock held in notional accounts in the Company’s unfunded Deferred Stock Compensation Plan, which do not have current voting rights: Mr. Merlo, 5,140;5,159; Mr. Roberts, 1,4191,424 and all executive officers as a group, 7,026.7,052. | 812 | Includes 85,716Consists of 91,504 shares held in a family trust. | 913 | Includes 7 shares held by Mr. White’s wife. |
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Table of Contents Executive Officers and Ownership of and Trading in Our Stock Share Ownership of Principal Stockholders | OWNERSHIP OF AND TRADING IN OUR STOCK:SHARE OWNERSHIP OF PRINCIPAL STOCKHOLDERS 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 theeach of these beneficial owner withtheowners 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 OWNED1 2 | PERCENT OF
CLASS OWNED1 2 | | Common Stock | BlackRock, Inc.1
55 East 52ndStreet
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% |
1Title of Class | | Name and Address of
Beneficial Owner | | No. of Shares
Beneficially Owned | | Percent of
Class Owned | | Common Stock | | BlackRock, Inc.1 | | 93,814,9581 | | 7.3%1 | | | 55 East 52ndStreet | | | | | | | New York, NY 10055 | | | | | | Common Stock | | The Vanguard Group, Inc.2 | | 109,213,4522 | | 8.4%2 | | | 100 Vanguard Blvd. | | | | | | | Malvern, PA 19355 | | | | |
| 1 | Information based on a Schedule 13G/A filed January 23, 2017.February 11, 2019. 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 54,713,96081,862,331 of these shares and sole dispositive power with respect to 66,403,376all of these shares. | | 2 | Information based on a Schedule 13G/A filed February 9, 2017.11, 2019. 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 1,673,4281,508,097 of these shares, shared voting power with respect to 211,117316,851 of these shares, sole dispositive power with respect to 72,512,905107,420,666 of these shares and shared dispositive power with respect to 1,868,1731,792,786 of these shares. |
| SECTION Section 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEBeneficial 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 5that5 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 2016.2018, except that due to a clerical error one Form 4 for Director Tony White, reporting the award of his annual Board retainer, was inadvertently filed one day late. cvshealthannualmeeting.com82 | | 79
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Table of Contents Other Information OTHER INFORMATION
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING Information about the 2019 Annual Meeting and Voting |
The Board of Directors of CVS Health is soliciting your proxy to vote at our 20172019 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, 2017April 5, 2019 to all stockholders entitled to vote. CVS Health’s 20162018 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, 201716, 2019 | Time: | 9:Time: | | 8:00 A.M.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, 2017.21, 2019. As of the record date, there were 1,035,791,1701,298,405,172 shares of common stock outstanding. Each share of CVS Health common stock that you own entitles you to one vote. We maintain two 401(k) plans for our employees: the CVS Health Future Fund 401(k) Plan and the Aetna 401(k) Plan (each a Plan, and collectively, the Plans). The Bank of New York Mellon presently holds shares of common stock as Trustee under the CVS Health Future Fund 401(k) Plan, and State Street Bank and Trust Company presently holds shares of common stock as Trustee under the Employee Stock Ownership Plan of CVS Health Corporation and Affiliated Companies (ESOP).Aetna 401(k) Plan. Each participant in the ESOPinstructsPlans instructs the Trusteerespective Trustees of the ESOPPlans how to vote his or her shares. As to shares with respect to which the Trustee receivesTrustees receive no timely voting instructions, the Trustee, pursuant to the ESOP Trust Agreement, votesTrustees vote these shares in the same proportion as it votesthey vote all the shares as to which it hasthey have received timely voting instructions.instructions unless contrary to ERISA. The results of the voting will be held in strict confidence by the Trustee.Trustees. Please note that the cut-off date by which participants of the ESOPPlans must submit their vote to the tabulator in order to be counted is 12:0011:59 p.m. Eastern Time on May 8, 2017.13, 2019. TYPES OF OWNERSHIP OF OUR STOCK If your shares are registered in your name with CVS Health’s transfer agent, Wells Fargo Bank, N.A.,Equiniti Trust Company, 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 statementandstatement 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 nominee’s 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. | cvshealthannualmeeting.com | 83 |
Table of Contents Other Information Information about the 2019 Annual Meeting and Voting The enclosed proxy card indicates the number of shares that you own as of the record date. 80
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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 Board’s recommendations. The Board of Directors and the Company’s 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 cardYour 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 personPerson 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, 2017,21, 2019, the record date for voting. Appointing your own proxyYour 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 solicitationSolicitation 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 FargoEQ 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.stocktransfer@eq-US.com. | 84 | | 2019 Proxy Statement |
Table of Contents Other Information Stockholder Proposals and Other Business for Our Annual Meeting in 2020 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
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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 director’s 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 director’s election must exceed 50% of the votes cast with respect to that director’s election. Votes “against” a director’s election will count as a vote cast, but “abstentions” and “broker non-votes” will not count as a vote cast with respect to that director’s 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 8,4, 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 2018Stockholder Proposals and Other Business for Our Annual Meeting in 2020 |
If you want to submit a proposal for possible inclusion in our proxy statement for the 20182020 Annual Meeting of Stockholders, you must ensure your proposal is received by us on or before December 1, 20176, 2019 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 Company’s 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 16 and no later than December 1, 2017.6, 2019. 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 10February 4 and February 9, 2018.no later than March 6, 2019. 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”“Stockholder Submission on Nominees” for a description of the information required for director nominations. | OTHER MATTERSOther Matters |
We do not know of any matters to be acted upon at the Annual Meeting other than those discussed in this proxy statement. If any other matter is presented, your proxy will vote on the matter in his best judgment. March 31, 2017
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Table of Contents EXHIBITAnnex 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 Corporation’s 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 Participant’s death or to which Awards or other rights are transferred if and to the extent permitted under Section 11(b) hereof. If, upon a Participant’s 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 Corporation’s 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.
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Reconciliation of Certain Amounts to the Most Directly Comparable GAAP Measure |
TableThe Company defines Adjusted Earnings per share, or Adjusted EPS, as income before income tax provision (GAAP measure) excluding the impact 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 tocertain adjustments 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 Corporation’s 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.
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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 administrationamortization 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)intangible assets, acquisition-related transaction 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 butintegration costs, goodwill and long-lived asset impairments, gains/losses on divestitures, net interest expense on financing associated 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 Corporation’s 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 Corporation’s 2010 Incentive Compensation Plan, as amended on January 15, 2013 (the “Existing Plan”) that remain available for grant under the Existing Plan immediatelyproposed acquisitions (for periods prior to the Corporation’s 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 Corporation’s 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
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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)acquisition), 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 CodeSection 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.
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(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 determineditems specifically identified herein, divided by the Committee, provided that such exercise price shall be not less thanCompany’s weighted average diluted shares outstanding. Adjusted EPS for 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 Committeeyear ended December 31, 2018 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,calculated utilizing weighted average diluted shares outstanding, which includes 3 million potential common shares, as the Committee may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievementimpact of performance goals and/or future service requirements), in such installments or otherwise,the potential common shares was dilutive. The potential common shares were excluded from the calculation of GAAP loss per share for the year ended December 31, 2018, 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 shallshares would 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 bearhad 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 theanti-dilutive effect if any, of dividends paid on Stock during the period such Award is outstanding.
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(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).
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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 Corporation’s 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.
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(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 Corporation’s 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, exceptGAAP net loss incurred in the event of a Participant’s death or disability, or inperiod. Management believes that this non-GAAP measure enhances investors’ ability to compare 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 moreCompany’s past financial performance conditions will vest over a minimum period of one (1) year except in the event of a Participant’s 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.with its current performance.
The maximum numberfollowing is a reconciliation of sharesincome before income tax provision to adjusted income from continuing operations attributable to CVS Health and a calculation 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)Adjusted EPS 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.year ended December 31, 2018: (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 Director’s 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.
| | 2018 | | | In millions, except per share amounts | | | | | | Income before income tax provision (GAAP measure) | | $ | 1,406 | | | Non-GAAP adjustments: | | | | | | Amortization of intangible assets | | | 1,006 | | | Acquisition-related transaction and integration costs1 | | | 492 | | | Goodwill impairments2 | | | 6,149 | | | Impairment of long-lived assets3 | | | 43 | | | Loss on divestiture of subsidiary4 | | | 86 | | | Net interest expense on financing for the acquisition of Aetna5 | | | 894 | | | Adjusted income before income tax provision | | | 10,076 | | | Adjusted income tax provision6 | | | 2,660 | | | Adjusted income from continuing operations | | | 7,416 | | | Loss from continuing operations attributable to noncontrolling interests | | | 2 | | | Adjusted income allocable to participating securities | | | (12 | ) | | Adjusted income from continuing operations attributable to CVS Health | | $ | 7,406 | | | Weighted average diluted shares outstanding7 | | | 1,047 | | | Adjusted EPS | | $ | 7.08 | |
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The goodwill impairments relate to the LTC reporting unit within the Retail/LTC segment. | | 3 | The impairment of long-lived assets primarily relates to the impairment of property and equipment within the Retail/LTC segment. | | 4 | The loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for $725 million on January 2, 2018. | | 5 | Interest expense of $1.4 billion related to (i) bridge financing costs, (ii) interest expense on the $40 billion of 2018 Senior Notes and (iii) the $5 billion term loan facility. The interest expense was reduced by related interest income of $536 million earned on the proceeds of the 2018 Senior Notes. | | 6 | The Company computes its adjusted income tax provision after taking into account items excluded from adjusted income before income tax provision. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision. | | 7 | Adjusted earnings per share for the year ended December 31, 2018 is calculated utilizing weighted average diluted shares outstanding, which includes 3 million potential common shares, as the impact of the potential common shares was dilutive. The potential common shares were excluded from the calculation of GAAP loss per share for the year ended December 31, 2018, as the shares would have had an anti-dilutive effect as a result of the GAAP net loss incurred in the period. |
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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)CVS Health Corporate Social Responsibility (CSR) Report HighlightsPerformance Conditions.The right
At CVS Health, we have long been focused on improving not only the health of a Participant to exercise or receive a grant or settlement of any Award,our patients and consumers, but 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 & Poor’s 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).
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(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.
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(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 Corporation’s or such Significant Subsidiary’s then outstanding securities;
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(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 Corporation’s 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 valuehealth of all of the consolidated assets of the Corporation (othercommunities we serve. Our CSR strategy ensures we put our businesses and resources to work – not just at a global or national level, but in tangible ways that make a difference in our communities and people’s lives. There is no more pressing issue 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 Participant’s employment by the Corporation or a subsidiary without Cause.
(ii) “Constructive Termination Without Cause” shall mean the Participant’s termination of his or her employment following the occurrence, without the Participant’s written consent, of one or more of (A) an assignment of any duties to the Participant thatfixing what is materially inconsistent with Participant’s position, (B) a material decrease in Participant’s annual base salary or target annual incentive award opportunity, or (C) a relocation of Participant’s principal place of employment more than thirty-five (35) miles from Participant’s 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 Corporation’s 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 Participant’s 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 connectionbroken with the issuance or deliveryU.S. health care system, and CVS Health is positioned to lead the change. We welcome the opportunity to work with our partners, stockholders and other stakeholders. Together, we will deliver better health, all toward better communities and a better world.
 Larry J. Merlo
President and CEO Our CSR Strategy Better Health, Better Community, Better World.
At CVS Health, we share a single, clear purpose: helping people on their path to better health. Whether in our pharmacies or through our pharmacy and health services and plans, we are pioneering a bold new approach to total health - making quality care more affordable, accessible, simple and seamless. As we integrate Aetna into our enterprise, our innovative new business model will allow us to bring real, meaningful change to the marketplace. In 2018, we took the opportunity to reframe our CSR strategy to be more inclusive of our broader enterprise and maximize our impact. Our refreshed CSR framework, Better Health, Better Community, Better World, conveys our mission to leverage our scale, expertise and innovative spirit in ways that positively impact all of our stakeholders. It charts our course for the future and focuses in the three key areas: | | 
Building Healthier Communities
Making community health and wellness central to our charge for a better world | | To ensure we are accountable in delivering our strategy, we track our progress against 23 measurable, multi-year performance targets. We continue to work with internal and external stakeholders to deliver on these commitments, identify new opportunities to strengthen our performance, and increase transparency. | | 
Leading & Inspiring Growth
Leveraging the power and scale of our business to create economic opportunities and value for employees, customers, suppliers and investors | | | 
Protecting Our Planet
Ensuring environmental sustainability is embedded in our approach to business operations and product development | | To read our full 2018 Corporate Social Responsibility Report, please visit www.CVSHealth.com/CSR. |
Table 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.Contents A-12
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(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.2018 CSR Achievements
(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 Committee’s 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 Committee’s 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 Committee’s 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 Corporation’s 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;
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Building Healthier Communities |
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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 Person’s or Participant’s 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 Corporation’s 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 Corporation’s 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 Corporation’s Universal 409A Definition Document, payment under any Award hereunder shall be delayed to the extent necessary to avoid a violation of Code Section 409A.
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(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.
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2016 CSR AchievementsAccess to Health Care
| Prescription$100 million
New philanthropic commitment: to make community health and wellness central to our charge for a Better Worldbetter world by supporting initiatives and nonprofits across three categories: improving local access to affordable quality care; impacting public health challenges; and partnering with local communities on the most pressing health issues
|
80,000/$5 million
 | Awards &
Recognitionreached 80,000 people in underserved communities with free health screenings, delivering more than $5 million free health services
| | Charitable Giving and Disaster Relief
$100+ million
provided in charitable giving through the CVS Health Foundation, corporate grants, in-kind gifts, employee giving and fundraising, and other community investments
Tobacco
228 schools
including 34 Historically Black Colleges and Universities, awarded grants as part of the Tobacco-Free Generation Campus Initiative
9 million youth
reached through programs, partnerships and strategic investments to provide smoking cessation and prevention messaging | | Prescription Drug Programs
About 450,000
students reached with prescription drug abuse education through Pharmacists Teach; 9,800 presentations in 48 states, DC and Puerto Rico
217+ metric tons
of unwanted medications collected in our safe medication disposal program through more than 1,650 total locations in 2018
Provided grants to 12 more community health centers
to support increased access to medication-assisted treatment and other recovery services |
 | Leading and Inspiring Growth |
$5.3 million
in value of employee volunteer hours provided to communities | | 15,000
colleagues hired with military experience and employed more than 4,000 military spouses since 2015 | | Supplier Diversity ●38,000 jobs supported ●$532 million in wages ●$5.8 billion contributed to the U.S. economy |
 | Protecting Our Planet |
Emissions Reductions
Science-based emissions reduction target approved by the Science Based Targets initiative | | 2 million
CVS Health colleagues, in partnership with the Ocean Conservancy & the International Coastal Cleanup removed 2 million+ cigarette butts from shorelines around the country | | 115 million yards
of receipt paper saved by delivering more than 99 million digital CVS Pharmacy receipts in 2018 |
 | Awards & Recognition |
100 Best Corporate Citizens, 2018 (#26)
2016 (#29)
CRCorporate Responsibility Magazine Sustainability IndexDow-Jones, 6th
straight year Civic 50– List of 50 most community-minded companies in the U.S. Points of Light Institute, for the second year in a row America’s Greenest Companies (#16)(#39)
Newsweek’s Green Rankings Sustainability Index
Learning Elite Silver Finalist (#27)Dow JonesChief Learning Officer magazine
ChangeHealthfor continuously improving the World List
Fortune Magazinelearning and development for our organization and industry
| | Corporate Equality Index
Human Rights CampaignAchieved 100% score for fifth consecutive year World’s Most Admired Companies (#27)(#35)
Fortune Magazine FTSE4Good IndexTop 50 Companies for Diversity
FTSE GroupDiversityInc
Corporate Equality Index
Human Rights Campaign
Achieved 100% score for third consecutive year
| | 90/100 Disability Equality Index scoreScore (second year in a row)–Best Places to Work List
American Association of People with Disabilities and US Business Leadership Network
25 Noteworthy Companies
DiversityInc
America’s Top 50 Organizations for Multicultural Business
DiversityBusiness.com
| | | | | | | | | | |  | HealthBillion Dollar Roundtable
Joined group that is spending more than $1 billion annually with diverse suppliers
#10 Top Companies for Supplier Diversity
Recognized by DiversityInc for our focus on expanding our engagement of minority and women-owned businesses in Actionour supply chain | | | | | | | | | | |
Table of Contents We are
health care
innovators
Project Health
$117MOur Purpose
worth of freeHelping people on their path to better 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 nation’s 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
| | Our Strategy
$2.5M
in value of employee volunteer hours providedCreating unmatched human connections to communities | | $1B
target of spending on diverse Tier I suppliers, achieved | | 60,000+
underserved young people introduced to careers intransform the health care experience | | Our Values
Innovation
Collaboration
Caring
Integrity
Accountability |
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Table of Contents  | CVS HEALTH CORPORATION
C/O WELLS FARGO SHAREOWNER SERVICES
P.O. BOX 64945
ST. PAUL, MN 55164-0945
|
 CVS HEALTH CORPORATION
C/O EQ SHAREOWNER SERVICES
P.O. BOX 64945
ST. PAUL, MN 55164-0945  | | 
VOTE BY INTERNET -www.proxyvote.com or scan the QR Barcode abovewww.proxyvote.com or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on May 15, 2019 for shares held directly and by 11:59 P.M. ET on May 13, 2019 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET on May 15, 2019 for shares held directly and by 11:59 P.M. ET on May 13, 2019 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. | Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Follow the instructions to obtain your records and to create an electronic voting instruction form. | | ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS | If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. | | VOTE BY PHONE - 1-800-690-6903 | Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. | | VOTE BY MAIL | Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, MARK BLOCKS BELOW
| | | | IN BLUE OR BLACK INK, DETACH, AND RETURN IN THE ENCLOSED ENVELOPE: | E24739-P85844 | E69548-P18898-Z74361 | | KEEP THIS PORTION FOR YOUR RECORDS | | | | | DETACH AND RETURN THIS PORTION ONLY | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | CVS HEALTH CORPORATION | | | | | | | | | | | The Board of Directors recommends you vote FOR
the following proposal: | | |
| 1. | Election of Directors | | | | | | | | | | | | Nominees: | | For | | Against | | Abstain | | | | | | | | | | | | | 1a. | Richard M. Bracken | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1b. | C. David Brown II | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1c. | Alecia A. DeCoudreaux | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1d. | Nancy-Ann M. DeParle | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1e. | David W. Dorman | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1f. | Anne M. Finucane | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1g. | Larry J. Merlo | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1h. | Jean-Pierre Millon | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1i. | Mary L. Schapiro | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1j. | Richard J. Swift | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1k. | William C. Weldon | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1l. | Tony L. White | | ☐ | | ☐ | | ☐ | | | | | | | | | | |
| | | | | | | | | | | | | | The Board of Directors recommends you vote FOR
each of the following proposals:Nominees: | | 1. | | ForElection of Directors | | Against | | Abstain | | | | | | | | 2. | Proposal to ratify independent public accounting firm for 2017. | Nominees: | | For | | Against | | Abstain | | | 1a. | | Fernando Aguirre | | ☐ | | ☐ | | ☐ | | | 1b. | | | | | 3. | Say on Pay - An advisory vote on the approval of executive compensation.Mark T. Bertolini | | ☐ | | ☐ | | ☐ | | | 1c. | | | | | The Board of Directors recommends you vote 1 year on the following proposal: | | 1 Year | | 2 Years | | 3 Years | | Abstain | | | | | | | | 4. | To recommend, by non-binding vote, the frequency of executive compensation votes. | | ☐Richard M. Bracken | | ☐ | | ☐ | | ☐ | | | 1d. | | C. David Brown II | | ☐ | | ☐ | | ☐ | | | 1e. | | Alecia A. DeCoudreaux | | ☐ | | ☐ | | ☐ | | | 1f. | | Nancy-Ann M. DeParle | | ☐ | | ☐ | | ☐ | | | 1g. | | David W. Dorman | | ☐ | | ☐ | | ☐ | | | 1h. | | Roger N. Farah | | ☐ | | ☐ | | ☐ | | | 1i. | | Anne M. Finucane | | ☐ | | ☐ | | ☐ | | | 1j. | | Edward J. Ludwig | | ☐ | | ☐ | | ☐ | | | 1k. | | Larry J. Merlo | | ☐ | | ☐ | | ☐ | | | 1l. | | Jean-Pierre Millon | | ☐ | | ☐ | | ☐ |
| | | | For | | Against | | Abstain | | | 1m. | | Mary L. Schapiro | | ☐ | | ☐ | | ☐ | | | 1n. | | Richard J. Swift | | ☐ | | ☐ | | ☐ | | | 1o. | | William C. Weldon | | ☐ | | ☐ | | ☐ | | | 1p. | | Tony L. White | | ☐ | | ☐ | | ☐ |
| | | | | | | The Board of Directors recommends you vote FOR the following proposal:proposals: | | FORFor | | Against | | Abstain | | | | | | | | 5.2. | | Proposal to approve the 2017 Incentive Compensation Plan.ratify appointment of independent registered public accounting firm for 2019. | | ☐ | | ☐ | | ☐ | | | | | | | | | 3. | | Say on Pay, a proposal to approve, on an advisory basis, the Company's executive compensation. | | ☐ | | ☐ | | ☐ | | | | | | | | The Board of Directors recommends you vote AGAINST the following proposals:proposal: | | For | | Against | | Abstain | | | | | | | | | 4. | | | | | | | 6. | Stockholder proposal regarding the ownership thresholdexclusion of legal or compliance costs from financial performance adjustments for calling special meetings of stockholders.executive compensation. | | ☐ | | ☐ | | ☐ | | | | | | | | 7. | Stockholder proposal regarding a report on executive pay. | | ☐ | | ☐ | | ☐ | | | | | | | | 8. | Stockholder proposal regarding a report on renewable energy targets. | | ☐ | | ☐ | | ☐ | | | | | | | | For address changes and/or comments, please check this box and write them on the back where indicated. | | | | | | ☐ | | | | | | | | | NOTE:In their discretion, the proxies may vote on such other business as may properly come before the meeting or any adjournment thereof. | | | | | | |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. The signer hereby revokes all proxies heretofore given by the signer to vote at the 2019 Annual Meeting of Stockholders of CVS Health Corporation and any adjournment thereof. | | | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | | | | | | | | |
| | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | Date |
| | | | Signature (Joint Owners) | Date | |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice of Meeting and Proxy Statement and Annual Report are available at
www.proxyvote.com and at www.cvshealthannualmeeting.com.
| E24740-P85844
E69549-P18898-Z74361 |
CVS HEALTH CORPORATION
Annual Meeting of Stockholders
May 10, 2017, 9:16, 2019, 8:00 AMA.M., EDT This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Larry J. Merlo and David W. Dorman, or eitherand each of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares ofCommon Stock of CVS HEALTH CORPORATION that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 9:8:00 AM,A.M., EDT, on May 10, 201716, 2019 at the CVS Health Customer Support Center, One CVS Drive, Woonsocket, RI 02895, and any adjournment or postponement thereof. Additional Voting Instructions for Certain CVS Health and Aetna Employees:To the extent the undersigned is a participant in (i) the CVS Health Future Fund 401(k) Plan (the "CVS Plan") or (ii) the Aetna 401(k) Plan (the "Aetna Plan", and Employee Stock Ownershiptogether with the CVS Plan, of CVS Health Corporation and Affiliated Companies (the "Plan"the "Plans"), the undersigned hereby instructs The Bank of New York Mellon, as trustee under the CVS Plan, and/or State Street Bank and Trust Company, as trustee under the Aetna Plan, to vote as indicated on the reverse side, all shares of CVS Health Common Stockcommon stock held in the Plan,Plan(s), as to which the undersigned would be entitled to give voting instructions if present at the Annual Meeting. Shares held under the PlanPlan(s) for which voting instructions are not properly completed or signed, or received in a timely manner (no later than noon11:59 P.M., EDT on May 8, 2017)13, 2019), will be voted in the same proportion as those shares for which voting instructions were properly completed and signed and received in a timely manner, soas long as such vote is in accordance with the provisions of the Employment Retirement Income Security Act of 1974, as amended. All votes will be kept confidential by the trustee.trustee(s). This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Address Changes/Comments: | | | |
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
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