UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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☑ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
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CVS Health Corporation
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Notice of 2019 Annual Meeting of Stockholders and Proxy Statement | |
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May 16, 2019; 8:00 a.m. CVS Health Corporation |
Message from Our Chair and Our Chief Executive Officer
MESSAGE FROM OUR CHAIRMAN AND OUR CHIEF EXECUTIVE OFFICER
Dear Fellow Stockholders:
20162018 was another successfula year formarked by tremendous change in the industry, and CVS Health was at the center of it all. In a health care landscape scarred by an overly complex system, which has been delivering inconsistent outcomes to patients for years, CVS Health’s acquisition of Aetna (the Aetna Transaction) brings together two premier health-centric companies that are best positioned to reshape the health care landscape.
Creating the Front Door to Health Care
The combination of the nation’s largest pharmacy retailer with one of the country’s leading diversified health care benefits companies creates nearly limitless possibilities to transform the broken health care system. Aetna’s “go local” approach is a perfect match with CVS Health’s nearly 10,000 stores across the country. This winning combination creates a true front door to health care in local communities as we continuedcontinue to benefit from our focus on delivering affordable, accessibledevelop innovative products and effectiveservices to expand access to quality health care. Our unmatched suiteCVS Health recently launched our first HealthHUBs, with the goal of leading integrated assets continuesbringing more health-centric services to create superior valueCVS customers than ever before. These HealthHUBs will serve as the testing grounds for patients, payorsa variety of new products and providers.
While we delivered significant growthservices that will continue to grow and expand across the country over time. In addition to our new store concepts, CVS Health is investing in Adjusted Earnings Per Share, this past year was also impacted by some headwinds that weighed on our stock’s performance. Thanks in partdigital capabilities to bring health care to the rhetoric surrounding last year’s presidential election,palm of your hand. CVS already engages with one in three Americans on a daily basis and, through our stock, as well asdigital expansion, we expect to grow that of others inreach even more. Ultimately, between our space, was affected bynationwide store presence and through the public discussion regarding the rising costs of prescription drugs, and the possible repeal and replacement of the Affordable Care Act. Additionally, the loss of retail pharmacy prescriptions associated with a few pharmacy network changes announced in late 2016 is expected to challenge our retail pharmacy business and make this year a rebuilding year.
However, we have implemented plans that are expected to return us to more robust levels of earnings growth in the years ahead. We remain well-positioned to be successful and achieve long-term growth because of our abilityelectronic platforms, we expect to pivot as healthexpand access to quality care changesand deliver needed solutions that will enhance patient access, improve health outcomes and lower overall health care costs. When you consideracross the breadth of our assets, all of which are focused on making health care more accessible, affordable and effective, our competitive advantage is clear.country.
We continue to remain focused on our three pillars that maximize stockholder value. First, we drive productive, long-term growth as evidenced by our solid increases in revenues, operating profit and earnings per share. Second, we generate substantial levels of free cash flow, providing a solid platform to drive future growth. Third, we maintain a disciplined approach to optimizing capital allocation, investing our free cash opportunistically in value-enhancing projects while returning more than $6 billion to stockholders through dividends and share repurchases this past year alone. In addition, we have embarked on an enterprise streamlining initiative that will enable us to create significant savings that can be used to further maximize stockholder value.
Corporate Social Responsibility
CVS Health works every dayis committed to provide people with high quality pharmacy and basic health care services, and to make these services accessible and affordable. We align our purpose of helping people on their path to better health across the country, and this is evident in our commitment of $100 million to theBuilding Healthier Communitiesinitiative announced earlier this year. In collaboration with the CVS Health Foundation and the Aetna Foundation, we will invest $20 million annually over five years to partner with local communities and to help support a wide range of initiatives and non-profit organizations. Under this initiative, CVS Health and its affiliates will join forces with organizations that have missions to improve local access to affordable quality care and to impact public health challenges. Through this new initiative, we will strengthen our corporate social responsibility roadmap, Prescription for a Better World. We have takenlocal and community engagement and further improve the roadmap a step further by makinghealth of our business operations, workplace, supply chain and communities more sustainable.neighborhoods. Some of the highlights of our progressthis program as well as other initiatives can be found inside the back cover of this proxy statement.
ThisCorporate Governance
Following the Aetna Transaction, we added four of Aetna’s directors to our Board and, in conjunction with our existing directors, we will leverage their guidance to help drive future
success at CVS Health. Over this past year we continued to engagewe’ve proactively met with our stockholders to ensure that we understand your needs. We pride ourselves on strong corporate governance practicesneeds and we believe that accountabilityare actively working to position our stockholders is a mark of good governance. Withincompany for future growth, and within this proxy statement you will find the details of the changes we have made as a result of conversations with many of you.in response to those conversations. We certainlypride ourselves on our strong governance practices, thank you for your continued support and welcome your feedback onregarding future improvements.
Overall 2018 Performance
CVS Health showed strong growth in 2018, with revenues increasing nearly $10 billion year-over-year, bolstered by the changesAetna Transaction and by continued script growth of 8.6% for the year. We delivered adjusted earnings per share of $7.08,* at the top end of our previous guidance range. However, last year was not without its challenges: CVS Health took $6.1 billion of goodwill impairment charges related to our Long-Term Care business, which was largely responsible for our 2018 GAAP loss per share of $0.57. We are taking comprehensive actions to address the impact of certain headwinds we have made.are facing, and we are confident that our actions will position us well in 2020 and beyond.
Annual Meeting of Stockholders
Our 20172019 Annual Meeting of Stockholders will be held on Wednesday,Thursday, May 10, 2017,16, 2019, at 9:8:00 a.m., at the CVS Health Customer Support Center located at One CVS Drive in Woonsocket, Rhode Island. We invite you to attend, and ask you to please vote at your earliest convenience, whether or not you plan to attend.convenience. Your vote is important.
Thank you for your interest and investment in CVS Health. We remain confident that our leadership across the pharmacy spectrum will allow usappreciate your continued support as we look to continue to drive superior value fortransform our health care partners and our shareholders. Thank you for investing in CVS Health.system as we know it today.
Sincerely,
David W. Dorman | Larry J. Merlo | |
| President and Chief Executive Officer |
* | Adjusted earnings per share is a non-GAAP measure. See Annex A to the proxy statement. |
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TABLE OF CONTENTSTable of Contents
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2 | 2019 Proxy Statement |
Notice of Annual Meeting of Stockholders
Date and Time |
| CVS Health Corporation Customer Support Center One CVS Drive Woonsocket, Rhode Island 02895 |
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date and TimeMay 10, 2017, 9:00 A.M.
PlaceCVS Health CorporationCustomer Support CenterOne CVS DriveWoonsocket, Rhode Island 02895
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● | Ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for |
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Conduct any other business properly brought before the Annual Meeting. |
Eligibility to Vote
Stockholders of record at the close of business on March 14, 201721, 2019 may vote at the Annual Meeting.
By Order of the Board of Directors,
Colleen M. McIntosh
Senior Vice President, & Corporate Secretary and Chief Governance Officer
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Your vote is important.
Whether or not you plan to attend the Annual Meeting, please vote your shares. In addition to voting in person or by mail, stockholders of record have the option of voting by telephone or via the Internet. If your shares are held in the name of a bank, broker or other holder of record (i.e., in “street name”), please read your voting instructions to see which of these options are available to you. Even if you are attending the Annual Meeting in person, we encourage you to vote in advance by mail, phone or Internet.
We began mailing and made available this proxy statement and the enclosed proxy card on or about March 31, 2017April 5, 2019 to all stockholders entitled to vote. Our 20162018 Annual Report, which includes our financial statements, is being sent with this proxy statement.
HOW TO VOTE Your vote is important to the future of CVS Health. You are eligible to vote if you were a stockholder of record at the close of business on March 21, 2019. Even if you plan to attend the Annual Meeting, please vote as soon as possible using one of the following methods. In all cases, you should have your proxy card in hand:
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on May 16, 2019: The proxy statement and annual report to stockholders are available at www.cvshealthannualmeeting.com and atwww.proxyvote.com/cvs. |
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PROXY STATEMENT HIGHLIGHTSProxy Statement Highlights
This summary highlights selected information in this Proxy Statement – please review the entire document before voting.
All of our Annual Meeting materials are available in one place at www.cvshealthannualmeeting.com. There, you can download electronic copies of our Annual Report and Proxy Statement, and use the link to vote.
Voting Items |
| Further information | ||||
Item 1 Election of directors | director nominee | Our | ◥ | 9-17 | |
Item 2 Ratify the appointment of the Company’s independent registered public accounting firm for 2019 | Based on its recent evaluation, our Audit Committee believes that the retention of | ◥ | 33-34 | ||
Item 3 Say on pay - an advisory vote on the approval of the Company’s executive compensation |
| Our executive compensation program reflects our unwavering commitment to paying for performance and reflects feedback received from stockholder outreach | ◥ | 35-36 | |
Item 4 Stockholder proposal regarding exclusion of legal or compliance costs from financial performance adjustments for executive compensation | AGAINST | The proposal is overly restrictive and broad, preventing the Board from exercising discretion to consider important additional factors. Further, we believe that our approach to incentive compensation for our senior executives, which considers individual results, company performance and the values set forth in ourCode of Conduct, is an appropriate way to align the interests of our senior executives with the long-term interests of our stockholders | ◥ | 76-78 |
4 | 2019 Proxy Statement |
Proxy Statement Highlights The CVS Health Board
The CVS Health Board |
You are asked to vote on the election of the following 1216 nominees to serve on the Board of Directors of CVS Health. All directors are elected by a majority of votes cast.cast, and all presently serve on the CVS Health Board. The information reflected below is as of our Annual Meeting date, May 16, 2019.
CVS HEALTH COMMITTEES | |||||||||||
NAME, PRIMARY OCCUPATION | AGE | DIRECTOR SINCE | INDEPENDENT | OTHER PUBLIC COMPANY BOARDS | A | MP&D | N&CG | PS&CQ | E | ||
Richard M. Bracken Retired Chairman and CEO of HCA Holdings, Inc. | 64 | 2015 | YES | None | ● | ● | |||||
C. David Brown II Chairman of Broad and Cassel | 65 | 2007 | YES | 2 | ● | ● | ● | ||||
Alecia A. DeCoudreaux Retired President of Mills College | 62 | 2015 | YES | None | ● | ● | |||||
Nancy-Ann M. DeParle Co-Founding Partner of Consonance Capital Partners, LLC | 60 | 2013 | YES | 1 | ● | ● | |||||
David W. Dorman Chairman of the Board of CVS Health Corporation,Founding Partner of Centerview Capital Technology Fund | 63 | 2006 | YES | 2 | ● | ● | ● | ||||
Anne M. Finucane Vice Chairman of Bank of America Corporation | 64 | 2011 | YES | None | ● | ● | |||||
Larry J. Merlo President and CEO of CVS Health Corporation | 61 | 2010 | NO | None | ● | ||||||
Jean-Pierre Millon Retired President and CEO of PCS Health Systems, Inc. | 66 | 2007 | YES | None | ● | ● | |||||
Mary L. Schapiro Vice Chair, Advisory Board Promontory Financial Group | 61 | ---- | YES | 2 | |||||||
Richard J. Swift Retired Chairman of the Board, President and CEO of Foster Wheeler Ltd. | 72 | 2006 | YES | 4 | ● | ● | |||||
William C. Weldon Retired Chairman of the Board and CEO of Johnson & Johnson | 68 | 2013 | YES | 2 | ● | ● | |||||
Tony L. White | 70 | 2011 | YES | 2 | ● | ● |
Director Since | Other Public Company Boards | CVS Health Committees | |||||||||
Name, Primary Occupation | Age | Independent | A | I&F | MP&D | N&CG | MA | E | |||
Fernando Aguirre Former Chairman, President and CEO of Chiquita Brands International, Inc. | 61 | 2018 | YES | 1 | |||||||
Mark T. Bertolini Former Chairman and CEO of Aetna Inc. | 62 | 2018 | NO | 1 | |||||||
Richard M. Bracken Former Chairman and CEO of HCA Holdings, Inc. | 66 | 2015 | YES | None | |||||||
C. David Brown II Partner & Member of Executive Committee of Nelson Mullins Riley & Scarborough | 67 | 2007 | YES | 1 | |||||||
Alecia A. DeCoudreaux President Emerita of Mills College and Former Executive at Eli Lilly and Company | 64 | 2015 | YES | None | |||||||
Nancy-Ann M. DeParle1 Co-Founding Partner of Consonance Capital Partners, LLC and Former Director of White House Office of Health Reform | 62 | 2013 | YES | 1 | |||||||
David W. Dorman Chair of the Board of CVS Health Corporation and Former Chairman and CEO of AT&T Corporation | 65 | 2006 | YES | 1 | |||||||
Roger N. Farah Chairman of Tiffany & Co. and Former Executive at Tory Burch and Ralph Lauren | 66 | 2018 | YES | 3 | |||||||
Anne M. Finucane Vice Chairman and Member of the Executive Management Team of Bank of America Corporation | 66 | 2011 | YES | None | |||||||
Edward J. Ludwig Former Chairman and CEO of Becton, Dickinson and Company | 67 | 2018 | YES | 1 | |||||||
Larry J. Merlo President and CEO of CVS Health Corporation | 63 | 2010 | NO | None | |||||||
Jean-Pierre Millon Former President and CEO of PCS Health Systems, Inc. | 68 | 2007 | YES | None | |||||||
Mary L. Schapiro Vice Chair of Public Policy and Special Advisor to the Chairman of Bloomberg L.P. | 63 | 2017 | YES | 1 | |||||||
Richard J. Swift2 Former Chairman, President and CEO of Foster Wheeler Ltd. | 74 | 2006 | YES | 2 | |||||||
William C. Weldon Former Chairman and CEO of Johnson & Johnson | 70 | 2013 | YES | 2 | |||||||
Tony L. White Former Chairman, President and CEO of Applied Biosystems, Inc. | 72 | 2011 | YES | 1 |
Member | A | Audit | MP&D | Management Planning | MA | ||||||
Committee Chair | I&F | Investment and Finance | N&CG | Nominating | E |
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Proxy Statement Highlights The CVS Health Board
SELECTING OUR DIRECTORS
| Director Tenure | Financial Expertise | ||||||
14 Independent | 2 Not Independent | 7 0-3 years | 4 4-7 years | 5 >7 years | 12 Financial Experts | 4 Financially Literate | ||
14 directors,including our Chair, are independent of the Company and management. Mr. Merlo, our President and CEO, and Mr. Bertolini, former Chairman and CEO of Aetna, are our only non-independent directors. | Our directors bring a balance of experience and fresh perspective to our boardroom.The average tenure of our directors is 5.7 years. | Five members of our Audit Committee are designated Audit Committee Financial Experts.Seven other board members have qualifications to be financial experts, and the remainder are financially literate. |
Born Outside of the U.S. | Director Gender | |||
3 Born Outside U.S. | 13 U.S. Born | 4 Female | 12 Male | |
Our directors come fromvaried backgrounds, including10 different statesandthree foreign countries. | 25% of our directors are women. |
THE CVS HEALTH BOARDDIRECTOR SKILLS AND EXPERIENCE
2016Our directors possess relevant experience, skills and qualifications that contribute to a well-functioning Board to effectively oversee the Company’s strategy and management. Our directors’ principal areas of Directors
expertise include:
11/16 | 13/16 | 8/16 | |||||
Business Development and | Health Care and Regulated Industries | Public Company Board Service | |||||
8/16 | 8/16 | 7/16 | |||||
Business Operations | International Business Operations | Public Policy and Government Affairs | |||||
8/16 | 12/16 | 10/16 | |||||
Corporate Governance | Leadership (Current or Former CEOs) | Risk Management | |||||
13/16 | 4/16 | 5/16 | |||||
Finance | Legal and Regulatory Compliance | Technology and Innovation |
6 | 2019 Proxy Statement |
Proxy Statement Highlights The CVS Health Board
BOARD AND CORPORATE GOVERNANCE HIGHLIGHTS
The CVS Health Board continues to evaluate the Company’s corporate governance policies and practices to ensure that the right mix of individuals are present in our boardroom and to best serve the stockholders we represent by ensuring effectiveoversighteffective oversight of our strategy and management. We are committed to maintaining the highest standards of corporate governance, and have established a strong and effective framework by which the Company is governed and reviewed.
Further Information | ||||
2018-2019 Board and Corporate Governance Developments |
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| ● | ◥ | pages 10, 13 and 14 | |
●In connection with the Aetna Transaction, we changed the name of the Patient Safety and Clinical Quality Committee | ◥ | page | ||
●We | ◥ | page 26 | ||
Board Communication and Stockholder Rights | ||||
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| ●Our Board supports our stockholder outreach program and has responded to stockholder input with changes in our compensation program and other areas | ◥ | pages | |
●Majority voting in director elections | ◥ | page 19 | ||
●Proxy access by-law | ◥ | page 19 | ||
●Annual election of all directors | ◥ | pages 9-17 | ||
●Annual “say-on-pay” vote | ◥ | page 35 | ||
●Right to act by written consent and to call special meetings | ||||
● | ◥ | See our Certificate of Incorporation and By-laws at https://investors. cvshealth.com under “Governance Documents” | ||
Director Alignment with Stockholder Interests | ||||
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| ●At least 75% of our directors’ annual retainer mix is paid in shares of CVS Health common stock | ◥ | pages | |
●Directors must own at least 10,000 shares of CVS Health common stock | ◥ | page | ||
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Board Oversight of Risk | ||||
●Full Board and individual | ◥ | page | ||
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●At least annually, the Audit Committee reviews our policies and practices with respect to risk assessment and risk management, including discussing with management our major risks and the steps that have been taken to monitor and mitigate such risks | ◥ | page | ||
●The Management Planning and Development Committee is responsible for reviewing and assessing potential | ◥ | page | ||
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Proxy Statement Highlights The CVS Health Board
STOCKHOLDER OUTREACH – GOVERNANCE AND COMPENSATION ACTIONS
DuringFollowing our 2018 Annual Meeting of Stockholders, the fallManagement Planning and Development Committee reviewed the results of 2016,the stockholder advisory vote on executive compensation. Due to changes we made to our compensation programs in response to stockholder feedback after the 2017 Annual Meeting, approximately 91% of votes were cast in favor of the proposal, an increase from 61% in 2017. In the latter part of 2018 and early 2019, we reached out to our 50 largest stockholders, holders of more than 50%approximately 41% of our outstanding common stock in the aggregate, and offered to discuss corporate governance,spoke with holders of nearly 19% of our compensation programs andany other matters of interest. We had discussions with many stockholders andoutstanding shares, as well as one of the leading proxy advisory firms. During those discussions,We discussed with them a number of topics, including our strategy in the evolving health care industry, our Board composition and practices, our initiatives around corporate social responsibility, including enhanced initiatives to help fight the national opioid abuse crisis, and our executive compensation programs. In response to these meetings, we heard several themes that caused ushave made a number of changes to take action:our governance structure, practices and programs for which we have received positive feedback from our stockholders. Below are some of the actions we took.
What we heard | Our response | |||||
How has the skill set of the Board been supplemented following the Aetna Transaction? | ||||||
How have | ||||||
How is CVS Health addressing the opioid abuse crisis that is facing the U.S.? | We believe we are part of the solution to the opioid abuse crisis. CVS Health is dedicated to helping communities address and | |||||
How have you improved your executive compensation program? | ||||||
For more information on changes to our | ||||||
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page 38. For more information on corporate governance at CVS Health, please refer to pages |
8 | 2019 Proxy Statement |
Corporate Governance and Related Matters
2019 Board of Directors
1Richard Swift | 2Jean-Pierre Millon | 3Fernando Aguirre | 4Alecia DeCoudreaux | 5Edward Ludwig | 6Tony White |
7Roger Farah | 8Larry Merlo | 9David Dorman | 10Anne Finucane | 11David Brown | 12Mary Schapiro |
13Mark Bertolini | 14Nancy-Ann DeParle | 15William Weldon | 16Richard Bracken |
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For CVS Health, 2016 was a successful year. Here are some highlights:
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LEADING PRACTICES IN COMPENSATION PROGRAMS
Our pay practices align with and support our core compensation principles. They also demonstrate our commitment to sound compensation and governance practices.
OUR 2016 EXECUTIVE PAY
The following shows the breakdown of reported 2016 compensation for our CEO and our other named executive officers, or NEOs.
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All Other NEOs
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CORPORATE GOVERNANCE AND RELATED MATTERS
Our Board of Directors has nominated 12 candidates for election as directors at the Annual Meeting. Eleven nominees currently serve as directors and one nominee would be a new member of our Board. If elected, each nominee will hold office until the next annual meeting.
The Nominating and Corporate Governance Committee believes that the Board, with Ms. Schapiro as a new nominee, is well-balanced and that it fully and effectively addresses the Company’s needs. All of our nominees are seasoned leaders, the majority of whom are or were chief executive officers or other senior executives, who bring to the Board skills and qualifications gained during their tenure at a vast array of public companies, private companies, non-profits, governmental and regulatory agencies and other organizations. We have indicated below for each nominee certain of the experience, qualifications, attributes or skills that led the Committee and the Board to conclude that the nominee should continue to serve as a director.Related Matters Item 1
BIOGRAPHIES OF OUR INCUMBENT BOARD NOMINEES
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Independent Director Other Public Boards |
● | Leadership – Former CEO |
● | Business Operations; Consumer Products and Services |
● | International Business Operations |
● | Corporate Governance |
● | Business Development and Corporate Transactions |
● | Finance |
● | Health Care/Regulated Industry |
EducationB.S., Southern Illinois University
BiographyMr. Aguirre was formerly a member of the board of directors of Aetna from 2011 until the closing of the Aetna Transaction, when he became a director of CVS Health. Mr. Aguirre is the former Chairman, President and Chief Executive Officer of Chiquita Brands International, Inc. (Chiquita) (a global distributor of consumer products), having served as Chiquita’s President and Chief Executive Officer from January 2004 to October 2012 and its Chairman from May 2004 to October 2012. Prior to joining Chiquita, Mr. Aguirre worked for more than 23 years in brand management, general management and turnarounds at The Procter & Gamble Company (P&G) (a manufacturer and distributor of consumer products). Mr. Aguirre began his P&G career in 1980, serving in various capacities including President and General Manager of P&G Brazil, President of P&G Mexico, Vice President of P&G’s global snacks and U.S. food products, and President of global feminine care. He served as a director of Coveris (packaging) from 2014 to 2015, Levi Strauss (manufacturer of clothing) from 2010 until August 2014, and Coca-Cola Enterprises Inc. (manufacturer and distributor of consumer products) from 2005 to 2010. Mr. Aguirre also serves as a director on the board of directors of Barry Callebaut AG (a manufacturer of high-quality chocolate and cocoa products).
Skills and Qualifications of Particular Relevance to CVS HealthMr. Aguirre brings to the Board extensive consumer products, global business and executive leadership experience. As a former Chairman and CEO of a large public company that produces and distributes consumer products worldwide, he has significant brand management and international experience that is valuable to the Board’s strategic and operational understanding of global markets. Mr. Aguirre’s experience and service on other large public company boards, where he chaired various committees, positions him well as a member of our Audit and Nominating and Corporate Governance Committees.
Age 62 Director since | Mark T. Bertolini Non-Independent Director Other Public Boards |
● | Leadership – Former CEO |
● | Business Operations |
● | Business Development, Corporate Strategy and Transactions |
● | Finance |
● | Health Care/Regulated Industry |
● | Public Policy and Government Affairs |
● | International Business Operations |
EducationB.S., Wayne State University; M.B.A., Cornell University
BiographyMr. Bertolini was formerly a member of the board of directors of Aetna from 2010 until the closing of the Aetna Transaction, when he became a director of CVS Health. Mr. Bertolini was also the Chairman and Chief Executive Officer of Aetna until that time. He assumed the roles of Chairman of Aetna’s board of directors on April 8, 2011 and Chief Executive Officer of Aetna on November 29, 2010. From July 2007 to December 2014, he served as President, responsible for all of Aetna’s businesses and operations. Mr. Bertolini joined Aetna in 2003 as head of Aetna’s Specialty Products, and subsequently served as Executive Vice President and head of Aetna’s regional businesses. Before joining Aetna, Mr. Bertolini held executive positions at Cigna, NYLCare Health Plans, and SelectCare, Inc., where he was President and Chief Executive Officer. Mr. Bertolini also serves as a director of Verizon Communications, Inc. (communications, information and entertainment products and services), Massachusetts Mutual Life Insurance Company (insurance and investment products and services), Fidelco Guide Dog Foundation, Peterson Institute for International Economics, Thrive Global and the Mind & Life Institute.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Bertolini brings to the Board extensive health care industry expertise, with over 30 years in the health care business. He has particularly strong leadership skills and business experience, as he has demonstrated as the former Chairman and Chief Executive Officer of Aetna and in several prior executive-level positions. He is a well-recognized leader in the health care industry and possesses deep insights into health care issues as well as broad knowledge and appreciation of public policy issues affecting the Company.
10 | 2019 Proxy Statement |
Corporate Governance and Related Matters Item 1
Age66 Director since | Richard M. Bracken Independent Director Other Public Boards |
● | Leadership – Former CEO |
● | Business Operations; Consumer Products and Services |
● | Finance |
● | Health Care/Regulated Industry |
● | Risk Management |
● | Corporate Governance |
EducationB.A., San Diego State University; M.H.A., Medical College of Virginia, Virginia Commonwealth University
BiographyMr. Bracken is the former Chairman and Chief Executive Officer of HCA Holdings, Inc., one of the nation’s leading providers of health care services. At the time of Mr. Bracken’s retirement, HCA’s facilities included approximately 165 hospitals and 115 freestanding surgery centers in 20 states and the U.K. Mr. Bracken served in a number of executive roles in his 33-year career at HCA, including President of HCA’s Pacific Division in 1995, Western Group President in 1997, Chief Operating Officer of HCA in July 2001, and President and Chief Operating Officer in January 2002. He was elected to the HCA Board of Directors in November 2002, became President and Chief Executive Officer in January 2009, and Chairman and Chief Executive Officer in December, 2009. He retired as CEO in December 2013, and as Chairman in December 2014.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Bracken’s experience in leading a large, publicly traded health care company lends expertise and perspective greatly valued by the Board. In addition, his experience operating in the highly-regulated health care industry with significant experience in enterprise clinical quality is also a complementary skill set for the Board. That experience led the Board to appoint Mr. Bracken as Chair of the Patient Safety and Clinical Quality Committee (now known as the Medical Affairs Committee) when it was formed in March 2016.
Age67 Director since | C. David Brown II Independent Director Other Public Boards |
● | Business Operations; Real Estate |
● | Business Development, Corporate Strategy and Transactions |
● | Finance |
● | Legal and Regulatory Compliance |
● | Health Care/Regulated Industry |
● | Risk Management |
● | Public Company Board Service |
EducationB.S.B.A., University of Florida; J.D., University of Florida College of Law
BiographyMr. Brown has been a partner and a member of the Executive Committee of Nelson Mullins Riley & Scarborough LLP (Nelson Mullins), a national law firm, since the August 2018 merger of Nelson Mullins and the Florida-based Broad and Cassel, of which Mr. Brown was Chairman from March 2000 through the time of the merger. He is also the lead director of Rayonier Advanced Materials Inc. (RYAM), a leading specialty cellulose production company. Mr. Brown previously served on the board of directors and as lead director of Rayonier Inc., a real estate development and timberland management company, prior to the spin-off of RYAM in June 2014. He also served as a director of ITT Educational Services, Inc., a national provider of technology-oriented degree programs, from April 2015 until September 2016. Mr. Brown previously served on the board of Caremark Rx, Inc. from March 2001 until the closing of the merger transaction involving CVS Health and Caremark, when he became a director of CVS Health.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Brown’s legal expertise and health care experience are highly valued by the Board, as is his ability to analyze and interpret complex issues and facilitate Board engagement. Mr. Brown has significant health care experience, including through his oversight of UF Health while serving as Chairman of the Board of Trustees for the University of Florida and as a former member of the Board of Directors and Executive Committee of Orlando Health, a not-for-profit health care network. The Board believes that Mr. Brown’s experience adds knowledge and leadership depth to the Board.
cvshealthannualmeeting.com | 11 |
Corporate Governance and Related Matters Item 1
Age64 Director since | Alecia A. DeCoudreaux Independent Director Other Public Boards |
Director Qualification Highlights
● | Business Development, Corporate Strategy and Transactions | |||||||||
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● | Corporate Governance | |||||||||
● | Risk Management | |||||||||
● | Public Policy and Government Affairs |
EducationB.A., Wellesley College; J.D., Indiana University School of Law
BiographyMs. DeCoudreaux is President Emerita of Mills College, a liberal arts college for women with graduate programs for women and men, having served a five-year term as President from July 2011 through June 2016. Previously, Ms. DeCoudreaux served in a number of leadership roles at Eli Lilly and Company, a global pharmaceutical manufacturer, including as Vice President and Deputy General Counsel, Specialty Legal Team, from 2010-2011, Vice President and General Counsel, Lilly USA, from 2005-2009, and Secretary and Deputy General Counsel of Eli Lilly from 1999-2005. During her 30-year career with Eli Lilly Ms. DeCoudreaux also previously served as Executive Director of Lilly Research Laboratories, Director of Federal Government Relations, Director of State Government Relations and Director of Community Relations. In addition, Ms. DeCoudreaux has served on a number of charitable, educational, for profit and nonprofit boards, including as both a trustee and board chair at Wellesley College.
Skills and Qualifications of Particular Relevance to CVS Health
EducationB.A., Wellesley College; J.D., Indiana University School of Law
BiographyMs. DeCoudreaux is the former President of Mills College, a liberal arts college for women with graduate programs for women and men, having served in that position from July 2011 through June 2016. Previously, Ms. DeCoudreaux served in a number of leadership roles at Eli Lilly and Company, a global pharmaceutical manufacturer, including as Vice President and Deputy General Counsel, Specialty Legal Team, from 2010-2011, Vice President and General Counsel, Lilly USA, from 2005-2009, and Secretary and Deputy General Counsel of Eli Lilly from 1999-2005. During her 30-year career with Eli Lilly Ms. DeCoudreaux also previously served as Executive Director of Lilly Research Laboratories, Director of Federal Government Relations, Director of State Government Relations and Director of Community Relations. In addition, Ms. DeCoudreaux has served on a number of charitable, educational, for profit and nonprofit boards, including as both a trustee and board chair at Wellesley College.
Skills and Qualifications of Particular Relevance to CVS Health
Ms. DeCoudreaux has more than 30 years of experience in the pharmaceutical industry, and her experience as an attorney in that field and in the area of corporate governance makes her a great asset to our Board.
Age62 Director since |
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Nancy-Ann M. DeParle
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Independent Director Other Public Boards |
Director Qualification Highlights
● | Business Development, Corporate Strategy and
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● | Legal and | |||||
● | Health | |||||
● | Public Policy and | |||||
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EducationB.A., University of Tennessee; B.A. and M.A., Balliol College, Oxford University; J.D., Harvard Law School
BiographyMs. DeParle has been a Co-Founding Partner of Consonance Capital Partners, LLC, a private equity firm focused on investing in small and mid-size health care companies, since August 2013. From March 2009 to January 2013, Ms. DeParle served in the White House, first as Counselor to the President and Director of the White House Office of Health Reform, and later as Assistant to the President and Deputy Chief of Staff for Policy. In addition, from 1993 to 2000, Ms. DeParle served as the Associate Director for Health and Personnel for the White House Office of Management and Budget, and later as the Administrator of the Centers for Medicare and Medicaid Services (then known as the Health Care Financing Administration). From 2001 to March 2009, Ms. DeParle served as a Senior Advisor with JPMorgan Partners and as a Managing Director of its successor entity, CCMP Capital, L.L.C., focusing on private equity investments in health care companies. Ms. DeParle is also a director of HCA Holdings, Inc., a health care services company that owns, manages or operates hospitals and various other health care facilities.
Skills and Qualifications of Particular Relevance to CVS HealthMs. DeParle has more than 25 years of experience in the health care arena, and is widely considered to be one of the nation’s leading experts in health care policy, management and financing, which makes her an excellent fit for our Board.
12 | 2019 Proxy Statement |
Corporate Governance and Related Matters Item 1
| David W. Dorman Independent Director Other Public Boards |
Director Qualification Highlights
● | Leadership – Former CEO |
● | Finance |
● | International Business Operations; Consumer Products or Services |
● | Technology and Innovation |
● | Risk Management |
● | Corporate Governance |
● | Business Development, Corporate Strategy and Transactions |
EducationB.S., Georgia Institute of Technology
BiographyMr. Dorman has been the Chair of the Board of CVS Health Corporation since May 2011. He has also been a Founding Partner of Centerview Capital Technology Fund, a private investment firm, since July 2013. He also served as Lead Director of Motorola Solutions, Inc. (formerly Motorola, Inc.), a communications products company, until his retirement from that board in May 2015, and was Non-Executive Chairman of the Board of Motorola from May 2008 through May 2011. From October 2006 through April 2008, he was a Managing Director and Senior Advisor with Warburg Pincus LLC, a global private equity firm. From November 2005 until January 2006, Mr. Dorman served as President and a director of AT&T Inc., a telecommunications company (formerly known as SBC Communications). From November 2002 until November 2005, Mr. Dorman was Chairman of the Board and Chief Executive Officer of AT&T Corporation. Mr. Dorman is also a director of PayPal Holdings, Inc., a leading digital and mobile payments company, as well as Dell Technologies Inc., the world’s largest privately controlled technology company. He was a director of Yum! Brands, Inc., a global quick service restaurant company, from 2005 until his retirement from that board in May 2017.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Dorman’s experience in leading large companies, beginning with Sprint and later Pacific Bell and AT&T, lends a perspective and skill set that is greatly valued by the Board. His business background of growing companies is in line with and useful to our business strategy. The Board believes that Mr. Dorman’s experience leading the boards of AT&T and Motorola make him well-suited to serve as its independent Chair.
Age66 Director since | Roger N. Farah Independent Director Other Public Boards |
Director Qualification Highlights
● | Leadership – Former CEO |
● | Business Operations |
● | Business Development, Corporate Strategy and Transactions |
● | Health Care/Regulated Industry |
● | Public Policy and Government Affairs |
● | Public Company Board Service |
● | International Business Operations |
EducationB.S., University of Pennsylvania
BiographyMr. Farah was formerly a member of the board of directors of Aetna from 2007 until the closing of the Aetna Transaction, when he became a director of CVS Health.Mr. Farah is the Chairman of the Board and a director of Tiffany & Co. (jewelry and specialty products), and also serves as a director of The Progressive Corporation (auto insurance), and Metro Bank PLC (financial services). He served as Executive Director of Tory Burch LLC (lifestyle products) from March 2017 to September 2017, having previously served as Co-Chief Executive Officer and director from September 2014 to February 2017. He is former Executive Vice Chairman of Ralph Lauren Corporation (lifestyle products) having served in that position from November 2013 to May 2014, and previously served as President and Chief Operating Officer from April 2000 to October 2013, and Director from April 2000 to August 2014. During his 40-plus year career in retailing, Mr. Farah also held director and/or executive positions with Venator Group, Inc. (now Foot Locker, Inc.), R.H. Macy & Co., Inc., Federated Merchandising Services, the central buying and product development arm of Federated Department Stores, Inc., Rich’s/Goldsmith’s Department Stores, and Saks Fifth Avenue, Inc.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Farah brings extensive business and leadership experience to the Board. He has strong marketing, brand management and consumer insights developed in his over 40 years of experience in the retail industry. His former positions as Executive Vice Chairman, President and COO of Ralph Lauren and Executive Director and Co-CEO of Tory Burch give Mr. Farah important perspectives on the complex financial and operational issues facing the Company.
cvshealthannualmeeting.com | 13 |
Corporate Governance and Related Matters Item 1
Age66 Director since | Anne M. Finucane Independent Director Other Public Boards |
Director Qualification Highlights
● | Business Operations; Consumer Products or Services |
● | Business Development, Corporate Strategy and Transactions |
● | Public Policy and Government Affairs |
● | Regulated Industry |
● | Finance |
● | Corporate Governance |
● | Risk Management |
EducationB.A., University of New Hampshire
BiographyMs. Finucane has been Vice Chairman of Bank of America Corporation, an international financial services company, since July 2015 and is a member of its executive management team. From 2006 through July 2015 Ms. Finucane served as Global Chief Strategy and Marketing Officer for Bank of America and served as Northeast Market President from 2004 through July 2015. During her 20-plus years as a senior leader at Bank of America and its legacy firms, Ms. Finucane has served as senior advisor to four chief executive officers and the Board of Directors. Ms. Finucane is responsible for the strategic positioning of Bank of America and oversees the public policy, customer research and analytics, global marketing, communications and corporate social responsibility efforts for the company. She is chair of Bank of America’s Environmental, Social and Governance Committee, and is also chair of the Bank of America Charitable Foundation.
Skills and Qualifications of Particular Relevance to CVS HealthMs. Finucane’s experience in the financial services industry, consumer policy, strategy, marketing, corporate social responsibility and government affairs provides the Board with valuable insight in those key areas.
Age67 Director since | Edward J. Ludwig
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Independent Director Other Public Boards |
Director Qualification Highlights
● | Leadership – Former CEO |
● | Business Operations |
● | Business Development, Corporate Strategy and Transactions |
● | Finance |
● | Health Care/Regulated Industry |
● | Technology and Innovation |
● | Risk Management |
● | International Business Operations |
EducationB.A., College of the Holy Cross; M.B.A., Columbia University
BiographyMr. Ludwig was formerly lead director of the board of directors of Aetna from 2003 until the closing of the Aetna Transaction, when he became a director of CVS Health. Mr. Ludwig is the former Chairman of the board of directors of Becton, Dickinson and Company (BD) (a global medical technology company), having served in this position from February 2002 through June 2012. He also served as Chief Executive Officer of BD from January 2000 to September 2011, President of BD from May 1999 to December 2008, and Chief Financial Officer of BD from January 1995 to May 1999. Mr. Ludwig joined BD as a Senior Financial Analyst in 1979. Prior to joining BD, Mr. Ludwig was a senior auditor with Coopers and Lybrand (now PricewaterhouseCoopers) where he earned his CPA. Mr. Ludwig also served as director of Xylem, Inc. (a water technology company) from 2011 to 2017, and Chairman of Advanced Medical Technology Association, or AdvaMed (a medical device trade association), from 2006 to 2008. He serves as the lead independent director of Boston Scientific Corporation (medical devices) and as a director of POCARED Diagnostics Ltd. (a diagnostics technology manufacturer based in Israel).
Skills and Qualifications of Particular Relevance to CVS HealthMr. Ludwig’s more than 30 years of experience in the field of medical technology gives him a unique perspective on the Company’s strategy. As the former Chairman and CEO of BD, Mr. Ludwig brings a thorough appreciation of the strategic and operational issues facing a large public company in the health care industry. As a former CFO and a CPAMr. Ludwig offers the Board a deep understanding of financial, accounting and audit-related issues. Mr. Ludwig’s experience positions him well to serve as Chair of our new Investment and Finance Committee.
14 | 2019 Proxy Statement |
Corporate Governance and Related Matters Item 1
Age63 Director since | Larry J. Merlo
Other Public Boards |
Director Qualification Highlights
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● | Technology and Innovation | |||||||||
● | Public Policy | |||||||||
● | Pharmacy Benefit Management
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● | Real Estate |
EducationB.S., Pharmacy, University of Pittsburgh
BiographyMr. Merlo has been Chief Executive Officer of CVS Health Corporation since March 2011 and President of CVS Health Corporation since May 2010. Mr. Merlo formerly served as Chief Operating Officer of CVS Health Corporation from May 2010 through March 2011 and was President of CVS Pharmacy from January 2007 through May 2010, and Executive Vice President – Stores from April 2000 to January 2007.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Merlo has been with CVS Health and its subsidiaries for nearly 40 years, and provides the Board with invaluable experience and insight into the retail drugstore and health care industries.
Age68 Director since |
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Jean-Pierre Millon Independent Director Other Public Boards |
Director Qualification Highlights
● | Leadership – Former CEO |
● | Finance |
● | Business Development, Corporate Strategy and Transactions |
● | Health Care/Regulated Industry |
● | International Business Operations |
● | Pharmacy Benefit Management |
● | Public Company Board Service |
EducationB.S., Ecole Centrale de Lyon (France); B.A., Université de Lyon (France); M.B.A., Kellogg School of Business, Northwestern University
BiographyMr. Millon is the former President and Chief Executive Officer of PCS Health Systems, Inc. Mr. Millon joined PCS in 1995, where he served as President and Chief Executive Officer from June 1996 until his retirement in September 2000. Prior to that, Mr. Millon served as an executive and held several global leadership positions with Eli Lilly and Company. Mr. Millon previously served on the board of Caremark from March 2004, upon Caremark’s acquisition of AdvancePCS, and as a director of AdvancePCS (which resulted from the merger of PCS and Advance Paradigm, Inc.) beginning in October 2000. He became a director of CVS Health upon the closing of the merger transaction involving CVS Health and Caremark. Mr. Millon has over ten years of financial management experience and 15 years of general functional management experience, including strategic planning experience specific to pharmacy benefit management companies as the former head of PCS. He also has extensive venture capital and public and private company board experience.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Millon’s extensive background and experience in the pharmacy benefit management, pharmaceutical and life sciences businesses, combined with his financial expertise, provide the Board with additional perspective across the enterprise.
cvshealthannualmeeting.com | 15 |
Corporate Governance and Related Matters Item 1
Age63 Director since | Mary L. Schapiro Independent Nominee Other Public Boards |
Director Qualification Highlights
● | Leadership – Former CEO |
● | Public Policy and Government Affairs |
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● | Risk Management |
● | Legal and Regulatory Compliance |
● | Public Company Board Service |
EducationB.A., Franklin and Marshall College; J.D., George Washington University
BiographySince October 2018 Ms. Schapiro has been Vice Chair for Public Policy and Special Advisor to the Founder and Chairman of Bloomberg, LP, a privately held financial, software, data and media company. Since January 2014, Ms. Schapiro has also served as Vice Chair of Promontory Advisory Board, part of Promontory Financial Group, a leading strategy, risk management and regulatory compliance firm. From January 2009 through December 2012, Ms. Schapiro was Chairman of the U.S. Securities and Exchange Commission, becoming the first woman to serve as that agency’s Chairman. Prior to becoming SEC Chairman, Ms. Schapiro was Chairman and CEO of the Financial Industry Regulatory Authority (FINRA) from 2006 through 2008, and held a number of key executive positions at FINRA and its predecessor from 1996 through 2006. She also served as Chairman of the Commodity Futures Trading Commission (CFTC) from 1994 to 1996. Ms. Schapiro is also a director of Morgan Stanley, a financial services company. Ms. Schapiro was a director of General Electric Company and of the London Stock Exchange Group PLC, until her retirement from those boards in April 2018 and October 2018, respectively.
Skills and Qualifications of Particular Relevance to CVS HealthMs. Schapiro’s experience in leading the SEC, FINRA and the CFTC makes her extremely well qualified to serve on our Board. Ms. Schapiro’s leadership of the SEC during the turbulent period that followed the 2008 financial crisis, one of the busiest rulemaking periods in the agency’s history, demonstrates her ability to navigate through a difficult and complex regulatory and political environment. The Board believes that her skills fill important needs in the areas of legal and regulatory compliance, finance, risk management, and public policy and government affairs.
Age74 Director since | Richard J. Swift Independent Director Other Public Boards |
Director Qualification Highlights
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● | International Business Operations | |||||||||
● | Technology and Innovation | |||||||||
● | Risk Management | |||||||||
● | Corporate Governance | |||||||||
● | Public Company Board Service
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EducationB.S., U.S. Military Academy at West Point; M.S., Purdue University; M.B.A., Fairleigh Dickinson University
BiographyMr. Swift is the former Chairman of the Board, President and Chief Executive Officer of Foster Wheeler Ltd., an international engineering and construction firm, having served in those positions from April 1994 until his retirement in October 2001. Mr. Swift also served as a member and as Chairman of the Financial Accounting Standards Advisory Council (FASAC) from 2002 until his retirement from FASAC in December 2006. Mr. Swift is also lead director of Ingersoll-Rand plc, a diversified industrial company, and a director of Kaman Corporation (Kaman), a diversified manufacturer and distributor, Hubbell Incorporated (Hubbell), an electrical and electronic products company, and Public Service Enterprise Group Incorporated, an energy company. Mr. Swift intends to retire from the boards of Kaman and Hubbell in April and May of 2019, respectively.
Skills and Qualifications of Particular Relevance to CVS HealthThe Board greatly values Mr. Swift’s financial expertise, including his experience at FASAC and with various public company boards and audit committees for over 35 years of combined service. Mr. Swift is an audit committee financial expert and his accounting and financial skills are important to the oversight of our financial reporting, enterprise and operational risk management.
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Corporate Governance and Related Matters Item 1
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Director since
March 2013 | William C. Weldon Independent Director Other Public Boards |
Director Qualification Highlights
● | Leadership – Former CEO |
● | Finance |
● | Health Care/Regulated Industry |
● | International Business Operations; Consumer Products or Services |
● | Risk Management |
● | Corporate Governance |
● | Public Company Board Service |
EducationB.S., Quinnipiac University
BiographyMr. Weldon is the former Chairman of the Board and Chief Executive Officer of Johnson & Johnson, a global developer and manufacturer of health care products, having served in those positions from 2002 until his retirement as Chief Executive Officer in April 2012 and his retirement from the board in December 2012. Mr. Weldon previously served in a variety of senior executive positions during his 41-year career with Johnson & Johnson. Mr. Weldon is also a director of JPMorgan Chase & Co., a global financial services company, and Exxon Mobil Corporation, an international oil and gas company. He was formerly a director of The Chubb Corporation, an international insurance company, until it was acquired by ACE Limited in January 2016.
Skills and Qualifications of Particular Relevance to CVS HealthMr. Weldon’s experience in managing a complex global health care company and his deep knowledge of the worldwide health care market across multiple sectors makes him extremely well suited to serve on our Board. His background in international business management and operating in the highly-regulated health care industry is also greatly valued by the Board.
Age72 Director since | Tony L. White Independent Director Other Public Boards |
Director Qualification Highlights
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● | Technology and Innovation | |||||||||
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● | Corporate Governance | |||||||||
● | Public Company Board Service
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EducationB.A., Western Carolina University
BiographyMr. White is the former Chairman of the Board, President and Chief Executive Officer of Applied Biosystems, Inc. (formerly Applera Corporation), a developer, manufacturer and marketer of life science systems and genomic information products, having served in those positions from September 1995 until his retirement in November 2008. Mr. White is also a director of Ingersoll-Rand plc, a diversified industrial company. He was a director of C.R. Bard, Inc. (Bard), a company that designs, manufactures and sells medical, surgical, diagnostic and patient care devices, from 1996 until Bard was acquired by Becton Dickinson and Company in December 2017.
Skills and Qualifications of Particular Relevance to CVS HealthMr. White’s wealth of management experience in the life sciences and health care industries, including over 13 years as Chairman and CEO of an advanced-technology life sciences company and 26 years in various management positions at Baxter International, Inc., a provider of medical products and services, makes him well qualified to serve as a director of CVS Health.
cvshealthannualmeeting.com |
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SELECTING OUR DIRECTOR NOMINEES
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Director SkillsCorporate Governance and ExperienceRelated Matters Item 1
Our directors and our new nominee possess relevant experience, skills and qualifications that contribute to a well-functioning Board to effectively oversee the Company’s strategy and management. Areas of director expertise include:
Director Qualification Criteria; Diversity
Recognizing that the selection of qualified directors is complex and crucial to the long-term success of the Company, the Nominating and Corporate Governance Committee has established in its charter guidelines for the identification and evaluation of candidates for membership on the Board. Under its charter, the Committee recommends to the Board criteria for Board membership and recommends individuals for membership on our Board. The criteria used by the Committee in nominating directors are found in the Committee’s charter and provide that candidates should be distinguished individuals who are prominent in their fields or otherwise possess exemplary qualities that will enable them to effectively function as directors. While the Committee does not believe itappropriateit appropriate to establish any specific minimum qualifications for candidates, it focuses on the following qualities in identifying and evaluating candidates for Board membership:
● | Background, experience and skills |
● | Character, reputation and personal integrity |
● | Judgment |
● | Independence |
● | Diversity |
● | Viewpoint |
● | Commitment to the Company and service on the Board |
● | Any other factors that the Committee may determine to be relevant and appropriate |
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The Committee makes these determinations in the context of the existing composition of the Board so as to achieve an appropriate mix of characteristics. Consistent with this philosophy, the Committee is committed to including in each search qualified candidates who reflect diverse backgrounds, including diversity of gender and race. The Committee also takes into account all applicable legal, regulatory and stock exchange requirements concerning the composition of the Board and its committees. The Committee reviews these guidelines from time to time as appropriate (and in any event at least annually) and modifies them as it deems appropriate.
The Committee also reviews the composition of the Board in light of the current challenges and needs of the Board and the Company, and determines whether it may be appropriate to add or remove individuals after considering, among other things, the need for audit committee expertise and issues of independence, diversity, judgment, character, viewpoint, reputation, age, skills, background and experience.
The Committee values diversity, which it broadly views in terms of, among other things, gender, race, background and experience, as a factor in selecting members to serve on the Board. Our nominees reflect that diversity, including in terms of race, gender and ethnic background. In addition, to ensure that it has access to a broad range of qualified, experienced and diverse candidates, the Committee may use the services of an independent search firm to help identify and assist in the evaluation of candidates.
Board Evaluation Process
When considering current directors for re-nomination to the Board, the Committee takes into account the performance of each director, which is part of the Committee’s annual Board evaluation process. That process consists ofincludes individual interviews of each director by our General Counsel, followed by a report summarizing his findings. The Committee then recommends actions for the Board to consider and adopt as it sees fit.
Board Refreshment; Retirement Age
The Committee and the Board believe that setting a retirement age for CVS Health directors is advisable to facilitate the addition of new directors. Accordingly, our Corporate Governance Guidelines provide that no director who is or would be over the age of 74 at the expiration of his or her current term may be nominated to a new term, unless the Board waives the retirement age for a specific director in exceptional circumstances. In the event any waiver is provided, the Board will disclose the rationale for its decision.
In March 2019, the Board approved a waiver of the retirement age for Mr. Swift, who is currently 74. The Board believes that Mr. Swift’s continued leadership as Chair of the Audit Committee is critically important during the first full year following the closing of the Aetna Transaction. Oversight of the Company’s financial statements, and its internal audit and risk management functions, during the post-merger period will benefit from Mr. Swift’s extensive experience. In making its decision, the Board also considered Mr. Swift’s impending retirement from two of the other boards on which he currently sits.
18 | 2019 Proxy Statement |
Corporate Governance and Related Matters Item 1
Majority Voting
As discussed elsewhere in this proxy statement, directors are elected by a majority of the votes cast at the Annual Meeting (assuming that the election is uncontested). Under our by-laws, each nominee who is a current director is required to submit an irrevocable resignation, which resignation would becomeeffective upon (1) that person not receiving a majority of the votes cast in an uncontested election, and (2) acceptance by the Board of that resignation in accordance with the policies and procedures adopted by the Board. The Board, acting on the recommendation of the Committee, will no later than at its first regularly scheduled meeting following certification of the stockholder vote, determine whether to accept the resignation of the unsuccessful incumbent. Absent a determination by the Board that a compelling reason exists for concluding that it is in the best interests of the Company for an unsuccessful incumbent to remain as a director, the Board will accept that person’s resignation. In the event any resignation is not accepted, the Board will disclose the rationale for its determination.
Compensation Committee Interlocks and Insider Participation
As of March 21, 2019, the members of the Management Planning and Development Committee are Mr. Brown (Chair), Mr. Dorman, Mr. Farah, Ms. Finucane, Mr. Weldon and Mr. White. None of the members of the Management Planning and Development Committee has ever been an officer or employee of the Company. There are no interlocking relationships between any of our executive officers and any Management Planning and Development Committee member.
Stockholder Submission of Nominees
The Committee will consider any director candidates proposed by stockholders who submit a written request to our Corporate Secretary (including via our proxy access by-law, described below). All candidates should meet the Director Qualification Criteria, discussed above. The Committee evaluates all director candidates and nominees in the same manner regardless of the source. If a stockholder would like to nominate a person for election or re-election to the Board, he or she must provide notice to the Company as provided in our by-laws and described in this proxy statement. The notice must include a written consent indicating that the candidate is willing to be named in the proxy statement as a nominee and to serve as a director if elected and any other information that the SEC would require to be included in a proxy statement when a stockholder submits a proposal. See “Other Information – Stockholder Proposals and Other Business for ourOur Annual Meeting in 2018”2020” for additional information related to proposals, including any nominations, for our 20182020 Annual Meeting.
Proxy AccessIn January 2016, following the receipt of a stockholder proposal and extensive conversations with the proponent and several other stockholders, the Nominating and Corporate Governance Committee recommended and the Board adopted
CVS Health has had a proxy access by-law. Under the by-law a stockholder, or a groupsince January 2016. The key terms of up to 20 stockholders, owning at least three percent of the Company’s outstanding common stock continuously for at least three years, may nominate and include in the Company’sits proxy materials director nominees constituting up to the greater of two nominees or 20% of the Board, provided that the stockholders and the nominees satisfy the requirements specified in the Company’s by-laws.access by-law are:
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A stockholder, or a group of up to20 stockholders, owning at least3%of the Company’s outstanding common stock continuously for at least3 years | May nominate and include in the Company’s proxy materials director nominees constituting up to the greater of2 nominees or20% of the Board | Provided that the stockholders and the nominees satisfy the requirements specified in the Company’s by-laws | ||
Independence Determinations for Directors
Under our Corporate Governance Guidelines, a substantial majority of our Board must be comprised of directors who meet the director independence requirements set forth in the Corporate Governance Rules of the New York Stock Exchange (NYSE) Listed Company Manual. Under NYSE Rules, no director qualifies as “independent” unless the Board affirmatively determines that the director has no material relationship with the Company.
Our Board has adopted categorical standards to assist in making director independence determinations. Any relationship that falls within the following standards or relationships will not, in itself, preclude a determination of independence. These categoricalstandardscategorical standards are set forth in Annex A to the Company’s Corporate Governance Guidelines, which are available on our website at http://investors.cvshealth.com/corporate-governance/documents or upon request to our Corporate Secretary.
cvshealthannualmeeting.com | 19 |
Corporate Governance and Related Matters The Board’s Role and Activities in 2018
2019 Determinations
The Nominating and Corporate Governance Committee of the Board undertook its annual review of director and nominee independence in March 2017.2019. The Committee recommended and the Board determined that each of Mmes. DeCoudreaux, DeParle, Finucane and Schapiro, and each of Messrs. Aguirre, Bracken, Brown, Dorman, Farah, Ludwig, Millon, Swift, Weldon and White, is independent. The Committee recommended and the Board determined that Mr. Bertolini is not independent due to his leadership of Aetna until the closing of the merger in November 2018. Mr. Merlo is not an independent director because of his employment as President and CEO of the Company.
The Board acts as the ultimate decision-making body of the Company and advises and oversees management, which is responsible for the day-to-day operations and management of the Company. In carrying out its responsibilities, the Board reviews and assesses CVS Health’s long-term strategy and its strategic, competitive and financial performance.
In 2016 theThe Board oversaw the return of approximately $6 billion to our stockholders through a combination of cash dividends and stock repurchases.transformational Aetna Transaction, which closed on November 28, 2018. The Board increasedbelieves that the cash dividend significantly for both 2016 and 2017, taking the quarterly payment from $0.35 per share to $0.50 per share, an aggregate increase of over 40% from 2015. In November 2016, the Board approvedAetna Transaction is a new $15 billion share buyback program, further showing its commitment to returning value to stockholders. The Board also approved the refinancing of muchkey aspect of the Company’s long-term debt, resulting in significant ongoing savings in termsstrategy to create an innovative health care model that addresses many of interest ratesthe issues facing the nation’s health care system and payments. In addition, givenfurthers the Company’s expanded offerings throughoutpurpose of helping people on their path to better health. CVS Health’s revenues in 2018 increased by 5.3 percent to a record $194.6 billion, and the spectrumCompany continued to generate significant cash flow in 2018, with cash flow from operations totaling $8.9 billion. The Board returned over $2 billion to stockholders in 2018 based on a cash dividend of health care,$2.00 per share. The Company has a clear line of sight to deliver more than $750 million of synergies in year two following the Aetna Transaction, and the Board formed a new Committeeis monitoring progress toward that is focused on the quality of pharmacy and medical care being delivered by the Company.goal.
The Board’s Role in Strategy and Succession PlanningTHE BOARD’S ROLE IN STRATEGY AND SUCCESSION PLANNING
The Board reviews the Company’s financial performance on a regular basis at Board meetings and through periodic updates, with a particular focus on peer and competitive comparisons. The Board also periodically reviews the Company’s long-term strategy, and assesses its strategic, competitive and financial performance, on both an absolute basis and in relation to the performance, practices and policies of its peers and competitors. While the Board receives updates regarding strategic matters throughout the year, at least one Board meeting per year typically in September, is focused almost entirely on the Company’s short- and long-term strategic direction. The Board receives reports from management and expert speakers are often engaged.invited to present to the Board. At this meeting the Board provides input and oversight on short-term strategic goals and sets the long-term strategic direction of the Company.
The Board also reviews the Company’s succession planning, including succession planning in the case of the incapacitation, retirement or removal of the CEO. In that regard, the CEO provides an annual report to the Board recommending and evaluating potential successors, along with a review of any development plans recommended for such individuals. The CEO also provides to the Board, on an ongoing basis, his recommendation as to a successor in the event of an unexpected emergency. The Board also reviews succession planning with respect to the Company’s other key executive officers, i.e., those who are membersofficers.
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Table of the Business Planning Committee, or BPC.Contents
Corporate Governance and Related Matters The Board’s Role and Activities in Risk Oversight2018
THE BOARD’S ROLE IN RISK OVERSIGHT
The Board’s role in risk oversight involves both the full Board and its Committees, as well as members of management.
Risk Oversight Framework |
Management ●Each major business unit is responsible for identifying risks, assessing the likelihood and potential impact of significant risks, and reporting to management’s Executive Risk Steering Committee on actions to monitor, manage and mitigate significant risks. ●The CFO, Treasurer, Chief Compliance Officer, Chief Audit Executive and General Counsel periodically report on the Company’s risk management policies and practices, including risk assessments and evaluation of compliance and legal risks, to relevant Board Committees and to the full Board. |
Each of our principal Board Committees is responsible for oversight of risk management practices for categories of risks relevant to their functions.
Audit Committee Primary committee charged with carrying out risk oversight responsibilities on behalf of the Board, including reviewing financial, operational, compliance, reputational and strategic risks. |
Management Planning and Development Committee | Investment and Finance Committee | Nominating and Corporate Governance Committee | Medical Affairs Committee |
Board of Directors ●Focuses on understanding Company-wide risks and ensuring that risk matters are appropriately brought to the Board and/or its Committees for review. ●Ensures that the Corporate Governance Guidelines, the Board’s leadership structure and the Board’s practices facilitate the effective oversight of risk and communication with management. |
● | The CFO, Treasurer, Chief Compliance Officer, Chief Audit Executive and General Counsel periodically report on the Company’s risk management policies and practices, including risk assessments and evaluation of compliance and legal risks to relevant Board Committees and to the full Board. The Board is regularly updated on specific risks in the course of its review of corporate strategy, business plans and reports to the Board by its respective Committees. |
● | As part of CVS Health’s ongoing Enterprise Risk Management process, each of our major business units is responsible for identifying risks that could affect achievement of business goals and strategies, assessing the likelihood and potential impact of significant risks, prioritizing risks and actions to be taken in mitigation and/or response, and reporting to management’s Executive Risk Steering Committee on actions to monitor, manage and mitigate significant risks. |
● | The Audit Committee is charged with the primary role in carrying out risk oversight responsibilities on behalf of the Board. Pursuant to its charter, the Audit Committee annually reviews our policies and practices with respect to risk assessment and risk management, including discussing with management the Company’s major risk exposures and the steps that have been taken to monitor and mitigate such exposures. The Audit Committee also reviews CVS Health’s major financial risk exposures as well as major operational, compliance, reputational and strategic risks, including developing steps to monitor, manage and mitigate those risks. In 2019 responsibility for oversight of risks related to cybersecurity and data and information security governance was transferred from the Audit Committee to the Nominating and Corporate Governance Committee, whose members possess expertise regarding those subjects. |
● | Each of our other Board Committees is responsible for oversight of risk management practices for categories of risks relevant to their functions. For example, the Management Planning and Development Committee has oversight responsibility for our overall compensation structure, including review of its compensation practices, with a view to assessing associated |
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Corporate Governance and Related Matters The Board’s Role and Activities in 2018
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THE BOARD’S ROLE IN CORPORATE SOCIAL RESPONSIBILITY OVERSIGHT
The Board considers its role in risk oversight when evaluating ourNominating and Corporate Governance GuidelinesCommittee of the Board of Directors, pursuant to its charter, is formally charged with oversight of the Company’s Corporate Social Responsibility (CSR) strategy and its leadership structure. Bothperformance. The Company’s Senior Vice President of CSR and Philanthropy regularly updates the Corporate Governance GuidelinesCommittee on CSR risks and opportunities, and the Board’s leadership structure facilitateCommittee provides feedback and direction on the Board’s oversight of risk and communication with management. Our independent Chairman and our CEO are focusedCompany’s approach to key issues. The Committee also reviews the annual CSR Report, refreshed for 2018 asBetter Health, Better Community, Better World, prior to its publication. It is available on CVS Health’s risk management efforts and ensure that risk matters are appropriately brought to the Board and/or its Committees for their review.
Stockholder OutreachCompany’s website at https://cvshealth.com/social-responsibility.
Because theSTOCKHOLDER OUTREACH
The Company values each of its stockholders and their opinions, and we have regularly interactedinteract with our stockholders on a variety of matters. Again in 2016,In the latter part of 2018 and early 2019, at the direction of the Board, the Company engaged in a robust stockholder outreach effort to best understand and address any concerns stockholders might have. Additional details regarding our outreach effort and the actions taken are found on pages 6,78, 35 and 4239 of this proxy statement.
Much of our dialogue with stockholders was focused on compensation-related matters, including the results of our most recent say-on-pay vote. The 80% vote in favor fell short of our expectations, and we received a great deal of feedback on that subject. In addition to compensation-related matters, a number of corporate governance, mattersfinancial results, social responsibility issues such as the Company’s response to the opioid abuse crisis, and executive compensation matters. Matters related to the Aetna Transaction were also discussed with our stockholders during the outreach process including our proxy access by-law amendment, frequency of our say-on-pay votes, board tenure and composition, board evaluations and board diversity. As a result of these discussions, in early 2017 the Board approved a change to the Nominating and Corporate Governance Committee Charter, memorializing its existing practice of including diverse candidates in each board search. Stockholders also were appreciative and supportive of the Company’s proxy access by-law, which was adopted in January 2016. Based on stockholder input, the Board is recommending the continuation of annual say-on-pay votes.
We believe that taking the responsive actions summarized above will continue to strengthen our relationships with our stockholders and provide positive improvements in the areas identified.
Stockholder Rights
Under our Amended and Restated Certificate of Incorporation (Charter) and our Amended and Restated By-laws (By-laws), our stockholders have the right to call a special meeting of stockholders and to act by written consent that is less than unanimous. Holders of at least 25% of our common stock can call a special meeting or request an action by written consent by following the procedures described in our Charter and By-laws. Our stockholders also have the right to proxy access, as described below. Our Charter and By-laws are available to stockholders at no charge upon request to our Corporate Secretary.closing of that transaction.
Contact With the Board, the Chairman and Other Independent DirectorsCONTACT WITH THE BOARD, THE CHAIR AND OTHER INDEPENDENT DIRECTORS
Stockholders and other parties interested in communicating directly with the Board, the independent ChairmanChair of the Board or with the independent directors as a group may do so by writing to them care of CVS Health Corporation, One CVS Drive, MC 1160, Woonsocket, RI 02895. The Nominating and Corporate Governance Committee has approved a process for handling letters received by the Company and addressed to the Board, the independent ChairmanChair of the Board or to independent members of the Board. Under that process, our Corporate Secretary reviews all such correspondence and regularly forwards to the Board copies of all correspondence that, in her opinion, deals with the functions of the Board or its Committees or that she otherwise determines requires their attention.
Code of ConductCODE OF CONDUCT
CVS Health has adopted a Code of Conduct that applies to all of our directors, officers and employees, including our CEO, CFO and Chief Accounting Officer. Our Code of Conduct is available on our website at http://investors.cvshealth.com and will be provided to stockholders without charge upon request to our Corporate Secretary. We intend to post amendments to, or waivers fromof, our Code of Conduct (to the extent applicable to our executive officers or directors) at that location on our website within the timeframe required by SEC rules.
Related Person Transaction PolicyRELATED PERSON TRANSACTION POLICY
In accordance with SEC rules, the Board has adopted a written Related Person Transaction Policy. The AuditNominating and Corporate Governance Committee has been designated as the Committee responsible for reviewing, approving or ratifying any related person transactions under the Policy.Policy, since it already has responsibility for evaluating the impact of conflicts involving directors on independence. The Nominating and Corporate Governance Committee reviewswill review the Policy on an annual basis and will amend the Policy as it deems appropriate.
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Pursuant to the Policy, all executive officers, directors and director nominees are required to notify our General Counsel or Corporate Secretary of any financial transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, involving the Company in which an executive officer, director, director nominee, five percent beneficial owner or any immediate family member of such a person has a direct or indirect material interest. Such officers, directors, nominees, five percent beneficial owners
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Corporate Governance and their immediate family members are considered “related persons” under the Policy. For the above purposes, “immediate family member” includes a person’s spouse, parents, siblings, children, in-laws, step-relativesRelated Matters Board Structure and any other person sharing the household (other than a tenant or household employee).Processes
The General Counsel or the Corporate Secretary presents any reported new related person transactions, and significant proposed transactions involving related persons that might be deemed to be related person transactions, to the AuditNominating and Corporate Governance Committee at its next regular meeting, or earlier if appropriate. The General Counsel or Corporate Secretary provides the Nominating and Corporate Governance Committee with an analysis and recommendation regarding each reported transaction. The Committee reviews these transactions, to determine whetherincluding the related person involved has a direct or indirect material interest in the transaction.analysis and recommendation. The Nominating and Corporate Governance Committee may conclude, upon review of all relevant information, that the transaction does not constitute a related person transaction, and thus that no further review is required under the Policy. On an annual basis, the Committee reviews previously approved related person transactions, under the standards described below, to determine whether such transactions should continue.
In reviewing a related person transaction or proposed transaction, the Committee considers all relevant facts andcircumstances, including without limitation the commercial reasonableness of the terms, the benefit and perceived benefit, or lack thereof, to the Company, the availability and/or opportunity costs of alternate transactions, the materiality and character of the related person’s direct or indirect interest, and the actual or apparent conflict of interest of the related person. The Committee does not approve or ratify a related person transaction unless it has determined that, upon consideration of all relevant information, the transaction is in, or is not inconsistent with, the best interests of the Company and its stockholders.
If after its review, the review described above, theNominating and Corporate Governance Committee determines not to approve or ratify a related person transaction, (whether such transaction is being reviewed for the first time or has previously been approved and is being re-reviewed), the transaction will not be entered into or continued, as the Committee shall direct. The Nominating and Corporate Governance Committee may ratify or approve a related person transaction if, upon consideration of all relevant information, the transaction is in, or not inconsistent with, the best interests of the Company and its stockholders.
The AuditIn March 2019, the Nominating and Corporate Governance Committee reviewed certain transactions reported under the Policy and determined that no transactions constituted reportable related person transactions under the Policy.
Corporate Governance GuidelinesCORPORATE GOVERNANCE GUIDELINES
The Board has adopted Corporate Governance Guidelines, which are available on our investor relations website at http://investors.cvshealth.com/corporate-governance/documents and are also available to stockholders at no charge upon request to our Corporate Secretary. These Guidelines meet the listing standards adopted by the NYSE, on which our common stock is listed.
THE BOARD’S LEADERSHIP STRUCTURE
David W. Dorman is our independent ChairmanChair of the Board. The independent ChairmanChair presides at all meetings of the Board, and works with our CEO to set Board meeting agendas and the schedule of Board meetings. In addition, the independent ChairmanChair has the following duties and responsibilities:
● | the authority to call, and to lead, independent director sessions; |
● | the ability to retain independent legal, accounting or other advisors in connection with these sessions; |
● | the responsibility to facilitate communication and serve as a liaison between the CEO and the other independent directors; and |
● | the duty to advise the CEO of the informational needs of the Board. |
The Board believes that Board independence and oversight of management will be maintained effectively through the independent Chairman,Chair, the Board’s composition and its Committee system.
DIRECTOR EDUCATION
CVS Health’s Corporate Governance Guidelines establishes recommendations for director education.
All new members of the Board are encouraged to participate in the Company’s orientation program for directors. Other directors may also attend the orientation program. As newly elected directors following the Aetna Transaction, each of Messrs. Aguirre, Bertolini, Farah and Ludwig took part in an orientation program to familiarize them with the CVS Health businesses and board processes.
In addition, during the September/October Board meeting, the directors participate in an in-depth review of the strategy of the Company and have the opportunity to meet with senior management and gain detailed insights into the business. At these meetings, external speakers are often invited to share insights, best practices and emerging trends with the Board.
All directors are encouraged to participate in continuing education programs, with any associated expenses to be reimbursed by the Company, in order to stay current and knowledgeable about the business of the Company.
Such orientation and continuing education programs are overseen by the Nominating and Corporate Governance Committee of the Board.
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Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting
In 2016,CVS Health’s Board oversees and guides the Company’s management and its business. Committees support the role of the Board on issues that are better addressed by smaller, more focused subsets of Directors.
For most of 2018, the Board utilized five standing committees. The Investment and Finance Committee was added in November 2018 upon the closing of the Aetna Transaction, and that Committee held its first meeting in January 2019. The table below provides membership and meeting information for eachpresents, as of May 16, 2019, the standing Committees of the committees during 2016.Board, the membership of such Committees and the number of times each such Committee met in 2018. For further details regarding current committeeCommittee membership and activities see pages 22-28.25-31.
NAME | AUDIT COMMITTEE | MANAGEMENT PLANNING AND DEVELOPMENT COMMITTEE | NOMINATING AND CORPORATE GOVERNANCE COMMITTEE | PATIENT SAFETY AND CLINICAL QUALITY COMMITTEE | EXECUTIVE COMMITTEE |
Richard M. Bracken | ● | C | |||
C. David Brown II | C | ● | ● | ||
Alecia A. DeCoudreaux | ● | ● | |||
Nancy-Ann M. DeParle | ● | ● | |||
David W. Dorman | ● | C | ● | ||
Anne M. Finucane | ● | ● | |||
Larry J. Merlo | ● | ||||
Jean-Pierre Millon | ●† | ● | |||
Richard J. Swift | C† | ● | |||
William C. Weldon | ● | ● | |||
Tony L. White | ● | ● | |||
2016 Meetings | 9 | 5 | 5 | 4 | 0 |
Name | Committee | Investment and Finance Committee | Management Planning and Development Committee | Nominating and Corporate Governance Committee | Medical Affairs Committee | Executive Committee | ||||||
Fernando Aguirre | ||||||||||||
Mark T. Bertolini | ||||||||||||
Richard M. Bracken | ||||||||||||
C. David Brown II | ||||||||||||
Alecia A. DeCoudreaux | ||||||||||||
Nancy-Ann M. DeParle | ||||||||||||
David W. Dorman | ||||||||||||
Roger N. Farah | ||||||||||||
Anne M. Finucane | ||||||||||||
Edward J. Ludwig | ||||||||||||
Larry J. Merlo | ||||||||||||
Jean-Pierre Millon | ||||||||||||
Mary L. Schapiro | ||||||||||||
Richard J. Swift | ||||||||||||
William C. Weldon | ||||||||||||
Tony L. White | ||||||||||||
2018 Meetings | 10 | 0 | 6 | 4 | 4 | 2 |
Committee Chair | |
Audit Committee Financial Expert | |
† | Mr. Aguirre joined the Audit and Nominating and Corporate Governance Committees in November 2018. |
‡ | Ms. DeParle will become Chair of the Nominating and Corporate Governance Committee and a member of the Executive Committee at the time of the 2019 Annual Meeting. |
** | Mr. Farah joined the Management Planning and Development and Medical Affairs Committees in November 2018. |
● | Mr. Ludwig joined the Audit, Investment and Finance and Executive Committees and assumed the role of Chair of the Investment and Finance Committee in November 2018. |
2019 Proxy Statement |
Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting
Audit Committee |
Each member of the Audit Committee is financially literate and independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. The Board designated each of Messrs. Swift and Millon as an audit committee financial expert, as defined under applicable SEC rules. The Board has approved a charter for the Committee, which can be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary.
Current Committee Members(independent, photographed left to right)
* Audit Committee Financial Expert
Meetings in 2016:9
| Rotated in Fernando Aguirre (Nov. 2018) Edward Ludwig (Nov. 2018) Rotated out Nancy-Ann DeParle (Nov. 2018) |
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2018 Committee Members (independent) Alecia DeCoudreaux Nancy-Ann DeParle Jean-Pierre Millon* Mary Schapiro* Richard Swift (Chair)* | 2019 Committee Members (independent) 1Edward Ludwig* 2Jean-Pierre Millon* 3Richard Swift (Chair)* 4Alecia DeCoudreaux 5Fernando Aguirre* 6Mary Schapiro* *Audit Committee Financial Expert | |
Table of ContentsMeetings in 2018:10
Primary Responsibilities
Pursuant to its charter, the Committee assists the Board in its oversight of:
● | the integrity of our financial statements; |
● | the qualifications, independence and performance of our independent registered public accounting firm, for whose appointment the Committee bears principal responsibility; |
● | the performance of our internal audit function; |
● | our policies and practices with respect to risk assessment and risk management, including discussing with management the Company’s major financial risk exposures and the steps that have been taken to monitor and control such exposures; |
● | compliance with, and approval of, our Code of Conduct; |
● | the review of our business continuity and disaster recovery program; |
● | the review of our environmental, health and safety program; |
● | our compliance with legal and regulatory requirements, including the review and oversight of matters related to compliance with Federal health care program requirements. |
Audit Committee Activities in 2016
The Audit Committee met nine times in 2016
Audit Committee Activities in 2018 |
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Corporate Governance and Related Matters Committees of the Committee attended all of its meetings while he or she was a member. FourBoard as of the Committee’s meetings were focused primarily on our quarterly financial reports, including our Form 10-K, Forms 10-Q and our related earnings releases. At each of these meetingsAnnual Meeting
Investment and Finance Committee |
Each member of the Investment and Finance Committee is independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. The Board has approved a charter for the Committee, which can be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary. Current Committee Members (all independent) 1Richard Bracken 2Anne Finucane 3Edward Ludwig (Chair) 4Mary Schapiro Meetings in 2018:0 (newly formed and first met in January 2019) |
Primary Responsibilities
Pursuant to its charter, the Committee reviewedassists the documents in depth with our CFO and our Chief Accounting Officer, as well as our Chief Compliance Officer, Chief Audit Executive, General Counsel and other key members of management. The Committee also received reports from our internal audit department and our independent outside audit firm, Ernst & Young. The Committee regularly meets with Ernst & Young outside the presence of management, and also meets individually with members of management, including the CCO, the chief compliance officer for Omnicare and the head of Internal Audit. In addition to its responsibilities related to our financial statements, the Committee plays a primary role in risk oversight, including reviews of our enterprise risk management program, cybersecurity efforts, business continuity and disaster recovery program, privacy programs, and environmental, health and safety program. The Committee also reviews our legal and regulatory compliance program on a quarterly basis, including oversight of the Company’s compliance with its Corporate Integrity Agreements, or CIAs. During 2016, the Committee provided the required annual certification of compliance with the Company’s 2014 CIA, and also assumed oversight of a new CIA related to its institutional pharmacy services (long-term care) operations. The Committee provided the report found on page 30 of this proxy statement, recommending the inclusion of the Company’s audited financial statementsBoard in its Form 10-K.
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Each member of the Nominating and Corporate Governance Committee is independent of the Company and management under the standards set forth in the Corporate Governance Rules of the NYSE. The Board has approved a charter for the Committee, which can be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary.
Current Committee Members(independent, photographed left to right)oversight of:
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● | the Company’s processes for managing the finances of its employee pension and defined contribution benefit plans; |
● | the Company’s capital plan, including the review of significant financial policies and matters of corporate finance, such as the Company’s dividend policy and the issuance or retirement of debt and other securities; |
● | significant multi-year strategic capital project expenditures and management; |
● | the review and approval of the Company’s decision to enter into swap transactions that are not cleared and are not traded on a designated contract market or swap execution facility, including establishing policies governing the use of such swaps; and |
● | the Company’s stock repurchase programs, including assessing whether to recommend modification to such programs to the Board. |
Investment and Finance Committee Activities in 2018 |
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Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting
Nominating and Corporate Governance Committee |
Each member of the Nominating and Corporate Governance Committee is independent of the Company and management under the standards set forth in the Corporate Governance Rules of the NYSE. The Board has approved a charter for the Committee, which can be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary. At its meetings, various members of management provide the Committee with updates on areas of its responsibility, including the General Counsel, the Chief Governance Officer, the Senior Vice President of Government Affairs, the Senior Vice President of CSR and Philanthropy and the Executive Vice President and Chief Information Officer. |
Rotated in Fernando Aguirre (Nov. 2018) Nancy-Ann DeParle (Nov. 2018) Rotated out Richard Bracken (Nov. 2018) Anne Finucane (Nov. 2018) | ||
2018 Committee Members (independent) Richard Bracken David Brown Anne Finucane William Weldon David Dorman (Chair) | 2019 Committee Members (independent) 1David Brown 2William Weldon 3Nancy-Ann DeParle (Chair) 4Fernando Aguirre 5David Dorman | |
Meetings in 2016:2018:54
Primary Responsibilities
Pursuant to its charter, the Committee has responsibility for:
● | identifying individuals qualified to become Board members consistent with criteria approved by the Board; |
● | recommending to the Board director nominees for election at the next annual or special meeting of stockholders at which directors are to be elected or to fill any vacancies or newly-created directorships that may occur between such meetings; |
● | recommending directors for appointment to Board Committees; |
● | making recommendations to the Board as to determinations of director independence; |
● | evaluating Board and Committee performance; |
● | effective in January 2019, the oversight of our information governance framework, including our privacy and information security programs, as well as the cybersecurity aspects of the information security program and cybersecurity risk exposures; |
● | effective in January 2019, the review and ratification of any related person transactions in accordance with our policy on such matters; |
● | considering matters of corporate governance and reviewing, at least annually, our Corporate Governance Guidelines and overseeing compliance with such Guidelines; and |
● | reviewing and considering our policies and practices on issues relating to corporate social responsibility, charitable contributions, political spending practices and other significant public policy issues. |
Nominating and Corporate Governance Committee Activities in 2016
The Nominating and Corporate Governance Committee met five times in 2016 and, except for two absences for one member of the Committee due to unavoidable conflicts, each member of the Committee attended all of its meetings. Throughout the year the Committee evaluated – and continues to evaluate – potential candidates for future election to the Board. In addition, the Committee reviewed the Company’s political activities and expenditures in depth during two of its meetings, and reviewed the Company’s corporate social responsibility roadmap, Prescription for a Better World, as well as the corporate social responsibility report itself. The Committee oversaw the development of the Company’s proxy access by-law, which was finalized and recommended by the Committee, and adopted by the Board, in January 2016. The Committee also oversaw the evaluation process for the Board and its Committees in 2016, which consisted of an in-depth interview of each director by the Company’s General Counsel. At the completion of the interview process, the General Counsel reviewed the results with the Committee and the Board, and a number of enhancements to the Board and Committee meeting process resulted. In addition, the Committee received updates regarding legal and regulatory developments related to corporate governance, as well as updates on the proxy season and stockholder communications.
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Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting
Each member of the Management Planning and Development Committee is independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. No Committee member participates in any of our employee compensation programs and none is a current or former officer or employee of CVS Health or its subsidiaries. At its meetings, non-members, such as the CEO, the CFO, the Chief Human Resources Officer, the General Counsel, other senior human resources and legal officers, or external consultants, may be invited to provide information, respond to questions and provide general staff support. However, no CVS Health executive officer is permitted to be present during any discussion of his or her compensation or performance, and the Committee regularly exercises its prerogative to meet in executive session without management.
The Committee’s responsibilities are specified in its charter. The charter, as approved by the Board, may be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary.
The Committee’s responsibilities are specified in its charter. The charter, as approved by the Board, may be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary. |
Rotated in Roger Farah (Nov. 2018) Rotated out None | ||
(independent) | ||
David Brown (Chair) Anne Finucane David Dorman William Weldon Tony White | 1David Dorman 4David Brown (Chair) 6Roger Farah |
Meetings in 2018:6
Primary Responsibilities
Pursuant to its charter, the Committee:
● | oversees our compensation and benefits policies and programs generally; |
● | evaluates the performance of designated senior executives, including the CEO; |
● | in consultation with our other independent directors, oversees and sets compensation for the CEO; |
● | oversees and sets compensation for our designated senior executives; |
● | reviews and recommends to the Board compensation (including cash and equity-based compensation) for our non-employee directors; and |
● | prepares and recommends to the full Board the inclusion of the |
The Committee may delegate its authority relating to employees other than executive officers and directors as it deems appropriate and may also delegate its authority relating to ministerial matters.
Management Planning and Development Committee Activities in 2016
The Management Planning and Development Committee met five times in 2016 and, except for one absence due to an unavoidable conflict, each member of the Committee attended all of its meetings. In addition to reviewing the independence of its advisor as described below, the Committee devoted substantial time to its oversight of the Company’s compensation and benefit programs as part of its annual governance process. This review is aimed at ensuring that the Company is providing its employees with compensation and benefit programs that are appropriate. The Committee received updates on compensation trends and legislative and regulatory developments. The Committee also reviewed the Company’s compensation programs, retirement, health and welfare plans. In addition, the Committee devoted considerable time to CVS Health’s stockholder outreach efforts and the feedback received from investors. The Committee’s review of executive compensation matters and its decisions, including changes made in response to input from our stockholders, is discussed in the Compensation Discussion and Analysis beginning on page 35 of this proxy statement.
Management Planning and Development Committee Activities in 2018 |
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Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting
Compensation Risk Assessment
The Committee is responsible for reviewing and assessing potential risk arising from the Company’s compensation policies and practices. In 2016,2018, the Company performed a comprehensive risk assessment of its compensation policies and practices to ascertain any potential material risks that may be created by the programs. Included in its assessment were all major components of the Company’s compensation programs, including: the mix between annual and long-term compensation; short-term incentive program design; long-term incentive program performance measures; incentive plan performance criteria and corresponding objectives; a comparison of the Company’s programs with those of its peer group; the Company’s severance and change-incontrolchange-in-control policies; its recoupment policy; its share retention requirements and ownership guidelines; and the Internal Audit Department’s review of the controls regarding the Company’s long-term incentive program. The Committee considered the findings of the assessment and concluded that the Company’s compensation programs are aligned with the interests of its stockholders, appropriately reward pay for performance, and do not promote excessive risk-taking.
Independent Consultant
Exequity LLP is the Committee’s independent compensation consultant. Exequity provides no other services to the Company. Exequity’s fees for executive compensation consulting to the Committee for 20162018 were $244,763.$252,244. During 2016,2018, Exequity:
● | Collected, organized and presented quantitative competitive market data for a relevant competitive peer group with respect to executive officers’ target, annual and long-term compensation levels, including providing data for the most senior Aetna executives; |
● | Developed and delivered an annual Committee briefing on legislative and regulatory developments and trends in executive compensation and their implications for CVS Health; |
● | Provided guidance, including relevant competitive market data, in support of discussions related to the design of our 2018 long-term incentive program; and |
● | Analyzed market data and provided recommendations for non-employee director compensation to the Committee for approval by the Board. |
The Committee believes that the advice it receives from Exequity is objective and not influenced by any other business relationship. The Committee and Exequity have policies and procedures in place to preserve the objectivity and integrity of the executive compensation consulting advice, including:
● | The Committee has the sole authority to retain and terminate the executive compensation consultant; |
● | The consultant reports to the Committee Chair and has direct access to the Committee without management involvement; |
● | While it is necessary for the consultant to interact with management to gather information, the Committee determines if and how the consultant’s advice can be shared with management; and |
● | The Committee regularly meets with the consultant in executive session, without management present, to discuss recommendations. |
The Committee conducts an annual review of the independence of its compensation consultant, taking into account the standards above, the items required to be considered under the NYSE listing standards and applicable rules and regulations. The Committee determined that its compensation consultant is independent and that its consultant’s work does not raise any conflicts.
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Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting
Each member of the Medical Affairs Committee is independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. The Board has approved a charter for the Committee, which can be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary. In light of the Company’s expanded offerings throughout the spectrum of health care, the Committee was formed in March 2016 and renamed in November 2018. Its focus is on oversight of the Company’s medical- and pharmacy-related strategies and initiatives, matters relating to the advancement of quality of pharmacy and medical care, patient safety and patient experience, the enhancement of access to cost-effective quality health care, and the promotion of member health. |
Each member of the Patient Safety and Clinical Quality Committee is independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. The Board has approved a charter for the Committee, which can be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary.
In light of the Company’s expanded offerings throughout the spectrum of health care, this Committee was formed in March 2016. Its focus is on the quality of pharmacy and medical care being delivered by the Company.
2016 Committee Members(independent, photographed left to right)
Rotated in Roger Farah (Nov. 2018) Rotated out None | ||
2018 Committee Members (independent) Richard Bracken (Chair) Alecia DeCoudreaux Nancy-Ann DeParle Jean-Pierre Millon Tony White | 2019 Committee Members (independent) 1Tony White 2Jean-Pierre Millon 3Richard Bracken (Chair) 4Nancy-Ann DeParle 5Alecia DeCoudreaux 6Roger Farah | |
Meetings in 2016:2018:4
Primary Responsibilities
Pursuant to its charter, the Committee:
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● | reviews the other strategies and initiatives designed to foster health care innovation, lower patient costs and to improve the delivery of clinic, in-home, and other health care solutions; |
● | reviews matters and receives reports concerning the quality performance of the Company’s (1) pharmacy and medical care, such as (a) dispensing, compounding, and infusion services and (b) nursing and medical clinic operations; (2) patient safety and experience; (3) the management of health care claims against the |
● | takes such other actions and performs such services as may be referred to it from time to time by the Board, including the conduct of special reviews as it may deem necessary or appropriate to fulfill its responsibilities. |
Patient Safety and Clinical Quality Committee Activities in 2016
The Patient Safety and Clinical Quality Committee met four times in 2016 and each member of the Committee attended all of its meetings. The Committee’s meetings focused on a wide variety of matters related to the Company’s provision of health care services across the enterprise, including retail, mail, specialty, specialty mail and long-term care pharmacy, retail clinic services provided by MinuteClinic, and drug compounding activities conducted by Coram and across the enterprise. The Committee received reports regarding regulatory activity by boards of pharmacy and nursing related to the Company and reviewed accreditations issued by various agencies to the Company’s various business lines. The Committee received updates on health care-related claims against the Company, as well as steps being taken to minimize and mitigate those claims. The Committee also provided oversight in the development of a number of scorecards in various lines of business, and other efforts to measure and improve patient safety and clinical-effectiveness.
Medical Affairs Committee Activities in 2018 |
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Corporate Governance and Related Matters Board Meetings and Attendance
At all times when the Board is not in session, the Executive Committee may exercise many of the powers of the Board, as permitted by applicable law. The Executive Committee met two times during 2018, to discuss urgent matters. Mr. Bracken, Chair of the Medical Affairs Committee, was added to the Executive Committee in January 2018, Mr. Ludwig was added to the Executive Committee when he became Chair of the newly-formed Investment and Finance Committee in November 2018 and Nancy-Ann DeParle will be added to the Executive Committee at the time of the Annual Meeting, when she will become Chair of the Nominating and Corporate Governance Committee. |
Rotated in Edward Ludwig (Nov. 2018) Nancy-Ann DeParle (May 2019) Rotated out None | ||
2018 Committee Members Richard Bracken David Brown David Dorman Larry Merlo Richard Swift | 2019 Committee Members 1Richard Bracken 2Richard Swift 3Larry Merlo 4David Dorman 5Nancy-Ann DeParle 6Edward Ludwig 7David Brown | |
At all times when the Board is not in session, the Executive Committee may exercise most of the powers of the Board, as permitted by applicable law.
The Executive Committee did not meet during 2016.
2016 Committee Members(photographed left to right)
Meetings in 2016:2018:None2
During 2016,2018, there were seveneight meetings of the Board. Directors are expected to make every effort to attend the Annual Meeting, all Board meetings and the meetings of the Committees on which they serve. All of our directors at the time of our 20162018 Annual Meeting of Stockholders attended that Annual Meeting. In 2016,2018, all but one directordirectors attended 100%more than 75% of the meetings of the Board and the Committees of which he or she was a member. Ms. Finucane attended 67% of the meetings of the Board and the Committees of which she was a member, missing two sets of meetings due to unavoidable conflicts that arose in connection with her role as a Vice Chairman at Bank of America Corporation. The independent Chairman of the Board and the CEO use their best efforts to schedule Board and Committee meetings far enough in advance to avoid such conflicts, but they recognize unexpected and unresolvable conflicts sometimes occur. The Nominating and Corporate Governance Committee fully considered meeting attendance in its evaluation of nominees, and has reviewed dates for meetings in future years to ensure maximum attendance.averaging over 99%.
One Board meeting was our annual meeting of independent directors. The independent directors also regularly hold executive sessions during regularly scheduled Board meetings in which our management does not participate.
CVS Health’s approach to compensating non-employee directors for Board service is to provide directors with an annual retainer comprised of a mandatory 75% paid in shares of our common stock and 25% paid in cash (or up to 100% stock at the director’s election). The payment of a significant portion of the annual retainer, and additional retainers as outlined below, in our common stock is consistent with our policy of using equity compensation to better align directors’ interests with stockholders. This also enhances the directors’ ability to meet and continue to comply with our stock ownership guidelines described below.
For the 2016-20172018-2019 Board year, the total annual retainer for non-employee directors remained $280,000, consisting of shares of our stock valued at $210,000 (the mandatory annual stock retainer) and a cash payment of $70,000 (unless the director elected to receive up to 100% of the annual retainer in shares of our common stock).
Additional retainers were paid to the Chairs of the Committees and the Board as follows: Audit, $25,000; Investment and Finance, $15,000 (pro-rated to $7,500 for the 2018-2019 Board year); Management Planning and Development, $20,000; Medical Affairs, $15,000; Nominating and Corporate Governance, $15,000; Patient Safety and Clinical Quality, $15,000; Management Planning and Development, $20,000; Audit, $25,000; and Independent ChairmanChair of the Board, $275,000.
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At least 75% of each additional retainer must be paid in shares of our common stock, with the remaining 25% paid in cash, unless the director elects to be paid an additional percentage in shares. Each retainer was paid in two equal installments, in MayandJune and November of 2016.2018. Directors may elect to defer receipt of shares;shares, and deferred shares are credited with dividend equivalentsreinvestment shares to the extent dividends are paid to stockholders. There are no meeting fees.
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Corporate Governance and Related Matters Non-Employee Director Compensation
On November 6, 2018, the Management Planning and Development Committee and Exequity LLP reviewed a director compensation study prepared by Exequity, and the Board approved the Director compensation package for non-employee Directors for the 2019-2020 Board year. The Board retainer will be increased to $310,000, with at least 75% paid in stock, and all of the Chair retainers will remain the same as the current Board year.
ALL OTHER COMPENSATION AND BENEFITS
Directors are eligible to participate in the employee discount program and are subject to the same terms of the program as our employees. Directors are generally reimbursed for business expenses incurred directly in connection with their roles and duties on the Board, such as services provided by an executive assistant, travel, meals and lodging. We allow all directors to enroll themselves and their eligible dependents in our prescription drug benefit program, paying the same premium rates as employees. If a director retires from the Board with at least five years of service, we will allow continued participation in the prescription drug benefit plan for life, but the director must bear the full cost of the premium after retirement.
The following table shows amounts paid to each of our non-employee directors in 2016.2018.
NAME | FEES EARNED AND PAID IN CASH1 ($) | CASH FEES ELECTED TO BE PAID IN STOCK2 ($) | STOCK AWARDS 2 ($) | ALL OTHER COMPENSATION 3 ($) | TOTAL ($) | |||||
Richard M. Bracken4 | 74,524 | — | 222,976 | 200 | 297,700 | |||||
C. David Brown II | — | 75,000 | 225,000 | 2,056 | 302,056 | |||||
Alecia A. DeCoudreaux | — | 70,000 | 210,000 | 200 | 280,200 | |||||
Nancy-Ann M. DeParle | 70,075 | — | 209,925 | 200 | 280,200 | |||||
David W. Dorman | 92 | 142,408 | 427,500 | 200 | 570,200 | |||||
Anne M. Finucane | 70,075 | — | 209,925 | — | 280,000 | |||||
Jean-Pierre Millon | 70,075 | — | 209,925 | 2,056 | 282,056 | |||||
Richard J. Swift | 76,347 | — | 228,653 | 2,056 | 307,056 | |||||
William C. Weldon | — | 70,000 | 210,000 | 200 | 280,200 | |||||
Tony L. White | 70,075 | — | 209,925 | 2,056 | 282,056 |
Name | Fees Earned and Paid in Cash1 ($) | Cash Fees Elected to be Paid in Stock2 ($) | Stock Awards2 ($) | All Other Compensation3 ($) | Total ($) | |||||
Fernando Aguirre | 35,007 | — | 104,993 | — | 140,000 | |||||
Mark T. Bertolini | 35,007 | — | 104,993 | — | 140,000 | |||||
Richard M. Bracken | 73,913 | — | 221,087 | 2,043 | 297,043 | |||||
C. David Brown II | 0 | 75,000 | 225,000 | 2,043 | 302,043 | |||||
Alecia A. DeCoudreaux | 70,083 | — | 209,917 | 973 | 280,973 | |||||
Nancy-Ann M. DeParle | 70,083 | — | 209,917 | — | 280,000 | |||||
David W. Dorman | 100 | 142,400 | 427,500 | — | 570,000 | |||||
Roger N. Farah | 35,007 | — | 104,993 | — | 140,000 | |||||
Anne M. Finucane | 70,083 | — | 209,917 | — | 280,000 | |||||
Edward J. Ludwig | 36,888 | — | 110,612 | — | 147,500 | |||||
Jean-Pierre Millon | 70,083 | — | 209,917 | 2,043 | 282,043 | |||||
Mary L. Schapiro | 0 | 70,000 | 210,000 | — | 280,000 | |||||
Richard J. Swift | 76,250 | — | 228,750 | 2,043 | 307,043 | |||||
William C. Weldon | 0 | 70,000 | 210,000 | — | 280,000 | |||||
Tony L. White | 70,083 | — | 209,917 | 2,043 | 282,043 |
1 | The amounts shown include cash payments made in lieu of fractional shares to Mmes. DeCoudreaux, DeParle and Finucane and Messrs. Aguirre, Bertolini, Bracken, Dorman, Farah, Ludwig, Millon, Swift and White. |
2 | These awards are fully vested at grant and the amounts shown represent both the fair market value and the full fair value at grant. During |
3 | Represents Company |
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The Audit Committee of the Company’s Board of Directors has appointed Ernst & Young LLP, an independent registered public accounting firm, to audit the financial statements of the Company for the fiscal year ending December 31, 2017,and recommended to our full Board that it approve that appointment. We are submitting the appointment by the Committee to you for your ratification.
AUDIT COMMITTEE REPORT
During most of 2016,2018, the Committee was composed of foureither five or six independent directors.directors, with Messrs. Aguirre and Ludwig joining the Committee after their election to the Board in November 2018 and Ms. DeParle rotating off the Committee at that time. Set forth below is the report of the current Committee on its activities with respect to CVS Health’s audited financial statements for the fiscal year ended December 31, 20162018 (audited financial statements).
● | The Committee has reviewed and discussed the audited financial statements with management; |
● | The Committee has discussed with Ernst & Young, CVS Health’s independent registered public accounting firm, the matters required to be discussed under applicable auditing standards; |
● | The Committee has received the written disclosures and the letter from Ernst & Young pursuant to applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young’scommunications with the Committee concerning independence, and has discussed with Ernst & Young its independence from the Company; and |
● | Based on the review and discussions referred to above and relying thereon, the Committee recommended to the Board of Directors that the audited financial statements be included in CVS Health’s Annual Report on Form 10-K for the fiscal year ended December 31, |
Richard J. Swift, Chair | Fernando Aguirre | Alecia A. DeCoudreaux | ||||||||
Edward J. Ludwig | Jean-Pierre Millon | Mary L. Schapiro |
INDEPENDENT ACCOUNTING FIRM INDEPENDENCE AND FEE APPROVAL POLICY
The Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm. The Committee has retained Ernst & Young as CVS Health’s external audit firm since September 2007. In order to assure continuing external auditor independence, the Committee periodically considers whether there should be a rotation of the audit firm. Further, in conjunction with the mandated rotation of the external audit firm’s lead engagement partner, the Committee and its chairChair are directly involved in the selection of Ernst & Young’s new lead engagement partner. Based on its most recent evaluation of Ernst & Young, the members of the Committee believe that the continued retention of Ernst & Young to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its stockholders. Among the factors considered by the Committee in reaching this recommendation are the following: the quality of Ernst & Young’s staff, work and quality control; its capability and technical expertise, given the complexity of the Company’s business, including its expertise in the health benefits business acquired by the Company in the Aetna Transaction; its independence from the Company; the quality and candor of its communications with the Company and the Committee; and the benefits of its tenure as auditors, including enhanced audit quality and competitive fees.
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Audit Committee Matters Item 2
All audit services, audit-related services and tax services were pre-approved by the Committee, and the Committee is ultimately responsible for audit fee negotiations associated with the retention of Ernst & Young. The Committee has considered whether Ernst & Young’s provision of services is compatible with maintaining Ernst & Young’s independence. The Committee’s audit approval policy provides for pre-approval of audit, audit-related and tax services that are specifically described on an annual basis to the Committee and, in addition, individual engagements anticipated to exceed pre-established thresholds must be separately approved. The policy also requires specific approval by the Committee if total fees for audit-related and tax services would exceed total fees for audit services in any fiscal year. The policy authorizes the Committee to delegate to one or more of its members pre-approval authority with respect to permitted services, so long as such pre-approvals are reported to the full Committee at its next scheduled meeting.
Representatives of Ernst & Young will be at the Annual Meeting to answer your questions and will have the opportunity to make a statement if they so desire.
If you do not ratify the appointment of Ernst & Young, the Committee will reconsider its appointment, although in the event of reconsideration the Committee may determine that Ernst & Young should continue in its role. Even if you do ratify the appointment, the Committee retains its discretion to reconsider its appointment if it believes that reconsideration is necessary in the best interest of the Company and the stockholders.
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FEES OF INDEPENDENT ACCOUNTING FIRM
The following table summarizes the fees paid to Ernst & Young for services rendered during fiscal 20162018 and 2015.2017.
FISCAL YEAR ENDED 12/31/16 | FISCAL YEAR ENDED 12/31/15 | Fiscal Year Ended 12/31/18 ($) | Fiscal Year Ended 12/31/17 ($) | |||||
Audit Fees1 | $10,360,000 | $10,680,969 | 24,210,000 | 10,530,000 | ||||
Audit Related Fees2 | $624,008 | $228,564 | ||||||
Audit-Related Fees2 | 2,269,395 | 1,318,736 | ||||||
Tax Fees3 | $2,985,026 | $2,001,278 | 1,642,816 | 1,420,837 | ||||
All Other Fees | — | — | — | — |
1 | Represents the aggregate fees and expenses billed for the audit of our consolidated financial statements and the audit of our internal control over financial reporting for the fiscal year, the reviews of the condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q, audits of our insurance captives, services provided in connection with statutory and regulatory filings for the fiscal year, and consultations on technical matters. Audit fees increased in 2018 due to additional audit procedures associated with the new lease accounting standard, goodwill impairments, debt offering, and the Aetna Transaction. |
2 | Represents the aggregate fees billed for audit and other services that are typically performed by auditors, including audits of our employee benefit plans, compliance reporting, non-financial metric reporting and certain agreed upon procedures. |
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Executive Compensation and Related Matters
Item 3: Say on Pay, a Proposal to Approve, on An Advisory Basis, the Company’s Executive Compensation | ||
The Board of Directors unanimously recommends a voteFOR this proposal. |
EXECUTIVE COMPENSATION AND RELATED MATTERSBACKGROUND
BACKGROUND
We are asking our stockholders to approve, on an advisory basis, the compensation paid to our named executive officers,Named Executive Officers, as described in the Compensation Discussion and Analysis (CD&A) and the Executive Compensation section of this proxy statement. Although the advisory vote is not binding upon the Company, the Management Planning and Development Committee (referred to in this Item 3 as the Committee), which is responsible for designing and administering our executive compensation program, values our stockholders’ opinions and will continue to consider the outcome of the vote in its ongoing evaluation of our executive compensation program.
At CVS Health, our executive compensation philosophy and practice reflect our unwavering commitment to paying for performance – both short- and long-term. We define performance as the achievement of results against challenging internal financial targets that take into account our results relative to that of our peer companies, as well as industry and market conditions. We believe that our multi-faceted executive compensation plans, with their integrated focus on short- and long-term metrics, provide an effective framework by which progress against our strategic goals may be appropriately measured and rewarded.
OUR 2016 2018 VOTE; STOCKHOLDER OUTREACH
Following our 20162018 Annual Meeting of Shareholders,Stockholders, the Committee reviewed the results of the shareholderstockholder advisory vote on executive compensation that was held at the meeting with respect to the 2015 compensation actions and decisions for the named executive officers.compensation. Approximately 80%91% of votes were cast in favor of the proposal; this was lower thanproposal, an increase from 61% in 2017.
Management and the support receivedBoard had conducted extensive outreach with our stockholders following our 2017 Annual Meeting to better understand their perspectives on our compensation program, particularly for those who voted against our say-on-pay proposal. As a result of investor feedback, the Committee approved several changes to our compensation program for 2018 in 2015 (94%an effort to simplify and enhance the performance-based nature of the program and to increase overall transparency. The 2018 changes followed a number of enhancements made to our executive compensation programs following stockholder feedback in favor). Duringprior years. In the falllatter part of 2016,2018 and early 2019, we contactedreached out to stockholders representing approximately 41% of our 50 largest stockholders,outstanding shares and held calls or meetings with holders of more than 50%nearly 19% of our common stock, to get their views on our programoutstanding shares, as well as the required vote on the frequency of the say on pay vote. We conducted meetings with many investors and one of the leading proxy advisory firms. The stockholders thatDuring our outreach, we spoke with generally approved of our core compensation principles anddiscussed the changes to our executive compensation program, but some of them offered suggestions for improvements to our programor our disclosure. After careful consideration, theprograms that were put into place in 2018 and received positive feedback.
The Committee had implemented several changes to our 2018 plan design aimed principally at enhancing the performance-based nature of the program and increasing overall transparency, including:
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We are also improvedenhancing the disclosure and providing more insight into the Committee’s evaluation of oureach executive’s individual goals and performance metricsunder the annual incentive plan.
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Executive Compensation and how they correlate to the creation of long-term value for our stockholders.Related Matters Item 3
OUR 20162018 PERFORMANCE AND PAY ACTIONS
2016In 2018, the Company delivered on our financial expectations. As a result, revenues grew 5.3% and adjusted earnings per share were $7.08,1 at the top end of our previous guidance range. Earnings (loss) per share on a GAAP basis was a successful year for$(0.57), due primarily to goodwill impairment charges taken with respect to the Company.Company’s Long-Term Care business. We had record revenues and cash flow from operations and generated healthy profit growth across the enterprise. We also returned more than $6$2 billion to stockholders through cash dividends and share buybacks. However, we set challenging internal goals which resulted in below-target level annual bonus payments. Strong performanceduring 2018, but suspended both dividend increases and our stock buyback program in connection with the Aetna Transaction as we take steps to return to our target debt leverage ratio through disciplined approach to capital allocation contributed to the satisfaction of the maximum performance levels under the 2014-2016 long-term performance awards, despite a decline in our stock price due to industry-wide pressures on reimbursement, drug pricing and headwinds created by restricted networks adopted by payors in 2016.allocation.
The value of our named executive officers’Named Executive Officers’ compensation is significantly influenced by the value of our stock. Approximately 70% of target total compensation under our program is provided through stock-based pay (stock options, RSUsperformance stock units and the performance-based Long-Term Incentive Plan (LTIP))LTIP). As a result of our long vesting periods and the two-year holding requirement for net shares issued under the LTIP, the members of our executive team, like our stockholders, have been affected by the decrease in our stock price and only ultimately achieve the full target grant value of their equity compensation by creating long-term stockholder value.
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CONCLUSION; RESOLUTION
We urge stockholders to read the letter from the Committee found on page 3437 and the CD&A beginning on page 3538 of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrativenarratives appearing on pages 57 through 66,63-74, which provide detailed information on the compensation of our NEOs.Named Executive Officers. The Committee and the Board of Directors believe that the policies and procedures articulated in the CD&A are effective in achieving our goals and that the compensation of our NEOsNamed Executive Officers reported in this proxy statement has contributed to CVS Health’s long-term success.
Stockholders are being asked to vote on the following resolution:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the CVS Health executive officers named in the Summary Compensation Table, as disclosed pursuant to the SEC’s compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables and other narrative executive compensation disclosures).”
Adjusted earnings per share is a non-GAAP measure. For more information, see Annex A of this proxy statement. |
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BACKGROUND AND RECOMMENDATION
As described in Item 3 above, our stockholders have the opportunity to cast an advisory vote to approve the compensationTable of our named executive officers, the so-called “say-on-pay” proposal. This Item 4 affords stockholders the opportunity to cast an advisory vote on how often we should include a say-on-pay proposal in our proxy materials for future stockholder meetings for which we must include executive compensation information in the proxy statement for that meeting (often referred to as the “say-when-on-pay” proposal). Under this Item 4, stockholders may vote to have the say-on-pay vote every year, every two years, or every three years.Contents
Our stockholders voted on a similar proposal in 2011, with a large majority voting to hold a say-on-pay vote every year, as then recommended by the Board. Though we currently hold our say-on-pay votes every year, there are valid arguments regarding the relative benefits of both annual and less frequent say-on-pay votes. After considering inputLetter from our stockholders, the preference evident from voting results at otherFortune 500companies, and practical commentary that has become widely available with respect to the say-when-on-pay vote since its implementation, our Board is again recommending that the say-on-pay vote be held on an annual basis.
As an advisory vote, this proposal is not binding on the Company, the Board or the Management Planning and Development Committee. However, the BoardCommittee and theCompensation Committee value the opinions expressed by stockholders in their votes on this proposal and will consider the outcome of this vote when making future decisions regarding the frequency of conducting a say-on-pay vote. Unless and until the Board determines otherwise, the next say-when-on-pay vote will occur at our 2023 Annual Meeting, since this vote is required to be held every six years.Report
Stockholders may cast a vote on the preferred voting frequency by selecting the option of every one year, every two years, or every three years (or abstaining) when voting in response to the resolution set forth below.
“RESOLVED, that the stockholders recommend, on an advisory basis, that after the 2017 Annual Meeting of Stockholders, the Company conduct any required stockholder advisory vote on the executive compensation of the Company’s named executive officers as set forth in the Company’s proxy statement should be every year, every two years, or every three years in accordance with such frequency receiving the greatest number of votes cast for this resolution.”
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DEAR CVS HEALTH
CORPORATION STOCKHOLDER,
As the members of the Board’s ManagementPlanning and Development Committee (for purposes of this letter and the Board of Directors,CD&A, the Committee), we are responsible for and highly focused on overseeing the design and implementation of competitive compensation programs that furtheralign pay and performance, support our long-term strategic goals, and drive stockholder value.
It was a milestone year for CVS Health. In 2018 we successfully completed our transformational acquisition of Aetna, began effective implementation of our integration strategy, and took important steps toward building the interestsintegrated healthcare model that will bring substantial value to our various stakeholders. During this time, we maintained strong financial performance and delivered on our operating expectations. The Committee took into account all of these factors, in addition to the direct feedback we heard from our stockholders, as we implemented the 2018 compensation program and demonstrate strong pay-for-performance. This responsibility includes listeningstructured the compensation program for 2019.
In 2018, following a thorough review of the compensation program and significant stockholder engagement, the Committee implemented a number of substantive enhancements that both responded to stockholder feedback and considering your viewscontinued to support our core compensation principles. These changes were designed to simplify and enhance the performance-based nature of the program, and to increase overall transparency. Stockholder feedback since these changes were implemented, through the 2018 say-on-pay proposal, which received 91% support, and subsequent stockholder engagement in late 2018 and early 2019, has been positive.
We remain firmly committed to incent management to remain focused on executive compensation.
The Compensation Discussion & Analysis (CD&A) that follows describes what we pay, why we pay it,drivers of sustainable performance over the long term. As a result of the Aetna Transaction which closed in late 2018 and how we madeas our pay decisions for 2016. It also demonstrates how our executive pay program reflectsstrategy continues to evolve, the Committee has reviewed the performance metrics within our compensation philosophy andprogram to ensure appropriate alignment. For 2019, the Committee determined to grant the performance stock units (PSUs) portion of our long-term corporate strategy. In addition,incentive program following the program reflectsCompany’s Investor Day presentation in June using an EPS growth rate and a leverage ratio as the actions we took based on your feedback. For example:performance metrics for the awards. We believe these metrics are key to driving long-term, sustained growth and will be critical measures of success for you, our stockholders.
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We remain firm in our beliefbelieve that our compensation programs drive the right behaviors for our executives, which in turn benefits our stockholders by driving our business strategies and goals. Though inWe look forward to ongoing dialogue and collaboration with our stockholders as we transform the short-run the stock price may not correlate with these actions, we believe our stockholders’ interests are best served over time by a balanced compensation program that takes a long-term, holistic view of our business strategy and emphasizes the drivers of long-term value creation.consumer health care experience.
You can find additional information in this Proxy Statement as well as the AnnualCompensation Committee Report both of which can be found on the Company’s website (www.cvshealth.com) or our annual meeting website (www.cvshealthannualmeeting.com).
We met with management to review and discuss the Compensation Discussion and Analysis (the CD&A.&A). Based on that review and discussion, we recommended to the Board that the CD&A be included in this proxy statement.
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Anne M. Finucane | C. David Brown II (Chair) | William C. Weldon | Roger N. Farah |
Our 2016 compensation programs:
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Ourbusiness performance showcases our financial discipline, conservative management, strong track record and focus on stockholder returns. In 2016 we delivered:
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The rapidlychanging health care landscape includes uncertainties concerning health care policy and the exclusion of CVS Pharmacy from certain health plan retail networks, resulting in the loss of prescription volume beginning in late 2016. Together, these have created a headwind for 2017. Our compensation, both the cash component and the value of our outstanding stock awards, is — and should be — affected by such factors, whether or not those factors are within management’s ability to influence.
We are committed to helping people on their path to better health. Our values of innovation, collaboration, caring, integrity and accountability affect how we drive performance. We are strongly committed to evaluating and incenting management to remain focused ondrivers of sustainable performance, even though we recognize that this focus is not always reflected in the stock price. Our annual stockholder outreach to holders of over 50 percent of our shares confirms strong support for this commitment and for the value we place on other forms of capital—including human, natural, social and intellectual:
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Finally, our compensation program is implemented by a board that maintains good corporate governance practices.For example:
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We seek your voting support for our pay programs. We encourage you to consider this summary in the context of the important details that follow.
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Compensation Discussion and Analysis Summary
Compensation Discussion and Analysis |
The CD&A explains how our executive compensation programs are designed and operate with respect to our named executive officers (NEOs or Named Executive Officers), who for 2018 are:
President and Chief Executive Officer (CEO) | |
Executive Vice President (EVP) and Chief Financial Officer (CFO) | |
Jonathan C. Roberts | EVP and Chief Operating Officer (COO) |
Derica W. Rice | EVP and President – CVS Caremark |
Thomas M. Moriarty | EVP, Chief Policy and External Affairs Officer and General Counsel |
David M. Denton | Former EVP and CFO |
In connection with the closing of the Aetna Transaction, David M. Denton left the Company and Eva C. Boratto, formerly CVS Health’s Executive Vice President – Controller and Chief Accounting Officer, was appointed as Executive Vice President and Chief Financial Officer. Ms. Boratto joined the Company in 2010 and has an extensive financial background that spans more than 20 years and includes senior positions in both the pharmaceutical and pharmacy benefit management (PBM) industries.
Derica W. Rice joined the Company on March 30, 2018 and serves as President of CVS Caremark and Executive Vice President of the Company. He previously served as CFO at Eli Lilly and Company.
The CD&A is organized into the following sections:
Summary | ◥ | page 38 |
Business and Performance Highlights | ◥ | page 42 |
Detailed Program Discussion | ◥ | page 44 |
Summary |
OUR EXECUTIVE COMPENSATION CORE PRINCIPLES
What is your executive compensation philosophy?
Our executive compensation program is governed by fiveFive core principles that drive our executive compensation philosophy:
I | II | III | IV | V |
Support, Communicate and Drive Achievement | ||||
Attract and Retain | ||||
Motivate High Performance | ||||
Align Interests | ||||
Reward Achievement |
Management and the Committee believe these principles motivate our executive officers to take personal responsibility for the performance of the business continually improve our results and operations and deliver long-term stockholder value, consistent with CVS Health’s values of Innovation, Collaboration, Caring, Integrity and Accountability.
Our compensation programs:
● | Are tailored to our short- and long-termbusiness strategies and drive performance, |
● | Reflect therapidly changing health care landscape, |
● | Drivesustainable performancein an era where human, social, natural, and intellectual capital are joining financial and operating capital as performance drivers, and |
● | Operate withinstrong governanceparameters. |
38 | 2019 Proxy Statement |
Compensation Discussion and Analysis Summary
STOCKHOLDER OUTREACH AND CONSIDERATION OF 2018 “SAY ON PAY” VOTE
Following our core values. 2018 Annual Meeting of Stockholders, the Committee reviewed the results of the stockholder advisory vote on executive compensation. Approximately 91% of votes were cast in favor of the proposal, an increase from 61% in 2017. Management and the Board had conducted extensive outreach with our stockholders following our 2017 Annual Meeting to better understand their perspectives on our compensation program, particularly for those who voted against our say-on-pay proposal. As a result of investor feedback, the Committee approved several changes to our compensation program for 2018 in an effort to simplify and enhance the performance-based nature of the program and to increase overall transparency. The 2018 changes followed a number of enhancements made to the program following stockholder feedback in prior years.
In the latter part of 2018 and early 2019, we reached out to stockholders representing approximately 41% of our outstanding shares and had conversations with stockholders who requested engagement representing nearly 19% of our outstanding shares, as well as one of the leading proxy advisory firms. During our outreach, we discussed a range of relevant topics with stockholders, including the changes to our executive compensation programs that were put into place in 2018 and received positive feedback.
2018 Enhancements To Executive Compensation Program |
Denominate Long-Term Incentive Plan (LTIP) Grants in Stock | We historically denominated the value of our LTIP grants in cash. Based on feedback from stockholders, beginning in 2016 we provided for the awards to be settled 100% in shares of common stock that are subject to a two-year holding period. Even after the 2016 change, some stockholders continued to find the disclosure surrounding the LTIP confusing, and many suggested a preferable and more common approach to denominate grants in shares. Thus effective beginning with the 2018-2020 performance cycle, all LTIP grants will be denominated as performance stock units (PSUs) and reported in the Summary Compensation Table in the year of grant. | |
Enhance Performance- Based Component of Long-Term Incentives | Beginning with 2018 grants, we replaced time-vested restricted stock units (RSUs) with PSUs with a three-year performance period based on adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) targets, which we refer to as EBITDA PSUs, resulting in 75% of our target annual long-term incentive grant value being performance-based. The remaining 25% of the target grant value is in the form of a stock option grant, which many stockholders view as performance-based or performance-aligned. Unvested PSUs are not eligible for dividend equivalent payments (unlike the prior unvested RSUs). Shares delivered in settlement of PSUs are subject to a two-year holding period. Prior to 2018, RSUs accounted for 25% of an executive’s long-term incentive target grant values, and investors indicated a preference for greater emphasis on PSUs. | |
Increase Portion of Long-Term Incentives Subject to Holding Period | Beginning with 2018 grants, LTIP awards are granted as PSUs and settled 100% in shares of common stock that are subject to a two-year holding period. As a result, the portion of long-term incentive awards subject to a holding period by our executives has increased to 75% versus the prior 50%. Stockholders have provided positive feedback on the two-year holding period, recognizing that it further aligns executive and stockholder interests over a longer term. | |
Improve Annual Cash Incentive Program Design | For the 2018 performance year, we simplified the design of the annual cash incentive program and eliminated the bonus pool. NEOs are eligible for maximum awards based on competitive targets. For 2018, the program continued to use rigorous goals for MIP Adjusted Operating Profit that align to our external financial guidance along with customer satisfaction and client service goals that the Committee believes are leading indicators of future performance. The program also incorporates individual goals for each NEO. Stockholders previously had indicated that our annual cash incentive program was too complex. | |
Adjust Comparator Group For Relative TSR Performance Modifier | Beginning with the 2018-2020 LTIP performance cycle, we changed the comparator group for measuring relative TSR (rTSR) under our LTIP from the S&P 500 to an index of companies that more closely reflects our business. Specifically, this group includes over 55 health care and over 30 consumer staples companies. We received feedback that a comparator group more closely aligned to our business might be more appropriate, and would help to mitigate some of the macro issues that can potentially impact the share price of a particular industry or industries. |
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Compensation Discussion and Analysis Summary
The above changes are in addition to enhancements made to our compensation program in prior years as a result of stockholder input that remain in effect, including:
● | Adding transparency to the individual component of our annual cash incentive program, |
● | Reducing maximum awards under the annual cash incentive program, |
● | Providing that dividend equivalents on unvested RSUs (a portion of our long-term incentive program prior to 2018) are only paid out when and if awards vest, and |
● | Revising the TSR modifier beginning with the 2017-2019 LTIP performance cycle by applying it in pro-rated quartiles that reduce payouts for performance below the 50th percentile. |
COMPENSATION PROGRAM DESIGN
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 9% of the CEO’s total target compensation and no more than 16% of the other NEOs’ total target compensation.
2018 CEO Target Pay Mix |
IMPACT OF LTIP PLAN DESIGN CHANGES: TRANSITION IN PSU SETTLEMENT
In 2016, in response to stockholder feedback, the Company moved from an LTIP award that was partially settled in cash to awards denominated in cash and settled 100% in stock. This resulted in a change in our reporting as previously awards were reported half in the year of grant and half in the year of vesting. In accordance with SEC guidance, the LTIP payouts for the 2016 and 2017 grants are reported at the end of the three-year performance period as cash even though they will be settled and paid fully in stock. Although our stockholders generally approved of the design (payment in stock that is subject to a two-year post-vesting holding period), they found the multi-year reporting confusing and that it resulted in an incomplete analysis of our compensation program. To address these concerns, commencing with the 2018 grants, LTIP awards are made in PSUs (LTIP PSUs) that are reported in the year of the grant as stock awards in the Summary Compensation Table (SCT) and Grants of Plan-Based Awards Table.
During the transition period, which includes the payout of the 2016-2018 performance cycle and will continue through the payout of the 2017-2019 performance cycle, there will be timing issues that occur as awards for multiple years will appear in the SCT as follows:
● | Last year’s SCT included the cash portion earned for the 2015-2017 LTIP performance cycle (the stock portion was reported in 2015). |
● | The 2018 SCT in this proxy statement includes 100% of the value earned for the 2016-2018 LTIP performance cycle (reported in the “Non-Equity Incentive Plan Compensation” column) and 100% of the grant date fair value at target performance for the awards granted for the 2018-2020 LTIP performance cycle (reported in the “Stock Awards” column). |
● | The 2019 SCT in next year’s proxy statement will include 100% of any value earned for the 2017-2019 LTIP performance cycle (reported in the “Non-Equity Incentive Plan Compensation” column) and 100% of the grant date fair value at target performance for the awards granted for 2019-2021 LTIP performance cycle (reported in the “Stock Awards” column). |
We will return to normal, single-cycle reporting in the 2020 Summary Compensation Table.
40 | 2019 Proxy Statement |
Compensation Discussion and Analysis Summary
The table below shows the Committee’s compensation determinations for our CEO for the last three years, and as such is a better and more comparable representation of the CEO’s compensation. This table is different from the SEC-required 2018 SCT that begins on page 63 only in that it removes the double reporting of LTIP awards. For example, the value earned for the 2016-2018 LTIP performance cycle that paid out in 2018, which was granted in 2016, is not included for fiscal 2018 below, but is included in the SCT. As reflected in the table below, the value at target of the compensation to Mr. Merlo in 2018 remained consistent from the prior years.
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. |
PAY FOR PERFORMANCE ALIGNMENT
The vast majority of our NEOs’ pay is tied to challenging performance measures. We saw strong operational and financial performance in 2018, particularly the closing of the Aetna Transaction, one of the largest business combinations in history. Despite these successes, we did not meet the rigorous performance targets underlying both our short-and long-term incentive awards. As a result, our NEOs’ actual realized pay with respect to 2018 is well below the target grant value, demonstrating the strong performance-based and at-risk nature of our pay programs.
● | The 2018 corporate performance result for our annual cash incentive award was 88.8% of target. Individual performance assessments for many executives, including our CEO, resulted in a further reduction to annual cash incentive payouts. |
● | In addition, based on three-year Return on Net Assets (RoNA) results and our relative TSR performance for the performance period that ended in 2018, the 2016-2018 LTIP award vested at 52.4% of target. |
To illustrate the alignment with stockholder value, the following table compares the three-year target compensation to the realizable compensation for our CEO.
2016 - 2018 CEO Target Compensation vs. Realizable Compensation | |
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Compensation Discussion and Analysis Business and Performance Highlights
LEADING PRACTICES IN COMPENSATION PROGRAMS
Our pay practices align with our core compensation principles and facilitate our implementation of those principles. They also demonstrate our commitment to sound compensation and governance practices.
What were the specific elements of compensation for 2016?
The main compensation elements of our executive compensation program remained unchanged in 2016:
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Our executive compensation program motivates executive officers to take personal responsibility for the performance of CVS Health |
Performance Measures Aligned with Stockholder Interests Majority of the Total Compensation Opportunity is Performance-Based 75% of Long-term Incentives are Performance-Based LTIP Awards and TSR Modifier Provides for Reduced Payout for Below Median Performance Robust Stock Ownership Guidelines | ||||
We apply leading executive compensation practices |
No Option Repricing No Recycling of Shares Recoupment Policy Broad Anti-Pledging and Hedging Policies Executive Severance Policy Limited Perquisites and Personal Benefits SERP Closed to New Participants Double Trigger Vesting of Equity Awards Dividend Equivalents on RSUs Paid Only When Awards Vest Board Committee Oversight of Comprehensive Annual Compensation Program Risk Assessment Cap on Annual Cash Incentive Awards for NEOs Replaced Cash Denominated LTIP with Performance Stock Units Replaced Time-Vested RSUs with Performance Stock Units Simplified and Improved Disclosure for Annual Cash Incentive Program |
The majority of our executive compensation program is at risk; no more than 15% of any named executiveofficer’s target compensation is fixed.
Were there any changes in the Company’s executive compensation program in 2016?
Meaningful dialogue with our stockholders continues to contribute to our decisions on compensation. Last fall, we contacted our top institutional stockholders who collectively ownmore than 50 percent of our shares and spoke with representatives of many large institutional stockholders to get their views on our compensation program. Based on these discussions and other input, we have made a number of enhancements to further link the Company’s compensation programs with the Company’s business and talent strategies and the long-term interests of our stockholders, such as:
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NEW THIS YEAR |
Increased the Stock Ownership Guidelines for Enhanced Recoupment Policy to Include Disclosure of any Recoupments (see page 58) | ||||
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Did your NEOs get raises for 2016?
No, after consideration of competitive market rates, the base salaries for our executive officers in 2016 remainunchanged from 2015 levels.
How do you determine bonuses under the Executive Incentive Plan?
Our short-term bonus plan pool under the Executive Incentive Plan (EIP) was equal to 0.5% of Adjusted Income from Continuing Operations. However, actual awards were made with reference to our broad-based plan (MIP), that relates payment to achievement with respect to three performance metrics: (1) MIP Adjusted Operating Profit (weighted at 80%) and a combination of (2) retail customer service and (3) PBM client satisfaction (weighted together at 20%). Although our financial and service results were strong in 2016, we did not meet our challenging internal targets for short-term awards. As a result of stringent performance targets and lagging retail results, the MIP funded at 81.2% of target. When approving bonuses for 2016, the Committee considered the Company’s strong consolidated financial performance during 2016 in earnings growth, cash flow from operations and value returned to stockholders in the form of dividends and share repurchases. However, the Committee also considered that earnings performance fell shy of the higher mid-year financial goals announced during our quarterly earnings call in August 2016. Finally, the Committee adjusted bonuses for executives in reflection of the individual performance of each NEO together with the subjective achievement of strategic and operational goals.
The annual bonus payments for the NEOs were, on average, 15% below the MIP funding formulaand 38% lower than they were in 2015.
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Do you limit the amount by which an award can exceed MIP funding?
Yes. The EIP is a pool-based plan for tax deductibility purposes. As part of its determination of individual awards, the Committee reviews all EIP awards with reference to the formula-driven results of the broad-based MIP applied to each executive’s target award expressed as a percent of salary: [salary × target % × MIP funding %]. Just as for our other colleagues, individual awards may vary based on performance, but for our NEOs, awards are limited to no more than 25% above MIP funding and no more than 200% of target.
Do the 2016 equity grants reflect 2016 performance?
No, the equity grants reported in the Summary Compensation Table were made in April 2016 and reflect strong company and individual results in 2015. During 2015, the Company achieved superior financial results and completed the acquisitions of Omnicare, Inc. and the pharmacies and clinics of Target Corporation. Additional information about the 2016 equity awards for each of our NEOs, including stock option exercise price and the number of shares subject to each award, is shown in the Grants of Plan-Based Awards Table on page 59. Additional information about the 2015 performance of each NEO can be found in our 2016 Proxy Statement.
What was the payout for the 2014-2016 LTIP cycle?
Our 2014-2016 long-term incentive awards paid out at the maximum level of 200% as a result of our exceeding the performance target for return on net assets for the three year period. TSR over the same period was 35% resulting in a modifier of 1.0. We are currently estimating a payout below target for the 2015-2017 award cycle. In addition, beginning with the 2017-2019 cycle, the TSR modifier prorates for performance above and below the 50th percentile.
Why can’t we find the stock portion of the 2016-2018 LTIP in the Summary Compensation Table?
As we discussed in last year’s proxy, during our fall 2015 stockholder outreach, our stockholders indicated a preference that, on a going forward basis, our LTIP awards pay out in shares, rather than cash and shares as had been our historical practice. After considering this stockholder feedback, the MP&D Committee made this change prospectively, beginning with the 2016-2018 LTIP performance cycle. We noted in last year’s proxy that this change would result in different reporting of the LTIP awards in this year’s Summary Compensation Table. The change results from the application of the SEC disclosure rules to an LTIP award that is fully denominated in cash until it vests and is then settled in stock. Specifically,
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Why is the reporting different?
Historically, the LTIP awards were bifurcated in the Summary Compensation Table with half, the stock portion, being reported at the time of grant (i.e., at the beginning of the cycle), and the remaining half, the cash portion, reported three years later upon vesting (i.e., at the conclusion of the cycle). This reporting – although performed in accordance with the SEC rules – did not fully reflect either the structure of the grants as cash denominated awards or the results of the performance metrics and TSR modifier for the stock portion of the LTIP reported at the time of grant. By reporting the value of the LTIP award when it is actually paid, the Summary Compensation Table will reflect the full value received by the executives in the year of payment. We believe this insight is beneficial to our stockholders. To assist you with a year over year comparison, we have included a footnote to the Summary Compensation Table that identifies the additional amounts that would have been reported for each NEO if no change to the LTIP structure had been made to the 2016-2018 award.
Why do you award equity and LTIP?
Our long-term executive compensation for NEOs is split evenly between options and RSUs that vest over time, and the LTIP that vests based on the attainment of internal performance measures modified by TSR. This is consistent with the Committee’s desire to balance the types and amounts of awards to support the Company’s strategy, drive the creation of long-term value, ensure that a substantial portion of long-term incentives are performance-based, and promote the retention of key talent. See pages 46-52 for more information about the elements of compensation and how they support the Company’s long-term strategy.
Why is Return on Net Assets an appropriate metric for the Company?
Return on net assets is driven by generating strong net operating profit after taxes, while efficiently managing cash, inventory and accounts receivable. For the 2014-2016 cycle, net operating profit was largely driven by strong earnings over
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the performance period, recordincreases in PBM net new sales, strong PBM client retention, and improvements in tax rates. Net assets were efficiently managed over the period including through strong performance of SilverScript (our Medicare Part D prescription drug plan) and efficient cash management practices. These operational and financial goals are directly aligned with the creation of long-term stockholder value over the performance period by driving stockholder return, controlling costs, and generating cash flow, which is then used in our capital allocation strategy.
How is the compensation program aligned with stockholder interests?
The value of our NEOs’ compensation is significantly influenced by the value of our stock. Approximately 70% of target total compensation is provided through stock-based pay (stock options, RSUs and LTIP awards). As a result of our long vesting periods and the two-year holding requirement for net shares issued under the LTIP, the members of our executive team, like our stockholders, have been affected by the decrease in stock price and only ultimately achieve the full value of their equitycompensation by creating long-term stockholder value.
In 2016, our performance against operational and financial goals was strong, shown in our solid earnings, record cash flow from operations and significant cash returned to stockholders. However, we set challenging internal goals which resulted in below-target level annual bonus payments. Strong performance and our disciplined approach to capital allocation contributed to the satisfaction of the maximum performance levels under the 2014-2016 long-term performance awards, despite a decline in our stock price due to industry-wide pressures on reimbursement, drug pricing and headwinds created by restricted networks adopted by payors in 2016.
We believe the above supports our belief that our compensation program drives the right behaviors and that this benefits our stockholders by driving our business strategies and goals. We believe our stockholders’ interests are best served over time by a balanced compensation program that takes a long-term, holistic view of our business strategy and emphasizes the drivers of long-term value creation.
BUSINESS HIGHLIGHTS
Our Business
We are a pharmacyhealth innovation company helping people on their path to better health. AtWhether in one of our pharmacies or through our health services and plans, CVS Health is pioneering a bold new approach to total health by making quality care more affordable, accessible, simple and seamless. CVS Health is community-based and locally focused, engaging consumers with the forefront of a changing health care landscape, we have an unmatched suite of capabilitiesthey need when and the expertise needed to drive innovations that will help shape the future of health care. Through ourwhere they need it. The Company has more than 9,7009,900 retail stores, more thanlocations, approximately 1,100 walk-in health caremedical clinics, a leading pharmacybenefitspharmacy benefits manager with more than 80approximately 92 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year, expanding specialty pharmacy services, and a leading stand-alone Medicare Part D prescription drug plan, we enableplan. CVS Health also serves an estimated 38 million people businesses,through traditional, voluntary and communitiesconsumer-directed health insurance products and related services, including rapidly expanding Medicare Advantage offerings. The Company believes its innovative health care model increases access to managequality care, delivers better health in more affordable, effective ways.outcomes and lowers overall health care costs.
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Compensation Discussion and Analysis Business and Performance Highlights
We had strong financial performance and delivered on our operating expectations in 2018. It was also a milestone year for CVS Health as we successfully completed our transformational acquisition of Aetna, began effective implementation of our integration strategy, and took important steps toward building the integrated healthcare model that will bring substantial value to our various stakeholders. CVS Health believes that Aetna complements its competitive strategy, which is built on a diversified set of core and emerging businesses that enable it to better compete with more cost-effective products, pursue profitable growth across a range of opportunities, and lead the transformation of health care.
revenue growth |
2016 Business Highlights
Completed $70 billion acquisition of Aetna | Maintained dividend of $2.00per share | |||||
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The rapidly changing health care landscape continues to include uncertainties concerning health care policy. During 2018, we faced headwinds from reduced generic launches, continued reimbursement pressure and the slowing of brand drug price inflation. Compensation to our executives, including the cash incentive component, the long-term incentive plan performance cycle ending in 2018 and the value of our outstanding stock awards, is – and should be – affected by such factors, regardless of whether or not management can influence those factors.
ANNUAL CASH DIVIDENDS($ PER SHARE)1 year increase of 21.4%
DILUTED EARNINGS PER SHAREFROM CONTINUING OPERATIONS ($)1 year growth of 6.2%
For more information on our financial performance and strategy, please refer to our 2018 Annual Report available at www.cvshealthannualmeeting.com. Please also refer to page |
We are committed to helping people on their path to better health. Our values of innovation, collaboration, caring, integrity and accountability affect how we drive performance. We remain firmly committed to evaluating and incenting management to remain focused on drivers of sustainable performance over the long-term, even though we recognize that this focus is not always reflected in our stock price. We invest in our employees at all levels of the Company by rewarding performance that balances risk and reward, is consistent with our values, and supports short- and long-term goals and, ultimately, value creation for our stockholders. We provide opportunities for professional growth and development and aim to offer affordable benefits and programs that meet the diverse needs of our employees and their families. Feedback from stockholders during our annual outreach confirms strong support for this commitment and for the value we place on other forms of capital—including human, natural, social and intellectual:
● | We include retail customer service and PBM and long-term care (LTC) client/member satisfaction metrics in our pay calculations. |
● | In 2018 we introduced the CVS Beauty Mark and made a commitment not to digitally alter or change a person’s shape, size, proportion, skin or eye color or enhance or alter lines, wrinkles or other individual characteristics. We want our beauty aisle to be a place where our customers can always come to feel good, while representing and celebrating the authenticity and diversity of the communities we serve. |
● | Our decision to remove tobacco from pharmacy stores continues to show positive results by reinforcing the value of our brand in health care. We continue our work to create the first tobacco-free generation and made more than $4 million in grants in 2018 to organizations that provide an array of programming that supports ourBe The Firstfocus areas, including youth tobacco and e-cigarette prevention in classrooms and communities across the country; supporting clinicians with trainings and resources on screening youth for tobacco use; helping youth become tobacco-free advocates in their own communities; and creating more smoke-free college campuses across the country. |
● | We have implemented an industry-leading program to increase access to naloxone in 48 states, where patients do not require an individual prescription. Following the Surgeon General’s Advisory on Naloxone and Opioid Overdose in April 2018, we have further expanded our efforts to educate patients about naloxone. Today, all CVS Pharmacy locations have in-store signage and in-store radio messages to educate patients about the availability and accessibility of the life-saving drug. We are dedicated to helping the communities we serve address and prevent opioid abuse. In 2018, we enhanced our commitment to supporting addiction recovery programs, providing grants to 21 community health centers across the U.S. that deliver medication-assisted treatment and other addiction recovery services. These 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 value the recruiting and reputational advantages of placing first in our sector of World’s Most Admired Companies and of being ranked as one of Forbes Most Valuable Brands; Points of Light’s The Civic 50; Military Times Best for Vets; Newsweek’s Green Ranking of America’s Greenest Companies; and Corporate Responsibility Magazine’s 100 Best Corporate Citizens. |
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LEADING PRACTICES IN COMPENSATION PROGRAMS
Our pay practices align with our core compensation principlesCompensation Discussion and facilitate our implementation of those principles. They also demonstrate our commitment to sound compensation and governance practices.
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OUR COMPENSATION CORE PRINCIPLES
Our executive compensation program has five core principles that drive our executive compensation philosophy.
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● | We achieved a perfect score for the fourth consecutive year on the 2018 Corporate Equality Index, a national benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality administered by the Human Rights Campaign Foundation. |
Management and the Committee believe these principles motivate our executive officers to take personal responsibility for the performance of the business and deliver long-term stockholder value, consistent with CVS Health’svalues of Innovation, Collaboration, Caring, Integrity and Accountability.
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How We Pay Our Executives
We achieve these objectives by employing the following elements of pay for our executives:
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Our 2016 Executive Pay
The following shows the breakdown of reported 2016 compensation for our CEO and our other named executive officers.
CEO
89%Performance Aligned | |||||
Base Salary | Annual Incentive Awards | RSUs and Options | LTIP | Other | |
7% | 10% | 33% | 46% | 4% | |
79%Long-Term |
All Other NEOs
85%Performance Aligned | |||||
Base Salary | Annual Incentive Awards | RSUs and Options | LTIP | Other | |
12% | 12% | 35% | 38% | 3% | |
73%Long-Term |
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CONSIDERATION OF MOST RECENT “SAY ON PAY” VOTE
Following our 2016 Annual Meeting of Shareholders, the Committee reviewed the results of the shareholder advisory vote on executive compensation that was held at the meeting with respect to the 2015 compensation actions and decisions for the named executive officers. Approximately 80% of votes were cast in favor of the proposal; this was lower than the support received in 2015 (94% in favor). During the fall of 2016, we contacted our 50 largest stockholders, holders of more than 50% of our common stock, to get their views on our compensation program as well as the required vote on the frequency of say on pay. We conducted meetings with many investors and one of the leading proxy advisory firms and they were generally supportive of our executive compensation program. After careful consideration, the Committee implemented several changes in both plan design and disclosure including: reducing maximum awards under the EIP, implementing limits on discretion under the EIP, adopting vesting schedules for dividend equivalents on RSUs and revising the TSR modifier for the 2017-2019 LTIP cycle to adjust for performance above and below the 50th percentile.
SUPPORTING OUR EXECUTIVE COMPENSATION PROGRAM
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INTRODUCTION
This section explains how our executive compensation programs are designed and operate with respect to our named executive officers, who for 2016 are:
CVS HEALTH VALUES
When determining compensation awards and incentive payments, the Committee validates that our results were achieved in line with the Company’s five core values:
Innovation | Collaboration | Caring | |||||||||||
Demonstrating openness, curiosity and creativity in the relentless pursuit of delivering excellence. | |||||||||||||
Sharing and partnering with people to explore and create things that we could not do on our own. | |||||||||||||
Treating people with respect and compassion so they feel valued and appreciated. |
Integrity | Accountability | |||||||
Delivering on our promises; doing what we say and what is right. | ||||||||
Taking personal ownership for our actions and their results. |
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Compensation Discussion and Analysis Detailed Program Discussion
ELEMENTS OF COMPENSATION PROGRAM
The Committee believes each componentelement of our executive compensation program furthers one or more of our five core principles:
I. | Support, Communicate and Drive Achievement | IV. | Align Interests | |
II. | Attract and Retain | V. | Reward Achievement | |
III. | Motivate High Performance |
The table below outlines each element of our executive compensation program for 2018, its connection to our five core principles, as outlined in the following chart:and how it supports our long-term strategy and growth. Information about our voluntary deferral program and other benefits can be found beginning on page 56.
Target Basis | Link to Strategy/Growth | Additional Information | ||||||||||
Base Salary | ●Set based on experience, comparative market data and level of responsibility | ●Reviewed annually ●Adjusted periodically based on market positioning and individual qualifications | ||||||||||
Annual Cash Incentive | ●Financial and non-financial targets approved by the Committee at the beginning of the fiscal year | ●Payout based on key measures of profitability followed closely by investors and on client satisfaction ●Important drivers of recurring revenue and the achievement of long-term strategic and operational goals | ●Maximum payouts capped as percent of base salary ●Payments reflect performance against MIP Adjusted Operating Profit target and customer service/client satisfaction metrics ●Payout subject to individual performance modifier (with only 20% upside potential) | |||||||||
LTIP PSUs | ●Established at start of a three-year performance cycle ●Target grant value based on market data, level of responsibility, and desired pay mix | ●Payout determined formulaically based on achievement of Aetna Transaction-related performance goals and operational synergies ●TSR modifier provides link to market-based outcomes | ●Minimum performance threshold required for any payout ●Maximum payouts capped ●Denominated and settled in stock ●Two-year holding period post-vesting | |||||||||
EBITDAPSUs | ●Established at start of a three-year performance cycle ●Target grant value based on market data, level of responsibility, and desired pay mix | ●Payout determined formulaically based on 2020 Adjusted EBITDA ●Measures profitability and cash flow | ●Minimum performance threshold required for any payout ●Maximum payouts capped ●Denominated and settled in stock ●Two-year holding period post-vesting | |||||||||
Stock Options | ●Grant value based on market data, level of responsibility, and desired pay mix | ●Stock price appreciation aligned to stockholder interests | ●Seven-year term ●Vest 25% per year over 4 years |
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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 control may impact its stock price. Consequently, the Committee believes that other performance indicators, including profitability and cash flow, 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 our program supports retention and long-term growth creation because the metrics are measured independently and no single factor impacts all elements of performance.
The table below describes the performance metrics the Committee set for 2018.
Pay Element | 2018 Performance Metric (weightings) | Rationale | ||||||
Annual Cash Incentive | MIP Adjusted Operating Profit (80%) | ●Key measure of profitability followed closely by investors | ||||||
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Individual Goal | Individual Performance Goals (modifier 0-120%) | |||||||
LTIP PSUs | Aetna Transaction-related Operational Synergies and | ●Operational Synergies: Measures the value of cost synergies delivered as a result of the Aetna Transaction. The LTIP PSUs will vest at between zero and 200% of the number of units granted based on our achievement in 2020 of Aetna Transaction-related cost synergies. Subject to satisfaction of the Product Offering Goals, the LTIP PSUs will vest at target (100%) if we deliver $750 million of synergies in 2020 ●Product Offering Goals: Delivery of integrated programs that deliver transformational value to clients and members. To align with the success of the Aetna Transaction and our commitment to investors, in order for any LTIP PSUs to vest, by December 31, 2020, we must, in the reasonable judgment of the Committee, (i) develop a robust pipeline of integrated offerings designed to deliver transformational value to clients and members, and (ii) successfully launch at least one such offering | ||||||
TSR (modifier +/-25%) | ●TSR modifier adjusts any LTIP PSU payout resulting from the achievement of the operational synergy metric and product offering goals based on our performance relative to the broad market of companies with which we compete for talent and capital | |||||||
EBITDA PSUs | 2020 Adjusted EBITDA (100%) | ●Measures profitability and cash flow |
BASE SALARY
The Committee annually reviews the base salaries of all senior officers, including the NEOs, and adjusts them periodically as needed to maintain market position and consistency with evolving responsibilities. Upon consideration of this competitive market analysis and input from its independent compensation consultant, the Committee increased salaries for Messrs. Roberts, Moriarty and Denton in 2018. Ms. Boratto and Mr. Rice were new to their roles in 2018 and were not NEOs in 2017. Mr. Roberts completed his first year as Chief Operating Officer in 2017, and the Committee adjusted his salary in 2018 to reflect appropriate competitive positioning against peers in that role in comparably-sized companies. Mr. Moriarty assumed significant additional responsibilities in 2018 in the areas of public affairs and external communications, both of critical importance to the Company as we acquired Aetna, and the Committee increased his salary in acknowledgement of that expanded portfolio. Mr. Denton left the Company in connection with the closing of the Aetna Transaction.
NEO and 2018 Title(s) | 2017 Salary ($) | 2018 Salary ($) | Percentage Increase | |||
Larry J. Merlo, President and CEO | 1,630,000 | 1,630,000 | 0% | |||
Eva C. Boratto, EVP and CFO | n/a | 1 | 850,000 | n/a | ||
Jonathan C. Roberts, EVP and COO | 1,050,000 | 1,200,000 | 14% | |||
Derica W. Rice, EVP and President – CVS Caremark | n/a | 1 | 1,050,000 | n/a | ||
Thomas M. Moriarty, EVP, Chief Policy and External Affairs Officer and General Counsel | 750,000 | 850,000 | 13% | |||
David M. Denton, Former EVP and CFO | 850,000 | 900,000 | 6% |
1 | Neither Ms. Boratto nor Mr. Rice was a NEO in 2017. |
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Compensation Discussion and Analysis Detailed Program Discussion
2018 ANNUAL CASH INCENTIVE
Our NEOs participate in our annual cash incentive program under which they are eligible for a cash award based on the achievement of pre-established financial, operating and individual performance objectives. In the first quarter of each year, the Committee approves for each NEO an annual target bonus amount expressed as a percentage of the executive’s base salary — 200% for Mr. Merlo, 175% for Mr. Roberts, and 150% for each of Ms. Boratto and Messrs. Rice, Moriarty and Denton. Awards are paid out, if earned, in the first quarter of the following year based on the following formula:
NEO Base Salary Paid in 2018 | X | Target Annual Incentive % | X | Corporate Performance % | X | Individual Performance Modifier % | = | Final Award |
Corporate Performance
For 2018, the Committee measured company performance using MIP Adjusted Operating Profit (80% weighting) and retail customer service and PBM and LTC client/member satisfaction results adjusted by the MIP Adjusted Operating Profit result (20% weighting). The Committee established challenging targets for MIP Adjusted Operating Profit that are both consistent with the earnings guidance we provided to investors and which require year-over-year growth. Our customer service and client/member satisfaction metrics ensure that we are providing excellent service and position us to retain and win new business. The MIP Adjusted Operating Profit and customer service and client/member satisfaction goals for 2018 were set above 2017 actual performance.
Individual Performance
The Committee also approved individual goals and objectives for business operations, merger and integration, and talent and organizational development. Each NEO’s individual performance was evaluated against his or her goals and assigned a value between 0 and 120. The Committee did not assign specific weightings to any NEO’s goals. The individual performance modifier cannot exceed 120 or 20% of what would have been earned based on corporate performance. An individual performance modifier of less than 100 will reduce payouts below what would have been earned based solely on corporate performance. In all cases, total payouts cannot exceed 200% of target when including both Company and individual performance.
Actual Performance
Company performance was 88.8% for 2018 — a result of 2018 MIP Adjusted Operating Profit (performance of 99% of target, resulting in funding of 90%, weighted 80%) and customer service and client/member satisfaction results (performance 93% of target, resulting in funding of 84%, weighted 20%).
2018 Objective Goals |
* | Dollars in millions. |
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The Committee evaluates each NEO’s performance and considers Mr. Merlo’s input on the performance of the other NEOs. In determining the annual cash incentive for Mr. Merlo, the Committee consulted with the other independent members of the Board. For 2018, the Committee assigned a numeric performance result for each NEO’s individual performance against his or her pre-established goals. The Committee used its judgment in evaluating each NEO’s performance.
Executive | Fiscal 2018 Individual Performance Assessment |
Larry J. Merlo | ●The Committee recognized Mr. Merlo’s leadership in driving and overseeing the consummation of the Company’s acquisition of Aetna, and also noted that results of operations missed its target, due to shortfalls in the LTC and PBM lines of business. |
Eva C. Boratto | ●Ms. Boratto provided comprehensive leadership to the Company and the Finance function in particular as the Company navigated through successful integration planning and commenced integrating with Aetna while concurrently managing its core business lines. |
Jonathan C. Roberts | ●The Committee acknowledged Mr. Roberts’ strong contributions to our successful integration planning for the Aetna Transaction and the superior performance of the Retail business. It noted that operating results of both the LTC and PBM lines of business fell short of their goals. |
Derica W. Rice | ●Mr. Rice joined the Company as President of the PBM business in early 2018. The Committee recognized his early leadership successes and also acknowledged the shortfall in PBM operating results. |
Thomas M. Moriarty | ●Mr. Moriarty played a critical role in guiding the Company through the complex state and federal regulatory processes necessary to secure approval of the Aetna Transaction. |
David M. Denton | ●Under Mr. Denton’s separation agreement with the Company (Separation Agreement), his pro-rated 2018 annual cash incentive is based on the average percentage of funding payout awarded to the CEO and his peers. |
The actual payout of each NEO’s 2018 annual cash incentive award, as approved by the Committee, is set forth in the table below:
NEO 2018 Eligible Earnings ($) | Target Annual Incentive % | Company Performance % | Individual Performance Modifier % | Final Award ($) | Final Payout as a % of Target | |
Larry J. Merlo | 1,630,000 | 200% | 88.8% | 90% | 2,605,000 | 79.9% |
Eva C. Boratto | 630,303 | 150% | 88.8% | 120% | 1,007,000 | 106.5% |
Jonathan C. Roberts | 1,162,500 | 175% | 88.8% | 75% | 1,355,000 | 66.6% |
Derica W. Rice | 791,477 | 150% | 88.8% | 90% | 949,000 | 79.9% |
Thomas M. Moriarty | 825,000 | 150% | 88.8% | 100% | 1,099,000 | 88.8% |
David M. Denton1 | 781,818 | 150% | 88.8% | n/a | 1,073,925 | n/a |
1 | Mr. Denton’s 2018 annual cash incentive award was set in accordance with his Separation Agreement. See page 57. |
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Compensation Discussion and Analysis Detailed Program Discussion
LONG-TERM INCENTIVE COMPENSATION
Each year the Committee makes long-term incentive compensation grants to employees, including the NEOs. Following the Committee’s comprehensive review of our compensation program, which included input from our stockholders, the Committee approved changes to the long-term incentive compensation program to reduce time-vested awards and increase the performance aligned component. As a result, NEOs no longer receive time-vested RSUs. For 2018, the long-term incentive compensation is comprised of stock options and two forms of PSUs as set forth below. The LTIP PSUs are tied to the future success of and synergies resulting from the Aetna Transaction modified by relative TSR. The PSUs that replaced the RSUs may be earned based on Adjusted EBITDA goals, and we refer to them as EBITDA PSUs. Both EBITDA PSUs and LTIP PSUs are subject to a three-year performance period and a two-year post-vesting holding period.
Long-Term Incentive Target Mix |
2018 Long-Term Incentive Target Mix
2018 EBITDA PSU and Stock Option Grant Decisions
The EBITDA PSU portion of our long-term incentive program features formulaically determined payouts based on performance goals established at the beginning of the three-year performance period. The Committee approved 2020 Adjusted EBITDA as the performance measure for the 2018 EBITDA PSUs. The target, threshold and maximum goals are aligned with the Company’s long-term targets communicated to investors and were set at a level expected to generate strong profitability. The Committee set the Adjusted EBITDA targets to contemplate the closing of the Aetna Transaction during the performance period. These Adjusted EBITDA targets are consistent with the Company’s public disclosures about the transaction, adjusted for the impacts of tax reform and the related investments of savings by both companies. The goals for 2020 Adjusted EBITDA range from a threshold of $19,852 million, to a target of $20,892 million, to a maximum of $21,937 million. Shares resulting from EBITDA PSU awards earned after the three-year performance period are subject to an additional two-year holding period.
The following table sets out the grant date fair value of stock options and EBITDA PSUs granted on April 1, 2018.
Executive Name | 2018 Stock Option Grant Date Fair Value ($) | 2018 EBITDA PSU Grant Date Fair Value ($) |
Larry J. Merlo | 3,375,000 | 3,375,000 |
Eva C. Boratto | 300,000 | 300,000 |
Jonathan C. Roberts | 2,125,000 | 2,125,000 |
Derica W. Rice | 1,000,000 | 1,000,000 |
Thomas M. Moriarty | 1,250,000 | 1,250,000 |
David M. Denton1 | 1,000,000 | 1,000,000 |
1 | Pursuant to Mr. Denton’s Separation Agreement, the portion delivered as EBITDA PSUs was pro-rated for service time during the performance cycle, and the portion delivered as stock options continues to vest and remains exercisable through the third anniversary of his separation. |
LONG-TERM INCENTIVE PLAN (LTIP) PSUs
The LTIP PSU portion of our long-term incentive program features formulaically determined payouts based on performance against financial goals established at the beginning of the three-year performance period and modified by relative TSR measured over the same period. The TSR modifier adjusts LTIP PSU payouts based on our performance relative to the broad market of companies with which we compete for talent and capital. Shares resulting from LTIP PSU awards earned after the three-year performance period are subject to an additional two-year holding period.
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The following summarizes LTIP awards granted in the last three years, each of which are described in more detail below.
2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | ||||
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2016-2018 | ●Denominated as cash value and settled 100% in stock ●Based on Return on Net Assets, with target set at 42.93% ●Subject to rTSR modifier (+/- 25%) | Shares earned are subject to a 2-year holding period | ||||||||
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| ● | ● ● | Shares earned are subject to a 2-year holding period | |||||||
2018-2020 | ● ● ●Subject to rTSR modifier (+/- 25%) | Shares earned are subject to | a 2-year holding period |
2018-2020 LTIP PSU Awards
In early 2018, the Committee established alternative performance metrics for the 2018-2020 LTIP PSU grant. A RoNA metric would apply if the Aetna Transaction closed after June 2019. Because the Committee recognized that the pending acquisition of Aetna could materially alter RoNA results, the Committee also established alternative metrics designed to align with the success of the Aetna Transaction and our commitment to investors which would apply if the Aetna Transaction closed before June 2019. The Aetna Transaction closed in November 2018, so the performance metrics applicable to the 2018-2020 LTIP PSUs are: achievement of Aetna Transaction-related cost synergies (the Synergy Goal) in 2020 and the development of a robust pipeline of integrated offerings designed to deliver transformational value to clients and members and the launch of at least one such offering by December 31, 2020 (the Product Offering Goals). The 2018-2020 LTIP PSUs will vest at between zero and 200% of the number of units granted based on our achievement of the Synergy Goal ($750 million at target), provided the Product Offering Goals have been met. Both the Synergy Goal and the Product Offering Goals must be met for any vesting to occur. The 2018-2020 LTIP PSUs are also subject to a relative TSR modifier.
The following table sets out the grant date fair value at target and number of 2018-2020 LTIP PSUs granted to each NEO. Except as noted below with respect to Ms. Boratto, LTIP PSUs for this cycle were granted on April 1, 2018. If earned, the awards below will be paid in stock in early 2021, and the stock will be subject to a two-year holding period. The awards are not guaranteed and can range from 0%-250% of target (Company performance of 0%-200% of target subject to a +/- 25% rTSR modifier). Payouts are formulaic, though the Committee has discretion to reduce the payout of the awards.
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Executive Name | Grant Date Fair Value of 2018-2020 LTIP PSU Grants at Target ($) | LTIP PSUs (#) | |
Larry J. Merlo | 6,750,000 | 120,128 | |
Eva C. Boratto1 | 2,000,000 | 27,051 | |
Jonathan C. Roberts | 3,750,000 | 66,737 | |
Derica W. Rice | 2,125,000 | 37,818 | |
Thomas M. Moriarty | 2,000,000 | 35,593 | |
David M. Denton2 | 2,000,000 | 35,593 |
1 | In connection with her promotion to CFO, Ms. Boratto received $1,500,000 in 2018-2020 LTIP PSUs on November 28, 2018. The above reflects the sum of her annual award granted on April 1, 2018 and her additional award granted on November 28, 2018. |
2 | Pursuant to his Separation Agreement, Mr. Denton’s 2018-2020 LTIP PSU award has been pro-rated for service provided during the performance period to 10,875 LTIP PSUs with a value of $611,111, and is payable at the end of the performance period. See page 57. |
Additional 2018-2020 LTIP Awards Related to the Aetna Transaction
In August 2018, the Committee approved one-time LTIP PSU awards to certain individuals, including several of the NEOs, in recognition of the critical role each played in the Aetna Transaction, which we refer to as Additional LTIP PSUs. Our CEO and then-outgoing CFO did not receive Additional LTIP PSUs. The performance metrics for the Additional LTIP PSUs are identical to the metrics for the 2018-2020 LTIP PSUs described above, and the grants were made contingent upon the close of the Aetna Transaction. The purpose of these awards was to recognize the effort needed to ensure the continued success of ongoing operations through the transition period, to recognize the additional effort needed to integrate Aetna and achieve the target synergies announced in connection with the deal, and to incent these key leaders to remain with the Company. In determining the size of the these one-time grants, the Committee considered several factors, including the magnitude of the role the executive would play in driving the success of the Aetna integration while concurrently maintaining the forward growth momentum of the core businesses, retention of key talent, and potential for expanded responsibilities in the Company. As with our regular LTIP PSU grant, the additional grant to NEOs carries a two-year post-vesting holding requirement.Executive Name | Grant Date Fair Value of 2018-2020 Additional LTIP PSU Grants at Target ($) | Additional LTIP PSUs (#) | |
Larry J. Merlo | 0 | 0 | |
Eva C. Boratto | 2,500,000 | 1 | 31,950 |
Jonathan C. Roberts | 3,750,000 | 50,471 | |
Derica W. Rice | 3,000,000 | 40,376 | |
Thomas M. Moriarty | 3,500,000 | 47,106 | |
David M. Denton | 0 | 0 |
1 | Ms. Boratto’s 2018-2020 Additional LTIP PSU award was granted in two installments: she received an award in August 2018 in her former role as the Company’s Chief Accounting Officer and an award in November 2018 upon her promotion to CFO. |
2016-2018 LTIP Performance Period Results
The Committee set the 2016-2018 LTIP RoNA goal in early 2016 to align with the Company’s long-term targets communicated to investors in 2015 and at a level expected to generate strong operational execution and asset management. The RoNA result for the three year performance cycle was 42.13%, 80 basis points below target, which resulted in a payout of 69.8% prior to the application of the relative TSR modifier.
Our relative TSR performance over this same period reduced the payout level by 25% to a final result of 52.4%. This outcome highlights the strong alignment of pay to performance under our compensation program.
The following tables set forth the target goal, our actual performance, the range of potential payouts as a percent of target and the actual results for the 2016-2018 LTIP grant.
% of RoNA Target | Payout Level as a % of Target | ||
Threshold (minimum level of performance) (41.34%) | 96.3% | 40% | |
Actual (42.13%) | 98.1% | 69.8% | |
Target (42.93%) | 100.0% | 100% | |
Maximum (45.56%) | 106.1% | 200% | |
Final payout after application of rTSR modifier of -25% (reflecting 10thpercentile) | 52.4% |
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Executive Name | Minimum Award (% of Target) | Threshold Award (% of Target) | Target Award (% of Target) | Maximum Award (% of Target)1 | Target Grant Value of Award ($) | Actual Value of Total Award At 52.4% ($) | Actual # of Shares Delivered in Settlement of Award Net of Tax Withholding | |||||||||||
Larry J. Merlo | 0 | % | 40 | % | 100 | % | 200 | % | 6,750,000 | 3,537,000 | 33,431 | |||||||
Eva C. Boratto2 | 0 | % | 40 | % | 100 | % | 200 | % | 300,000 | 157,200 | 1,893 | |||||||
Jonathan C. Roberts | 0 | % | 40 | % | 100 | % | 200 | % | 3,000,000 | 1,572,000 | 27,183 | |||||||
Derica W. Rice3 | — | — | — | — | — | — | — | |||||||||||
Thomas M. Moriarty | 0 | % | 40 | % | 100 | % | 200 | % | 1,875,000 | 982,500 | 10,869 | |||||||
David M. Denton4 | 0 | % | 40 | % | 100 | % | 200 | % | 2,000,000 | — | — |
1 | Assumes 0% rTSR modifier, which can range from -25% to +25%. |
2 | Ms. Boratto was not a NEO at the time of the 2016-2018 LTIP grant. |
3 | Mr. Rice joined the Company in 2018 and therefore did not receive an LTIP grant in 2016. |
4 | Pursuant to his Separation Agreement, Mr. Denton’s 2016-2018 LTIP grant was pro-rated based on service provided during the performance period, and was paid in cash. See page 57. |
2017-2019 LTIP Performance Cycle
The performance goal for the 2017-2019 LTIP grant is based on RoNA, and is subject to a modifier based on our relative TSR performance vs. the S&P 500 over the same three-year period (+/- 25% for above or below median performance). The Committee set the RoNA goal in early 2017 at 43.76%, a challenging level designed to drive performance. The goal aligns with the Company’s long-term targets communicated to investors in 2016, and was set higher than the actual results for the 2014-2016 performance cycle of 40.56%.
LINKING PAY TO PERFORMANCE
For 2016,2018, as in previous years, the Committee reviewed a historical assessment of the relationship between CVS Health’s performance and executive pay relative to our 20162018 Peer Group (as described below). The following graphs illustrate the results of the Committee’s core assessment and illustrate the relationship between:
● | our CEO’s realized compensation (base salary earned, incentives earned, value of |
● | CVS Health’s performance as measured by |
In the following graphs, data points that are within the shaded area designate ideal pay-performance relationships. Data points below the shaded area identify peer companies where pay was lower than expected given the organization’s performance, and those data points above the shaded area suggest the opposite.identify companies where pay was higher than anticipated.
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Compensation Discussion and Analysis Detailed Program Discussion
3-Year CEO Compensation Realized Percentile vs. Total Shareholder Return Percentile (2015-17) |
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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.
EXECUTIVE COMPENSATION PLANNING AND REVIEW PROCESS The Committee follows the
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.
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
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.
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 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, Perquisites and Other Personal Benefits We provide the following personal benefits to our
The value of all of these items is treated as income taxable to the
CVS Health
Compensation Discussion and Analysis Detailed Program Discussion senior executives with CVS Health stockholders, provides future long-term compensation opportunities that are competitive in the In addition, the executive
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
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. 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
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
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 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 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,
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:
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
Compensation Discussion and Analysis Detailed Program Discussion NON-GAAP FINANCIAL MEASURES USED IN COMPENSATION DISCUSSION AND ANALYSIS Throughout this
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
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 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
Compensation Discussion and Analysis Detailed Program Discussion RELATIVE TSR PEER GROUP FOR 2018-2020 LTIP GRANTS
Compensation Discussion and Analysis Detailed Program Discussion 2019 COMPENSATION PEER GROUP
Compensation of Named Executive Officers 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.
The following Summary Compensation Table shows information about the compensation received by our CEO,
Compensation of Named Executive Officers Summary Compensation Table
Compensation of Named Executive Officers Summary Compensation Table
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.
Executive Compensation Tables Outstanding Equity Awards at Fiscal Year-End
The stock optionawardsshownabove vest in
This table reflects stock option, PSU and RSU awards granted to our
Executive Compensation Tables Outstanding Equity Awards at Fiscal Year-End
Executive Compensation Tables Option Exercises and Stock Vested The table below reflects information for the fiscal year ended December 31,
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 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
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 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
Executive officers and 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) Executive officers and
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.
Executive Compensation Tables Payments/(Forfeitures) Under Termination Scenarios
The tables below show the amounts that would be received or forfeited by each With respect to the tables below:
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
Executive
With respect to each of the remaining
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
Executive Compensation Tables Payments/(Forfeitures) Under Termination Scenarios
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 Using this methodology, our median employee was determined to be a Given the
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
STATEMENT OF THE BOARD OF DIRECTORS RECOMMENDING A VOTE AGAINST THE The PPERS Proposal requests that the Board 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 In
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
Stockholder Proposal Item 4
Executive Officers and Ownership of and Trading in Our Stock
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:
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.
Executive Officers and Ownership of and Trading in Our Stock Executive Officer and Director Stock Ownership Requirements
CVS Health has long been mindful of the importance of equity ownership by directors and executive management as an effective link to stockholders and, as such, the Board maintains stock ownership guidelines for all directors, as well as for the officers serving on the Company’s
All non-employee directors must own a minimum
Executive Officers and Ownership of and Trading in Our Stock Share Ownership of Directors and Certain Executive Officers The following table shows the share ownership, as of March
Executive Officers and Ownership of and Trading in Our Stock Share Ownership of Principal Stockholders We have been notified by the entities in the following table that each is the beneficial owner (as defined by the rules of the SEC) of more than five percent of our common stock. According to the most recent Schedule 13G filed by
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
The Board of Directors of CVS Health is soliciting your proxy to vote at our We began mailing this proxy statement and the enclosed proxy card on or about DATE, TIME AND PLACE OF THE ANNUAL 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 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 As to shares with respect to which the TYPES OF OWNERSHIP OF OUR STOCK If your shares are registered in your name with CVS Health’s transfer agent, 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 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.
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.
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 If you are a stockholder of record, you may revoke your proxy card by:
If you are a beneficial owner of shares, you may submit new voting instructions by contacting your nominee. Voting in 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 Appointing 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 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,
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.
VOTE NECESSARY TO APPROVE PROPOSALS
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. If you want to submit a proposal for possible inclusion in our proxy statement for the 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 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 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.
The
At CVS Health, we have long been focused on improving not only the health of
Larry J. Merlo Our CSR Strategy
80,000/$5 million
We are
CVS HEALTH CORPORATION C/O EQ SHAREOWNER SERVICES P.O. BOX 64945 ST. PAUL, MN 55164-0945
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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.
CVS HEALTH CORPORATION This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Larry J. Merlo and David W. Dorman, 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 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. Continued and to be signed on reverse side |