20 |  | 2018 Proxy StatementDIRECTOR 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. | cvshealthannualmeeting.com | 23 |
Table of Contents Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting | Committees of the Board as of the Annual Meeting |
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 presents, as of May 16, 2019, the standing Committees of the Board, the membership of such Committees and the number of times each such Committee met in 2018. For further details regarding Committee membership and activities see pages 25-31. | Name | | Audit
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. |
Table of Contents24 Corporate Governance and Related Matters: | Committees of the Board |  | 2019 Proxy Statement |
Table of Contents Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting In 2017, 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 utilized five standing committees. The table below provides membership and meeting information fordesignated each of Messrs. Swift, Aguirre, Ludwig and Millon and Ms. Schapiro as an audit committee financial expert, as defined under applicable SEC rules. The Board has approved a charter for the committees during 2017. For further details regarding current committee membershipCommittee, which can be viewed on our website at http://investors.cvshealth.com and activities see pages 22-27.also is available to stockholders without charge upon request to our Corporate Secretary.
| 
| 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 | | ● * | | | | | | ● | | | | Mary L. Schapiro | | ● * | | | | | | | | | | Richard J. Swift | | C* | | | | | | | | ● | | William C. Weldon | | | | ● | | ● | | | | | | Tony L. White | | | | ● | | | | ● | | | | 2017 Meetings | | 9 | | 6 | | 4 | | 4 | | 0 |
C | Committee Chair | * | Audit Committee Financial Expert | † | Mr. Bracken joined the Executive Committee in January 2018 |
cvshealthannualmeeting.com | | 21 |
|  Rotated inFernando Aguirre
(Nov. 2018)Edward Ludwig
(Nov. 2018)  Table of ContentsRotated outCorporate Governance and Related Matters: | Committees of the Board |
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 and Ms. Schapiro 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)
1 Mary Schapiro*
2 Alecia DeCoudreaux
3 Richard Swift (Chair)*
4 Nancy-Ann DeParle
5 Jean-Pierre Millon*
* Audit Committee Financial Expert
Meetings in 2017:9
Nancy-Ann DeParle
(Nov. 2018) | |
Primary Responsibilities
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 | | |
|
Meetings 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 assists bears principal responsibility; | | ● | the Board in its oversight of: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; and | | ● | 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 and cybersecurity 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 information governance framework, including its privacy and information security programs, as well as the cybersecurity aspects of the information security program;
| ● | the review of our business continuity and disaster recovery program;
| ● | the review of our environmental, health and safety program;
| ● | the review and ratification of any related person transactions in accordance with our policy on such matters; and
| ● | our compliance with legal and regulatory requirements, including the review and oversight of matters related to compliance with Federal health care program requirements. | Audit Committee Activities in 2017 2018
The Audit Committee met nineten times in 20172018 and except for one absence each for two members of the Committee due to unavoidable conflicts, each member of the Committee attended all of its meetings while he or she was a member. Four 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 meetings the Committee reviewed the documents in depth with our CFO and our Chief Accounting Officer, as well as our Chief Compliance Officer (CCO), 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.Young LLP. 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 officerChief Compliance Officer for Omnicare and the Chief Audit Executive. 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. For 2019, in order to balance Committee workloads and take advantage of member expertise, responsibility for oversight of cybersecurity and data and information security governance has been transferred to the Nominating and Corporate Governance Committee. The Audit 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 2017,2018, the Committee provided the required annual certification of compliance with the Company’s 2014 CIA related to PBM operations, and also provided oversight of the 2016 CIA related to CVS Health’sour institutional pharmacy services (long-term care) operations. The Committee also provided the report found on page 2933 of this proxy statement, recommending the inclusion of the Company’s audited financial statements in its Form 10-K. 22 | | 2018 Proxy Statement |
|
Table of Contents
Corporate Governance and Related Matters:| cvshealthannualmeeting.com | 25 |
Table of Contents Corporate Governance and Related Matters Committees of the Board as of the Annual 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 assists the Board in its oversight of: | ● | the investment policies, strategies, and programs of the Company and its subsidiaries; | | ● | the approval of investment transactions on behalf of the Company that exceed any delegated authority; | | ● | investment transactions made on behalf of the Company and its subsidiaries; | | ● | the performance of the investment portfolios of the Company and its subsidiaries; | | ● | 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
The Investment and Finance Committee was newly formed in November 2018 upon the closing of the Aetna Transaction, and did not meet during 2018. |
| 26 | | 2019 Proxy Statement |
Table of Contents 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. | | 
|
| 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. | 
| Current Committee Members
(independent)
1 William Weldon
2 Anne Finucane
3 David Dorman (Chair)
4 Richard Bracken
5 David Brown
Meetings in 2017: 4
|
| Rotated inFernando Aguirre
(Nov. 2018) Nancy-Ann DeParle
(Nov. 2018) Rotated outRichard Bracken
(Nov. 2018) Anne Finucane
(Nov. 2018) | |
Primary Responsibilities
Pursuant to its charter, the
2018 Committee has responsibility for:●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
| | identifying individuals qualified to become Board members consistent with criteria approved by the Board;
| ● | recommending to the Board director nominees for election at the next annual or special meeting of stockholders at which directors are to be elected or to fill any vacancies or newly-created directorships that may occur between such meetings;
| ● | recommending directors for appointment to Board Committees;
| ● | making recommendations to the Board as to determinations of director independence;
| ● | evaluating Board and Committee performance;
| ● | considering matters of corporate governance and reviewing, at least annually, our Corporate Governance Guidelines and overseeing compliance with such Guidelines; and
| ● | reviewing and considering our policies and practices on issues relating to corporate social responsibility, charitable contributions, political spending practices and other significant public policy issues.
|
Meetings in 2018:4 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 2017 2018
The Nominating and Corporate Governance Committee met four times in 20172018 and except for one absence for one member of the Committee due to an unavoidable conflict, 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 refreshed for a2018 asBetter Health, Better Community, Better World, as well as the corporate social responsibility report itself. The Committee oversaw a review of all of the Company’s principal governance documents in 2017,2018, including its Certificate of Incorporation, By-laws, Corporate Governance Guidelines and all Committee Charters, and recommended changes to each to simplify and harmonize the documents, as well as to adopt certain leading practices. The Committee also oversaw the evaluation process for the Board and its Committees in 2017,2018, 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, andwhich resulted in a number of enhancements to the Board and Committee meeting process resulted.processes. 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. |
| cvshealthannualmeeting.com | 27 |
Table of Contents Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting | Management Planning and Development Committee |
Each member of the Management Planning and Development Committee is independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. No Committee member participates in any of our employee compensation programs and none is a current or former officer or employee of CVS Health or its subsidiaries. At its meetings, non-members, such as the CEO, the CFO, the Chief Accounting Officer, the Chief Human Resources Officer, the Chief Governance Officer, 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. | 
|
2018 Committee Members (independent) David Brown (Chair) Anne Finucane David Dorman
| 2019 Committee Members (independent) Table of Contents1Corporate Governance and Related Matters: | Committees of the BoardDavid Dorman2Tony White 3Anne Finucane 4David Brown (Chair) 5William Weldon 6Roger Farah
|
Management Planning and Development Committee | | | Each member of the Management Planning and Development Committee is independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. No Committee member participates in any of our employee compensation programs and none is a current or former officer or employee of CVS Health or its subsidiaries. At its meetings, non-members, such as the CEO, the CFO, the Chief Accounting Officer; 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.
| |  | | Current Committee Members
(independent)
|
Meetings in 2018:6 Primary Responsibilities
Pursuant to its charter, the Committee: 1 William Weldon
2 Tony White
3 David Brown (Chair)
4 Anne Finucane
5 David Dorman
Meetings in 2017:6
| ● | oversees our compensation and benefits policies and programs generally; |
Primary Responsibilities
Pursuant
| ● | 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 its charter, the Committee:● | oversees our compensation and benefits policies and programs generally;
| ● | evaluates the performance of designated senior executives, including the CEO;
| ● | in consultation with our other independent directors, oversees and sets compensation for the CEO;
| ● | oversees and sets compensation for our designated senior executives;
| ● | reviews and recommends to the Board compensation (including cash and equity-based compensation) for our non-employee directors; and
| ● | prepares and recommends to the full Board the inclusion of the Report of the Compensation Committee that is found on page 33Board compensation (including cash and equity-based compensation) for our non-employee directors; and
| | ● | prepares and recommends to the full Board the inclusion of the Compensation Committee Report that is found on page 37 of this proxy statement. |
The Committee may delegate its authority relating to employees other than executive officers and directors as it deems appropriate and may also delegate its authority relating to ministerial matters. Management Planning and Development Committee Activities in 2017 2018
The Management Planning and Development Committee met six times in 20172018 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 applicable to all full-time employees. 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 3438 of this proxy statement. 24 | |
| 28 | | 2019 Proxy Statement |
Table of Contents 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 2018, Proxy Statement |
Table of Contents
Corporate Governance and Related Matters: | Committees of the Board |
Compensation Risk Assessment
The Committee is responsible for reviewing and assessing potential risk arising from the Company’s compensation policies and practices. In 2017, 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-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 2018 were $252,244. During 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; short-term incentive program design; long-term incentive program performance measures; incentive plan performance criteria and corresponding objectives; a comparison ofcompensation levels, including providing data for the Company’s programs with those of its peer group; the Company’s severance and change-incontrol 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 2017 were $246,154. During 2017, 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; | | 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. cvshealthannualmeeting.com |
| cvshealthannualmeeting.com | 29 | 25 |
Table of Contents
Corporate Governance and Related Matters: | Committees of the Board |
Patient Safety and Clinical Quality Committee | Each member of the Patient Safety and Clinical Quality Committee is independent of the Company and management under the standards set forth in applicable SEC rules and the Corporate Governance Rules of the NYSE. The Board has approved a charter for the Committee, which can be viewed on our website at http://investors.cvshealth.com and also is available to stockholders without charge upon request to our Corporate Secretary.
In light of the Company’s expanded offerings throughout the spectrum of health care, this Committee was formed in March 2016. 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, and the enhancement of access to cost-effective quality health care.
| |
| 2017 Committee Members
(all independent)
Table of Contents Corporate Governance and Related Matters Committees of the Board as of the Annual Meeting 1 Tony White
2 Alecia DeCoudreaux
3 Richard Bracken (Chair)
4 Nancy-Ann DeParle
5 Jean-Pierre Million
| | Meetings in 2017:4
| | |
Primary Responsibilities
Pursuant to its charter, the Committee:
● | reviews significant medical and pharmacy related strategies and initiatives of the Company, and matters concerning efforts to (1) advance the quality of pharmacy and medical care, patient safety and experience, and (2) enhance access to cost-effective quality health care;
| | | ● | 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 enterprise; and (4) regulatory activity related to pharmacy and health care;
| | | ● | 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.
|
| Medical Affairs Committee (formerly Patient Safety and Clinical Quality Committee) |
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. | 
|
| Rotated inRoger Farah
(Nov. 2018) Rotated outNone | | 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 2018:4 Primary Responsibilities
Pursuant to its charter, the Committee: | ● | reviews significant medical- and pharmacy-related strategies and initiatives of the Company, and matters concerning efforts to (1) advance the quality of pharmacy and medical care, patient safety and experience, (2) enhance access to cost-effective quality health care, and (3) promote member health; | | ● | reviews the Company’s medical, pharmacy, and 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 Company; and (4) regulatory activity related to pharmacy and health care; and | | ● | takes such other actions and performs such services as may be referred to it from time to time by the Board, including the conduct of special reviews as it may deem necessary or appropriate to fulfill its responsibilities. |
Medical Affairs Committee Activities in 2017 2018
The Patient Safety and Clinical QualityMedical Affairs Committee met four times in 20172018 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 and infusion activities conducted by Coram and across the enterprise. The Committee received reports regarding regulatory activity by boards of pharmacy, nursing and nursinghealth related to the Company. The Committee reviewed various issues related to patient safety, such asincluding matters related to the Company’s efforts to address the opioid abuse crisis. 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 and enhancement of a number of scorecards in various lines of business, and other efforts to measure and improve patient safety and clinical effectiveness. 26 | | 2018 |
| 30 | | 2019 Proxy Statement |
Table of Contents
Corporate Governance and Related Matters: | Board Meetings and Attendance |
Table of Contents Corporate Governance and Related Matters Board Meetings and Attendance | Executive Committee | 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 2017.
Mr. Bracken, Chair of the Patient Safety and Clinical Quality
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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 in January 2018. | | | 2017/18 Committee Members
1 Richard Bracken
2 Larry Merlo
3 David Dorman
4 David Brown
5Richard Swift
Meetings in 2017:None
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Board Meetings and Attendance |
During 2017, there were twelve 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 2017the Annual Meeting, of Stockholders attended that Annual Meeting. In 2017, all directors attended more than 75%when she will become Chair of the meetings of the Nominating and Corporate Governance Committee.
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| Rotated inEdward Ludwig
(Nov. 2018) Nancy-Ann DeParle
(May 2019) Rotated outNone | | 2018 Committee Members Richard Bracken David Brown David Dorman
| 2019 Committee Members 1Richard Bracken 2Richard Swift 3Larry Merlo 4David Dorman 5Nancy-Ann DeParle 6Edward Ludwig 7David Brown
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Meetings in 2018:2
| Board Meetings and the Committees of which he or she was a member, with attendance averaging over 97%Attendance |
During 2018, there were eight meetings of the Board. Directors are expected to make every effort to attend the Annual Meeting, all Board meetings and the meetings of the Committees on which they serve. All of our directors at the time of our 2018 Annual Meeting of Stockholders attended that Annual Meeting. In 2018, all directors attended more than 75% of the meetings of the Board and the Committees of which he or she was a member, with 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. One Board meeting was our annual meeting of independent directors. The independent directors also regularly hold executive sessions during regularly scheduled Board meetings in which our management does not participate.
| Non-Employee Director Compensation |
CVS 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. Non-Employee Director Compensation |
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 2017-2018
For the 2018-2019 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; and Independent Chair of the Board, $275,000. 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 June and November of 2018. Directors may elect to defer receipt of shares, and deferred shares are credited with dividend reinvestment shares to the extent dividends are paid to stockholders. There are no meeting fees. | cvshealthannualmeeting.com | 31 |
Table of Contents 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 $310,000, with at least 75% paid in stock, and all of the Chair retainers will remain the same as the current Board year. | Non-Employee Director Retainer Mix |
ALL OTHER COMPENSATION AND BENEFITS Directors are eligible to participate in the employee discount program and are subject to the same terms of the program as our employees. Directors are generally reimbursed for business expenses incurred directly in connection with their roles and duties on the Board, such as services provided by an executive assistant, travel, meals and lodging. We allow all directors to enroll themselves and their eligible dependents in our prescription drug benefit program, paying the same premium rates as employees. If a director retires from the Board with at least five years of service, we will allow continued participation in the prescription drug benefit plan for life, but the director must bear the full cost of the premium after retirement. The following table shows amounts paid to each of our non-employee directors in 2018. | Non-Employee Director Compensation – 2018 |
| Name | | Fees Earned
and Paid
in Cash1
($) | | 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 2018, each director receiving a 12-month retainer received 2,970 shares of stock with a total value of $210,000 (the mandatory annual stock retainer) and a cash paymenton the date of grant; each director electing to receive the remaining annual retainer in stock also received 990 shares valued at $70,000 (unlesson the directordate of grant. Two directors elected to receive up to 100%their additional chairperson retainers in stock in lieu of cash. The four directors elected at the time of the annualAetna Transaction each received a six-month retainer inconsisting of 1,308 shares of our common stock).Additional retainers were paid to the Chairsvalued at $105,000; Mr. Ludwig also received 70 shares valued at $5,625 as a six-month retainer for his service as Chair of the CommitteesInvestment and Finance Committee; the Board as follows: Nominating and Corporate Governance, $15,000; Patient Safety and Clinical Quality, $15,000; Management Planning and Development, $20,000; Audit, $25,000; and Independent Chairman of the Board, $275,000.
At least 75%remainder 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. Eachsuch retainer was paid in two equal installments, in May and Novembercash. As of 2017. Directors may elect to deferDecember 31, 2018, our directors had deferred receipt of shares of Company common stock as follows: Mr. Brown, 59,107 shares; deferred sharesMs. DeCoudreaux, 10,667 shares; Ms. DeParle, 3,470 shares; Mr. Dorman, 17,047 shares; Ms. Finucane, 5,750; Ms. Schapiro, 7,887; Mr. Swift, 62,371 shares; and Mr. Weldon, 21,525 shares.
| | 3 | Represents Company contributions for director health and prescription benefits. |
| 32 | | 2019 Proxy Statement |
Table of Contents Audit Committee Matters | | | Item 2: Ratification of Appointment of Independent Registered Public Accounting Firm for 2019 | | | The Audit Committee of the Company’s Board of Directors has appointed Ernst & Young LLP (Ernst & Young), an independent registered public accounting firm, to audit the financial statements of the Company for the fiscal year ending December 31, 2019, and recommended to our full Board that it approve that appointment. We are creditedsubmitting the appointment by the Committee to you for your ratification. | |  | The Board of Directors unanimously recommends a voteFORthis proposal. |
AUDIT COMMITTEE REPORT During 2018, the Committee was composed of either five or six independent 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, 2018 (audited financial statements). | ● | The Committee has reviewed and discussed the audited financial statements with dividend equivalentsmanagement; | | ● | 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’s communications with the Committee concerning independence, and has discussed with Ernst & Young its independence from the Company; and | | ● | Based on the review and discussions referred to above and relying thereon, the Committee recommended to the extent dividends are paid to stockholders. There are no meeting fees.cvshealthannualmeeting.com | | 27Board 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, 2018, for filing with the SEC. |
 | |  | |  | |  | |  | |  | Table of ContentsRichard J. Swift, Chair
Corporate Governance and Related Matters: | Non-Employee Director Compensation | | 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 Chair 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. | cvshealthannualmeeting.com | 33 |
Non-Employee Director Retainer Mix
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All Other Compensation
Table of Contents 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. FEES OF INDEPENDENT ACCOUNTING FIRM The following table summarizes the fees paid to Ernst & Young for services rendered during fiscal 2018 and 2017. | | | Fiscal Year
Ended
12/31/18
($) | | Fiscal Year
Ended
12/31/17
($) | | Audit Fees1 | | 24,210,000 | | 10,530,000 | | Audit-Related Fees2 | | 2,269,395 | | 1,318,736 | | Tax Fees3 | | 1,642,816 | | 1,420,837 | | All Other Fees | | — | | — |
| 1 | Represents the aggregate fees and BenefitsDirectors are eligible to participate inexpenses billed for the employee discount programaudit of our consolidated financial statements and are subject to the same termsaudit of our internal control over financial reporting for the fiscal year, the reviews of the program ascondensed consolidated financial statements included in our employees. Directors are generally reimbursed for business expenses incurred directlyQuarterly Reports on Form 10-Q, audits of our insurance captives, services provided in connection with their rolesstatutory and dutiesregulatory filings for the fiscal year, and consultations on technical matters. Audit fees increased in 2018 due to additional audit procedures associated with the Board, such asnew lease accounting standard, goodwill impairments, debt offering, and the Aetna Transaction.
| | 2 | Represents the aggregate fees billed for audit and other services providedthat are typically performed by an executive assistant, travel, meals and lodging. We allow all directors to enroll themselves and their eligible dependents in ourprescription 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 eachauditors, including audits of our non-employee directors in 2017.
Non-Employee Director Compensation – 2017
employee benefit plans, compliance reporting, non-financial metric reporting and certain agreed upon procedures. | | 3 | Includes $152,500 and $170,000 for the years ended December 31, 2018 and 2017, respectively, related to tax compliance and preparation services. |
| Name | | Fees Earned
and Paid
in Cash1
($) | | Cash Fees
Elected to be
Paid in Stock2
($) | | Stock
Awards2
($) | | All Other
Compensation3
($) | | Total
($) | | Richard M. Bracken | | 70,190 | | 3,560 | | 221,250 | | 510 | | 295,510 | | C. David Brown II | | — | | 75,000 | | 225,000 | | 1,962 | | 301,962 | | Alecia A. DeCoudreaux | | — | | 70,000 | | 210,000 | | 788 | | 280,788 | | Nancy-Ann M. DeParle | | 70,087 | | — | | 209,913 | | — | | 280,000 | | David W. Dorman | | 163 | | 142,459 | | 427,378 | | — | | 570,000 | | Anne M. Finucane | | 70,000 | | — | | 210,000 | | — | | 280,000 | | Jean-Pierre Millon | | 70,087 | | — | | 209,913 | | 1,962 | | 281,962 | | Mary L. Schapiro | | | | 70,000 | | 210,000 | | | | 280,000 | | Richard J. Swift | | 76,250 | | — | | 228,750 | | 1,962 | | 306,962 | | William C. Weldon | | — | | 70,000 | | 210,000 | | — | | 280,000 | | Tony L. White | | 70,087 | | — | | 209,913 | | 1,962 | | 281,962 |
1 | The amounts shown include cash payments made in lieu of fractional shares to Ms. DeParle and Messrs. Bracken, Dorman, Millon and White.
| 2 | These awards are fully vested at grant and the amounts shown represent both the fair market value and the full fair value at grant. During 2017, each director received 2,819 shares of stock with a total value of approximately $210,000 (the mandatory annual stock retainer) on the date of grant; each director electing to receive the remaining annual retainer in stock also received 939 shares valued at $70,000 on the date of grant. Two directors also elected to receive their additional chair retainers in stock in lieu of cash. As of December 31, 2017, our directors had deferred receipt of shares of common stock as follows: Mr. Brown, 53,262; Ms. DeCoudreaux, 10,363; Ms. DeParle, 3,370; Mr. Dorman, 16,560; Ms. Finucane, 5,586; Mr. Swift, 57,420, and Mr. Weldon, 17,031.
| 3 | Represents Company contributions for director health and prescription benefits.
| 34 | | 2019 Proxy Statement |
28 | | 2018 Proxy Statement
Table of Contents Executive Compensation and Related Matters
Table of Contents
| Audit Committee MattersItem 2: Ratification of Appointment of Independent Registered Public Accounting Firm |
The Audit Committee of the Company’s Board of Directors has appointed Ernst & Young LLP, anindependentregistered public accounting firm, to audit the financial statements of the Company for the fiscal year ending December 31, 2018, and recommended to our full Board that it approve that appointment. We are submitting the appointment by the Committee to you for your ratification.
The Board of Directors unanimously recommends a vote✓ FOR this proposal.
Audit Committee Report
During 2017, the Committee was composed of either four or five independent directors, with Ms. Schapiro joining the Committee after her election to the Board in May 2017. Set forth below is the report of the Committee on its activities with respect to CVS Health’s audited financial statements for the fiscal year ended December 31, 2017 (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’s communications with the Committee concerning independence, and has discussed with Ernst & Young its independence from the Company; and | | | ● | Based on the review and discussions referred to above and relying thereon, the Committee recommended to the Board of Directors that the audited financial statements be included in CVS Health’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for filing with the SEC.
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 |  |  |  |  | Richard J. Swift, Chair | Alecia A. DeCoudreaux | Nancy-Ann M. DeParle | 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 chair 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 isin 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; 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.
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
cvshealthannualmeeting.com | | 29 |
Table of Contents
Audit Committee Matters: | Item 2 |
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.
Fees of Independent Accounting Firm
The following table summarizes the fees paid to Ernst & Young for services rendered during fiscal 2017 and 2016.
| | Fiscal Year
Ended
12/31/17 | | Fiscal Year
Ended
12/31/16 | | Audit Fees1 | | $10,530,000 | | $10,360,000 | | Audit Related Fees2 | | $1,318,736 | | $624,008 | | Tax Fees3 | | $1,420,837 | | $2,985,026 | | All Other Fees | | — | | — |
1 | Represents the aggregate fees and expenses billed for the audit of our consolidated financial statements and the audit of our internal control over financial reporting for the fiscal year, the reviews of the condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q, audits of our insurance captives, services provided in connection with statutory and regulatory filings for the fiscal year, and consultations on technical matters. | 2 | Represents the aggregate fees billed for audit and other services that are typically performed by auditors, including audits of our employee benefit plans, compliance reporting, non-financial metric reporting and certain agreed upon procedures. | 3 | Includes $170,000 and $272,450 for the years ended December 31, 2017 and 2016, respectively, related to tax compliance and preparation services. |
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Table of Contents
Executive Compensation and Related Matters
Item 3: Say on Pay, a Proposal to Approve, on An Advisory Basis, the Company’s Executive Compensation |
| | | BackgroundThe Board of Directors unanimously recommends a voteFOR this proposal.
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BACKGROUND We are asking our stockholders to approve, on an advisory basis, the compensation paid to our Named Executive Officers, as described in the Compensation Discussion and Analysis (CD&A) and the Executive Compensation section of this proxy statement. Although the advisory vote is not binding upon the Company, the Management Planning and Development Committee (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 2018 VOTE; STOCKHOLDER OUTREACH Following our 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 our executive compensation programs 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 held calls or meetings with holders of nearly 19% of our outstanding shares, as well as one of the leading proxy advisory firms. During our outreach, we discussed the changes to our executive compensation programs 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: | ● | denominating long-term incentive plan awards in stock, i.e., performance stock units, or PSUs, rather than denominating them in cash and settling them in stock, which simplifies the reporting of the awards and further aligns the program to our named executive officers, as described in the Compensation Discussion and Analysis (CD&A) and the Executive Compensation section of this proxy statement. Although the advisory vote is not binding upon the Company, the Management Planning and Development Committee (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 2017 Vote; Stockholder Outreach
Following our 2017 Annual Meeting of Stockholders, the Committee reviewed the results of the stockholder advisory vote on executive compensation that was held at the meeting with respect to the 2016 compensation actions and decisions for the named executive officers. Approximately 61% of votes were cast in favor of the proposal; this was lower than the support received in 2016 (80% in favor). During the fall of 2017 and early winter of 2018, we contacted our 50 largest stockholders, holders of more than 50% of our common stock, to get their views on our program. We conducted meetings with investors holding nearly 25% of our common stock and both of the leading proxy advisory firms. Committee Chair David Brown and Board Chair (and Committee Member) David Dorman participated directly in a number of these meetings. Given the lower level of support in 2017, it was clear that our stockholders were not fully supportive of all aspects of our pay program. After careful consideration of stockholder feedback, the Committee implemented several changes to our plan design aimed principally at stockholders;
| | ● | enhancing the performance-based natureperformance mix of long-term incentives, by replacing time-based restricted stock units with PSUs, and implementing a two-year post-vest holding period for shares delivered under PSUs; and | | ● | revising the program and increasing overall transparency, including:● | denominating long-term incentive plan awards in stock, i.e., performance share units, or PSUs, rather than denominating them in cash and settling them in stock, which simplifies the reporting of the awards and further aligns the program to our stockholders;
| ● | enhancing the performance mix of long-term incentives, by replacing time-based restricted stock units with PSUs, and implementing a two-year post-vest holding period for shares delivered under PSUs; and
| ● | revising the comparator group for measuring relative total shareholder return (TSR) under our Long-Term Incentive Plan (LTIP) from the full S&P 500 to an index of approximately 100comparator group for measuring relative total shareholder return (TSR) under our Long-Term Incentive Plan (LTIP) from the full S&P 500 to an index of approximately 90 companies that more closely reflects our business.
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We are also enhancing the disclosure and providing more insight into the Committee’s evaluation of each executive’s individual goals and performance under the annual incentive plan. Our 2017 Performance and Pay Actions
In 2017, while the Company’s performance generally was in line with our expectations, growth was less robust than levels to which we have been accustomed. Expectations for 2017 were lower than in recent years, driven primarily by the loss of retail pharmacy prescriptions associated with pharmacy network changes. As a result, net revenues grew just 4% and adjusted earnings per share increased by 1%. We returned more than $6 billion to stockholders through dividends and share buybacks, but suspended both dividend increases and the buyback program in the second half of 2017, in connection with our planned acquisition of Aetna.
The value of our named executive officers’
| cvshealthannualmeeting.com | 35 |
Table of Contents Executive Compensation and Related Matters Item 3 OUR 2018 PERFORMANCE AND PAY ACTIONS In 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 $(0.57), due primarily to goodwill impairment charges taken with respect to the Company’s Long-Term Care business. We returned more than $2 billion to stockholders through cash dividends during 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 capital allocation. The value of our 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, performance stock units and the performance-based 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. cvshealthannualmeeting.com | CONCLUSION; RESOLUTION | 31 |
Table of Contents
Executive Compensation and Related Matters: | Item 3 |
Conclusion; Resolution
We urge stockholders to read the letter from the Committee found on page 33 and the CD&A beginning on page 34 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 narratives appearing on pages 54 through 63, which provide detailed information on the compensation of our named executive officers. The Committee and the Board of Directors believe that the policies and procedures articulated in the CD&A are effective in achieving our goals and that the compensation of our named executive officers
We urge stockholders to read the letter from the Committee found on page 37 and the CD&A beginning on page 38 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 narratives appearing on pages 63-74, which provide detailed information on the compensation of our Named Executive Officers. The Committee and the Board of Directors believe that the policies and procedures articulated in the CD&A are effective in achieving our goals and that the compensation of our Named Executive Officers reported in this proxy statement has contributed to CVS 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).” | | | 1 | Adjusted earnings per share is a non-GAAP measure. For more information, see Annex A of this proxy statement. |
The Board of Directors unanimously recommends a vote36
| ✓ FOR this proposal.32 | | 2018 | 2019 Proxy Statement |
Table of Contents
Dear CVS Health Corporation Stockholder,
As the members of the Board’s Management Planning and Development Committee (the “Committee”), we are responsible for and highly focused on overseeing the design and implementation of competitive compensation programs that align to the interests of stockholders and demonstrate strong pay-for-performance.
Though the Company made progress on its four-point plan to return to healthy growth, the performance of our stock price was negatively impacted by headwinds that affected not just CVS Health but our industry as a whole. The industry headwinds include the possible entrance of a large retail company into the pharmacy space looking to create disruption, as well as the debate surrounding drug pricing with the potential for legislative change. Headwinds unique to CVS Health include the risks regarding the pending acquisition of Aetna, both regulatory and operational, as well as changes in the Company’s capital allocation strategy due to the acquisition. All of these factors and the result of our say on pay vote were taken into consideration as we implemented this year’s compensation program.
Last year, our say-on-pay proposal received 61% support, a clear signal by our stockholders that they were not fully supportive of all aspects of our pay program. Following the vote, the Committee conducted a thorough review of the compensation program. Committed to demonstrating responsiveness and in an effort to effectively modify the program, the Committee identified a number of potential changes it believed stockholders would find favorable, while continuing to support our compensation key principles, and embarked on a significant engagement outreach effort to seek stockholder feedback prior to implementing.
Our Committee Chair, David Brown, as well as our Independent Board Chair and Committee member David Dorman, played a meaningful role in conversations with stockholders, assisted by our legal, human resources and investor relations staff. The scope of our engagement and details on the feedback we received are outlined in the CD&A that follows. The Committee spent time discussing this feedback, which it found to be substantive and thoughtful. In response, the Committee made a number of changes in an effort to simplify, enhance the performance-based nature of the program and increase overall transparency.
The most substantive changes involve our long-term pay mix and annual incentive plan construct, where we received the most feedback. These changes are summarized below, and a comprehensive list of all changes can be found on page 44 of our CD&A.
● | Denominate Long-Term Incentive Plan in Stock– Beginning with the 2018-2020 performance cycle, LTIP awards will be granted as performance share units (PSUs) rather than denominated in cash and settled in stock, which simplifies the reporting and further aligns the program to our stockholders | ● | Enhance Performance Mix of Long-Term Incentives– We are replacing time-based RSUs with PSUs; beginning with 2018 grants, PSUs will represent 75% of our CEO’s target annual long-term award (which include the LTIP described above) |
Table of Contents Letter from the Management Planning and Development Committee and will be subject to a two-year holding period | ● | Improve Annual Incentive Plan Design– Our annual bonus will continue to be subject to the achievement of pre-established financial and non-financial metrics; the Committee will also enhance its disclosure and provide greater insight into the evaluation of each executive’s individual performance and our annual bonus decisions
|
We are proud of the effort our Committee undertook this year and the changes made in response. We hope that stockholders see these changes as positive progress and recognition that their views and perspectives are greatly valued. We believe that our compensation programs drive the right behaviors for our executives, which in turn benefits our stockholders by driving our business strategies and goals. We look forward to ongoing dialogue with our stockholders and to continuing to work collaboratively.
 |  |  |  |  | David W. Dorman | Tony L. White | C. David Brown II
(Chair) | Anne M. Finucane | William C. Weldon |
Report of the Compensation Committee Report
DEAR CVS HEALTH CORPORATION STOCKHOLDER, As the members of the Board’s Management Planning and Development Committee (for purposes of this letter and the CD&A, the Committee), we are responsible for and highly focused on overseeing the design and implementation of competitive compensation programs that align 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 integrated 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 structured 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 continued 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 drivers of sustainable performance over the long term. As a result of the Aetna Transaction which closed in late 2018 and as our strategy continues to evolve, the Committee has reviewed the performance metrics within our compensation program to ensure appropriate alignment. For 2019, the Committee determined to grant the performance stock units (PSUs) portion of our long-term incentive program following the Company’s Investor Day presentation in June using an EPS growth rate and a leverage ratio as the 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. We believe that our compensation programs drive the right behaviors for our executives, which in turn benefits our stockholders by driving our business strategies and goals. We look forward to ongoing dialogue and collaboration with our stockholders as we transform the consumer health care experience. Compensation Committee Report We met with management to review and discuss the Compensation Discussion and Analysis (the CD&A). Based on that review and discussion, we recommended to the Board that the CD&A be included in this proxy statement.  |  |  |  |  |  | | David W. Dorman | Tony L. White | Anne M. Finucane | C. David Brown II
(Chair) | William C. Weldon | Roger N. Farah |
| cvshealthannualmeeting.com | 37 |
Table of Contents Compensation Discussion and Analysis Summary | Compensation Discussion and Analysis (CD&A). Based on that review |
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: | Larry J. Merlo | President and discussion, we recommended to the Board that the CD&A be included in this proxy statement.cvshealthannualmeeting.com | | 33 |
Table of Contents
Report of the Compensation Committee: | Compensation Discussion and Analysis |
Compensation Discussion and Analysis |
The CD&A explains how our executive compensation programs are designed and operate with respect to our named executive officers, who for 2017 are:
Larry J. Merlo | President and Chief Executive Officer | David M. Denton | EVP and Chief Financial Officer | Helena B. Foulkes | Former EVP and President – CVS Pharmacy – Ms. Foulkes resigned in February 2018 | Jonathan C. Roberts | EVP and Chief Operating Officer (CEO) | | Eva C. Boratto | 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 34| Summary | ◥ | page 38 | | Business and Performance Highlights | ◥ | page 42 | | Detailed Program Discussion | ◥ | page 44 | ●
|
| SummaryBusiness and Performance Highlights | page 38 | ●Detailed Program Discussion
| page 39 |
OUR EXECUTIVE COMPENSATION CORE PRINCIPLES Five core principles drive our executive compensation philosophy: Our Compensation Core Principles
Five core principles drive
| | Support, Communicate and Drive Achievement of our business strategies and goals | Attract and Retain the highest-caliber executive officers by providing compensation philosophy:I.opportunities comparable to those offered by other companies with which we compete for business and talent | Motivate High Performance from executive officers in an incentive-driven culture by delivering greater rewards for superior performance and reduced awards for underperformance | Align Interests | Support, Communicate and Drive Achievementof our business strategies and goals
| II. | Attract and Retainthe highest-caliber executive officers by providing compensation opportunities comparable to those offered by other companies with which we compete for business and talent
| III. | Motivate High Performancefrom executive officers in an incentive-driven culture by delivering greater rewards for superior performance and reduced awards for underperformance
| IV. | Align Interestof our executive officers and our stockholders, and foster an equity ownership environment
| V. | Reward Achievementof short-term results as well as long-term stockholder value creation
|
Management and the Committee believe these principles motivate our executive officers to take personal responsibility for the performanceand our stockholders, and foster an equity ownership environment
| Reward Achievement of the business and delivershort-term results as well as long-term stockholder value creation |
Management and the Committee believe these principles motivate our executive officers to take personal responsibility for the performance of the business and deliver long-term stockholder value, consistent with CVS Health’s values of Innovation, Collaboration, Caring, Integrity and Accountability. Our compensation programs: | ● | Are tailored to our short- 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.long-termbusiness strategies and drive performance, |
Stockholder Outreach
| | ● | Reflect therapidly changing health care landscape, | | ● | Drivesustainable performancein an era where human, social, natural, and Consideration of 2017 “Say On Pay” VoteFollowing our 2017 Annual Meeting of Stockholders, the Management Planningintellectual capital are joining financial and Development Committee reviewed the results of the stockholder advisory vote on executive compensation. Approximately 61% of votes were cast in favor of the proposal, which was a decline from 80% in 2016.
Managementoperating capital as performance drivers, and the Board conducted extensive outreach with our stockholders leading up to and following our 2017 Annual Meeting to better understand their perspectives on our compensation program, particularly for those who votedagainst our say-on-pay proposal. In total, we reached out to stockholders representing over 50% of our outstanding shares and had conversations with holders of nearly 25% of our outstanding shares. In some instances we met with the same stockholder more than once; however, each stockholder is reflected in the engagement figures only once. A number of stockholders declined our invitation to meet, including stockholders representing 13.2% of outstanding shares that responded indicating a meeting was unnecessary. We also engaged with the two leading proxy advisory firms.
34 | | 2018 Proxy Statement | | ● | Operate withinstrong governanceparameters. |
Table of Contents Report of the Compensation Committee: | Compensation Discussion and Analysis |
The Chair of the Committee, David Brown, or our Independent Board Chair, David Dorman, who is also a member of the Committee, participated in many of these meetings with stockholders and with both proxy advisory firms, and feedbackreceived was shared and discussed with the full Board.
During our outreach, we discussed several potential changes to the compensation program that the Committee was considering following our 2017 Annual Meeting.
Enhancements to Executive Compensation Program
As a result of investor feedback, the Committee approved several changes to our compensation program in an effort to simplify, enhance the performance-based nature of the program and increase overall transparency. This follows
Compensation Discussion and Analysis Summary STOCKHOLDER OUTREACH AND CONSIDERATION OF 2018 “SAY ON PAY” VOTE Following our 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) in Stock | | Effective with the 2018-2020 performance cycle, all LTIP grants will be denominated as performance share units (PSUs). We historically denominated our LTIP as a cash value and at the end of the three-year performance period, applied the performance adjustment to that cash value and settled the awards partly in cash and partly in stock. Based on feedback from stockholders, beginning with the 2016-2018 cycle,
|
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 stock.Even after the 2016 change, some stockholders continued to find the disclosure surrounding the LTIP confusing; many suggested a preferable and more common approach to denominate grants in shares. Thus beginning with the 2018-2020 cycle, we will grant awards in the form of PSUs that will be reported in the Summary Compensation Table in the year of grant.
| Enhance Performance Component of Long-Term Incentives | | Beginning with 2018 grants, we will replace time-based RSUs with PSUs (with a three-year performance period), resulting in 75% of our target annual long-term incentive grant value being performance-based. The remaining 25% are grants of stock options which some stockholders view as performance-based or performance-aligned. Shares delivered in settlement of PSUs are subject to a two-year holding period and are not eligible for dividend equivalent payments (unlike the prior unvested RSUs).
Prior to 2018, RSUs accounted for 25% of an executive’s long-term incentives, and investors indicated a preference for greater emphasis on PSUs.
| Increase Portion of Long-Term Incentives Subject to Holding Period | | Because PSUs are subject to a holding period, and we will now be settling LTIP awards fully in shares that are also subject to a holding period, the portion of awards subject to a holding requirement by our executives will increase.
Investors have provided positive feedback on the two-year holding requirement, recognizing that it further aligns executive and stockholder interests over a longer term.
| Improve Annual Incentive Plan Design | | For the 2018 performance year, we will simplify the design of the annual incentive program and eliminate the bonus pool. Named executive officers will be eligible for maximum awards based on competitive targets. The plan will continue to use rigorous goals for 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 plan also incorporates individual goals for each named executive officer.
Stockholders indicated that the annual plan was too complex.
| Add Transparency for Individual Component of Annual Incentive Plan | | Effective this year, we will enhance the disclosure and provide more insight into the Committee’s evaluation of each executive’s individual goals and performance under the annual incentive plan.
Stockholders indicated a preference for greater transparency.
| Adjust Comparator Group For Relative TSR Performance Modifier | | The comparator group for measuring relative TSR under our LTIP will change beginning with the 2018-2020 LTIP cycle from the S&P 500 to an index of companies that more closely reflects our business. Specifically, this group will include approximately 60 health care and 40 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 impact the share price of a particular industry or industries.
|
cvshealthannualmeeting.com | | 35 |
Table of Contents
Report of the Compensation Committee: | Compensation Discussion and Analysis |
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:
● | Reducing maximum awards under the annual bonus plan,
| ● | Providing that dividend equivalents on RSUs are only paid out when and if awards vest, and
| ● | Revising the TSR modifier beginning with the 2017-2019 LTIP 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 percent of the CEO’s total target compensation and no more than 15 percent of the other named executive officer’s total target compensation.
2017 CEO Target Pay Mix
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 inshares of common stock that are subject to a change in our reporting as previously awards were reported half in the year of grant and half in the year of vesting. Under SEC guidance, the three-year performance cycles beginning in 2016 and 2017 are reported at the end of the cycle as cash even though they will be paid in stock. Although our stockholders generally approved of the design (payment in stock with an extra two-year holding period), they foundperiod.
Even after the multi-year reporting2016 change, some stockholders continued to find the disclosure surrounding the LTIP confusing, and it resultedmany suggested a preferable and more common approach to denominate grants in an incomplete analysis of our compensation program. To address this, commencingshares. Thus effective beginning with the 2018-2020 performance period,cycle, all LTIP awardsgrants will be made in Performance Stock Unitsdenominated as performance stock units (PSUs) and reported in the year of grant and will appear as equity awards in the Summary Compensation Table.During the transition period, which includes the payout of the 2015-2017 cycle and continues through the payment of the 2017-2019 cycle, there will be timing issues that occur as awards for multiple years will appear 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 follows:● | 2017 will include the cash portion earned for the 2015-2017 cycle (the stock portion was reported for 2015)
| ● | 2018 will includeEBITDA 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 value earned for the 2016-2018 cycle and 100% of the target award granted for the 2018-2020 cycle.
| ● | 2019 will include 100% of the value earned for the 2017-2019 cycle and 100% of the target award granted for the 2019-2021 cycle. |
We will return to normal, single-cycle reporting in 2020.
36 | | 2018 Proxy Statement |
Table of Contents
Report of the Compensation Committee: | Compensation Discussion and Analysis |
The table below shows the Committee’s compensation determinations for 2017 for our named executive officers. This table is different from the SEC-required 2017 Summary Compensation Table on page 54. The table includes base salary on April 1, 2017, 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. |
| cvshealthannualmeeting.com | 39 |
Table of Contents 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 inMarch 2018 for performance year 2017, RSUsout when and options granted in 2017,if awards vest, and | | ● | Revising the TSR modifier beginning with the 2017-2019 LTIP (which is not shownperformance 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. 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 |
Table of Contents 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 Table per SEC reporting)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 All Other2016-2018. 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 for 2017.2017 Named Executive Officer Annual Compensation Determinationsvs. Realizable Compensation | |  |
| Named Executive Officer | | Salary | | Annual
Incentive
Award | | RSUs1 | | Options | | 2017-2019 LTIP
Awarded
in 2017
(not included
in SCT) | | All Other
Compensation | | Total
Compensation | | Larry J. Merlo | | $1,630,000 | | $2,128,800 | | $3,374,960 | | $3,374,998 | | $6,750,000 | | $754,106 | | $18,012,864 | | David M. Denton | | $850,000 | | $833,000 | | $999,977 | | $999,977 | | $2,000,000 | | $334,979 | | $6,017,933 | | Helena B. Foulkes2 | | $950,000 | | $0 | | – | | – | | – | | $169,006 | | $1,119,006 | | Jonathan C. Roberts | | $1,050,000 | | $1,200,000 | | $1,999,953 | | $1,999,994 | | $3,750,000 | | $244,484 | | $10,244,431 | | Thomas M. Moriarty | | $750,000 | | $845,000 | | $1,249,971 | | $1,249,998 | | $1,875,000 | | $102,585 | | $6,072,554 |
1| cvshealthannualmeeting.com | 41 | With respect to RSUs awarded for 2017, the number of units awarded was determined by dividing the dollar amount shown in the table by a share price of $78.05, which was the grant date closing price.
| 2 |
Table of Contents Compensation Discussion and Analysis Business and Performance Highlights LEADING PRACTICES IN COMPENSATION PROGRAMS | Ms. Foulkes was granted a target award of $2,000,000 for the 2017-2019 LTIP and 2017 options and RSUs with a combined target value of $3,000,000, and has forfeited these awards due to her resignation. |
Leading Practices In Compensation Programs
Our pay practices align with our core compensation principles and facilitate our implementation of those principles. They also demonstrate our commitment to sound compensation and governance practices. Our executive compensation program motivates executive officers to take personal responsibility for the performance of CVS Health | | ✓ | Core Executive Compensation Principles Designed to Promote Company Growth | | ✓ | Performance Measures Aligned with Stockholder Interests | | ✓ | Majority of the Total Compensation Opportunity is Performance-Based | | ✓ | LTIP Awards Settled in Common Stock that is Subject to Retention Requirement (Holding Period) | | ✓ | Total Shareholder Return (TSR) Modifier Provides for Reduced Payout for Below Median | | ✓ | Performance Stock Ownership Guidelines | We apply leading executive compensation practices | | ✓ | No Excise Tax Gross-Ups | | ✓ | No Option Repricing | | ✓ | No Recycling of Shares | | ✓ | Recoupment Policy | | ✓ | Broad Anti-Pledging and Hedging Policies | | ✓ | Executive Severance Policy | | ✓ | Limited Perquisites and Personal Benefits | | ✓ | SERP Closed to New Participants | | ✓ | Double Trigger Vesting of Equity Awards | | ✓ | Dividend Equivalents on RSUs Paid Only When Awards Vest | | ✓ | Board Committee Oversight of Comprehensive Annual Compensation Program Risk Assessment | | ✓ | Reduced Maximum Annual EIP Award to Align with Broad-Based MIP | NEW THIS YEAR | | ✓ | Replaced Cash Denominated LTIP with Performance Stock Units | | ✓ | Replaced Time-Based RSUs with Performance Stock Units | | ✓ | Increased Portion of Equity Subject to a Two-Year Holding Requirement | | ✓ | Simplified and Improved Disclosure for Annual Incentive Plan
cvshealthannualmeeting.com | | 37 | | Our executive compensation program motivates executive officers to take personal responsibility for the performance of CVS Health | | | Core Executive Compensation Principles Designed to Promote Company Growth Performance Measures Aligned with Stockholder Interests Majority of the Total Compensation Opportunity is Performance-Based 75% of Long-term Incentives are Performance-Based LTIP Awards and 2018 EBITDA PSUs Settled in Common Stock that is Subject to Retention Requirement (Holding Period) TSR Modifier Provides for Reduced Payout for Below Median Performance Robust Stock Ownership Guidelines | |
| | We apply leading executive compensation practices | | | TableNo Excise Tax Gross-Ups
No Option Repricing No Recycling of ContentsShares Report of the Compensation Committee: | Business and Performance HighlightsRecoupment 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 | |
Business and Performance Highlights | NEW THIS YEAR | | | LTIP Awards Denominated in Shares of Common Stock (see page 49) Increased the Stock Ownership Guidelines for the CEO and Business Planning Committee (BPC) Members, and Added Ownership Guidelines for All Other Corporate-level EVPs and SVPs (see pages 59 and 80) Enhanced Recoupment Policy to Include Disclosure of any Recoupments (see page 58) | | |
We are a pharmacy innovation company helping people on their path to better health. At the forefront of a changing health care landscape, we have an unmatched suite of capabilities and the expertise needed to drive innovations that will help shape the future of health care. Through our more than 9,800 retail locations, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with more than 94 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year, expanding specialty pharmacy services and a leading stand-alone Medicare Part D prescription drug plan, we enable people, businesses, and communities to manage health in more affordable and effective ways.
In 2017, we delivered on the four-point plan we set in place to return to more robust levels of growth. Our position in the evolving health care landscape is stronger than ever before, and we remain confident in our model and in our ability to make health care more affordable, more accessible and more effective.
| | Business and Performance Highlights |
We are a health innovation company helping people on their path to better health. Whether 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 care they need when and where they need it. The Company has more than 9,900 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 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. CVS Health also serves an estimated 38 million people through traditional, voluntary and consumer-directed health insurance products and related services, including rapidly expanding Medicare Advantage offerings. The Company believes its innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs. | 42 | | 2019 Proxy Statement |
Table of Contents 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. | 5.3%
revenue growth | | Completed $70 billion
acquisition of Aetna | | Maintained dividend of $2.00per share | |
4.1%
net revenue growth | | | | | | | | Increased dividend to
$2.00per share | Return of
>$6 billion
to stockholders through dividends and share repurchases | | OutperformedtheS&P 500andDow Jones Industrial Averagefor the prior5 and 10 years |
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. | 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 60 of this proxy statement for additional information about how we calculate: (i) MIP Adjusted Operating Profit, a metric used to determine annual cash awards; (ii) Return on Net Assets, a metric used in connection with our long-term incentive awards; and (iii) Adjusted EBITDA, a metric used in connection with our long-term equity awards. |
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. |
The rapidlychanging health care landscape| ● | 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 include uncertainties concerning health care policy. The exclusion of CVS Pharmacy from certain health plan retail networks, resulting in the loss of prescription volume beginning in late 2016, created a headwind for 2017. Compensation to our executives, including the cash component, the long-term incentive plan cycle ending in 2017 andshow positive results by reinforcing the value of our outstanding stock awards, is –brand in health care. We continue our work to create the first tobacco-free generation and should be – affected by such factors, whether ormade 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 those factors are within management’s abilityrequire an individual prescription. Following the Surgeon General’s Advisory on Naloxone and Opioid Overdose in April 2018, we have further expanded our efforts to influence. | | | | | | | | For more information on our financial performance and strategy, please refer to our Annual Report available at www.cvshealthannualmeeting.com. Please also refer to page 52 of this proxy statement for additional information about how we calculate Return on Net Assets, a metric used in our Long-Term Incentive Plan. | |
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 committeddedicated to helping peoplethe 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. |
|
| cvshealthannualmeeting.com | 43 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion | ● | We have made significant investments in our colleagues by raising the minimum starting wage enterprise-wide and offering paid family leave for all new parents, both effective April 1, 2018. We also increased pay ranges and rates for many of our retail hourly employees effective July 1, 2018, and we did not increase employee health plan premiums for the 2018-2019 plan year despite a 5% increase in costs, indicative of our commitment to ensuring access to affordable health care. | | ● | Our holistic approach to leveraging diversity within our talent pipeline, talent development, leadership accountability and supplier diversity initiatives, earned us a spot on their path to better health. Our values of innovation, collaboration, caring, integrity and accountability affect how we drive performance. the DiversityInc Top 50 Companies for Diversity list in 2018. | | ● | We are strongly committed to evaluating and incenting management to remain focused ondriversa proud member of sustainable performance, even though we recognizethe Billion Dollar Roundtable, an organization that this focus is not always reflected in the stock price. We invest in our employees at all levels in the Company by rewarding performance that balances risk and reward, is consistent with our valuesrecognizes and supports short-corporations that achieve $1 billion in annual spending on diverse- and long-term goalswomen-owned suppliers. | | ● | We achieved a 100% score on The Disability Equality Index, a joint initiative of the American Association of People with Disabilities and ultimately, value creationthe US Business Leadership Network for our stockholders. commitment to recruiting and retaining talent from the differently-abled community and our utilization of companies owned by differently-abled suppliers. | | ● | 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 andachieved a perfect score for the value we placefourth consecutive year on other forms of capital—including human, natural, socialthe 2018 Corporate Equality Index, a national benchmarking survey and intellectual:● | We include retail customer service and PBM client satisfaction in our pay calculations.
report on corporate policies and practices related to LGBTQ workplace equality administered by the Human Rights Campaign Foundation. | ● | Our decision to remove tobacco from pharmacy stores continues to show positive results by reinforcing the value of our brand in health care.
|
| Detailed Program Discussion | ● | We launched a multi-front fight against the opioid epidemic through enhanced opioid utilization management practices that follow the Centers for Disease Control Guidelines, an expanded drug disposal collection program and an education program taught by our pharmacists in the schools in their communities.
| ● | We value the recruiting and reputation advantages of placing second in our sector of World’s Most Admired Companies, of placing seventh in Fast Money’s list of 50 Most Innovative Companies, and of being one of Forbes’ Most Admired Brands, CR Magazine’s 100 Best Corporate Citizens, Points of Light 50 most community-minded companies in the US and Newsweek’s Top 20 Greenest Companies in America.
| ● | We have made significant investments in our colleagues by raising the minimum starting wage enterprise-wide and offering paid family leave for all new parents, both effective April 1, 2018. We also plan to increase pay ranges and rates for many of our retail hourly employees effective July 1, 2018, and we will not increase employee health plan premiums for the 2018-2019 plan year despite a 5% increase in costs, indicative of our commitment to ensuring access to affordable health care.
| ● | Our holistic approach to leveraging diversity within our talent pipeline, talent development, leadership accountability and supplier diversity, earned us a spot on the DiversityInc Top 50 Companies for Diversity list. |
38 | | 2018 Proxy Statement |
Table of Contents
|
CVS HEALTH VALUES Report of the Compensation Committee: | Detailed Program Discussion |
● | We are proud to be named to the Billion Dollar Roundtable, an organization that recognizes and supports corporations that achieve $1 billion in annual spending on diverse- and women-owned suppliers.
| ● | We achieved a 100% score on The Disability Equality Index, a joint initiative of the American Association of People with Disabilities and the US Business Leadership Network for our commitment to recruiting and retaining talent from the disabilities community and our utilization of disability-owned companies as part of our supplier base.
| ● | 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 LGBTQ workplace equality administered by the Human Rights Campaign Foundation. |
In December 2017, CVS announced that it will acquire Aetna Inc. CVS believes that Aetna will complement 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. CVS stockholders approved the issuance of shares in the merger and Aetna shareholders approved the merger at special meetings held on March 13, 2018. The transaction remains subject to regulatory approvals and is expected to close in the second half of 2018.
Detailed Program Discussion |
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
 | 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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Report of the Compensation Committee: | Detailed Program Discussion |
Executive Compensation Planning and Review Process
The following serves as the framework the Committee follows to review, discuss and approve all aspects of our executive compensation program.
| | | | | | |  | Integrity | | |  | Accountability | |
 | | | SEPTEMBER
MP&D Committee Meeting
●Annual risk assessment of compensation programs
●Peer group reviewed and established for executive compensation benchmarking
●Pay-for-performance alignment for prior year reviewed
| | | 
The annual cycle of reviewing and developing the Company’s executive compensation program and pay levels is a multi-step process that incorporates input from stockholders, management, peer group information, consideration of say-on-pay results, and both short- and long-term Company results compared to objectives, as well as consultation with the Committee’s independent compensation consultant.
Throughout the annual compensation cycle, Committee decisions incorporate and reflect our deep commitment to the Company’s five core values:Innovation, Collaboration, Caring, Integrity,andAccountability.
| | | | | | Delivering on our promises; doing what we say and what is right. | | | | Taking personal ownership for our actions and their results. |
| | | | 44 | | 2019 Proxy Statement | | | | | | | |  | | | NOVEMBER
|
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion ELEMENTS OF COMPENSATION PROGRAMMP&D Committee Meeting ●Total compensation market data for our executives reviewed
●Stockholder comments received on our executive compensation program
| | | | | | | | | | | | | | | |  | | | JANUARY
MP&D Committee Meeting
●Review any additional stockholder comments received on our executive compensation program
●Preliminary financial results reviewed
●Preliminary incentive award payouts for the completed fiscal year
CEO Performance Review
●The CEO presents a self-assessment of his performance against his Board-approved strategic, operational and financial goals
●The Chairman of the Board and the Committee Chair meet with the independent directors privately to consider the CEO’s performance
●Committee members consult with their independent compensation consultant and consider the independent directors’ assessments in reviewing the CEO’s total compensation and determining his annual incentive compensation award and equity compensation grants
| | | | | | | | | | | | | | | |  | | | FEBRUARY
MP&D Committee Meeting
Other Named Executive Officer Final Decisions
●For named executive officers other than the CEO, final decisions on actual incentive awards for the prior year are made in February after review of the CEO’s assessment of individual executive contribution and performance;as described above, the CEO’s performance is reviewed separately
| | | | | | | | | | | | | | | |  | | | MARCH
MP&D Committee Meeting
Target Setting
●The Committee establishes financial targets and approves any base salary changes and individual target incentive award levels for the current performance year
| | | | | | | | | | | | | | | | |
40 | | 2018 Proxy Statement |
Table of Contents
Report of the Compensation Committee: | Detailed Program Discussion |
Elements of Compensation Program
The Committee believes each element of our executive compensation program furthers one or more of our five core principles: | I. | Support, Communicate and Drive Achievement | | IV. | Support, Communicate and Drive Achievement | | IV. | Align Interests | | II. | Attract and Retain | | V. | Reward Achievement | | III. | Motivate High Performance | | | | II. |
The table below outlines each element of our executive compensation program for 2018, its connection to our five core principles, 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. | 2018 Compensation Program | Attract and Retain | | V. | Reward Achievement | III. | Motivate High Performance | | | |
The table below outlines each element of our compensation program on a going forward basis, its connection to our five core principles, as well as how they support our long-term strategy and growth. The table does not include RSUs as they were removed from our LTI program effective 2018.
2018 Compensation Program |
| | | | Settled in | | Target Basis | | Link to Strategy/
Growth | | Additional Information |  | | Base
Salary
 | | Cash | | | | | | | | 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 | | Annual
|
Cash
Incentive| cvshealthannualmeeting.com | 45 | | Cash | | ●Financial and non-financial targets approved at the beginning of the fiscal year
| | ●Key measure of profitability followed closely by investors
●Important driver of recurring revenue and long-term strategic and operational goals
| | ●Payments reflect performance against operating profit target
●Maximum payouts capped as percent of base salary
●Committee evaluates financial and customer service metrics and individual performance
|  | | LTIP
 | | Stock | | ●Established at start of a three year cycle
●Based on market data, level of responsibility, and desired pay mix
| | ●Measures profitability and efficient management of cash, inventory, and accounts receivable
●Provides link to market-based outcomes
| | ●Performance threshold required for any payout
●Maximum payouts capped
●Denominated and settled in stock
●2-year holding period post vesting
| | PSUs
NEW
 | | Stock | | ●Established at start of a three year cycle
●Based on market data, level of responsibility, and desired pay mix
| | ●Measures profitability and cash flow
| | ●Performance threshold required for any payout
●Maximum payouts capped
●Denominated and settled in stock
●2-year holding period post vesting
| | Stock
Options
 | | Stock | | ●Based on market data, level of responsibility, and desired pay mix
| | ●Stock price appreciation aligned to stockholder interests
| | ●7-year term
●Vest annually over 4 years
|
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Table of Contents Report of the Compensation Committee: | Detailed Program Discussion |
Performance Metrics Support Corporate Strategy and Long-Term Growth
The Committee recognizes that external factors that are beyond CVS Health’s influence may impact its stock price. Consequently, the Committee believes that other performance indicators, including profitability and sound financialmanagement of our working capital, should also be factored into our executive compensation program. By using a variety of pay vehicles and balancing short- and long-term awards, the Committee believes the program supports retention and long-term growth creation because the metrics are measured independently and no one
Compensation Discussion and Analysis Detailed Program Discussion 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. Pay Element | | Performance Metric | | Rationale | Annual Cash Incentive | | Operating Profit | | ●Key measure of profitability followed closely by investors
| | | Retail Customer Service /
PBM Client Satisfaction | | ●Important driverThe 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 | | | | | | Financial/ Operational Goal | | Retail Customer Service and PBM and LTC Client/Member Satisfaction Adjusted by MIP Adjusted Operating Profit Result (20%) | | ●Important drivers of recurring revenue and long-term strategic and operational goals | | | Individual Performance
Goals | | ●Drives specific, job-related performance that is linked to overall company performance
| LTIP | | RoNA | | ●Measures performance in a way that is easily understood by participants and valued by investors
| | | TSR | | ●Captures both income and balance sheet impacts, including capital management actions
| | | | | ●Provides a useful gauge of overall performance while limiting the effects of factors management cannot influence
| | | | | ●Correlates to creation of long-term shareholder value and free cash flow
| | | | | ●TSR modifier measures performance relative to the broad market in which we compete for talent and capital
| PSUs | | EBITDA | | ●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 competitiveness and consistency with evolving responsibilities. Upon consideration of this competitivemarket analysis and input from its consultant, the Committee increased Mr. Roberts’ salary in connection with his promotion to COO in March 2017, and did not raise base salaries for any of the other named executive officers.
Annual Cash Incentive
Our NEOs participate in the Executive Incentive Plan (EIP), under which they are eligible for a cash-based award based on the achievement of pre-established financiallong-term strategic 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 in effect on April 1 of the year – 200% for Mr. Merlo, 175% for Mr. Roberts, and 150% for each of Ms. Foulkes and Messrs. Denton and Moriarty. Awards are paid out, if earned, in the first quarter of the following year.
2017 Annual Incentive
Under the EIP, a maximum pool is created to pay annual incentives to named executive officers. For 2017, for purposes of Section 162(m) of the Code, the Committee approved the potential funding of the awards based on the lesser of the Maximum Bonus or a portion of a bonus pool equal to 0.5% of Adjusted Income from Continuing Operations Attributable to CVS Health. For 2017, the pool funded at the Maximum Bonus as those amounts were less than the Adjusted Income from Continuing Operations pool.
42 | | 2018 Proxy Statement |
Table of Contents
Report of the Compensation Committee: | Detailed Program Discussion |
The award is granted under our stockholder-approved, long-term incentive plan at 200% of each such senior executive’s target annual bonus amount, which reflects the maximum potential award. Payment is based on the objective financial goal, which is established at the beginning of the fiscalyear. For 2017, metrics included Adjusted Operating Profit and a modifier (downward only) for Customer Service / PBM Client Satisfaction. Actual payments may not exceed 20% of the funding result.
2017 Objective Financial Goals |
| Performance Metric | | Target | | Actual | | Funding | | Adjusted Operating Profit (MIP) | | $10,551 | | $10,193 | | 65.3% | | Customer Service / PBM Client Satisfaction | | 100% | | 95% | | |
The Committee evaluates each named executive officer’s performance and considers Mr. Merlo’s input on the performance of the other named executive officers. For 2017, the Committee reduced the actual payout of the awards for each named executive officer. This decision was based on a variety of objective factors established at the beginning of the year and subjective factors based on a review of the year, including (i) the percentage payout under the 2017Management Incentive Plan applicable to employees below the senior executive level, which paid out at 65.3% of target based on 2017 Adjusted Operating Profit (performance of 96.6% of target resulting in funding of 66%) as well as customer and client satisfaction that resulted in a negative adjustment of 0.7 percentage point or a final funding of 65.3% and (ii) the individual performance of each named executive officer as set forth below.
Executive | | Fiscal 2017 Individual Performance Assessment | Larry J. Merlo
| | ●The Committee recognized Mr. Merlo’s leadership in architecting and structuring the planned transformative merger with Aetna, as well as his overall management of the Company during a transition year. The Committee considered progress against the four point plan designed to return the Company to healthier levels of earnings growth, talent and succession planning including the hiring of a new PBM President, and the launching of industry leading programs designed to combat the opioid epidemic.
●However, in acknowledgement of the Company’s 2017 financial performance that included operating profits results that were below goal, the Committee chose to position Mr. Merlo’s annual bonus at the level of the Management Incentive Plan (65.3%), comparable to bonuses received by executives below the proxy officer level.
| David M. Denton
| | ●The Committee recognized Mr. Denton’s leadership in negotiating and structuring the planned merger with Aetna, and in developing and executing the underlying financial structure to support the deal. The Committee also considered progress against the four point plan designed to return the Company to healthier levels of earnings growth.
●However, in acknowledgement of the Company’s 2017 financial performance that included operating profit results that were below goal, the Committee chose to position Mr. Denton’s annual bonus at 65.3% of his competitive target, comparable to bonuses received by executives below the proxy officer level.
| Jonathan C. Roberts
| | ●The Committee recognized Mr. Roberts’ successful accession to the Chief Operating Officer role and subsequent positive impact on financial and operating results in the Retail business, while continuing his leadership of the PBM business during the search for a new President.
●However, in acknowledgement of the Company’s 2017 financial performance that included operating profit results that were below goal, the Committee chose to position Mr. Robert’s annual bonus at the 65.3% of his competitive target, comparable to bonuses received by executives below the proxy officer level.
| Thomas M. Moriarty
| | ●The committee recognized Mr. Moriarty’s results in establishing and advancing strong policy positions to support the Company’s businesses as well as his superior management of the Government Affairs and Legal functions. In addition, Mr. Moriarty displayed strong leadership in negotiating and structuring our planned merger with Aetna.
●Reflecting the Company’s 2017 financial performance that included operating profit results that were below goal, the overall funding level of the Management Incentive Plan for non-executive officers in the Company as well as his superior personal contribution, the Committee chose to establish Mr. Moriarty’s baseline bonus at 75.1% of his competitive target funding.operational goals
|
cvshealthannualmeeting.com | | 43 | | | | | |
Individual Goal | | Individual Performance Goals (modifier 0-120%) | | ●Drives specific, job-related performance that is linked to overall company performance | TableLTIP PSUs
| | Aetna Transaction-related Operational Synergies and Product Offering Goals (100%) | | ●Operational Synergies: Measures the value of ContentsReport of the Compensation Committee: | Detailed Program Discussion |
The actual payout of each award, as adjusted and approved by the Committee, is set forth in the table below. Ms. Foulkes left the Company before the payment date for the annual bonus and,cost synergies delivered as a result did not receive a payment in respect of 2017.
2017 Annual Incentive Payments |
| Executive | | Maximum Potential
Bonus Award | | Target Bonus as a
Percentage of Base
Salary | | Target Bonus | | Actual Bonus | | Actual Bonus as
a Percentage of
Target | | Larry J. Merlo | | $6,520,000 | | 200% | | $3,260,000 | | $2,128,800 | | 65.3% | | David M. Denton | | $2,550,000 | | 150% | | $1,275,000 | | $833,000 | | 65.3% | | Helena B. Foulkes | | $2,850,000 | | 150% | | $1,425,000 | | $0 | | 0% | | Jonathan C. Roberts | | $3,675,000 | | 175% | | $1,837,500 | | $1,200,000 | | 65.3% | | Thomas M. Moriarty | | $2,250,000 | | 150% | | $1,125,000 | | $845,000 | | 75.1% |
2018 Annual Incentive
In response to stockholder feedback, the Committee streamlined the program, retaining the key financialAetna Transaction. The LTIP PSUs will vest at between zero and operational goals to measure company performance and formalizing the evaluation of individual performance. The Committee eliminated the IRC 162(m) bonus pool concept. For 2018, annual incentives will be determined as follows:
Annual
Base Salary | X | Target Annual
Incentive % | X | Company
Performance % | X | Individual
Performance % | = | Final Award |
The Committee will measure company performance using Operating Profit (80% weighting) and Customer Service and Client Satisfaction (20% weighting as a negative modifier to Operating Profit results). The Committee established challenging targets for Operating Profit that are consistent with the earnings guidance we provided to investors. Our retail customer service and client satisfaction metrics insure that we are providing excellent service and position us to retain and winnew business. The Operating Profit and Customer Service and Client Satisfaction goals for 2018 were set above 2017 actual performance. The Committee also approved individual goals and objectives for business operations, merger and integration, and talent and organizational development. Those will be evaluated against performance and assigned a value between 0 and 120% to arrive at the actual payment. In all cases, payouts cannot exceed 200% of target.
Long-Term Incentive Compensation
As partthe number of units granted based on our achievement in 2020 of Aetna Transaction-related cost synergies. Subject to satisfaction of the Committee’s comprehensive reviewProduct Offering Goals, the LTIP PSUs will vest at target (100%) if we deliver $750 million of our compensation program, which included input from our stockholders, it approved changessynergies in 2020
●Product Offering Goals: Delivery of integrated programs that deliver transformational value to the long-term incentive compensation plans (LTI plans) to enhance the performance component. Beginning with 2018 grants, we will replace time-based RSUs with PSUs with a three-year performance period for our named executive officers.Long-Term Incentive Target Mix |
2017 Long-Term Mix |  | | 2018 Long-Term Mix
|  |
44 | | 2018 Proxy Statement |
Table of Contents
Report of the Compensation Committee: | Detailed Program Discussion |
Long-Term Incentive Plan (LTIP)
Our program features formulaically determined payouts based on performance against financial goals established at the beginning of the three-year performance period,clients and modified by relative TSR measured over the same period. The target, threshold and maximum goals set under the LTIPmembers. To align with the Company’s long-term targets communicatedsuccess 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 a level expected to generate strong operational execution. The Committee has historically selected RoNA as the performance metric under the LTIP for a number of reasons, including:
● | Measures performance in a way that is easily understood by participants and valued by investors
| ● | Captures both income and balance sheet impacts, including capital management actions
| ● | Provides a useful gauge of overall performance while limiting the effects of factors management cannot influence
| ● | Correlates to creation of long-term shareholder value and free cash flow
least one such offering |
| | | | | | | The TSR (modifier +/-25%)
| | ●TSR modifier measuresadjusts 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 inof companies with which we compete for talent and capital.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. |
| 46 | | 2019 Proxy Statement |
Table of Contents 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%).
|  | | * | Dollars in millions. |
| cvshealthannualmeeting.com | 47 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion 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: | 2018 Annual Cash Incentive Award |
| 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. |
| 48 | | 2019 Proxy Statement |
Table of Contents 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. Beginning with the 2018 LTIP grant, the comparator group for measuring relative TSR will change
| cvshealthannualmeeting.com | 49 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion Beginning with the 2018-2020 LTIP PSU grant, the comparator group for measuring relative TSR changed from the S&P 500 to an index of over 55 health care and over 30 consumer staples companies that more closely reflect our business. The companies included in this peer group are listed at the end of this Compensation Discussion and Analysis. Awards are adjusted if TSR performance is above or below the 50th percentile as shown in the chart to the right. In addition, the modifier is applied in quartiles on a pro-rata basis to provide for reduced payout for below median performance.
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 | | | | | | | | | 2016-2018
50% of approximately 60 health care and 40 consumer staples companies that more closely reflect our business. The companies included in this peer group are listed at the end of this Compensation Discussion and Analysis.long-
term equity | As a result of feedback from our stockholders, the Committee revised the TSR modifier for the cycle beginning in 2017 such that awards are adjusted if performance is above or below the 50thpercentile●Denominated as shown in the chart. In addition, the modifier is applied in quartiles on a pro-rata basis to provide for reduced payout for below median performance. Based on stockholder feedback, in 2016, we moved from an LTIP award that was partially settled in cash to awards denominated in cashvalue and settled 100% in stock. This resultedstock
●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 | | | | | | | | | | | | 2017-2019
50% of long-
term equity | ●Denominated as cash value and settled 100% in stock ●Based on Return on Net Assets, with target set at 43.76% ●Subject to rTSR modifier (+/- 25%) | Shares earned are subject to a change2-year holding period | | | | | | | | | | | | 2018-2020
50% of long-
term equity* | ●100% PSUs ●Based on achievement of Aetna Transaction-related synergies ($750 million at target) in our reporting as previously2020 and development of a pipeline of integrated offerings, and launch of one, by December 31, 2020 ●Subject to rTSR modifier (+/- 25%) | Shares earned are subject to a 2-year holding period |
| * | Excludes Additional LTIP PSU awards were reported halfgranted in 2018 and described below. |
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 ($750 million at target), provided the Product Offering Goals have been met. Both the Synergy Goal and the Product Offering Goals must be met for any vesting to occur. The 2018-2020 LTIP PSUs are also subject to a relative TSR modifier. The following table sets out the grant date fair value at target and number of 2018-2020 LTIP PSUs granted to each NEO. Except as noted below with respect to Ms. Boratto, LTIP PSUs for this cycle were granted on April 1, 2018. If earned, the awards below will be paid in stock in early 2021, and the stock will be subject to a two-year holding period. The awards are not guaranteed and can range from 0%-250% of target (Company performance of 0%-200% of target subject to a +/- 25% rTSR modifier). Payouts are formulaic, though the Committee has discretion to reduce the payout of the awards. | 50 | | 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion | Executive Name | Grant Date Fair Value of 2018-2020
LTIP PSU Grants at Target
($) | | 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 yearsum of granther annual award granted on April 1, 2018 and half inher 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 yearperformance period to 10,875 LTIP PSUs with a value of vesting. Under SEC guidance, the three-year performance cycles beginning in 2016$611,111, and 2017 are reportedis payable at the end of the three-year cycle as cash even though they will be paid in stock. Although our stockholders generally approved of the design (payment in stock with an extra two-year holding period), they found the multi-year reporting confusing and it resulted in an incomplete analysis of our compensation program. To address this, commencingperformance period. See page 57. |
Additional 2018-2020 LTIP Awards Related to the Aetna Transaction In August 2018, the Committee approved one-time LTIP PSU awards to certain individuals, including several of the NEOs, in recognition of the critical role each played in the Aetna Transaction, which we refer to as Additional LTIP PSUs. Our CEO and then-outgoing CFO did not receive Additional LTIP PSUs. The performance metrics for the Additional LTIP PSUs are identical to the metrics for the 2018-2020 LTIP PSUs described above, and the grants were made contingent upon the close of the Aetna Transaction. The purpose of these awards was to recognize the effort needed to ensure the continued success of ongoing operations through the transition period, to recognize the additional effort needed to integrate Aetna and achieve the target synergies announced in connection with the deal, and to incent these key leaders to remain with the Company. In determining the size of the these one-time grants, the Committee considered several factors, including the magnitude of the role the executive would play in driving the success of the Aetna integration while concurrently maintaining the forward growth momentum of the core businesses, retention of key talent, and potential for expanded responsibilities in the Company. As with our regular LTIP PSU grant, the additional grant to NEOs carries a two-year post-vesting holding requirement.| Executive Name | Grant Date Fair Value of 2018-2020
Additional LTIP PSU Grants at Target
($) | | 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 performance period,Additional LTIP awards will be made in Performance Stock Units reported in the year of grant and will appear as equity awards in the Summary Compensation Table.2015-2017 LTIP Performance Period
All of the executive officers listed in the Summary Compensation Table earned payments in 2017 for awardsPSU award was granted in 2015 for the 2015-2017 LTIP performance period except for Ms. Foulkes, due totwo installments: she received an award in August 2018 in her resignation. The Committee set the 2015-2017 LTIP Return on Net Assets (RoNA) goal in early 2015 to align withformer role as the Company’s long-term targets communicatedChief Accounting Officer and an award in November 2018 upon her promotion to investors in 2014 and at a level expected to generate strong operational execution and asset management. The RoNA result for the three year cycle was 38.12% missing the target by 133 basis points and resulting in a payout just above threshold performance. Despite solid net asset performance, continued growth in the PBM and improved cash flow, net operating profit after tax (NOPAT) was below target primarily as a result of the network changes that were announced in 2016 that excluded CVS from some networks and this resulted in below target RoNA performance. The RoNA results were adjusted to fully eliminate the benefit of tax reform. Absent this adjustment, RoNA would have been 45.43%. Based on our relative TSR over this same period, the modifier reduced the payout level as a percent of target to 36%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. cvshealthannualmeeting.com | | 45 |
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% |
| cvshealthannualmeeting.com | 51 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion | Table of ContentsReport of the Compensation Committee: | Detailed Program Discussion |
The following table sets forth threshold, target2016 – 2018 LTIP Grant Opportunities and maximum goals, the range of potential payouts as a percent of target and the actual results for the 2015-2017 performance period.
| | % of RoNA
Target | | Payout Level as a
% of Target | | Threshold (minimum level of performance) | | 96.1% | | 40% | | Actual (38.12%) | | 96.6% | | 48% | | Target (39.45%) | | 100.0% | | 100% | | Maximum | | 106.5% | | 200% | | TSR Modifier -25% (reflecting 11thpercentile) | | | | 36% |
|
2015 – 2017 LTIP Plan Opportunities and Actual Award Payments |
| Executive Name | | Minimum
Award
(% of
Target) | | Threshold
Award
(% of
Target) | | Target
Award
(% of
Target) | | Maximum
Award
(% of
Target) | | Maximum
Award
After TSR
Modifier
(% of
Target) | | Actual
Total
Award
At 36% | | Actual
Cash
Portion
of Award
($) | | Actual
Stock
Portion
of Award
(# of
Shares) | | Larry J. Merlo | | 0% | | 40% | | 100% | | 200% | | 250% | | $1,980,000 | | $990,000 | | 14,616 | | David M. Denton | | 0% | | 40% | | 100% | | 200% | | 250% | | $720,000 | | $360,000 | | 5,315 | | Helena B. Foulkes | | 0% | | 40% | | 100% | | 200% | | 250% | | $0 | | $0 | | 0 | | Jonathan C. Roberts | | 0% | | 40% | | 100% | | 200% | | 250% | | $810,000 | | $405,000 | | 5,979 | | Thomas M. Moriarty | | 0% | | 40% | | 100% | | 200% | | 250% | | $630,000 | | $315,000 | | 4,650 |
2016-2018 LTIP Performance Period
The LTIP for the 2016-2018 cycle is based on RoNA, and subject to a| Executive Name | | Minimum
Award
(% of
Target) | | Threshold
Award
(% of
Target) | | Target
Award
(% of
Target) | | Maximum
Award
(% of
Target)1 | | Target
Grant Value
of Award
($) | | 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, based on relative TSR (S&P 500) over the same three-year period. The goal was set by the Committee in early 2016 at a challenging level to drive performance. The goal aligns with the Company’s long-term targets communicated to investors in 2015, and was set higher than the actual results for the 2013-2015 performance cycle.2017-2019 LTIP Performance Period
The LTIP for the 2017-2019 cycle is based on RoNA, and subject to a modifier based on relative TSR (S&P 500) over the same three-year period that varies in correlation with aboveand below performance at the 50thpercentile. The goal was set by the Committee in early 2017 at a challenging level to drive performance and generate strong operational execution and asset management. The goal aligns with the Company’s long-term steady state targets communicated to investors in 2016, and was set higher than the actual results for the 2014-2016 performance cycle.
The following table sets out the target performance-based LTIP award. If earned, the awards below will be paid in stock in early 2020 subject to a two-year holding requirement. The awards are not guaranteed andwhich can range from 0%-250% of target. Payouts are formulaic, though-25% to +25%.
| | 2 | Ms. Boratto was not a NEO at the Committee has discretion to reduce awards.Executive Name | | Target Performance-Based LTIP Award
for 2017-2019 Performance Period | Larry J. Merlo | | $6,750,000 | David M. Denton | | $2,000,000 | Helena B. Foulkes1 | | – | Jonathan C. Roberts | | $3,750,000 | Thomas M. Moriarty | | $1,875,000 |
1 | Ms. Foulkes was granted a target award of $2,000,000 and forfeited that award due to her resignation. |
46 | | 2018 Proxy Statement |
Table of Contents
Report of the Compensation Committee: | Detailed Program Discussion |
2018-2020 LTIP Performance Period
For the 2018-2020 performance cycle, the Committee established a RoNA target, subject to a TSR modifier (new peer group, see page 53). The RoNA target is higher than the actual results for the 2015-2017 cycle. However, the Committee recognized that the pending acquisition of Aetna could materially alter the results of RoNA. To align with the successtime of the transaction2016-2018 LTIP grant.
| | 3 | Mr. Rice joined the Company in 2018 and our commitmenttherefore did not receive an LTIP grant in 2016. | | 4 | Pursuant to investors, in the event the transaction closes during the first half of the performanceperiod, the metric will be: (i) achievement of a synergy target that is consistent with the estimates we have provided to investors, (ii) development of a robust pipeline of integrated offerings designed to deliver transformation value to clients and members, and (iii) the successful launch of such offerings by December 31, 2020. The final amount will be modified by TSR ranking against the new peer group. The Committee will continue to evaluate appropriate performance metrics for future periodshis Separation Agreement, Mr. Denton’s 2016-2018 LTIP grant was pro-rated based on forward looking business and strategy.PSUs
PSUs were introduced for the first time in 2018. PSUs are earned at the end of a three-year period based on the achievement of rigorous performance goals, which are established at the beginning ofservice provided during the performance period, and require a two-year hold period post vest.was paid in cash. See page 57.
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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 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 2018 Peer Group (as described below). The following graphs illustrate the results of the Committee’s assessment and illustrate the relationship between: 2018-2020 PSU Performance Period
For the 2018-2020 performance period, the Committee approved EBITDA as the performance measure for the PSUs. The target, threshold and maximum goals are aligned with theCompany’s long-term targets communicated to investors and at a level expected to generate strong profitability. The Committee set alternative EBITDA targets
| ● | our CEO’s realized compensation (base salary earned, incentives earned, value of RSUs that contemplate the acquisition of Aetna closingvested during the performance period. The goals forperiod, the combined company are consistent with the company’s public disclosures about the transaction.Stock Options
Options have a term of seven years and typically vest in four equal annual installments.
RSUs
RSU grants vest in two equal installments: 50% on the third anniversary of the grant date and 50% on the fifth anniversary of the grant date.As noted, the Committee will no longer award RSUs to our named executive officers as part of the LTI program.
Our LTI continues to incent actions that drive profitability and link to market outcomes, as well as reinforce the alignment between executives and stockholder interests and four strategic objectives:
● | Focus on the importance of returns to stockholders and alignment with changes in stock price;
| ● | Promote the achievement of long-term performance goals;
| ● | Encourage executive retention; and
| ● | Promote meaningful levels of Company stock ownership by executives.
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To determine the overall LTI plan opportunity, the Committee considers a variety of factors, including competitive market positioning against comparable executives of the companies in the Peer Group, potential economic value realized, timing of vesting, an executive’s individual performance during the immediately preceding year, potential future contributions, prior year award value, and retention considerations. Along with a review of Peer Group long-term incentive award practices, the Committee considers the retentive value of the unvested equity awards held by each executive officer to determine whether additional awards to secure continued employment with the Company are warranted. For named executive officers other than the CEO, the Committee also considers the CEO’s recommendations.
Equity grants are made on a predetermined date consistent with the Committee’s equity grant practices. For 2017, the grant date was April 3, the first business day of the second quarter.
2017 Stock Option and RSU Grant Decisions
The following table sets out the aggregate value of stock options exercised during the period, and changes in the value of unvested RSUs granted on April 3, 2017.
Executive Nameand unexercised options held during the period); and | | ● | | 2017 Aggregate
Equity Award Value | Larry J. Merlo | | $6,750,000 | David M. Denton | | $2,000,000 | Helena B. Foulkes1 | | – | Jonathan C. Roberts | | $4,000,000 | Thomas M. Moriarty | | $2,500,000 |
1 | Ms. Foulkes was granted an award with an aggregate value of $3,000,000 and forfeited that award due to her resignation.
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Linking Pay to Performance
For 2017, as in previous years, the Committee reviewed an historical assessment of the relationship between CVS Health’s performance as measured by TSR – over one-year (2017), three-year (2015 – 2017) and five-year (2013 – 2017) periods (the most recent periods for which financial and compensation data were available at the time).
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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 identify companies where pay was higher than anticipated. | 1-Year CEO Compensation Realized Percentile vs. Total Shareholder Return Percentile (2017) |
 In the graph above, CVS Health rests well within the area that indicates an ideal pay-performance relationship based on the CEO’s 2017 pay and Company performance relative to the 2018 peer group. | 52 | | 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion | 3-Year CEO Compensation Realized Percentile vs. Total Shareholder Return Percentile (2015-17) |
 The graph above illustrates the relationship between CEO pay rank and the relative return to stockholders for CVS Health and the 2018 peer group over the 3-year period 2015 to 2017. Our CEO’s realized compensation during this period was within the range that characterizes ideal pay-for-performance alignment. | 5-Year CEO Compensation Realized Percentile vs. Total Shareholder Return Percentile (2013-17) |
 The graph above illustrates the relationship between CEO pay rank and the relative return to stockholders for CVS Health and the 2018 peer group over the five-year period 2013 to 2017. Five-year compensation realized by CVS Health’s CEO rests outside of the range that characterizes ideal pay-for-performance given the pay-for-performance relationships exhibited elsewhere across the peer group. Strong Company performance over the 2013-17 measurement period resulted in above-target payouts under our LTIP for the 2012-2014, 2013-2015 and 2014-2016 performance cycles. Industry-wide pressures on reimbursement, drug pricing and headwinds created by restricted pharmacy networks adopted by payors beginning in 2016 negatively impacted performance and contributed to below-target results under our LTIP for the 2015-2017 performance cycle. TSR was also impacted by the same factors, further reducing the payout for that cycle. The value of our CEO’s compensation is significantly influenced by the value of our stock, since approximately 75% of target total compensation is provided through stock-based pay. As a result, our CEO, like our stockholders, has been affected by the decrease in our stock price and only ultimately achieves the full target grant value of his equity compensation by creating long-term stockholder value. The Committee believes this historical view validates that our executive compensation programs work as intended and link pay and performance while demonstrating the Committee’s commitment to maintaining design and administration practices that ensure alignment with stockholder interests. The Committee reviews this analysis annually after current data becomes available. | cvshealthannualmeeting.com | 53 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion EXECUTIVE COMPENSATION PLANNING AND REVIEW PROCESS The Committee follows the framework below to review, discuss and approve all aspects of our executive compensation program. |  | OCTOBER |  The annual cycle of reviewing and developing the Company’s executive compensation program and pay relativelevels is a multi-step process that incorporates input from stockholders, management, peer group information, consideration of say-on-pay results, and both short- and long-term Company results compared to our 2017 Peer Group (as described below). The following graphs illustrate the results ofobjectives, as well as consultation with the Committee’s independent compensation consultant.Throughout the annual compensation cycle, Committee decisions incorporate and reflect our deep commitment to the Company’s five core assessmentvalues:Innovation, Collaboration, Caring, Integrity, and illustrate the relationship between:● | our CEO’s realized compensation (base salary earned, incentives earned, value of RSUs that vest during the period, the value of stock options exercised during the period, and changes in the value of unvested RSUs and unexercised options held during the period); and
Accountability. | ● | CVS Health’s performance as measured by total shareholder return (TSR) – over one-year (2016), three-year (2014 – 2016) and five-year (2012 – 2016) periods (the most recent periods for which financial and compensation data were available at the time).
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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.
1-Year CEO Compensation Realized Percentile vs. Total Shareholder Return Percentile (2016) |
In the graph above, | | MP&D Committee Meeting | | | ● | Annual risk assessment of compensation realized by CVS Health’s CEO in 2016 ranked at the 11thpercentile, our TSR ranked at the 17thpercentile, indicating that our CEO’s realizedprograms | | | ● | Peer group reviewed and established for executive compensation was within the range that characterizes an ideal pay-for-performance alignment.3-Year CEO Compensation Realized Percentile vs. Total Shareholder Return Percentile (2014-16)benchmarking |
| | | | | ● | Pay-for-performance alignment for prior year reviewed | | | | NOVEMBER | | |
The graph above illustrates the relationship between CEO pay rank and the relative return to stockholders
| | | MP&D Committee Meeting | | | ● | Total compensation market data for CVS Health and the 2017 Peer Group over the 3-year period 2014 to 2016. Relativeour executives reviewed | | | ● | Review compensation rests outside of the range that characterizes ideal pay-for-performance alignment. Strong company performancepolicies | | | | ● | In 2018, we updated our Stock Ownership Guidelines and our disciplined approach to capital allocation over the performance years included in the 2014-2016 measurement period resulted in above target payouts under our LTIP while TSR was impacted in 2016 by a decline in our stock price that was the result of industry-wide pressures on reimbursement, drug pricing and headwinds created by restricted networks adopted by payors in 2016.5-Year CEO Compensation Realized Percentile vs. Total Shareholder Return Percentile (2012-16) |
| | Recoupment Policy | | | | JANUARY | | |
The graph above illustrates the relationship between CEO pay rank and the relative return to shareholders for CVS Health and the 2017 peer group over the five-year period 2012 to 2016. Relative compensation rests within the range that characterizes ideal pay-for-performance alignment.
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Report of the Compensation Committee: | Detailed Program Discussion |
| | | | | | | | The Committee believes this historical view validates that our executive compensation programs work as intended and link pay and performance. The Committee reviews this analysis annually after current data becomes available. | |
These assessments demonstrate the Committee’s commitment to maintaining practices that ensure
| | | ● | Review stockholder comments received on our executive compensation aligns withprogram | | | ● | Preliminary financial results inreviewed | | | ● | Preliminary incentive award payouts for the completed fiscal year reviewed | | | CEO Performance Review | | | ● | The CEO presents a manner that benefits our investors.Pay Positioning
CVS Health positions its aggregate target total direct compensation (base salary plus annual and long-term incentives) for its executive officers at competitive pay levels using the median of our peer group for reference. Positioning varies by job and the Committee considers a number of factors including market competitiveness and 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 compensationabove 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.
2017 Peer Group
The Committee assesses financial performance and compensation competitiveness against a group of peer companies that it selects based on input from its independent consultant. The 2017 peer group consisted of the following companies from across general industry that are similar to CVS Health in terms of industry affiliation, labor market, and operating and character image. The Committee reviews the peer group annually and periodically makes changes. No changes were made to the peer group for 2017.
CVS Health 2017 Compensation Peer Group | | CVS Health vs. Peer Group
| ●AmerisourceBergen Corporation
●The Boeing Company
●Comcast Corporation
●Costco Wholesale Corporation
●Express Scripts Holding Company
●The Home Depot, Inc.
●Johnson & Johnson
●The Kroger Co.
●McKesson Corporation
●Merck & Co., Inc.
●PepsiCo, Inc.
●Pfizer Inc.
●The Procter & Gamble Company
●Target Corporation
●UnitedHealth Group Incorporated
●Walgreens Boots Alliance, Inc.
●Wal-Mart Stores, Inc.
●The Walt Disney Company
| | 
* Revenue reported for four most recent quarters as of February 28, 2018
**Market capitalization as of December 31, 2017
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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%self-assessment of his or her total eligible compensation, defined as salary plus annual incentive, to a maximum defined by the IRS; in 2017, that maximum was $18,000 plus an additional $6,000 for those age 50performance against his Board-approved strategic, operational and above. After the first full year of employment, CVS Health will match the employee’s deferral dollar-for-dollar up to a maximum equaling 5% of total eligible compensation. CVS Health’s matching cash contributions into the CVS Health Future Fund for the named executive officers who participated are a component of the All Other Compensation Table on page 55.
We offer other benefits that are available to eligible employees, including executive officers, as follows.
Deferred Compensation 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. financial goals
| | | ● | The plans are intended to provide retirement savings in a tax-efficient manner and to enhance stock ownership. The DCP offers a variety of investment crediting choices, none of which represents an above-market return. The individual contributions of each of the named executive officers during fiscal 2017 to the DCP and the DSP, including earnings on those contributions, any distributions during 2017 and total account balances as of the end of 2017, are shown in the Nonqualified Deferred Compensation Table on page 60.Perquisites and Other Personal Benefits
We provide the following personal benefits to our named executive officers:
● | Financial planning: An allowance to cover the cost of a Company-provided financial planner to assist with personal financial and estate planning. We believe it is important to provide to our executives the professional expertise required to ensure that they maximize the efficiencies of our compensation and benefit programs and are able to devote their full attention to the management of the Company.
| ● | Limited personal use of corporate aircraft: We maintain corporate aircraft that may be used by our employees to conduct Company business. Pursuant to an executive security program established by the Board upon the Committee’s recommendation, the CEO is required to use our aircraft for all travel needs, including personal travel, in order to minimize and more efficiently use his travel time, protect the confidentiality of his travel and our business, and enhance his personal security. Certain other named executive officers were also permitted to use our corporate aircraft for personal travel on a very limited basis during fiscal 2017. The amounts are included in “All Other Compensation” and described in the notes following the Summary Compensation Table.
| ● | Home security: An allowance to the named executive officers to cover the costs of the installation and maintenance of home security monitoring systems. While the Committee believes these security costs are business expenses, disclosure of these costs as personal benefits is required.
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The value of all of these items is treated as income taxable to the executives. The aggregate incremental cost to the Company of providing these personal benefits to each of the named executive officers during fiscal 2017 is shown in the Summary Compensation Table on page 54.
Agreements with Executive Officers
As previously disclosed, we have an employment agreement (Employment Agreement) with Mr. Merlo and change in control agreements (CIC Agreements, and together with the Employment Agreement, the Agreements) with Messrs. Denton, Roberts and Moriarty. Ms. Foulkes left the Company in February 2018.
The Committee believes that the interests of stockholders are best served by ensuring that the interests of our senior management are aligned with our stockholders. The change-in-control provisions of the Agreements are intended to eliminate, or at least reduce, the reluctance of senior management to pursue potential change-in-control transactions that may be in stockholders’ best interests. The Agreements serve to eliminate distraction caused by uncertainty about personal financial circumstances during a period in which CVS Health requires focused and thoughtful leadership to ensure a successful outcome. Accordingly, the Agreements provide certain specified “double trigger” severance benefits to the covered executives in the event of their termination under certain circumstances following a change in control. The Committee believes a “double trigger” severance benefit provision is more appropriate, as it provides an incentive for greater continuity in management following a change in control. “Double trigger” benefits require that two events occur in order for severance to be paid, typically a change in control followed by the executive’s involuntary termination of employment. The 2010 and 2017 Incentive Compensation Plans that govern the terms of outstanding equity awards require a “double trigger” for vesting of equity change in control benefits.
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Report of the Compensation Committee: | Detailed Program Discussion |
The Committee reviews the severance benefits annually with the assistance of its compensation consultant to evaluate both their effectiveness and competitiveness. The review for fiscal 2017 found the current level of benefits to be within competitive norms for design. Details of payments made to the executives upon a change in control and various termination scenarios; provisions for the treatment of equity awards, SERP and other benefits; and estimated payments that would be made to the executives whose employment terminates following a change in control may be found in Payments/(Forfeitures) Under Termination Scenarios beginning on page 60.
Supplemental Executive Retirement Plan
We maintain an unfunded supplemental retirement plan (SERP), which is designed to supplement the retirement benefits of selected executive officers. The SERP is a legacy plan in which participation has decreased over the years as individuals have retired, and we have not provided SERP benefits to new participants since 2010. Mr. Merlo is the only active executive officer in the SERP. Mr. Merlo has reached the maximum amount of service under the SERP based on his more than 30 years with the Company. As a result, any increase to his benefits would be primarily as a result of performance-based bonuses. See the Pension Benefits Table on page 59 for more information.
Key Policies Related to Compensation
Recoupment
Effective with performance cycles beginning in 2009, we have maintained a recoupment policy that applies to all annual and long-term incentive awards granted to executive officers. The policy applies in cases where financial or operational results used to determine an award amount are meaningfully altered based on fraud or material financial misconduct (collectively, Misconduct), as determined by the Board, and applies to any executive officer determined to have been involved in the Misconduct.
The policy applies to Misconduct committed during the performance period that is discovered during the performance period or the three-year period following the performance period. The policy allows us to recoup the entire award, not only excess amounts generated by the Misconduct, subject to the determinationChair of the Board and the policy may apply even where thereCommittee Chair meet with the independent directors privately to consider the CEO’s performance
| | | ● | Committee members consult with the independent compensation consultant and consider the independent directors’ assessments in reviewing the CEO’s total compensation and determining his annual incentive compensation award and equity compensation grants | | | FEBRUARY-MARCH | | | | MP&D Committee Meeting
Other NEOs Final Pay Decisions | | | ● | For NEOs other than the CEO, final decisions on actual incentive awards for the prior year are made in February after review of the CEO’s assessment of individual executive contribution and performance;as described above, the CEO’s performance is noreviewed separately | | | Target Setting | | | ● | The Committee establishes financial restatement.targets and approves any base salary changes and individual target incentive award levels for the current performance year |
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Table of Contents 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. 2018 Compensation Peer Group The Committee assesses financial performance and compensation competitiveness against a group of peer companies that it selects based on input from its independent compensation consultant. The 2018 peer group consisted of the following companies from across general industries that are similar to CVS Health in terms of industry affiliation, labor market, and operations and character image. The Committee reviews the peer group annually and periodically makes changes. No changes were made to the peer group for 2018. | CVS Health 2018 Compensation Peer Group |
| ● | AmerisourceBergen Corporation | | ● | The Boeing Company | | ● | Comcast Corporation | | ● | Costco Wholesale Corporation | | ● | Express Scripts Holding Company | | ● | The Home Depot, Inc. | | ● | Johnson & Johnson | | ● | The Kroger Co. | | ● | McKesson Corporation | | ● | Merck & Co., Inc. | | ● | PepsiCo, Inc. | | ● | Pfizer Inc. | | ● | The Procter & Gamble Company | | ● | Target Corporation | | ● | UnitedHealth Group Incorporated | | ● | Walgreens Boots Alliance, Inc. | | ● | Walmart Inc. | | ● | The Walt Disney Company |
| CVS Health vs. 2018 Peer Group |
 | * | Revenue reported for four most recent quarters as of February 28, 2019 | | ** | Market capitalization as of December 31, 2018 |
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. | ● | General Industry Group - 30 largest U.S. companies, irrespective of industry, but excluding banks. The companies in this group have revenues from $63 billion to $500 billion, and median revenue of $120 billion. | | ● | Health Care and Retail Group - 20 companies with operations comparable to CVS Health’s, Anti-Gross-Up Policy13 of which are health care organizations and 7 of which are retailers. The median revenue for companies in this group is $100 billion. |
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Table of Contents Compensation Discussion and Analysis Detailed Program Discussion OTHER COMPENSATION ARRANGEMENTS AND BENEFITS The Company maintains medical and dental benefits, life insurance and short- and long-term disability insurance programs for all of its employees. Executive officers are eligible to participate in these programs on the same basis and with the same level of financial subsidy as our other salaried employees. Executive officers may participate in the CVS Future Fund, which is our qualified defined contribution, or 401(k), plan. An eligible CVS Health employee may defer up to 85% of his or her total eligible compensation, defined as salary plus annual cash incentive, to a maximum defined by the IRS. In 2018, that maximum was $18,500, plus an additional $6,000 for those age 50 and above. After the first full year of employment, CVS Health will match the employee’s deferral dollar-for-dollar up to a maximum equaling 5% of total eligible compensation. CVS Health’s matching cash contributions into the CVS Health Future Fund for the NEOs who participated are included in “All Other Compensation” and described in the notes following the Summary Compensation Table beginning on page 64. We offer other benefits that are available to eligible employees, including executive officers, as follows. Deferred Compensation Plan and Deferred Stock Plan Eligible executive officers may choose to defer earned and vested compensation into the Deferred Compensation Plan (DCP) and the Deferred Stock Compensation Plan (DSP), which are available to any U.S. employees meeting the Plans’ eligibility criteria. The plans are intended to provide retirement savings in a tax-efficient manner and to enhance stock ownership. The DCP offers a variety of investment crediting choices, none of which represents an above-market return. The individual contributions of each of the NEOs during fiscal 2018 to the DCP and the DSP, including earnings on those contributions, any distributions during 2018 and their respective total account balances as of the end of 2018, are shown in the Nonqualified Deferred Compensation Table on page 71. Perquisites and Other Personal Benefits We provide the following personal benefits to our NEOs: CVS Health maintains
| ● | Financial planning: An allowance of $15,000 to cover the cost of a broad policy against tax gross-ups. The only current exceptionCompany-provided financial planner to assist with personal financial and estate planning. We believe it is important to provide to our anti-gross-up policy is for tax paymentsexecutives the professional expertise required to ensure that they maximize the efficiencies of our compensation and benefit programs and are able to devote their full attention to the management of the Company. | | ● | Limited personal use of corporate aircraft: We maintain corporate aircraft that may be due underused by our broad-based relocation policy, whichemployees to conduct Company business. Pursuant to an executive security program established by the Board upon the Committee’s recommendation, the CEO is applicablerequired to use our aircraft for all travel needs, including personal travel, in order to minimize and more efficiently use his travel time, protect the confidentiality of his travel and our business, and enhance his personal security. Certain other NEOs were also permitted to use our corporate aircraft for personal travel on a large numbervery limited basis during fiscal 2018. The cost of such personal use is included in “All Other Compensation” and described in the notes following the Summary Compensation Table. | | ● | Home security: An allowance to the NEOs to cover the costs of the installation and maintenance of home security monitoring systems. While the Committee believes these security costs are business expenses, disclosure of these costs as personal benefits is required. |
The value of all of these items is treated as income taxable to the NEOs. The aggregate incremental cost to the Company of providing these personal benefits to each of the NEOs during fiscal 2018 is shown in the Summary Compensation Table beginning on page 63. Partnership Equity Program In addition to the core long-term incentive compensation plans described above (collectively, the ICPs), since 1997 the Company has maintained the Partnership Equity Program (the PEP). The PEP is designed to ensure that those executives with significant impact on the future success of CVS Health have a substantial “at-risk” personal equity investment in CVS Health common stock and is generally provided to selected newly-hired or newly-promoted senior executives in critical positions who can drive the strategic objectives of the Company. The Committee believes that the PEP strongly links the economic interests of | 56 | | 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion senior executives with CVS Health stockholders, provides future long-term compensation opportunities that are competitive in the external marketplace and reflect internal responsibility levels, and assures key management stability, retention, motivation and long-term focus on corporate strategy. To invest in the PEP, an executive chooses to purchase a number of “Employee-Purchased RSUs,” which are matched by CVS Health on a one-for-one basis (Company-Matching RSUs) and vest on the fifth anniversary of the purchase date. In addition, the executive receives an option to purchase shares of CVS Health common stock equal to ten times the number of Company-Matching RSUs. The stock option grant vests ratably on each of the third, fourth and fifth anniversaries of the grant date. The vesting for each of the stock option grant and the Company-Matching RSU award is contingent upon the executive retaining the Employee-Purchased RSUs until all of the stock options and Company-Matching RSUs are vested and upon the continued employment of the executive through the vesting period. 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 Plan-Based Awards Table on page 66. Agreements with Named Executive Officers
As previously disclosed, we have an employment agreement (Employment Agreement) with Mr. Merlo and change in control agreements (CIC Agreements, and together with the Employment Agreement, the Agreements) with Messrs. Rice, Roberts and Moriarty, and Ms. Boratto. Mr. Denton had a CIC Agreement, but left the Company in November 2018. In addition, CVS Health entered into a Separation Agreement with Mr. Denton on June 25, 2018 in connection with his termination of employment with the Company. Under the Separation Agreement, during the twenty-four month period immediately following his November 2018 separation date (the Severance Period), Mr. Denton will continue to (i) receive his base salary (as in effect immediately prior to the separation date) and (ii) subject to a valid COBRA election, participate in the Company’s medical and other health benefit plans and programs that he participated in immediately prior to the separation date at Company-subsidized rates, subject to the terms and conditions of each such plan or program. During the Severance Period, Mr. Denton is entitled to: (i) a reimbursement of up to $15,000 per year for tax preparation and financial planning services during 2018 and 2019 (reduced by amounts previously reimbursed for 2018), and (ii) a one-time payment of $15,000 of attorneys’ fees in connection with the negotiation of his Separation Agreement. The last paragraph under “Payments/(Forfeitures) Under Termination Scenarios” reflects the provisions of Mr. Denton’s Separation Agreement with respect to his annual bonus, previously-granted CVS Health stock options, RSUs, PSUs and LTIP awards. The Separation Agreement also contains a release of claims against the Company and customary confidentiality and cooperation covenants and incorporates by reference any other covenants to which Mr. Denton already is subject, including his Restrictive Covenant Agreement. In accordance with his Offer Letter dated January 17, 2018, Mr. Rice’s base salary is $1,050,000, and his annual cash incentive target is 150% of his annual base salary. In addition, Mr. Rice’s annual equity grant target opportunity for 2018 was established at $2,000,000 and his 2018-2020 LTIP PSU target opportunity was set at $2,125,000. Further, Mr. Rice received a $700,000 sign-on bonus, paid $200,000 in March 2018, $250,000 within the first 60 days of employment, and $250,000 within 60 days of the first anniversary of his hire date. In addition, Mr. Rice received a sign-on RSU grant valued at $1,500,000 and was credited with an initial pre-tax amount of $500,000 to be invested in the PEP (described above), which is reflected as a bonus in the Summary Compensation Table. Mr. Rice also received standard relocation benefits under the Company’s broad-based relocation program that included tax assistance. If Mr. Rice voluntarily terminates his employment and is not receiving severance, or if his employment is terminated by the Company for Cause (as defined in his Offer Letter), prior to the two-year anniversary of his hire date, Mr. Rice must repay $500,000 of the sign-on bonus promptly upon termination of his employment. The Committee believes that the interests of stockholders are best served by ensuring that the interests of our senior management are aligned with our stockholders. The CIC Agreements with NEOs (other than Mr. Merlo) are intended to eliminate, or at least reduce, the reluctance of senior management to pursue potential change-in-control transactions that may be in stockholders’ best interests. The Agreements serve to eliminate distraction caused by uncertainty about personal financial circumstances during a period in which CVS Health requires focused and thoughtful leadership to ensure a successful outcome. Accordingly, the Agreements provide certain specified “double trigger” severance benefits to the covered executives in the event of their termination under certain circumstances following a change in control. The Committee believes a “double trigger” severance benefit provision is more appropriate, as it provides an incentive for greater continuity in management following a change in control. “Double trigger” benefits require that two events occur in order for severance to be paid, typically a change in control of the Company followed by the executive’s involuntary termination of employment. The 2010 and 2017 Incentive Compensation Plans that govern the terms of outstanding equity awards to all NEOs also require a “double trigger” for vesting of equity change in control benefits. | cvshealthannualmeeting.com | 57 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion The Committee reviews the Company’s severance benefits annually with the assistance of its independent compensation consultant to evaluate both their effectiveness and competitiveness. The review for fiscal 2018 found the current level of benefits to be within competitive norms for design. Details of hypothetical payments that would have been made to the NEOs upon a change in control on December 31, 2018 and under various termination scenarios; provisions for the treatment of equity awards, supplemental executive retirement plan and other benefits; and estimated payments that would be made to the executives whose employment terminates following a change in control may be found in “Payments/(Forfeitures) Under Termination Scenarios” beginning on page 72. Supplemental Executive Retirement Plan
We maintain an unfunded supplemental executive retirement plan (SERP), which is designed to supplement the retirement benefits of selected executive officers. The SERP is a legacy plan in which participation has decreased over the years as individuals have retired. We have not provided SERP benefits to new participants since 2010. Mr. Merlo is the only active executive officer in the SERP. Mr. Merlo has reached the maximum amount of service under the SERP based on his more than 30 years with the Company. As a result, any increase to his benefits would be primarily as a result of performance-based bonuses. See the Pension Benefits Table on page 70 for more information. KEY POLICIES RELATED TO COMPENSATION Recoupment Since 2009, we have maintained a recoupment policy that applies to all annual and long-term incentive awards granted to executive officers. The policy applies in cases where financial or operational results used to determine an award amount are meaningfully altered based on fraud or material financial misconduct (collectively, Misconduct), as determined by the Board, and applies to any executive officer determined to have been involved in the Misconduct. The policy applies to Misconduct committed during the performance period that is discovered during the performance period or the three-year period following the performance period. The policy allows us to recoup the entire award, not only excess amounts generated by the Misconduct, subject to the determination of the Board, and the policy may apply even where there is no financial restatement. In addition, in March 2019 the Board approved an amendment to the Recoupment Policy to increase transparency of the policy. The amendment requires CVS Health to publicly disclose the circumstances of any recoupment from any “executive officer” under the Recoupment Policy to the extent the underlying event already has been publicly disclosed in CVS Health’s filings with the SEC and the disclosure would not violate applicable law, violate legal privilege, breach contractual obligations or be likely to result in, or exacerbate any existing or threatened, employee, stockholder or other litigation, arbitration, investigation or proceeding against the Company. Anti-Gross-Up Policy CVS Health maintains a broad policy against tax gross-ups. The only current exception to our anti-gross-up policy is for tax payments that may be due under our broad-based relocation policy, which is applicable to a large number of employees (i.e., those who must relocate upon hire, transfer or promotion). Insider Trading Policy, Including Anti-Pledging and Hedging A significant percentage of executive compensation has been and continues to be payable in CVS Health common stock. The Board and executive management of CVS Health take seriously their responsibilities and obligations to exhibit the highest standards of behavior relative to trading our stock. All transactions in our stock by any director, executive officer or designated employee who has a significant role in, or access to, our financial reporting process (collectively, lnsiders), must be pre-cleared by either the General Counsel, the Corporate Secretary, or their designee. Insiders are generally prohibited from trading in any of our securities except during periods of varying length beginning shortly after the release of our financial results for each quarter, | 58 | | 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion Insider Trading Policy, Including Anti-Pledging and Hedging
A significant percentage of executive compensation has been 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 selling and trading our stock. All transactions in our stock contemplated by any director, executive officer or designated employee who has a significant role in, or access to, our financial reporting process (collectively, lnsiders), must be pre-cleared by either the General Counsel or the Corporate Secretary. Insiders are generally prohibited from trading in any of our securities except during periods of varying length beginning shortly after the release of our financial results for each quarter, and Insiders and other employees may be required to refrain from trading during other designated periods when significant developments or announcements are anticipated. In addition, it is our policy that Insiders and other employees may not engage in any of the following activities with respect to our securities:
| ● | Trading in our securities on a short-term basis (stock purchased in the open market must be held for at least six months); | | ● | Purchasing stock on margin or pledging our stock or any stock incentive award as collateral for a loan or margin account; | | ● | Engaging in short sales of our stock; | | ● | Buying or selling puts, calls, exchange traded options or other derivative securities based on our stock; or | | ● | Engaging in any other hedging transactions with respect to our securities:● | Trading in our securities on a short-term basis (stock purchased in the open market must be held for at least six months);
stock, which includes transactions designed to offset any decrease in the market value of equity securities. | ● | Purchasing stock on margin or pledging our stock or any stock incentive award as collateral for a loan or margin account;
| ● | Engaging in short sales or purchases of our stock;
| ● | Buying or selling puts, calls, exchange traded options or other derivative securities; or
| ● | Engaging in any other hedging transactions, which includes transactions designed to offset any decrease in the market value of equity securities.
|
Our most senior executives and Board members are generally required to transact in our stock pursuant to 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 as a factor, the Committee believes it is important to structure the Company’s executive compensation program and practices in a manner that the Committee determines is in the best interests of CVS Health and its stockholders. This includes the establishment of objective performance criteria at the beginning of a performance cycle, before results are known, and the certification of financial results by an independent Committee of the Board. The Committee retains discretion to operate the Company’s executive compensation programs in a manner designed to promote varying Company goals. As a result, the Committee may from time to time conclude that certain compensation arrangements are in the best interests of CVS Health and its stockholders and consistent with its compensation philosophy and strategy, despite the fact that the arrangements might not qualify for tax deductibility. | cvshealthannualmeeting.com | | 51 |
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Table of Contents Report of the Compensation Committee: | Detailed Program Discussion |
Compliance with Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code (IRC 162(m)), as amended by the recently enacted Tax Cuts and Jobs Act of 2017 (the 2017 Act), generally disallows a deduction for federal tax purposes to any publicly traded corporation for any remuneration in excess of $1 million paid in any taxable year to its chief executive officer, chief financial officer and the three other most highly compensated executive officers at year end. Prior to the amendment, qualifying “performance-based compensation” was not subject to the deduction limitation if specified requirements were met. Under the 2017 Act, the performance-based exception has been repealed with respect to federal income taxes. The new rules generally apply to taxable years beginning after December 31, 2017, but do not apply to compensation provided pursuant to a written binding contract in effect on November 2, 2017 that is not modified in any material respect after that date.
The Committee has historically designed certain portions of our named executive officers’ compensation in order to qualify such compensation as performance-based compensation under IRC 162(m). While the Committee considers the deductibility of executive compensation under IRC 162(m), the Committee believes it is important to retain flexibility to structure the Company’s executive compensation program and practices in a manner that the Committee determines is in the best interests of CVS Health and its stockholders. The Committee retains discretion to operate the Company’s executive compensation programs in a manner designed to promote varying company goals. As a result, the Committee may from time to time conclude that certain compensation arrangements are in the best interests of CVS Health and its stockholders and consistent with its compensation philosophy and strategy, despite the fact that the arrangements might not qualify for tax deductibility. The Committee is continuing to assess the impact of IRC 162(m), as amended, on the Company’s executive compensation programs and practices.
Non-GAAP Financial Measures Used in Compensation Discussion and Analysis
Throughout this Compensation Discussion and Analysis, we refer to various financial measures. The majority of these financial measures are calculated in accordance with U.S. generally accepted accounting principles, or GAAP. However, there are somefinancial measures that management adjusts in order
Compensation Discussion and Analysis Detailed Program Discussion NON-GAAP FINANCIAL MEASURES USED IN COMPENSATION DISCUSSION AND ANALYSIS Throughout this CD&A, we refer to various financial measures. Many of these financial measures are calculated in accordance with U.S. generally accepted accounting principles, or GAAP. However, there are some financial measures that management adjusts and uses to assess our year-over-year performance. These adjusted financial measures are commonly referred to as non-GAAP. An explanation of how we calculate these non-GAAP financial measures is included below. Adjusted Income from Continuing OperationsMIP Adjusted Operating Profit 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 include activity related to newly acquired or divested businesses, goodwill and long-lived asset impairment charges, the impact of hurricanes, and adjustments to legal reserves in connection with certain legal settlements. RoNA or Return on Net Assets Adjusted Income from Continuing Operations Attributable to CVS Health is defined as follows:
● | Income before income tax provision
| ● | Plus (minus): Non-GAAP adjustments not part of the underlying business performance
| ● | Less: Adjusted income tax provision (using the adjusted effective tax rate, adjusted for the items above)
| ● | Plus (minus): Net loss (income) attributable to noncontrolling interest
| ● | Less: Earnings allocated to participating securities |
Adjusted Operating Profit (MIP) or MIP Adjusted Operating Profit
Adjusted Operating Profit (MIP) or MIP Adjusted Operating Profit is defined as earnings before interest and taxes adjusted for certain items. For the purposes of measuring performance against established targets in any period, when applicable those excluded items comprise certain legal settlements, store rationalization impairment charges, settlements of pension obligations, goodwill impairments, the impact of hurricanes, severance-related costs, and activity related to newly acquired or divested businesses.
Free Cash Flow
We define Free Cash Flow as net cash provided by operating activities less net additions to property and equipment (i.e., additions to property and equipment plus proceeds from sale-leaseback transactions).
RoNA or Return on Net Assets
RoNA, or Return on Net Assets, is calculated by dividing adjusted net operating profit after tax (Adjusted NOPAT) by the most recent two year’s Adjusted Average Net Assets. Adjusted NOPAT is operating profit after tax (Adjusted NOPAT) by the most recent two year’s Adjusted Average Net Assets. Adjusted NOPAT is Operating Profit adjusted for certain financial items described below. Adjusted Average Net Assets for the purposes of this calculation is defined as current assets plus net fixed assets less accounts payable and accrued expenses adjusted for certain financial items described below. For the purposes of measuring performance against established targets in any period, Adjusted NOPAT and Adjusted Average Net Assets exclude from operating profit and average net assets, respectively, after tax amounts related to newly acquired or divested businesses, goodwill and long-lived asset impairment charges, the impact of hurricanes, and adjustments to legal reserves in connection with certain legal settlements. The impact of tax reform is also reversed. Adjusted Average Net Assets are also adjusted for funding to our captive insurance entity related to a tax planning strategy associated with the tax reform. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) We define EBITDA as income before interest expense, income tax provision, depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for certain financial items including amounts related to newly acquired or divested businesses, adjustments to legal reserves in connection with certain legal settlements, restructuring and/or impairment charges, the impact of changes in accounting principles, Federal and/or state regulations, and other items of gain, loss or expense determined to be unusual or infrequent in occurrence.
| 60 | | 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion RELATIVE TSR PEER GROUP FOR 2018-2020 LTIP GRANTS | Abbott Laboratories | Danaher Corporation | Merck & Co., Inc. | | AbbVie Inc. | DaVita Inc. | Mettler-Toledo International Inc. | | Agilent Technologies, Inc. | DENTSPLY SIRONA Inc. | Mylan N.V. | | Alexion Pharmaceuticals, Inc. | Edwards Lifesciences Corporation | Patterson Companies, Inc. | | Align Technology, Inc. | Eli Lilly and Company | PerkinElmer, Inc. | | Allergan plc | Envision Healthcare Corporation | Perrigo Company plc | | AmerisourceBergen Corporation | Gilead Sciences, Inc. | Pfizer Inc. | | Amgen Inc. | HCA Healthcare, Inc. | Quest Diagnostics Incorporated | | Anthem, Inc. | Henry Schein, Inc. | Regeneron Pharmaceuticals, Inc. | | Baxter International Inc. | Hologic, Inc. | Stryker Corporation | | Becton, Dickinson and Company | Humana Inc. | The Cooper Companies, Inc. | | Biogen Inc. | IDEXX Laboratories, Inc. | Thermo Fisher Scientific Inc. | | Boston Scientific Corporation | Illumina, Inc. | UnitedHealth Group Incorporated | | Bristol-Myers Squibb Company | Incyte Corporation | Universal Health Services, Inc. | | Cardinal Health, Inc. | Intuitive Surgical, Inc. | Varian Medical Systems, Inc. | | Celgene Corporation | Johnson & Johnson | Vertex Pharmaceuticals Incorporated | | Centene Corporation | Laboratory Corporation of America Holdings | Waters Corporation | | Cerner Corporation | Mallinckrodt plc | Zimmer Biomet Holdings, Inc. | | Cigna Corporation | Medtronic Public Limited Company | |
| Altria Group, Inc. | Kellogg Company | The Estée Lauder Companies Inc. | | Archer-Daniels-Midland Company | Kimberly-Clark Corporation | The Hershey Company | | Brown-Forman Corporation | McCormick & Company, Incorporated | The J. M. Smucker Company | | Campbell Soup Company | Molson Coors Brewing Company | The Kraft Heinz Company | | Church & Dwight Co., Inc. | Mondelēz International, Inc. | The Kroger Co. | | Colgate-Palmolive Company | Monster Beverage Corporation | The Procter & Gamble Company | | Conagra Brands, Inc. | PepsiCo, Inc. | Tyson Foods, Inc. | | Constellation Brands, Inc. | Philip Morris International Inc. | Walmart Inc. | | Costco Wholesale Corporation | Reynolds American Inc. | Walgreens Boots Alliance, Inc. | | Coty Inc. | Sysco Corporation | | | General Mills, Inc. | The Clorox Company | | | Hormel Foods Corporation | The Coca-Cola Company | |
| cvshealthannualmeeting.com | 61 |
Table of Contents Compensation Discussion and Analysis Detailed Program Discussion 2019 COMPENSATION PEER GROUP | General Industry Comparator Companies |
| Walmart Inc. | Costco Wholesale Corporation | Phillips 66 | | Exxon Mobil Corporation | Chevron Corporation | Valero Energy Corporation | | Apple Inc. | Verizon Communications Inc. | Comcast Corporation | | McKesson Corporation | The Kroger Co. | International Business Machines Corporation | | UnitedHealth Group Incorporated | General Electric Company | Johnson & Johnson | | AT&T Inc. | Walgreens Boots Alliance, Inc. | Target Corporation | | Ford Motor Company | Microsoft Corporation | Lowe’s Companies, Inc. | | AmerisourceBergen Corporation | The Home Depot, Inc. | United Parcel Service, Inc. | | General Motors Company | The Boeing Company | PepsiCo, Inc. | | Cardinal Health, Inc. | Anthem, Inc. | |
| Health Care and Retail Comparator Companies |
| Walmart Inc. | Walgreens Boots Alliance, Inc. | Centene Corporation | | McKesson Corporation | The Home Depot, Inc. | HCA Healthcare, Inc. | | UnitedHealth Group Incorporated | Anthem, Inc. | Cigna Corporation | | AmerisourceBergen Corporation | Target Corporation | Aflac Incorporated | | Cardinal Health, Inc. | Lowe’s Companies, Inc. | Centene Corporation | | Costco Wholesale Corporation | MetLife, Inc. | | | The Kroger Co. | Humana Inc. | |
| 62 | | 2019 Proxy Statement |
Table of Contents Compensation of Named Executive Officers | Important Information Regarding the Presentation of Executive Compensation |
As discussed in detail on pages 40-41, we changed our approach to the denomination of our LTIP awards, which resulted in an overlap in disclosure of both awards granted and earned during a fiscal year. During the transition period, which will continue through the payment of the 2017-2019 performance cycle, there will be timing issues that occur as awards for multiple years will appear in the SCT. The following table shows the Committee’s compensation determinations for our CEO when removing the double reporting. | CEO Annual Compensation Determinations | | Salary
($) | Annual
Cash
Incentive
Award1
($) | RSU
($) | EBITDA
PSU
Grant
Value
($) | Stock
Option
Grant Value
($) | LTIP Grant
Value2
($) | All Other
Compensation
($) | Total
Compensation1
($) | | 2018 | 1,630,000 | 2,605,000 | 0 | 3,374,955 | 3,374,995 | 6,749,992 | 667,156 | 18,402,098 | | 2017 | 1,630,000 | 2,128,800 | 3,374,960 | 0 | 3,374,998 | 6,750,000 | 754,106 | 18,012,859 | | 2016 | 1,630,000 | 2,382,000 | 3,991,931 | 0 | 3,999,990 | 6,750,000 | 847,456 | 19,601,377 |
| 1 | Excludes payout of LTIP awards granted for the purposes of this calculation is defined as current assets plus net fixed assets less accounts payablefollowing three-year performance periods: 2014-2016, 2015-2017, and accrued expenses adjusted for certain financial items described below. For2016-2018. Such payouts were reported in the purposes of measuring performance against established targets in any period, Adjusted NOPAT and Adjusted Average Net Assets exclude from operating profit and average net assets, respectively, after tax amounts related to newly acquired or divested businesses, adjustments to legal reserves in connection with certain legal settlements, store rationalization impairment charges, settlements of pension obligations, goodwill impairments, the impact of hurricanes, and severance-related costs. The impact of tax reform is also reversed. Adjusted Average Net Assets also excludes cash associated with the pre-funding for the 2017 accelerated share repurchase agreement, as well as the financial impact“Non-Equity Incentive Plan Compensation” column of the changeSCT for each of the respective years. | | 2 | Includes the LTIP award granted in accounting principle associatedeach respective year at target performance. For 2016 and 2017, the awards were cash-denominated with settlement in shares following the classification of deferred tax assets.
52 | | 2018 Proxy Statementthree-year performance period. For 2018, the award was granted as LTIP PSUs. |
| Table of ContentsReport of the Compensation Committee: | Detailed Program Discussion |
Relative TSR Peer Group for 2018 LTIP
S&P 500 Health Care | | Abbott Laboratories | | CVS Health Corporation | | Medtronic plc | AbbVie Inc. | | Danaher Corporation | | Merck & Co., Inc. | Aetna Inc. | | DaVita Inc. | | Mettler-Toledo International Inc. | Agilent Technologies, Inc. | | Dentsply Sirona Inc. | | Mylan N.V. | Alexion Pharmaceuticals, Inc. | | Edwards Lifesciences Corporation | | Patterson Companies, Inc. | Align Technology, Inc. | | Eli Lilly and Company | | PerkinElmer, Inc. | Allergan plc | | Envision Healthcare Corporation | | Perrigo Company plc | AmerisourceBergen Corporation | | Express Scripts Holding Company | | Pfizer Inc. | Amgen Inc. | | Gilead Sciences, Inc. | | Quest Diagnostics Incorporated | Anthem, Inc. | | HCA Healthcare, Inc. | | Regeneron Pharmaceuticals, Inc. | Baxter International Inc. | | Henry Schein, Inc. | | Stryker Corporation | Becton, Dickinson and Company | | Hologic, Inc. | | The Cooper Companies, Inc. | Biogen Inc. | | Humana Inc. | | Thermo Fisher Scientific Inc. | Boston Scientific Corporation | | IDEXX Laboratories, Inc. | | UnitedHealth Group Incorporated | Bristol-Myers Squibb Company | | Illumina, Inc. | | Universal Health Services, Inc. | Cardinal Health, Inc. | | Incyte Corporation | | Varian Medical Systems, Inc. | Celgene Corporation | | Intuitive Surgical, Inc. | | Vertex Pharmaceuticals Incorporated | Centene Corporation | | Johnson & Johnson | | Waters Corporation | Cerner Corporation | | Laboratory Corporation of America Holdings | | Zimmer Biomet Holdings, Inc. | Cigna Corporation | | Mallinckrodt Public Limited Company | | Zoetis Inc. | | | McKesson Corporation | | |
| S&P 500 Consumer Staples | | Altria Group, Inc. | | General Mills, Inc. | | The Clorox Company | Archer-Daniels-Midland Company | | Hormel Foods Corporation | | The Coca-Cola Company | Brown-Forman Corporation | | Kellogg Company | | The Estée Lauder Companies Inc. | Campbell Soup Company | | Kimberly-Clark Corporation | | The Hershey Company | Church & Dwight Co., Inc. | | McCormick & Company, Incorporated | | The J. M. Smucker Company | Colgate-Palmolive Company | | Molson Coors Brewing Company | | The Kraft Heinz Company | Conagra Brands, Inc. | | Mondelez International, Inc. | | The Kroger Co. | Constellation Brands, Inc. | | Monster Beverage Corporation | | The Procter & Gamble Company | Costco Wholesale Corporation | | Pepsico, Inc. | | Tyson Foods, Inc. | Coty Inc. | | Philip Morris International Inc. | | Wal-Mart Stores, Inc. | CVS Health Corporation | | Reynolds American Inc. | | Walgreens Boots Alliance, Inc. | Dr. Pepper Snapple Group, Inc. | | Sysco Corporation | | Whole Foods Market, Inc. |
cvshealthannualmeeting.com | | 53 |
Table of Contents
Executive Compensation Tables
| Summary Compensation Table |
The following Summary Compensation Table shows information about the compensation received by our CEO, our CFOs and each of our three other most highly compensated executive officers for services rendered in all capacities during the 2018 fiscal year and the applicable comparable data for the 2017 and 2016 fiscal years. | Summary Compensation Table |
Name & Principal 2018
Positions1 | Year | Salary
($) | Bonus
($)2 | Stock
Awards
($)3 | Option
Awards
($)4 | | Non-Equity
Incentive Plan
Compensation
($)6 | Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)7 | All
Other
Compensation
($)8 | Total
($) | | Larry J. Merlo | 2018 | 1,630,000 | — | 10,124,947 | 3,374,995 | | 6,142,000 | — | 667,156 | 21,939,098 | | President and Chief | 2017 | 1,630,000 | — | 3,374,960 | 3,374,998 | | 3,118,800 | — | 754,106 | 12,252,864 | | Executive Officer | 2016 | 1,630,000 | — | 3,999,931 | 3,999,990 | | 7,882,000 | — | 847,456 | 18,359,377 | | Eva C. Boratto | 2018 | 630,303 | — | 4,799,831 | 299,997 | | 1,164,200 | — | 78,090 | 6,972,421 | | Executive Vice | 2017 | | | | | | | | | | | President and Chief | 2016 | | | | | | | | | | | Financial Officer | | | | | | | | | | | | Jonathan C. Roberts | 2018 | 1,162,500 | — | 9,624,917 | 2,124,994 | | 2,927,000 | — | 227,557 | 16,066,968 | | Executive Vice | 2017 | 1,033,333 | — | 1,999,953 | 1,999,994 | | 1,605,000 | — | 244,484 | 6,882,764 | | President and Chief | 2016 | 950,000 | — | 2,249,961 | 2,249,999 | | 2,907,000 | — | 274,147 | 8,631,107 | | Operating Officer | | | | | | | | | | | | Derica W. Rice | 2018 | 791,477 | 950,000 | 8,124,848 | 1,705,312 | 5 | 949,000 | — | 285,436 | 12,806,073 | | Executive Vice | 2017 | | | | | | | | | | | President and | 2016 | | | | | | | | | | | President – | | | | | | | | | | | | CVS Caremark | | | | | | | | | | |
| cvshealthannualmeeting.com | 63 |
Table of Contents Compensation of Named Executive Officers Summary Compensation Table Name & Principal 2018
Positions1 | | Year | | Salary
($) | | Bonus
($)2 | | Stock
Awards
($)3 | | Option
Awards
($)4 | | Non-Equity
Incentive Plan
Compensation
($)6 | | Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)7 | | All
Other
Compensation
($)8 | | Total
($) | | Thomas M. Moriarty | | 2018 | | 825,000 | | — | | 6,749,933 | | 1,249,993 | | 2,081,500 | | — | | 77,430 | | 10,983,856 | | Executive | | 2017 | | 750,000 | | — | | 1,249,971 | | 1,249,998 | | 1,160,000 | | — | | 102,585 | | 4,512,554 | Vice President,
Chief Policy and
External Affairs Officer
and General Counsel | | 2016 | | 750,000 | | — | | 999,983 | | 999,987 | | 2,026,000 | | — | | 174,770 | | 4,950,740 | | David M. Denton | | 2018 | | 781,818 | | — | | 2,999,935 | | 999,993 | | — | | — | | 782,805 | | 5,564,551 | | Former Executive Vice | | 2017 | | 850,000 | | — | | 999,977 | | 999,997 | | 1,193,000 | | — | | 334,979 | | 4,377,953 | President and Chief
Financial Officer | | 2016 | | 850,000 | | — | | 999,983 | | 999,987 | | 2,380,000 | | — | | 319,026 | | 5,548,996 | | | | | | | | | | | | | | | | | | | |
| 1 | Ms. Boratto was appointed Executive Vice President and Chief Financial Officer in November 2018; she was not a NEO in prior years. Mr. Rice began serving as Executive Vice President and President – CVS Caremark in March 2018 and was formally appointed to those positions in June 2018. Mr. Denton left the Company effective November 19, 2018. | | 2 | In connection with joining the Company Mr. Rice received cash sign-on bonus payments of $450,000 in 2018 and an additional $500,000 bonus which he used to purchase RSUs under the PEP. | | 3 | Included in this column is the full grant date fair value of all RSU and PSU awards made to each NEO in the applicable year. Also includes sign-on RSUs and RSUs granted under the Company’s PEP Program to Mr. Rice on May 31, 2018. Mr. Rice’s PEP RSUs will cliff vest on the fifth anniversary of the grant date. The grant date fair value of each grant is computed in accordance with FASB ASC Topic 718, excluding forfeiture estimates. The grant date fair values for PSUs granted in 2018 are based upon the probable outcome of the performance conditions associated with these PSUs as of the grant date, and specifically, the values of the LTIP PSUs and Additional LTIP PSUs are calculated using a Monte Carlo Model. For further discussion of the relevant assumptions and methodologies used to value the 2018 stock awards in this column, please see the discussion of stock awards contained in our 2018 Annual Report, Notes to Consolidated Financial Statements at Note 11, “Stock Incentive Plans”. Additional details regarding the grants of stock awards and option awards can be found in the Grants of Plan-Based Awards Table. Each PSU represents one share of our common stock and upon vesting will be paid in shares of our common stock, net of applicable withholding taxes, subject to a two-year holding period. As discussed on page 40, in response to stockholder feedback, beginning with the 2018-2020 performance cycle LTIP awards will be denominated 100% in PSUs. As a result, and consistent with SEC reporting rules, LTIP awards will be reported in the Summary Compensation Table shows information aboutin the compensation received by our CEO, CFOyear of grant. The grant date fair value of the LTIP PSUs and eachAdditional LTIP PSUs granted to the NEOs in 2018, assuming the highest level of performance conditions associated with these PSUs occurs and prior to the application of the rTSR modifier, which can range from -25% to +25%, is as follows: |
| Name | | Award Type | | Date of Grant | | Grant Date Fair Value Assuming
Highest Level of Performance
Conditions Achieved
($) | | Larry J. Merlo | | EBITDA PSUs | | April 1, 2018 | | 6,749,909 | | | LTIP PSUS | | April 1, 2018 | | 13,499,985 | | Eva C. Boratto | | EBITDA PSUs | | April 1, 2018 | | 599,953 | | | LTIP PSUs | | April 1, 2018 | | 999,957 | | | LTIP PSUs | | November 28, 2018 | | 2,999,965 | | | Additional LTIP PSUs | | August 31, 2018 | | 2,499,898 | | | Additional LTIP PSUs | | November 28, 2018 | | 2,499,888 | | Jonathan C. Roberts | | EBITDA PSUs | | April 1, 2018 | | 4,249,938 | | | LTIP PSUs | | April 1, 2018 | | 7,499,904 | | | Additional LTIP PSUs | | August 31, 2018 | | 7,499,991 | | Derica W. Rice | | EBITDA PSUs | | April 1, 2018 | | 1,999,927 | | | LTIP PSUs | | April 1, 2018 | | 4,249,987 | | | Additional LTIP PSUs | | August 31, 2018 | | 5,999,874 | | Thomas M. Moriarty | | EBITDA PSUs | | April 1, 2018 | | 2,499,971 | | | LTIP PSUs | | April 1, 2018 | | 3,999,941 | | | Additional LTIP PSUs | | August 31, 2018 | | 6,999,952 | | David M. Denton | | EBITDA PSUs | | April 1, 2018 | | 1,999,927 | | | LTIP PSUs | | April 1, 2018 | | 3,999,941 |
| 4 | Grant date fair value of the options granted to the NEOs on April 1, 2018, except as described in note 5. These options have an exercise price of $62.21 (the closing price of our three other most highly compensated executive officers for services rendered in all capacities during the 2017 fiscal year.Summary Compensation Table |
Name & Principal 2017
Positions1 | | Year | | Salary
($) | �� | Bonus
($) | | Stock
Awards
($) 2 3 4 | | Option
Awards
($) 2 3 | | Non-Equity
Incentive Plan
Compensation
($) 5 | | Change In
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($) 6 | | All
Other
Compensation
($) 7 | | Total
($) | Larry J. Merlo
President and Chief
Executive Officer | | 2017 | | 1,630,000 | | – | | 3,374,960 | | 3,374,998 | | 3,118,800 | | – | | 754,106 | | 12,252,864 | | 2016 | | 1,630,000 | | – | | 3,999,931 | | 3,999,990 | | 7,882,000 | | – | | 847,456 | | 18,359,377 | | 2015 | | 1,560,000 | | – | | 6,749,900 | | 3,999,993 | | 9,692,596 | | 6,087,680 | | 852,885 | | 28,943,054 | David M. Denton
Executive Vice
President and Chief
Financial Officer | | 2017 | | 850,000 | | – | | 999,977 | | 999,997 | | 1,193,000 | | – | | 334,979 | | 4,377,953 | | 2016 | | 850,000 | | – | | 999,983 | | 999,987 | | 2,380,000 | | – | | 319,026 | | 5,548,996 | | 2015 | | 843,750 | | – | | 1,874,937 | | 874,999 | | 3,077,597 | | – | | 289,298 | | 6,960,581 | Helena B. Foulkes
Executive
Vice President
and President –
CVS Pharmacy | | 2017 | | 950,000 | | – | | 1,499,965 | | 1,499,990 | | – | | – | | 169,006 | | 4,118,961 | | 2016 | | 950,000 | | – | | 999,983 | | 999,987 | | 2,002,000 | | – | | 210,213 | | 5,162,183 | | 2015 | | 925,000 | | – | | 1,749,937 | | 874,999 | | 2,283,078 | | – | | 232,314 | | 6,065,328 | | | | | | | | | | | | | | | | | | | Jonathan C. Roberts
Executive
Vice President
and Chief –
Operating Officer | | 2017 | | 1,033,333 | | – | | 1,999,953 | | 1,999,994 | | 1,605,000 | | – | | 244,484 | | 6,882,764 | | 2016 | | 950,000 | | – | | 2,249,961 | | 2,249,999 | | 2,907,000 | | – | | 274,147 | | 8,631,107 | | 2015 | | 937,500 | | – | | 2,124,898 | | 999,995 | | 3,397,597 | | – | | 280,559 | | 7,740,549 | | | | | | | | | | | | | | | | | | | Thomas M. Moriarty
Executive
Vice President,
Chief Policy and
External Affairs Officer
and General Counsel | | 2017 | | 750,000 | | – | | 1,249,971 | | 1,249,998 | | 1,160,000 | | – | | 102,585 | | 4,512,554 | | 2016 | | 750,000 | | – | | 999,983 | | 999,987 | | 2,026,000 | | – | | 174,770 | | 4,950,740 | | 2015 | | 730,000 | | – | | 1,624,975 | | 749,989 | | 2,656,298 | | – | | 163,131 | | 5,924,393 | | | | | | | | | | | | | | | | | | |
1 | On March 2, 2017, the Company announced that Mr. Roberts was appointed Executive Vice Presidentcommon stock on April 1, 2018) and Chief Operating Officer and Mr. Moriarty was appointed Executive Vice President, Chief Policy and External Affairs Officer and General Counsel. Ms. Foulkes resigned from the Company effective February 9, 2018. For purposes of 2017 disclosure, this proxy statement reflects each executive’s title as of December 31, 2017.
| 2 | The figures shown are the full grant date fair value of time-based RSU awards and option awards made to each executive in 2017.
| 3 | For a discussion of the assumptions and methodologies used to value the stock and option awards, please see the discussion of stock awards and option awards contained in our 2017 Annual Report to Stockholders, Notes to Consolidated Financial Statements at Note 10, “Stock Incentive Plans”.
| 4 | The amount reported for 2015 includes 50% of the value of the LTIP award granted to each executive in that year, representing the portion of the LTIP to be settled in stock at target performance. As discussed on page 35, in response to stockholder feedback, beginning with the 2016-2018 performance cycle LTIP awards are now denominated in cash and settled 100% in stock (rather than cash and stock). As a result and consistent with SEC reporting rules, the full amount of the LTIP award to be paid in 2016 and 2017 will be reported in the Summary Compensation Table in the Non-Equity Incentive Plan column for the year it vests, not the year of grant.
| | If these changes had not been made to the LTIP design, the following additional amounts would have been reported in both 2016 and 2017: Mr. Merlo $3,375,000; Mr. Denton $1,000,000; Ms. Foulkes $1,000,000; and Mr. Moriarty $937,500. For Mr. Roberts, the additional amount would have been $1,500,000 in 2016 and $1,875,000 in 2017.
| 5 | The figures shown include amounts earned in 2017 as annual cash incentive awards (see page 44) and the cash portion of the 2015 LTIP award (see page 46). Beginning with the 2016-2018 performance cycle, LTIP awards will now be settled in stock and reported in the final year of the cycle. Awards will be reported in the Non-Equity Incentive Plan column because they are denominated in cash and then paid in common stock that is subject to a two-year holding requirement.
| 6 | The amounts reported in this column represent only changes in pension value, as the Company does not pay above-market earnings on deferred compensation. The value of Mr. Merlo’s pension benefit decreased by $751,844 in 2017 from the prior year’s valuation; however, under SEC rules the negative change in the pension value is disclosed as $0. The Company adopted a policy in 2010 stating that it will not offer SERP benefits to new participants. Mr. Merlo is the only executive participant in the SERP. For additional information on the SERP, see “Pension Benefits” beginning on page 58.
| 7 | Set forth below is additional information regarding the amounts disclosed in the All Other Compensation column for 2017.
|
54 | | 2018 Proxy Statement |
Table of Contents
Executive Compensation Tables: | Summary Compensation Table |
All Other Compensation – 2017
|
| Name & Principal 2017 Positions | | Perquisites &
Other Personal
BenefitsA
($) | | Company
Contributions
to Defined
Contribution
PlansB
($) | | OtherC
($) | | Larry J. Merlo | | 68,146 | | 200,600 | | 485,360 | | President and Chief Executive Officer | | | | | | | | David M. Denton | | 21,391 | | 24,000 | | 289,588 | | Executive Vice President and Chief Financial Officer | | | | | | | | Helena B. Foulkes | | 15,360 | | 85,100 | | 68,546 | | Executive Vice President and President – CVS Pharmacy | | | | | | | | Jonathan C. Roberts | | 25,204 | | 109,517 | | 109,763 | | Executive Vice President and Chief Operating Officer | | | | | | | | Thomas M. Moriarty | | 20,755 | | 24,000 | | 57,830 | | Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | | | | | |
A | The amounts above reflect the following: for Mr. Merlo, $15,000 for financial planning services, $180 for home security, $44,966 associated with personal use of company aircraft and $8,000 associated with the CVS Health Charity Classic; for Mr. Denton, $15,000 for financial planning services, $465 for home security and $5,926 associated with personal use of company aircraft; for Ms. Foulkes, $15,000 for financial planning services and $360 for home security; for Mr. Roberts, $15,000 for financial planning services, $1,932 for home security, $272 associated with personal use of company aircraft and $8,000 associated with the CVS Health Charity Classic; for Mr. Moriarty, $15,000 for financial planning services, $755 associated with personal use of company aircraft and $5,000 associated with the CVS Health Charity Classic. The Company determines the amount associated with personal use of Company aircraft by calculating the incremental cost to the Company based on the cost of fuel, trip-related maintenance, deadhead flights, crew travel expenses, landing fees, trip-related hangar costs and smaller variable expenses.
| B | For 2017, this amount includes Company matching contributions to the CVS Health Future Fund of $13,500 for each of Messrs. Merlo, Denton, Roberts and Moriarty and Ms. Foulkes. It also includes Company matching contributions credited to notional accounts in the unfunded Deferred Compensation Plan equal to: for Mr. Merlo $187,100; for Mr. Denton, $10,500; for Ms. Foulkes, $71,600; for Mr. Roberts, $96,017; and for Mr. Moriarty, $10,500.
| C | This amount includes cash dividend equivalents paid by the Company on unvested RSUs as follows: for Mr. Merlo, $316,012; for Mr. Denton, $289,588; for Ms. Foulkes, $68,546; for Mr. Roberts, $98,111; and for Mr. Moriarty, $57,830. Also includes cash dividends paid by the Company on deferred RSUs, as noted in the Nonqualified Deferred Compensation table: for Mr. Merlo, $169,348 and Mr. Roberts, $11,652.
|
cvshealthannualmeeting.com | | 55 |
Target Table of Contents
Executive Compensation Tables: | Grants of Plan-Based Awards |
Grants of Plan-Based Awards |
This table reflects awards granted under our annual cash incentive plan for 2017, the 2017 – 2019 LTIP cycle, and the annual equity awards for 2017, which include stock options and RSUs.
Grants of Plan-Based Awards – 2017
|
| | | | Date of
Committee
Action | | | | Est. Future Payouts
Under Non-Equity
Incentive Plan Awards1 | |
Est. Future Payouts
Under Equity
Incentive Plan Awards | | All
Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#) | | All
Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) | | Exercise
or Base
Price of
Option
Awards
($ / Sh) | | Grant
Date Fair
Value of
Stock
and
Option
Awards
($) | Name & Principal
2017 Positions | | Award Type | | | Grant
Date | | Threshold
($)2 | | Target
($) | | Maximum
($) | | Threshold
(#)2 | | Target
(#) | | Maximum
(#) | | | | | Larry J. Merlo
President and Chief Executive Officer | | Stock Options | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | | | 338,105 | | 78.05 | | 3,374,998 | | | Annual RSUs | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | 43,241 | | | | | | 3,374,960 | | Annual Cash | | | | | | 1,630,000 | | 3,260,000 | | 6,520,000 | | | | | | | | | | | | | | | | LTIP (17-19) | 1 | 2/15/2017 | | | | 2,700,000 | | 6,750,000 | | 13,500,000 | | – | | – | | – | | | | | | | | – | David M. Denton
Executive Vice President and Chief Financial Officer | | Stock Options | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | | | 100,179 | | 78.05 | | 999,997 | | Annual RSUs | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | 12,812 | | | | | | 999,977 | | Annual Cash | | | | | | 637,500 | | 1,275,000 | | 2,550,000 | | | | | | | | | | | | | | | | LTIP (17-19) | 1 | 2/15/2017 | | | | 800,000 | | 2,000,000 | | 4,000,000 | | – | | – | | – | | | | | | | | – | Helena B. Foulkes
Executive Vice President and President – CVS Pharmacy | | Stock Options | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | | | 150,268 | | 78.05 | | 1,499,990 | | Annual RSUs | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | 19,218 | | | | | | 1,499,965 | | Annual Cash | | | | | | 712,500 | | 1,425,000 | | 2,850,000 | | | | | | | | | | | | | | | | LTIP (17-19) | 1 | 2/15/2017 | | | | 800,000 | | 2,000,000 | | 4,000,000 | | – | | – | | – | | | | | | | | – | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | Stock Options | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | | | 200,358 | | 78.05 | | 1,999,994 | | Annual RSUs | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | 25,624 | | | | | | 1,999,953 | | Annual Cash | | | | | | 918,750 | | 1,837,500 | | 3,675,000 | | | | | | | | | | | | | | | | LTIP (17-19) | 1 | 2/15/2017 | | | | 1,500,000 | | 3,750,000 | | 7,500,000 | | – | | – | | – | | | | | | | | – | Thomas M. Moriarty
Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | Stock Options | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | | | 125,224 | | 78.05 | | 1,249,998 | | Annual RSUs | | 2/15/2017 | | 4/3/2017 | | | | | | | | | | | | | | 16,015 | | | | | | 1,249,971 | | Annual Cash | | | | | | 562,500 | | 1,125,000 | | 2,250,000 | | | | | | | | | | | | | | | | LTIP (17-19) | 1 | 2/15/2017 | | | | 750,000 | | 1,875,000 | | 3,750,000 | | – | | – | | – | | | | | | | | – |
1 | Represents the value, denominated in cash, at grant. Beginning with the 2016-2018 LTIP cycle, awards will be settled 100% in CVS Health common stock adjusted for performance. At the end of the three year cycle, final awards will be disclosed in the Summary Compensation Table under the column “Non-Equity Incentive Plan Compensation”. Prior to the 2016-2018 LTIP cycle, awards were settled in equal portions of stock and cash and reported in the Option Exercises and Stock Vested Table and the Summary Compensation Table, respectively.
| 2 | Represents the threshold achievement in order to receive a payout under the respective plan; performance below threshold results in no payout.
|
The stock option awards shown above vest in equal installments on the first, second, third and fourth anniversaries of the date of grant and expire seven years from the date of grant. As described above,The option values are calculated using a modified Black-Scholes Model for pricing options. Refer to our policy is2018 Annual Report, Notes to establishConsolidated Financial Statements at Note 11, “Stock Incentive Plans,” for all relevant valuation assumptions used to determine the grant date fair value of these options.
|
| 64 | | 2019 Proxy Statement |
Table of Contents Compensation of Named Executive Officers Summary Compensation Table | 5 | Also includes the grant date fair value of the options granted to Mr. Rice on May 31, 2018 under the PEP. These PEP options have an exercise price of $63.39 (the closing price of our common stock on May 31, 2018) and will vest in three equal installments on the third, fourth and fifth anniversaries of the date of grant and expire in ten years from the date of grant. The option values are calculated using a modified Black-Scholes Model for pricing options. The assumptions used to determine the grant date fair value of these options were: |
| Dividend Yield | | 3.16% | | Volatility | | 19.92% | | Risk Free Interest Rate | | 2.58% | | Expected Life | | 4.75 | | Fair Value | | $8.9428 |
| 6 | The figures shown include amounts earned in 2018 as annual cash incentive awards (see page 48). For the 2016-2018 performance cycle, LTIP awards were settled in stock optionsand are reported in the final year of the cycle. This cycle is reported in the Non-Equity Incentive Plan column because they are denominated in cash and then paid in common stock that is subject to a two-year holding requirement. Beginning with the 2018-2020 performance cycle, LTIP awards will be granted in PSUs and reported in the “Stock Awards” column in the year of grant. | | 7 | The amounts reported in this column represent only changes in pension value, as the closing sale priceCompany does not pay above-market earnings on deferred compensation. The value of ourMr. Merlo’s pension benefit decreased by $1,273,824 in 2018 from the prior year’s valuation; however under SEC rules the negative change in the pension value is disclosed as $0. The Company adopted a policy in 2010 stating that it will not offer SERP benefits to new participants. Mr. Merlo is the only active executive officer participating in the SERP. For additional information on the SERP, see “Pension Benefits” beginning on page 69. | | 8 | Set forth below is additional information regarding the amounts disclosed in the “All Other Compensation” column for 2018. |
| All Other Compensation – 2018 |
| Name & Principal 2018 Positions | | Perquisites &
Other Personal
Benefits A
($) | | Company
Contributions
to Defined
Contribution
Plans B
($) | | Termination
Payments C
($) | | Other D
($) | Larry J. Merlo
President and Chief Executive Officer | | 112,470 | | 187,940 | | — | | 366,746 | Eva C. Boratto
Executive Vice President and Chief Financial Officer | | 15,844 | | 46,215 | | — | | 16,031 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | 26,837 | | 118,125 | | — | | 82,595 | Derica W. Rice
Executive Vice President and President – CVS Caremark | | 285,436 | | — | | — | | — | Thomas M. Moriarty
Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | 22,471 | | 13,750 | | — | | 41,209 | David M. Denton
Former Executive Vice President and Chief Financial Officer | | 21,562 | | — | | 506,442 | | 254,801 |
| A | The amounts in this column reflect the following: for Mr. Merlo, $13,500 for financial planning services, costs associated with home security, and $96,017 associated with personal use of Company aircraft; for Ms. Boratto, $15,000 for financial planning services, and costs associated with personal use of Company aircraft; for Mr. Roberts, $15,000 for financial planning services, $3,104 associated with personal use of Company aircraft, $8,278 associated with the CVS Health Charity Classic, and costs associated with home security; for Mr. Rice, $153,513 associated with relocation benefits under the Company’s broad-based relocation program, $116,091 in tax assistance provided in connection with the relocation benefits, $15,000 for financial planning services, and costs associated with personal use of Company aircraft; for Mr. Moriarty $15,000 for financial planning services, $2,150 associated with personal use of Company aircraft, $5,000 associated with the CVS Health Charity Classic, and costs associated with home security; and for Mr. Denton, $15,000 for financial planning services, $6,472 associated with personal use of Company aircraft, and costs associated with home security. The Company determines the amount associated with personal use of Company aircraft by calculating the incremental cost to the Company based on the cost of fuel, trip-related maintenance, deadhead flights, crew travel expenses, landing fees, trip-related hangar costs and smaller variable expenses. | | B | The amounts in this column include Company matching contributions to the CVS Health Future Fund of $13,750 for each of Messrs. Merlo, Roberts and Moriarty and Ms. Boratto. These amounts also include Company matching contributions credited to notional accounts in the unfunded Deferred Compensation Plan equal to: $174,190 for Mr. Merlo; $32,465 for Ms. Boratto; and $104,375 for Mr. Roberts. | | C | The amounts in this column reflect the following for Mr. Denton: salary continuation of $105,682 received in the 2018 calendar year, $385,760 representing the realized value of accelerated PSUs and $15,000 in attorneys’ fees all paid pursuant to his Separation Agreement. For a description of the Separation Agreement, see the last paragraph under “Payments/(Forfeitures) Under Termination Scenarios”. | | D | The amounts in this column include cash dividend equivalents paid by the Company on unvested RSUs as follows: for Mr. Merlo, $197,398; for Ms. Boratto, $16,031; for Mr. Roberts, $70,943; for Mr. Moriarty, $41,209; and for Mr. Denton, $254,801. Also includes cash dividends paid by the Company on deferred RSUs, as noted in the Non-Qualified Deferred Compensation Table, for Mr. Merlo, $169,348 and Mr. Roberts, $11,652. |
| cvshealthannualmeeting.com | 65 |
Table of Contents Executive Compensation Tables Grants of Plan-Based Awards | Grants of Plan-Based Awards |
This table reflects awards granted under the CVS Health Corporation 2017 Incentive Compensation Plan (the 2017 ICP) in the respective amounts listed. The Management Planning and Development Committee approved the grants for 2018, which include stock options, PSU and, for Mr. Rice, stock options and RSUs granted in connection with his participation in the PEP. | Grants of Plan-Based Awards – 2018 |
Name &
Principal
2018 Positions | | Award Type | | |
Date of
Committee
Action | |
Grant
Date | |
Est. Future Payouts
Under Non-Equity
Incentive Plan Awards | | Est. Future Payouts
Under Equity
Incentive Plan Awards | |
All
Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#) | |
All
Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) | |
Exercise
or Base
Price of
Option
Awards
($ / Sh) | |
Grant
Date Fair
Value of
Stock
and
Option
Awards
($) | | | | | | | Threshold
($)1 | | Target
($) | | Maximum
($) | | Threshold
(#)1 | | Target
(#) | | Maximum
(#) | | | | | Larry J. Merlo
President and Chief Executive Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 394,091 | | 62.21 | | 3,374,995 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 27,126 | | 54,251 | | 108,502 | | | | | | | | 3,374,955 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 48,051 | | 120,128 | | 240,256 | | | | | | | | 6,749,992 | | Annual Cash | | | | | | | 1,630,000 | | 3,260,000 | | 6,520,000 | | — | | — | | — | | | | | | | | — | Eva C. Boratto
Executive Vice President and Chief Financial Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 35,030 | | 62.21 | | 299,997 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 2,411 | | 4,822 | | 9,644 | | | | | | | | 299,977 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 3,559 | | 8,898 | | 17,796 | | | | | | | | 499,979 | | LTIP (18-20) | 3,4 | | 8/16/2018 | | 8/31/2018 | | | | | | | | 6,729 | | 16,823 | | 33,646 | | | | | | | | 1,249,949 | | LTIP (18-20) | 3,5 | | 11/6/2018 | | 11/28/2018 | | | | | | | | 7,261 | | 18,153 | | 36,306 | | | | | | | | 1,499,982 | | LTIP (18-20) | 3,4,5 | | 11/6/2018 | | 11/28/2018 | | | | | | | | 6,051 | | 15,127 | | 30,254 | | | | | | | | 1,249,944 | | Annual Cash | | | | | | | 472,727 | | 945,455 | | 1,890,909 | | — | | — | | — | | | | | | | | — | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 248,131 | | 62.21 | | 2,124,994 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 17,079 | | 34,158 | | 68,316 | | | | | | | | 2,124,970 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 26,695 | | 66,737 | | 133,474 | | | | | | | | 3,749,952 | | LTIP (18-20) | 3,4 | | 8/16/2018 | | 8/31/2018 | | | | | | | | 20,188 | | 50,471 | | 100,942 | | | | | | | | 3,749,995 | | Annual Cash | | | | | | | 1,017,188 | | 2,034,375 | | 4,068,750 | | — | | — | | — | | | | | | | | — | Derica W. Rice
Executive Vice President and President – CVS Caremark | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 116,767 | | 62.21 | | 999,993 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 8,037 | | 16,074 | | 32,148 | | | | | | | | 999,963 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 15,127 | | 37,818 | | 75,636 | | | | | | | | 2,124,993 | | PEP Stock
Options | 6 | | 11/8/2017 | | 5/31/2018 | | | | | | | | | | | | | | | | 78,870 | | 63.39 | | 705,319 | | RSUs | 6 | | 11/8/2017 | | 5/31/2018 | | | | | | | | | | | | | | 23,663 | | | | | | 1,499,998 | | PEP RSUs | 6 | | 11/8/2017 | | 5/31/2018 | | | | | | | | | | | | | | 7,887 | | | | | | 499,957 | | LTIP (18-20) | 3,4 | | 11/6/2017 | | 8/31/2018 | | | | | | | | 16,150 | | 40,376 | | 80,752 | | | | | | | | 2,999,937 | | Annual Cash | | | | | | | 593,608 | | 1,187,216 | | 2,374,432 | | — | | — | | — | | | | | | | | — | Thomas M.Moriarty
Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 145,959 | | 62.21 | | 1,249,993 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 10,047 | | 20,093 | | 40,186 | | | | | | | | 1,249,986 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 14,237 | | 35,593 | | 71,186 | | | | | | | | 1,999,971 | | LTIP (18-20) | 3,4 | | 8/16/2018 | | 8/31/2018 | | | | | | | | 18,842 | | 47,106 | | 94,212 | | | | | | | | 3,499,976 | | Annual Cash | | | | | | | 618,750 | | 1,237,500 | | 2,475,000 | | — | | — | | — | | | | | | | | — | David M. Denton
Former Executive Vice President and Chief Financial Officer | | Stock Options | | | 2/15/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | 116,767 | | 62.21 | | 999,993 | | EBITDA PSUs | | | 2/15/2018 | | 4/1/2018 | | | | | | | | 8,037 | | 16,074 | | 32,148 | | | | | | | | 999,964 | | LTIP (18-20) | 2,3 | | 2/15/2018 | | 4/1/2018 | | | | | | | | 14,237 | | 35,593 | | 71,186 | | | | | | | | 1,999,971 | | Annual Cash | | | | | | | 586,364 | | 1,172,727 | | 2,345,455 | | — | | — | | — | | | | | | | | — |
| 1 | Represents the threshold achievement in order to receive a payout under the respective plan; performance below the threshold results in no payout. | | 2 | Beginning with the 2018-2020 LTIP cycle, awards will be denominated 100% in PSUs. These awards are included in the SCT in the “Stock Awards” column. For the 2016-2018 and 2017-2019 LTIP cycles, awards were denominated in cash and have been or will be settled 100% in CVS Health common stock adjusted for performance. At the end of the three-year cycle, final awards are or will be disclosed in the SCT in the “Non-Equity Incentive Plan Compensation” column. |
| 66 | | 2019 Proxy Statement |
Table of Contents Executive Compensation Tables Outstanding Equity Awards at Fiscal Year-End | 3 | The award earned, based on the performance of the Company against the applicable performance metrics, will be modified by up to +/- 25% based on CVS Health’s performance as measured by relative TSR. All “Est. Future Payouts Under Equity Incentive Plan Awards” assume a relative TSR modifier of 0%. | | 4 | Aetna Transaction-related Additional LTIP PSU award for the respective NEOs. | | 5 | Awards granted in connection with Ms. Boratto’s promotion to Executive Vice President and Chief Financial Officer. | | 6 | Represents sign-on options and RSU awards granted under the PEP and the 2017 ICP. Mr. Rice’s PEP options will vest one-third on each of the third, fourth and fifth anniversaries of the grant date. Mr. Rice’s PEP RSUs will cliff vest on the fifth anniversary of the grant date. |
The stock option awards shown above vest in equal installments on the first, second, third and fourth anniversaries of the grant date and expire seven years from the grant date, except for Mr. Rice’s PEP options, which vest one-third on each of the third, fourth and fifth anniversaries of the grant date and expire ten years from the grant date. As described above, the Company’s policy is to establish the exercise price for stock options as the closing price of the Company’s common stock on the grant date. Annual RSU grants typically vest in increments of 50% on the third anniversary of the grant date and 50% on the fifth anniversary of the grant date. Mr. Rice’s PEP RSUs will cliff vest on the fifth anniversary of the grant date. | Outstanding Equity Awards at Fiscal Year-End |
This table reflects stock option, PSU and RSU awards granted to our Named Executive Officers under our ICPs that were outstanding as of December 31, 2018. | Outstanding Equity Awards at 2018 Year-End |
| | Stock Option Awards1 | | Stock Awards | Name & Principal
2018 Positions | | Grant
Date | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | | Option
Exercise
Price
($) | | Option
Expiration
Date | | Grant
Date | | Number of
Shares or
Units of
Stock
That Have
Not
Vested
(#) | | | Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)2 | | Equity
Incentive
Plan
Awards:
Number
of Shares
or Units of
Stock that
Have Not
Vested
(#) | | | Equity
Incentive
Plan
Awards:
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)2 | Larry J. Merlo
President and Chief Executive Officer | | 4/2/2012 | | 332,736 | | — | 3 | | 45.07 | | 4/2/2019 | | 4/1/2014 | | 26,922 | 4 | | 1,763,929 | | | | | | | 4/1/2013 | | 314,713 | | — | 3 | | 54.53 | | 4/1/2020 | | 4/1/2015 | | 19,558 | 4 | | 1,281,440 | | | | | | | 4/1/2014 | | 335,697 | | — | 3 | | 74.29 | | 4/1/2021 | | 4/1/2016 | | 38,160 | 4 | | 2,500,243 | | | | | | | 4/1/2015 | | 205,446 | | 68,483 | 3 | | 102.26 | | 4/1/2022 | | 4/3/2017 | | 43,241 | 4 | | 2,833,150 | | | | | | | 4/1/2016 | | 143,393 | | 143,394 | 3 | | 104.82 | | 4/1/2023 | | 4/1/2018 | | | | | | | 54,251 | 5 | | 3,554,526 | | 4/3/2017 | | 84,526 | | 253,579 | 3 | | 78.05 | | 4/3/2024 | | 4/1/2018 | | | | | | | 120,128 | 6 | | 7,870,787 | | 4/1/2018 | | — | | 394,091 | 3 | | 62.21 | | 4/1/2025 | | | | | | | | | | | | | Eva C. Boratto
Executive Vice President and Chief Financial Officer | | 4/1/2013 | | 17,703 | | — | 3 | | 54.53 | | 4/1/2020 | | 4/1/2014 | | 1,514 | 4 | | 99,197 | | | | | | | 4/1/2014 | | 18,882 | | — | 3 | | 74.29 | | 4/1/2021 | | 4/1/2015 | | 1,956 | 4 | | 128,157 | | | | | | | 4/1/2015 | | 20,554 | | 6,848 | 3 | | 102.26 | | 4/1/2022 | | 2/29/2016 | | 472 | 7 | | 30,925 | | | | | | | 4/1/2016 | | 10,754 | | 10,755 | 3 | | 104.82 | | 4/1/2023 | | 4/1/2016 | | 2,862 | 4 | | 187,518 | | | | | | | 4/3/2017 | | 8,765 | | 26,297 | 3 | | 78.05 | | 4/3/2024 | | 2/28/2017 | | 924 | 7 | | 60,540 | | | | | | | 4/1/2018 | | — | | 35,030 | 3 | | 62.21 | | 4/1/2025 | | 4/3/2017 | | 4,484 | 4 | | 293,792 | | | | | | | | | | | | | | | | | | 4/1/2018 | | | | | | | 4,822 | 5 | | 315,937 | | | | | | | | | | | | | 4/1/2018 | | | | | | | 8,898 | 6 | | 582,997 | | | | | | | | | | | | | 8/31/2018 | | | | | | | 16,823 | 8 | | 1,102,243 | | | | | | | | | | | | | 11/28/2018 | | | | | | | 18,153 | 6 | | 1,189,385 | | | | | | | | | | | | | 11/28/2018 | | | | | | | 15,127 | 8 | | 991,121 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | 4/2/2012 | | 77,639 | | — | 3 | | 45.07 | | 4/2/2019 | | 4/1/2014 | | 5,889 | 4 | | 385,847 | | | | | | | 9/4/2012 | | 108,870 | | — | 9 | | 45.93 | | 9/4/2022 | | 4/1/2015 | | 4,889 | 4 | | 320,327 | | | | | | | 4/1/2013 | | 68,844 | | — | 3 | | 54.53 | | 4/1/2020 | | 4/1/2016 | | 21,465 | 4 | | 1,406,387 | | | | | | | 4/1/2014 | | 73,433 | | — | 3 | | 74.29 | | 4/1/2021 | | 4/3/2017 | | 25,624 | 4 | | 1,678,884 | | | | | | | 4/1/2015 | | 51,361 | | 17,121 | 3 | | 102.26 | | 4/1/2022 | | 4/1/2018 | | | | | | | 34,158 | 5 | | 2,238,032 | | 4/1/2016 | | 80,658 | | 80,660 | 3 | | 104.82 | | 4/1/2023 | | 4/1/2018 | | | | | | | 66,737 | 6 | | 4,372,608 | | 4/3/2017 | | 50,089 | | 150,269 | 3 | | 78.05 | | 4/3/2024 | | 8/31/2018 | | | | | | | 50,471 | 8 | | 3,306,860 | | 4/1/2018 | | — | | 248,131 | 3 | | 62.21 | | 4/1/2025 | | | | | | | | | | | | |
| cvshealthannualmeeting.com | 67 |
Table of Contents Executive Compensation Tables Outstanding Equity Awards at Fiscal Year-End | Stock Option Awards1 | | Stock Awards | Name & Principal
2018 Positions | Grant
Date | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | Option
Exercise
Price
($) | Option
Expiration
Date | | Grant
Date | Number of
Shares or
Units of
Stock
That Have
Not
Vested
(#) | | Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)2 | Equity
Incentive
Plan
Awards:
Number
of Shares
or Units of
Stock that
Have Not
Vested
(#) | | Equity
Incentive
Plan
Awards:
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)2 | | Derica W. Rice | 4/1/2018 | — | 116,7673 | 62.21 | 4/1/2025 | | 4/1/2018 | | | | 16,074 | 5 | 1,053,168 | | Executive Vice President and President – CVS Caremark | 5/31/2018 | — | 78,8709 | 63.39 | 5/31/2028 | | 4/1/2018 | | | | 37,818 | 6 | 2,477,835 | | | | | | | 5/31/2018 | 8,001 | 10 | 524,226 | | | | | | | | | | 5/31/2018 | 23,663 | 10 | 1,550,400 | | | | | | | | | | 8/31/2018 | | | | 40,376 | 8 | 2,645,436 | | Thomas M. Moriarty | 4/1/2014 | 62,943 | —3 | 74.29 | 4/1/2021 | | 4/1/2014 | 5,048 | 4 | 330,745 | | | | | Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | 4/1/2015 | 38,520 | 12,8413 | 102.26 | 4/1/2022 | | 4/1/2015 | 3,667 | 4 | 240,262 | | | | | 4/1/2016 | 35,848 | 35,8483 | 104.82 | 4/1/2023 | | 4/1/2016 | 9,540 | 4 | 625,061 | | | | | 4/3/2017 | 31,306 | 93,9183 | 78.05 | 4/3/2024 | | 4/3/2017 | 16,015 | 4 | 1,049,303 | | | | | 4/1/2018 | — | 145,9593 | 62.21 | 4/1/2025 | | 4/1/2018 | | | | 20,093 | 5 | 1,316,493 | | | | | | | 4/1/2018 | | | | 35,593 | 6 | 2,332,053 | | | | | | | 8/31/2018 | | | | 47,106 | 8 | 3,086,385 | | David M. Denton | 4/1/2014 | 32,618 | —3 | 74.29 | 4/1/2021 | | 4/1/2010 | 2,765 | 11 | 181,163 | | | | | Former Executive Vice President and Chief Financial Officer | 4/1/2015 | 23,927 | 10,4553 | 102.26 | 4/1/2022 | | 4/1/2014 | 3,323 | 4 | 217,723 | | | | | 4/1/2016 | 20,538 | 28,4423 | 104.82 | 4/1/2023 | | 4/1/2014 | 75,595 | 12 | 4,952,984 | | | | | 4/3/2017 | 19,827 | 69,4833 | 78.05 | 4/3/2024 | | 4/1/2015 | 3,244 | 4 | 212,547 | | | | | 4/1/2018 | — | 116,7673 | 62.21 | 4/1/2025 | | 4/1/2016 | 6,595 | 4 | 432,104 | | | | | | | | | | 4/3/2017 | 6,722 | 4 | 440,425 | | | | | | | | | | | 4/1/2018 | | | | 10,875 | 13 | 712,530 |
| 1 | The Company had no equity incentive plan awards that were securities underlying unexercised, unearned options at fiscal year end, so that column is intentionally omitted from this table | | 2 | The value of the RSUs and PSUs is based on a price of $65.52 per share, which was the closing price of the Company’s stock on December 31, 2018, the last trading day of the Company’s fiscal year. | | 3 | These stock options vest in one-quarter increments on each of the first, second, third and fourth anniversaries of the date of grant and expire seven years from the date of grant. | | 4 | RSUs vest in increments of 50% on the third anniversary of the grant date of grant and 50% on the fifth anniversary of the dategrant date. | | 5 | Represents the value of grant.56the EBITDA PSUs granted in 2018, assuming target performance is achieved. | | 6 | Represents the value of the 2018-2020 LTIP PSUs, assuming target performance is achieved and a 0% rTSR modifier. | | 7 | Represents the unvested portion of a performance-based RSU grant that vests in one-third increments on the first, second and third anniversaries of the grant date. | | 8 | Represents the value of the Aetna Transaction-related Additional LTIP PSU award for the respective individuals, assuming target performance is achieved and a 0% rTSR modifier. | | 9 | | 2018 Proxy Statement |
Table of Contents
Executive Compensation Tables: | Outstanding Equity Awards at Fiscal Year-End |
Outstanding Equity Awards at Fiscal Year-End |
This table reflects stock option and RSU awards granted to our named executive officers under our ICPs that were outstanding as of December 31, 2017.
Outstanding Equity Awards at 2017 Year-End
|
| | Stock Option Awards | | Stock Awards | Name & Principal
2017 Positions | | Grant
Date | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | Option
Exercise
Price
($) | | Option
Expiration
Date | | Grant
Date | | Number of
Shares or
Units of Stock
That Have
Not Vested
(#) | | Market Value
of Shares or
Units of Stock
That Have
Not Vested
($)1 | Larry J. Merlo
President and Chief Executive Officer | | 4/2/2012 | | 332,736 | | – | 2 | 45.07 | | 4/2/2019 | | 4/1/2013 | | 36,678 | 4 | 2,659,155 | | 4/1/2013 | | 314,713 | | – | 2 | 54.53 | | 4/1/2020 | | 4/1/2014 | | 26,922 | 4 | 1,951,845 | | 4/1/2014 | | 251,772 | | 83,925 | 2 | 74.29 | | 4/1/2021 | | 4/1/2015 | | 39,115 | 4 | 2,835,838 | | 4/1/2015 | | 136,964 | | 136,965 | 2 | 102.26 | | 4/1/2022 | | 4/1/2016 | | 38,160 | 4 | 2,766,600 | | 4/1/2016 | | 71,696 | | 215,091 | 2 | 104.82 | | 4/1/2023 | | 4/3/2017 | | 43,241 | 4 | 3,134,973 | | 4/3/2017 | | – | | 338,105 | 2 | 78.05 | | 4/3/2024 | | | | | | | David M. Denton
Executive Vice President and Chief Financial Officer | | 4/1/2014 | | 47,207 | | 15,736 | 2 | 74.29 | | 4/1/2021 | | 4/1/2010 | | 4,313 | 5 | 312,693 | | 4/1/2015 | | 29,960 | | 29,962 | 2 | 102.26 | | 4/1/2022 | | 4/1/2013 | | 12,608 | 4 | 914,080 | | 4/1/2016 | | 17,924 | | 53,772 | 2 | 104.82 | | 4/1/2023 | | 4/1/2014 | | 5,048 | 4 | 365,980 | | 4/3/2017 | | – | | 100,179 | 2 | 78.05 | | 4/3/2024 | | 4/1/2014 | | 100,000 | 6 | 7,250,000 | | | | | | | | | | | | 4/1/2015 | | 8,556 | 4 | 620,310 | | | | | | | | | | | | 4/1/2016 | | 9,540 | 4 | 691,650 | | | | | | | | | | | | 4/3/2017 | | 12,812 | 4 | 928,870 | Helena B. Foulkes
Executive Vice President and President – CVS Pharmacy | | 4/2/2012 | | 19,965 | | – | 2 | 45.07 | | 4/2/2019 | | 4/1/2009 | | 2,670 | 5 | 193,575 | | 4/1/2014 | | 39,339 | | 13,113 | 2 | 74.29 | | 4/1/2021 | | 4/1/2010 | | 2,416 | 5 | 175,160 | | 4/1/2015 | | 29,960 | | 29,962 | 2 | 102.26 | | 4/1/2022 | | 4/2/2013 | | 4,585 | 4 | 332,413 | | 4/1/2016 | | 17,924 | | 53,772 | 2 | 104.82 | | 4/1/2023 | | 4/1/2014 | | 4,206 | 4 | 304,935 | | 4/3/2017 | | – | | 150,268 | 2 | 78.05 | | 4/3/2024 | | 4/1/2015 | | 8,556 | 4 | 620,310 | | | | | | | | | | | | 4/1/2016 | | 9,540 | 4 | 691,650 | | | | | | | | | | | | 4/3/2017 | | 19,218 | 4 | 1,393,305 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | 4/2/2012 | | 77,639 | | – | 2 | 45.07 | | 4/2/2019 | | 4/1/2013 | | 8,024 | 4 | 581,740 | | 9/4/2012 | | 108,870 | | – | 3 | 45.93 | | 9/4/2022 | | 4/1/2014 | | 5,889 | 4 | 426,953 | | 4/1/2013 | | 68,844 | | – | 2 | 54.53 | | 4/1/2020 | | 4/1/2015 | | 9,778 | 4 | 708,905 | | 4/1/2014 | | 55,074 | | 18,359 | 2 | 74.29 | | 4/1/2021 | | 4/1/2016 | | 21,465 | 4 | 1,556,213 | | 4/1/2015 | | 34,241 | | 34,241 | 2 | 102.26 | | 4/1/2022 | | 4/3/2017 | | 25,624 | 4 | 1,857,740 | | 4/1/2016 | | 40,329 | | 120,989 | 2 | 104.82 | | 4/1/2023 | | | | | | | | 4/3/2017 | | – | | 200,358 | 2 | 78.05 | | 4/3/2024 | | | | | | | Thomas M. Moriarty
Executive Vice President, Chief Policy and Ext. Affairs Officer and General Counsel | | 4/1/2014 | | 47,207 | | 15,736 | 2 | 74.29 | | 4/1/2021 | | 4/1/2013 | | 5,731 | 4 | 415,498 | | 4/1/2015 | | 25,680 | | 25,681 | 2 | 102.26 | | 4/1/2022 | | 4/1/2014 | | 5,048 | 4 | 365,980 | | 4/1/2016 | | 17,924 | | 53,772 | 2 | 104.82 | | 4/1/2023 | | 4/1/2015 | | 7,334 | 4 | 531,715 | | 4/3/2017 | | – | | 125,224 | 2 | 78.05 | | 4/3/2024 | | 4/1/2016 | | 9,540 | 4 | 691,650 | | | | | | | | | | | | 4/3/2017 | | 16,015 | 4 | 1,161,088 |
1 | The value of the RSUs is based on $72.50, which was the closing sale price of our stock on December 29, 2017, the last trading day of our fiscal year.
| 2 | The stock options vest in one-quarter increments on each of the first, second, third and fourth anniversaries of the date of grant.
| 3 | The stock options vest in one-third increments on each of the third, fourth and fifth anniversaries of the date of grant and expire ten years from the date of grant. | 4 | RSUs vest in increments of 50% on the third anniversary of the grant date and on the fifth anniversary of the grant date.
| 5 | RSUs vest on the executive’s 55th birthday.
| 6 | RSUs vest on the seventh anniversary of the date of grant.
|
cvshealthannualmeeting.com | | 57 |
Table of Contents
Executive Compensation Tables: | Option Exercises and Stock Vested |
Option Exercises and Stock Vested |
The table below reflects information for the fiscal year ended December 31, 2017 concerning options exercised and the vesting of previously granted RSUs and non-transferable shares for each of the named executive officers. The valuethird, fourth and fifth anniversaries of theshares acquired upon exercise of the options and the shares represented by the vesting of RSUs is based on the closing sale price of our stock on the date of exercisegrant and expire ten years from the date of vesting, respectively.
Option Exercises and Stock Vested – 2017
grant. |
| | Option Awards | | Stock Awards | | Name & Principal 2017 Positions | | Number of
Shares
Acquired
on Exercise
(#) | | Value
Realized
on Exercise
($) | | Number of
Shares
Acquired
on Vesting
(#)1 | | Value
Realized
on Vesting
($)2 | Larry J. Merlo
President and Chief Executive Officer | | 317,644 | | 14,822,522 | | 83,139 | | 6,368,997 | David M. Denton
Executive Vice President and Chief Financial Officer | | 434,311 | | 16,160,408 | | 24,230 | | 1,844,812 | Helena B. Foulkes
Executive Vice President and President – CVS Pharmacy | | 80,005 | | 2,846,521 | | 9,199 | | 722,122 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | | 146,939 | | 6,809,994 | | 33,425 | | 2,552,580 | Thomas M. Moriarty
Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | 110,814 | | 3,172,771 | | 16,406 | | 1,256,673 |
1 | Includes RSUs vested during 2017 and the share portion of the 2015-2017 LTIP cycle issued in early 2018.
| 2 | Includes the
| | 10 | Represents sign-on RSU value deferred during 2017, which is also shown in the Nonqualified Deferred Compensation Table: for Ms. Foulkes, $330,171; for Mr. Roberts, $1,385,545; and for Mr. Moriarty, $545,539. |
We maintain an unfunded supplemental retirement plan (SERP), which is designed to supplement the retirement benefits of select executives in lieu of a qualified defined benefit plan. The SERP is a legacy plan in which participation has decreased over the years as participants have retired, and the Company has not provided SERP benefits to new participants since 2010.stock option awards. 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)Rice’s PEP options will receive an annual benefit commencingvest on the later of age 55 or retirement, equal to 1.6% of a three-year average of final compensation (as defined in the SERP) for each year of service up to 30 years, with no offset for any amounts provided by our qualified plans, Social Security or other retirement benefits. Final compensation for purposesthird, fourth and fifth anniversaries of the SERP benefit formula isgrant date, and his PEP RSUs will cliff vest on the averagefifth anniversary of the grant date.
| | 11 | RSUs vest on the executive’s three highest years55th birthday. | | 12 | RSUs vest on the seventh anniversary of annual salarythe date of grant. | | 13 | Represents the value of the 2018-2020 LTIP PSUs at target performance and annual cash bonuswith a 0% rTSR modifier, pro-rated for the executive’s service during the last ten years of service. The estimated credited years of benefit service for Mr. Merlo as of the measurement date of December 31, 2017 was 30 years (Mr. Merlo’s years of service are capped at 30,performance period in accordance with Mr. Denton’s Separation Agreement. |
| 68 | | 2019 Proxy Statement |
Table of Contents Executive Compensation Tables Option Exercises and Stock Vested | Option Exercises and Stock Vested |
The table below reflects information for the fiscal year ended December 31, 2018 concerning options exercised and the vesting of previously granted RSUs and non-transferable shares for each of the NEOs. The value of the shares acquired upon exercise of options is based on the market price of our common stock at exercise and the value of shares represented by the vesting of RSUs is based on the closing price of our common stock on the date of vesting. | Option Exercises and Stock Vested – 2018 |
| Option Awards | | Stock Awards | | Name & Principal 2018 Positions | Number of
Shares
Acquired
on Exercise
(#) | Value
Realized
on Exercise
($) | | Number of
Shares
Acquired
on Vesting
(#)1 | | Value
Realized
on Vesting
($)2 | Larry J. Merlo
President and Chief Executive Officer | 0 | 0 | | 117,397 | | 7,035,378 | Eva C. Boratto
Executive Vice President and Chief Financial Officer | 17,737 | 539,864 | | 6,180 | | 381,170 | Jonathan C. Roberts
Executive Vice President and Chief Operating Officer | 0 | 0 | | 40,096 | | 2,375,311 | Derica W. Rice
Executive Vice President and President – CVS Caremark | 0 | 0 | | 0 | | 0 | Thomas M. Moriarty
Executive Vice President, Chief Policy and External Affairs Officer
and General Counsel | 0 | 0 | | 26,387 | | 1,567,123 | | David M. Denton | 0 | 0 | | 9,594 | 3 | 2,541,7873 | | Former Executive Vice President and Chief Financial Officer | 89,4504 | — | | 38,836 | 5 | — |
| 1 | Includes RSUs that vested during 2018 and, except with respect to Mr. Denton, the termsshares of common stock issued in settlement of the SERP). Benefits under2016-2018 LTIP cycle in early 2019. | | 2 | Includes the SERP formulaRSU value deferred during 2018, which is also shown in the Non-Qualified Deferred Compensation Table, for Mr. Roberts of $803,318. | | 3 | The 2016-2018 LTIP cycle value was paid to Mr. Denton in cash after his separation from the Company. No shares were acquired, but the cash equivalent payment is included in the Value Realized on Vesting column. | | 4 | Represents stock options that are payableheld in annual installmentsconstructive trust for the lifebenefit of Mr. Denton’s ex-spouse pursuant to a divorce decree. | | 5 | Represents RSUs that are held in constructive trust for the executive, unless the executive has made an advance election in accordance with plan and IRS rulesbenefit of Mr. Denton’s ex-spouse pursuant to have the benefitpaid in the form of a divorce decree. |
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 credited years of benefit service for Mr. Merlo as of the measurement date of December 31, 2018 was 30 years (Mr. Merlo’s years of service are capped at 30, in accordance with the terms of the SERP). Benefits under the SERP formula are payable in annual installments for the life of the executive, unless the executive has made an advance election in accordance with plan and IRS rules to have the benefit paid in the form of a lump sum or joint and survivor annuity of equivalent actuarial value. Mr. Merlo has made an election to receive his entire benefit payable on account of termination of employment in the form of a lump sum. No SERP benefits are payable to an eligible executive until he terminates employment. As of the measurement date, Mr. Merlo was eligible for an immediate SERP benefit upon termination. No benefits are payable to an eligible executive until he terminates employment. As of the measurement date, Mr. Merlo was eligible for an immediate benefit.
| cvshealthannualmeeting.com | 69 |
Table of Contents Executive Compensation Tables Nonqualified Deferred Compensation As Mr. Merlo has reached the maximum amount of service under the SERP based on his more than 30 years with the Company, any benefit increases are primarily a result of performance-based bonuses. In addition, because the SERP is a defined benefit plan, it is subject to certain actuarial variations including discount rates and mortality table assumptions. As a result, the present value of Mr. Merlo’s accumulated benefit decreased by $1,273,824 during 2018. The accumulated value in the Pension Benefits Table and the change in value reflected in the Summary Compensation Table is based on the benefit accrued as of the measurement date payable as a lump sum commencing on the earliest unreduced retirement age (age 55, or current age if later) using assumptions which include a 2.50% discount rate as of December 31, 2018. Mr. Merlo is fully vested in his accrued benefit. For further information regarding pension assumptions, please see the Note 9, “Pension Plans and Other Postretirement Benefits”, in our 2018 Annual Report.
| Name & Principal 2018 Positions | Plan
Name | Number of
Years of
Credited
Service
(#) | Present
Value of
Accumulated
Benefit
($) | Payments
During
Last
Fiscal Year
($) | | Larry J. Merlo | Supplemental Executive | 301 | 41,718,178 | — | | President and Chief Executive Officer | Retirement Plan for Select Senior | | | | | Management | | | | | Eva C. Boratto | N/A | — | — | — | | Executive Vice President and | | | | | | Chief Executive Officer | | | | | | Jonathan C. Roberts | N/A | — | — | — | | Executive Vice President and | | | | | | Chief Operating Officer | | | | | | Derica W. Rice | N/A | — | — | — | | Executive Vice President and | | | | | | President – CVS Caremark | | | | | | Thomas M. Moriarty | N/A | — | — | — | | Executive Vice President, Chief Policy and | | | | | | External Affairs Officer and General Counsel | | | | | | David M. Denton | N/A | — | — | — | | Former Executive Vice President and | | | | | | Chief Financial Officer | | | | |
| 1 | Mr. Merlo has been with the Company for more than 30 years, withbut his years of service is capped at 30 years under the Company, any benefit increases are primarily as a result of performance-based bonuses. In addition, because the SERP is a defined benefit plan, it is subject to certain actuarial variations including discount rates and mortality table assumptions. As a result, Mr. Merlo’s benefit decreased by $751,844 during 2017.The accumulated value in the Pension Benefits Table and Summary Compensation Table is based on the benefit accrued as of the measurement date payable as a lump sum commencing on the earliest unreduced retirement age (55) using assumptions which include a 2.50% discount rate as of December 31, 2017. Mr. Merlo is fully vested in his accrued benefit. For further information regarding pension assumptions, please see the Notes to the Consolidated Financial Statements in our Annual Report to Stockholders for the fiscal year ended December 31, 2017.
58 | | 2018 Proxy StatementSERP. |
| Table of ContentsExecutive Compensation Tables: | Nonqualified Deferred Compensation |
| Name & Principal 2017 Positions | | Plan
Name | | Number of
Years of
Credited
Service
(#) | | Present
Value of
Accumulated
Benefit
($) | | Payments
During Last
Fiscal Year
($) | | Larry J. Merlo | | SERP | | 30 | | 42,992,002 | | – | | President and Chief Executive Officer | | | | | | | | | | David M. Denton | | N/A | | – | | – | | – | | Executive Vice President and Chief Financial Officer | | | | | | | | | | Helena B. Foulkes | | N/A | | – | | – | | – | | Executive Vice President and President – CVS Pharmacy | | | | | | | | | | Jonathan C. Roberts | | N/A | | – | | – | | – | | Executive Vice President and Chief Operating Officer | | | | | | | | | | Thomas M. Moriarty | | N/A | | – | | – | | – | | Executive Vice President, Chief Policy and External Affairs Officer and General Counsel | | | | | | | | |
Nonqualified Deferred Compensation |
Executive officers and selected members of senior management may participate in the Deferred Compensation Plan (DCP) and the Deferred Stock Plan (DSP). The DCP allows participants to defer payment of a portion of their salary and all or a portion of their annual cash incentive (and in the case of executive officers, all or a portion of any LTI plan cash award) to facilitate their personal retirement or financial planning. For participants in the DCP, we provide a maximum match of up to 5% of the salary and annual cash incentive deferred, plus an additional match for matching contributions only on amounts that cannot be deferred into qualified 401(k) plans due to IRS plan limits.
The investment crediting options for the DCP mirror those offered for the CVS Health Future Fund, which is the Company’s 401(k) plan. Each year, the amount of a participant’s deferredcompensation account increases or decreases based on the appreciation and/or depreciation in the value of the investment crediting alternatives selected by the participant. There are no vesting requirements on deferred compensation accounts.
|
Executive officers and selected members of management are eligible to participate in the DSP, in which they may elect to defer settlement of RSUs beyond the scheduled vesting date. Dividend equivalents are reinvested during the deferral period. Ms. Foulkes and select members of senior management may participate in the Deferred Compensation Plan (DCP) and the Deferred Stock Plan (DSP). The DCP allows participants to defer payment of a portion of their salary and all or a portion of their annual cash incentive (and in the case of executive officers, all or a portion of any long-term incentive plan cash award) to facilitate their personal retirement or financial planning. For participants in the DCP, we provide a maximum match of up to 5% of the salary and annual cash incentive deferred, plus an additional match for matching contributions only on amounts that cannot be deferred into qualified 401(k) plans due to IRS plan limits. The investment crediting options for the DCP mirror those offered for the CVS Health Future Fund, which is one of the Company’s 401(k) plans. Each year, the amount of a participant’s deferred compensation account increases or decreases based on the appreciation and/or depreciation in the value of the investment crediting alternatives selected by the participant. There are no vesting requirements on deferred compensation accounts. Executive officers and select members of management are eligible to participate in the DSP, in which they may elect to defer settlement of RSUs beyond the scheduled vesting date. Dividend equivalents are reinvested during the deferral period. During 2018, Messrs. Merlo, Roberts and Moriarty deferred portions of their equity-based compensation in the DSP. Executive officers are not permitted to defer proceeds of stock option exercises. | 70 | | 2019 Proxy Statement |
Table of Contents Executive Compensation Tables Nonqualified Deferred Compensation The amounts shown in the table below for “Cash” and “Stock” were deferred pursuant to the DCP and the DSP, respectively. | Nonqualified Deferred Compensation – 2018 |
Name & Principal
2018 Positions | Type | Executive
Contributions
in Last FY
($)1 | Registrant
Contributions
in Last FY
($)2 | Aggregate
Earnings
in Last FY
($)3 | | Aggregate
Withdrawals/
Distributions
($)3 | Aggregate
Balance at
Last FYE
($)4 | | Larry J. Merlo | Cash | 237,440 | 174,190 | (422,931 | ) | — | 6,473,298 | | President and | Stock | 989,942 | — | (4,984,520 | ) | 169,348 | 67,181,711 | | Chief Executive Officer | | | | | | | | | Eva C. Boratto | Cash | 46,215 | 32,465 | (35,244 | ) | — | 482,080 | | Executive Vice President and | Stock | — | — | — | | — | — | | Chief Financial Officer | | | | | | | | | Jonathan C. Roberts | Cash | 276,750 | 104,375 | (339,805 | ) | — | 6,955,048 | | Executive Vice President and | Stock | 1,208,275 | — | (729,959 | ) | 11,652 | 11,773,064 | | Chief Operating Officer | | | | | | | | | Derica W. Rice | Cash | — | — | — | | — | — | | Executive Vice President and | Stock | — | — | — | | — | — | | President – CVS Caremark | | | | | | | | | Thomas M. Moriarty | Cash | 315,000 | — | (522,691 | ) | — | 8,109,971 | | Executive Vice President, | Stock | 314,945 | — | (187,703 | ) | — | 2,772,186 | | Chief Policy and External Affairs Officer | | | | | | | | | and General Counsel | | | | | | | | | David M. Denton | Cash | — | — | (2,460 | ) | — | 37,228 | | Former Executive Vice President and | Stock | — | — | — | | — | — | | Chief Financial Officer | | | | | | | |
| 1 | The cash Executive Contributions in Last FY include amounts shown in the table below for “Cash” and “Stock” were deferred pursuant to the DCP and the DSP, respectively.cvshealthannualmeeting.com | | 59 |
Table of Contents
Executive Compensation Tables: | Payments/(Forfeitures) Under Termination Scenarios |
Nonqualified Deferred Compensation – 2017 |
Name & Principal
2017 Positions | | Type | | Executive
Contributions
in Last FY
($) 1 | | Registrant
Contributions
in Last FY
($) 2 | | Aggregate
Earnings
in Last FY
($) 3 | | | Aggregate
Withdrawals/
Distributions
($) 4 | | Aggregate
Balance at
Last FYE
($) 5 | Larry J. Merlo
President and
Chief Executive Officer | | Cash | | 475,600 | | 187,100 | | 793,772 | | | – | | 6,484,599 | | Stock | | – | | – | | (4,298,131 | ) | | 169,348 | | 71,345,637 | | | | | | | | | | | | | | | David M. Denton
Executive Vice President and
Chief Financial Officer | | Cash | | – | | 10,500 | | 3,262 | | | – | | 39,688 | | Stock | | – | | – | | – | | | – | | – | | | | | | | | | | | | | | Helena B. Foulkes
Executive Vice President and President –
CVS Pharmacy | | Cash | | 397,600 | | 71,600 | | 381,425 | | | – | | 2,797,955 | | Stock | | 1,580,128 | | – | | (281,692 | ) | | – | | 4,110,661 | | | | | | | | | | | | | | Jonathan C. Roberts
Executive Vice President and
Chief Operating Officer | | Cash | | 394,033 | | 96,017 | | 814,602 | | | – | | 6,913,728 | | Stock | | 3,135,501 | | – | | (734,990 | ) | | 11,652 | | 11,306,400 | | | | | | | | | | | | | | Thomas M. Moriarty
Executive Vice President,
Chief Policy and External Affairs Officer
and General Counsel | | Cash | | 1,250,000 | | 10,500 | | 1,491,445 | | | – | | 8,317,662 | | Stock | | 2,341,036 | | – | | (245,564 | ) | | – | | 2,644,944 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The cash contributions include amounts shown for 20172018 in the Salary column of the Summary Compensation Table as follows: for Mr. Merlo, $81,500; for Ms. Foulkes, $47,500; and for Mr. Roberts, $103,333. All other amounts represent non-equity incentive compensation deferred during 2017. The stock contributions for Ms. Foulkes and Messrs. Moriarty and Roberts include deferred settlement under the DSP of RSUs granted in prior years that vested in 2017, and also include the deferred settlement under the DSP of shares granted under the LTIP for the 2014-2016 cycle that were credited to their accounts in 2017. | 2 | All amounts shown are also disclosed in the Summary Compensation Table under “All Other Compensation” and reflect amounts credited and/or earned in 2017. | 3 | All earnings shown on the Stock line are attributable to dividend equivalents credited as additional deferred RSUs and changes in our common stock price. | 4 | All amounts distributed from the DSP include cash dividend equivalent payments. | 5 | The following amounts included in this column have been previously reported in the Summary Compensation Tables of our annual proxy statements since 2007: |
| | Cash | | Stock | | Mr. Merlo | | $3,814,423 | | $19,486,349 | | Mr. Denton | | 31,675 | | – | | Ms. Foulkes | | 912,551 | | – | | Mr. Roberts | | 4,247,025 | | 2,065,065 | | Mr. Moriarty | | 4,562,000 | | – |
Payments/(Forfeitures) Under Termination Scenarios |
The tables below show the amounts that would be received or forfeited by each named executive officer under various termination scenarios, assuming (1) that the termination occurred on December 31, 2017 and (2) that amounts that have been paid or are payable in all events, such as the non-equity incentive amounts earned with respect to fiscal year 2017 and disclosed in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 54, the amounts payableas follows: for Mr. Merlo, $81,500; for Ms. Boratto, $31,515; and for Mr. Roberts, $116,250. All other cash Executive Contributions in Last FY represent Non-Equity Incentive Plan Compensation deferred during 2018. The stock Executive Contributions in Last FY for Mr. Roberts includes deferred settlement under the pension plans discussed beginningDSP of RSUs granted in prior years that vested in 2018. The stock Executive Contributions in Last FY for Messrs. Merlo, Roberts, and Moriarty include the deferred settlement under the DSP of shares of common stock granted under the LTIP for the 2015-2017 performance cycle that were credited to their accounts in 2018.
| | 2 | All amounts shown are also disclosed in the Summary Compensation Table in the “All Other Compensation” column and reflect amounts credited and/or earned in 2018. | | 3 | Aggregate Earnings in Last FY shown on page 58,the Stock line are attributable to dividend equivalents credited as additional deferred RSUs and the performance of our common stock. All amounts distributed from the DSP include cash dividend equivalent payments. | | 4 | The following amounts included in this column have been previously reported in the nonqualified deferred compensation plans discussed beginning on page 59,Summary Compensation Tables of our annual proxy statements since 2007: |
| Cash | Stock | | Mr. Merlo | $4,477,123 | $19,486,349 | | Ms. Boratto | — | — | | Mr. Roberts | 4,737,075 | 4,252,515 | | Mr. Rice | — | — | | Mr. Moriarty | 5,822,500 | 1,249,957 | | Mr. Denton | 42,175 | — |
| cvshealthannualmeeting.com | 71 |
Table of Contents Executive Compensation Tables Payments/(Forfeitures) Under Termination Scenarios | Payments/(Forfeitures) Under Termination Scenarios |
The tables below show the amounts that would be received or forfeited by each Named Executive Officer under various termination scenarios, assuming (1) that the termination occurred on December 31, 2018 and (2) that amounts that have been paid or are payable in all events, such as the non-equity incentive plan amounts earned with respect to fiscal year 2018 and disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table beginning on page 63, the amounts payable under the SERP discussed beginning on page 69, and the amounts in the nonqualified deferred compensation plans discussed beginning on page 70, are not included in the tables below, nor is any amount for stock options that are vested and exercisable as of December 31, 2018. With respect to the tables below: | ● | Messrs. Rice and Moriarty and Ms. Boratto were not eligible for retirement benefits as of December 31, 2017.With respect to the tables below:
● | Messrs. Denton and Moriarty and Ms. Foulkes were not eligible for retirement benefits as of December 31, 2017. | | | ● | The amounts paid as base salary upon voluntary termination for Mr. Merlo reflects2018. | | ● | The amounts paid as base salary upon voluntary termination for Mr. Merlo reflect the Company’s option to continue to pay 50% of his salary for 18 months in consideration for compliance with a non-competition provision. | | ● | The value of options is determined by multiplying the number of unvested options outstanding as of December 31, 2018 by the difference between the exercise price and $65.52, the closing price of our common stock on December 31, 2018, the last trading day of our fiscal year. Generally, the option grant agreements provide for the following post-termination exercise periods, but in no case will the post-termination exercise period be longer than the original option term: | | ● | In the case of termination due to death, during the one-year period following termination; | | ● | In the case of constructive termination without cause prior to a change in control of the Company (CIC), during the severance period; | | ● | In the case of constructive termination without cause after a CIC, during the remainder of the option term; | | ● | In the case of a voluntary termination, awards granted in 2017 and later include a 90-day post-termination option exercise period; options granted before 2017 expire immediately upon a voluntary termination; and | | ● | In the case of termination for cause, generally there is no post-termination exercise period. |
60 | | ● | The value of RSUs is determined by multiplying the number of RSUs as of December 31, 2018 by $65.52, the closing price of our common stock on December 31, 2018, the last trading day of our fiscal year. | | ● | Upon a CIC and subsequent termination of employment, all outstanding unvested stock options will vest in full and restrictions will lapse on all RSUs. | | ● | The value of PSUs and LTIP cycles assumes that pro-rated payments are made for the outstanding 2017 – 2019 LTIP cycle (two-thirds) and 2018 – 2020 LTIP cycle (one-third); a share price of $65.52, the closing price of our common stock on December 31, 2018, the last trading day of our fiscal year; all outstanding performance cycles are assumed to be achieved and paid at target; and all applicable rTSR modifiers are 0%. |
In the event of his covered termination prior to a CIC, Mr. Merlo would receive a cash severance payment equal to two times the sum of his annual base salary and his then-current annual cash incentive at target. In the event of a covered termination following a CIC, Mr. Merlo would receive a cash severance payment equal to three times the sum of his annual base salary and his then-current annual cash incentive at target, but under his Employment Agreement such cash severance would be reduced to avoid the excise tax under IRC Section 280G if that would give Mr. Merlo a better after-tax result. Approved early retirement is defined in Mr. Merlo’s various stock option, PSU and RSU agreements. Larry J. Merlo
President and Chief
Executive Officer | | Death
($) | | Termination
For Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Approved
Early
Retirement
($) | | Cash Severance Value | | | | | | | | | | | | | | | | Base Salary | | — | | — | | | 1,222,500 | | | 3,260,000 | | 4,890,000 | | — | | Bonus | | — | | — | | | — | | | 6,520,000 | | 9,780,000 | | — | | Immediate Vesting of Equity | | | | | | | | | | | | | | | | Value of Options | | 1,304,441 | | (1,304,441 | ) | | (1,304,441 | ) | | 1,304,441 | | 1,304,441 | | 1,304,441 | | Value of RSUs | | 8,378,763 | | (8,378,763 | ) | | (8,378,763 | ) | | 8,378,763 | | 8,378,763 | | 6,581,221 | | Value of PSUs | | 3,554,526 | | (3,554,526 | ) | | (3,554,526 | ) | | 1,184,842 | | 3,554,526 | | 1,184,842 | | Value of LTIP Cycles | | 11,250,000 | | (13,500,000 | ) | | (13,500,000 | ) | | 6,750,000 | | 13,500,000 | | 6,750,000 | | Benefits and Other | | | | | | | | | | | | | | | | Health Insurance | | | | — | | | — | | | 27,885 | | 41,827 | | — | | SERP | | | | — | | | — | | | — | | — | | — | | Excise Tax Gross-Up | | | | — | | | — | | | — | | — | | — | | Total | | 24,487,730 | | (26,737,730 | ) | | (25,515,230 | ) | | 27,425,931 | | 41,449,557 | | 15,820,504 |
| 72 | | 2019 Proxy Statement |
Table of Contents
Executive Compensation Tables: | Payments/(Forfeitures) Under Termination Scenarios |
● | The option value is determined by multiplying the number of unvested options outstanding as of December 31, 2017 by the difference between the exercise price and $72.50, the closing sale price on December 29, 2017, the last trading day of the Company’s fiscal year. Generally, the option grant agreements provide for the following post-termination exercise periods, but in no case will the post-termination exercise period be longer than the original option term:
Table of Contents Executive Compensation Tables Payments/(Forfeitures) Under Termination Scenarios With respect to each of the remaining Named Executive Officers other than Mr. Denton, in the event of his or her termination without cause or constructive termination prior to a CIC, pursuant to a restrictive covenant agreement and the Company’s Severance Plan for Non-Store Employees, the Named Executive Officer is eligible to receive up to 18 months of base salary as severance, paid in equal monthly installments, provided that he or she executes a separation agreement with the Company that includes, among other things, standard restrictive covenants regarding non-competition and non-solicitation of customers and employees. Each of the remaining Named Executive Officers has entered into a CIC Agreement with the Company that specifies payments that would be made to him or her in the event of a CIC. In the event of a covered termination, the Named Executive Officer would receive a cash severance payment equal to one and one-half times the sum of annual base salary and then-current annual cash incentive at target, full value at target achievement level for the 2017-2019 LTIP and 2018-2020 LTIP cycles, and immediate vesting of stock options and RSUs. Under their CIC Agreements, such cash severance would be reduced to avoid the excise tax under IRC Section 280G if that would give the Named Executive Officer a better after-tax result. Tables for each of the remaining Named Executive Officers other than Mr. Denton are set forth below. Eva C. Boratto
Executive Vice President and
Chief Financial Officer | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Cash Severance Value | | | | | | | | | | | | | | Base Salary | | — | | — | | | — | | | 1,275,000 | | 1,275,000 | | Bonus | | — | | — | | | — | | | — | | 1,912,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | Value of Options | | 115,949 | | (115,949 | ) | | (115,949 | ) | | 57,971 | | 115,949 | | Value of RSUs | | 800,130 | | (800,130 | ) | | (800,130 | ) | | 559,475 | | 800,130 | | Value of PSUs | | 315,937 | | (315,937 | ) | | (315,937 | ) | | 105,312 | | 315,937 | | Value of LTIP Cycles | | 4,833,333 | | (5,000,000 | ) | | (5,000,000 | ) | | 1,833,333 | | 5,000,000 | | Benefits and Other | | | | | | | | | | | | | | Health Insurance | | — | | — | | | — | | | 21,793 | | 21,793 | | SERP | | — | | — | | | — | | | — | | — | | Excise Tax Gross-Up | | — | | — | | | — | | | — | | — | | Total | | 6,065,349 | | (6,232,016 | ) | | (6,232,016 | ) | | 3,852,884 | | 9,441,309 |
Jonathan C. Roberts
Executive Vice President
and Chief Operating Officer | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Approved
Retirement
($) | | Cash Severance Value | | | | | | | | | | | | | | | | Base Salary | | — | | — | | | — | | | 1,800,000 | | 1,800,000 | | — | | Bonus | | — | | — | | | — | | | — | | 3,150,000 | | — | | Immediate Vesting of Equity | | | | | | | | | | | | | | | | Value of Options | | 821,314 | | (821,314 | ) | | (821,314 | ) | | 615,984 | | 821,314 | | 615,984 | | Value of RSUs | | 3,791,446 | | (3,791,446 | ) | | (3,791,446 | ) | | 3,791,446 | | 3,791,446 | | 3,691,986 | | Value of PSUs | | 2,238,032 | | (2,238,032 | ) | | (2,238,032 | ) | | 2,238,032 | | 2,238,032 | | 2,238,032 | | Value of LTIP Cycles | | 10,000,000 | | (11,250,000 | ) | | (11,250,000 | ) | | 5,000,000 | | 11,250,000 | | 11,250,000 | | Benefits and Other | | | | | | | | | | | | | | | | Health Insurance | | — | | — | | | — | | | 21,971 | | 21,971 | | — | | SERP | | — | | — | | | — | | | — | | — | | — | | Excise Tax Gross-Up | | — | | — | | | — | | | — | | — | | — | | Total | | 16,850,792 | | (18,100,792 | ) | | (18,100,792 | ) | | 13,467,433 | | 23,072,763 | | 17,796,002 |
| cvshealthannualmeeting.com | 73 |
Table of Contents Executive Compensation Tables Payments/(Forfeitures) Under Termination Scenarios Derica W. Rice
Executive Vice President
and President – CVS Caremark | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Cash Severance Value | | | | | | | | | | | | | | Base Salary | | — | | — | | | — | | | 1,575,000 | | 1,575,000 | | Bonus | | — | | — | | | — | | | — | | 2,362,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | Value of Options | | 554,492 | | (554,492 | ) | | (554,492 | ) | | 193,248 | | 554,492 | | Value of RSUs | | 2,074,625 | | (2,074,625 | ) | | (2,074,625 | ) | | 1,033,578 | | 2,074,625 | | Value of PSUs | | 1,053,168 | | (1,053,168 | ) | | (1,053,168 | ) | | 351,056 | | 1,053,168 | | Value of LTIP Cycles | | 5,990,741 | | (6,423,611 | ) | | (6,423,611 | ) | | 2,574,074 | | 6,423,611 | | Benefits and Other | | | | | | | | | | | | | | Health Insurance | | — | | — | | | — | | | 1,188 | | 1,188 | | SERP | | — | | — | | | — | | | — | | — | | Excise Tax Gross-Up | | — | | — | | | — | | | — | | — | | Total | | 9,673,026 | | (10,105,896 | ) | | (10,105,896 | ) | | 5,728,144 | | 14,044,584 |
Thomas M. Moriarty
Executive Vice President,
Chief Policy and External Affairs Officer
and General Counsel | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Cash Severance Value | | | | | | | | | | | | | | Base Salary | | — | | — | | | — | | | 1,275,000 | | 1,275,000 | | Bonus | | — | | — | | | — | | | — | | 1,912,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | Value of Options | | 483,124 | | (483,124 | ) | | (483,124 | ) | | 241,560 | | 483,124 | | Value of RSUs | | 2,245,370 | | (2,245,370 | ) | | (2,245,370 | ) | | 1,408,156 | | 2,245,370 | | Value of PSUs | | 1,316,493 | | (1,316,493 | ) | | (1,316,493 | ) | | 438,831 | | 1,316,493 | | Value of LTIP Cycles | | 6,750,000 | | (7,375,000 | ) | | (7,375,000 | ) | | 3,083,333 | | 7,375,000 | | Benefits and Other | | | | | | | | | | | | | | Health Insurance | | — | | — | | | — | | | 20,735 | | 20,735 | | SERP | | — | | — | | | — | | | — | | — | | Excise Tax Gross-Up | | — | | — | | | — | | | — | | — | | Total | | 10,794,987 | | (11,419,987 | ) | | (11,419,987 | ) | | 6,467,615 | | 14,628,222 |
On June 6, 2018, the Company announced that Mr. Denton would be leaving CVS Health at the close of the previously announced acquisition of Aetna. The Company entered into a Separation Agreement with him and, on November 19, 2018, Mr. Denton separated under the terms of his Separation Agreement. In connection with Mr. Denton’s departure, CVS Health agreed to provide him 24 months of continued base salary as severance following his last day of employment, as well as subsidized benefits continuation for those 24 months (the Severance Period). He also received a pro-rated bonus for calendar year 2018 based on his actual time worked. Mr. Denton’s stock options and RSU awards will continue to vest through the end of the Severance Period, other than his retention RSU award, which fully vested on his last day of employment and will be settled in accordance with its terms. His outstanding PSU awards and LTIP awards vested on a pro-rated basis through his last day of employment, at target performance levels, and will be settled in accordance with their existing terms. Subject to his compliance with the restrictive covenants and other obligations in the Separation Agreement, Mr. Denton will receive salary continuation of $1,800,000, vesting of equity awards valued as follows: stock options, $289,873; RSUs, $8,426,855; EBITDA PSUs, $385,760; and LTIP cycles, $3,814,459; a one-time payment of attorney’s fees, $15,000; and a payment in respect of a pro-rated 2018 annual bonus, $1,073,925. The value of Mr. Denton’s stock options, RSUs and LTIP cycles is determined on the same basis as for the other NEOs, except that, in accordance with his Separation Agreement, the value of the EBITDA PSUs was pro-rated for his service time during the performance cycle and reflects the cash amount paid to Mr. Denton during 2018, and the LTIP cycles are pro-rated for his service time during the applicable performance cycle. | 74 | | 2019 Proxy Statement |
Table of Contents CEO Pay Ratio 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 offer affordable benefits and programs that meet the diverse needs of our employees and their families. In 2018, we made significant investments in our colleagues including increasing the starting wage to at least $11 per hour effective in April 2018, and by increasing pay ranges and rates for many of our retail employees, to ensure a competitive compensation structure that supports the Company’s plans to evolve its retail stores into a health care destination. In total, these programs are expected to cost CVS Health approximately $425 million annually. As required by the Dodd-Frank Act, we are disclosing the ratio of compensation of Mr. Merlo, our Chief Executive Officer, to that of the employee who has been identified as having annual compensation that is the median of all of our employees. We identified the median employee by ranking the total compensation based on W-2 information for all employees, excluding Mr. Merlo, who were employed by the Company on December 31, 2018. The population of our approximately 238,000 employees includes many part-time, temporary and seasonal workers. Adjustments were made to annualize the compensation of full-time and part-time employees who were not employed by the Company for the entire year. We did not apply any cost-of-living adjustments as part of the calculation. As permitted by SEC rules under thede minimisexception, we excluded approximately 1,350 employees located in Brazil, who represent less than 5% of our total employees. Consistent with our 2017 practice, we also excluded employees who joined CVS Health through businesses that we acquired during 2018, including those from our acquisition of Aetna. Using this methodology, our median employee was determined to be a full-time, hourly employee. The annual compensation for our median employee was $35,529, calculated in accordance with the rules applicable to the Summary Compensation Table (SCT) found beginning on page 63 of this proxy statement. The annual compensation for our median employee includes the company-paid portion of health benefits plus company contributions to our 401(k) plan, if applicable. For 2018, the annual compensation for Mr. Merlo was $21,953,040, which is $13,942 higher than the amount shown in our SCT because of the inclusion of company-paid medical benefits, which are not reflected in the SCT in accordance with SEC rules. The ratio of Mr. Merlo’s annual compensation to that of our median employee for 2018 is 618-to-1. Given the different methodologies that various public companies use to determine their estimates of pay ratio, including different methodologies, exclusions, estimates and assumptions allowed under SEC rules, and different employment and compensation practices among companies, the ratio reported above should not be used as a basis for comparison between CVS Health and other companies. Please note that in 2018, Mr. Merlo’s 2016-2018 performance-based Long-Term incentive Plan (LTIP) award was cash-denominated at grant and thus included as 2018 SCT compensation based on the timing of the final value being earned (rather than in 2016, as it would have been had the award been denominated in shares), per SEC reporting requirements. In 2018, as a result of changing the denomination of the 2018-2020 LTIP awards to PSUs, and in accordance with SEC reporting requirements, Mr. Merlo’s SCT compensation also includes the 2018-2020 LTIP PSU grant. As shown above in the supplemental table on page 41 in the CD&A, Mr. Merlo’s 2018 SCT compensation would have been $3,537,000 lower had we historically been denominating LTIP compensation in shares, and the resulting ratio for Mr. Merlo’s 2018 compensation to that of our median employee would have been 518-to-1. | cvshealthannualmeeting.com | 75 |
Table of Contents Stockholder Proposal ● | In the case of termination due to death, during the one-year period following termination;
| | Item 4: Stockholder Proposal Regarding Exclusion of Legal or Compliance Costs from Financial Performance Adjustments for Executive Compensation | | | | | ● | In the case of constructive termination without cause prior to a change in control of the Company (CIC), during the severance period;
| | | ● | In the case of constructive termination without cause after a CIC, during the remainder of the option term; and
| | | ● | In the cases of termination for cause or voluntary termination, generally there is no post-termination exercise period.
| | |
● | The value of the RSUs is determined by multiplying the number of RSUs as of December 31, 2017 by $72.50, the closing sale price on December 29, 2017, the last trading day of our fiscal year.
| | |
● | Upon a CIC and subsequent termination of employment, all outstanding unvested stock options will vest in full and restrictions will lapse on all RSUs.
| | | ● | The value of LTIP cycles assumes that pro-rated payments are made for the outstanding 2016 – 2018 LTIP cycle (two-thirds) and 2017 – 2019 LTIP cycle (one-third); all outstanding performance cycles are assumed to be achieved at target and the value of prorated payments are made at target.
|
In the event of his covered termination prior to a CIC, Mr. Merlo would receive a cash severance payment equal to two times the sum of his annual base salary and his then-current annual cash incentive at target. In the event of a covered termination following a CIC, Mr. Merlo would receive a cash severance payment equal to three times the sum of his annual base salary and his then-current annual cash incentive at target, but under his amended employment contract such cash severance would be reduced to avoid the excise tax under IRC Section 280G if that would give Mr. Merlo a better after-tax result. Early retirement is defined in Mr. Merlo’s Employment Agreement and in his various stock option and RSU agreements. See “Agreements with Executive Officers” on page 50 for additional information.
Larry J. Merlo
President and Chief
Executive Officer | | Death
($) | | Termination
For Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Approved
Early
Retirement
($) | | Cash Severance Value | | | | | | | | | | | | | | | | Base Salary | | – | | – | | | 1,222,500 | | | 3,260,000 | | 4,890,000 | | – | | Bonus | | – | | – | | | – | | | 6,520,000 | | 9,780,000 | | – | | Immediate Vesting of Equity | | | | | | | | | | | | | | | | Value of Options | | – | | – | | | – | | | – | | – | | – | | Value of RSUs | | 13,348,410 | | (13,348,410 | ) | | (13,348,410 | ) | | 13,348,410 | | 13,348,410 | | 8,986,956 | | Value of LTIP Cycles | | 6,750,000 | | (6,750,000 | ) | | (6,750,000 | ) | | 6,750,000 | | 13,500,000 | | 6,750,000 | | Benefits and Other | | | | | | | | | | | | | | | | Health Insurance | | – | | – | | | – | | | 26,425 | | 39,637 | | – | | SERP | | – | | – | | | – | | | – | | – | | – | | Excise Tax Gross-Up | | – | | – | | | – | | | – | | – | | – | | Total | | 20,098,410 | | (20,098,410 | ) | | (18,875,910 | ) | | 29,904,835 | | 41,558,407 | | 15,736,956 |
With respect to each of the remaining named executive officers, in the event of his or her termination without cause or constructive termination prior to a CIC, pursuant to a restrictive covenant agreement and the Company’s Severance Plan for Non-Store Employees, the named executive officer is eligible for severance payments, provided that he or she executes a separation agreement with the Company that includes, among other things, standard restrictive covenants regarding non-competition and non-solicitation of customers and employees. In the event the named executive officer is terminated by the Company without cause or experiences a constructive termination prior to a CIC, he or she is eligible to receive up to 18 months of base salary as severance, paid in equal monthly installments, in consideration for a general release of claims and compliance with various restrictive covenants, including non-competition and non-solicitation
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Table of Contents
Executive Compensation Tables: | Payments/(Forfeitures) Under Termination Scenarios |
provisions. Each of the remaining named executive officers has entered into a CIC Agreement with the Company that specifies payments that would be made to him or her in the event of a CIC. In the event of a covered termination, the named executive officer 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 2016-2018 LTIP and 2017-2019 LTIP cycles, and immediate vesting of stock options and RSUs. Under the amended CIC Agreement such cash severance would be reduced to avoid the excise tax under IRC Section 280G if that would give the named executive officer a better after-tax result. Tables for each of the remaining named executive officers are set forth below.
David M. Denton
Executive Vice President and
Chief Financial Officer | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Cash Severance Value | | | | | | | | | | | | | | Base Salary | | – | | – | | | – | | | 1,275,000 | | 1,275,000 | | Bonus | | – | | – | | | – | | | – | | 1,912,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | Value of Options | | – | | – | | | – | | | – | | – | | Value of RSUs | | 11,083,583 | | (11,083,583 | ) | | (11,083,583 | ) | | 1,936,040 | | 11,083,583 | | Value of LTIP Cycles | | 2,000,000 | | (2,000,000 | ) | | (2,000,000 | ) | | 2,000,000 | | 4,000,000 | | Benefits and Other | | | | | | | | | | | | | | Health Insurance | | – | | – | | | – | | | 20,703 | | 20,703 | | SERP | | – | | – | | | – | | | – | | – | | Excise Tax Gross-Up | | – | | – | | | – | | | – | | – | | Total | | 13,083,583 | | (13,083,583 | ) | | (13,083,583 | ) | | 5,231,743 | | 18,291,786 | | | Helena B. Foulkes
Executive Vice President and
President – CVS Pharmacy | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Cash Severance Value | | | | | | | | | | | | | | Base Salary | | – | | – | | | – | | | 1,425,000 | | 1,425,000 | | Bonus | | – | | – | | | – | | | – | | 2,137,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | Value of Options | | – | | – | | | – | | | – | | – | | Value of RSUs | | 3,711,348 | | (3,711,348 | ) | | (3,711,348 | ) | | 1,293,328 | | 3,711,348 | | Value of LTIP Cycles | | 2,000,000 | | (2,000,000 | ) | | (2,000,000 | ) | | 2,000,000 | | 4,000,000 | | Benefits and Other | | | | | | | | | | | | | | Health Insurance | | – | | – | | | – | | | 20,839 | | 20,839 | | SERP | | – | | – | | | – | | | – | | – | | Excise Tax Gross-Up | | – | | – | | | – | | | – | | – | | Total | | 5,711,348 | | (5,711,348 | ) | | (5,711,348 | ) | | 4,739,167 | | 11,294,687 |
62 | | 2018 Proxy Statement |
Table of Contents
Executive Compensation Tables: | Payments/(Forfeitures) Under Termination Scenarios |
Jonathan C. Roberts
Executive Vice President
and Chief Operating Officer | | Death
($) | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Approved
Retirement
($) | | Cash Severance Value | | | | | | | | | | | | | | | | | Base Salary | | – | | – | | | – | | | 1,575,000 | | | 1,575,000 | | – | | Bonus | | – | | – | | | – | | | – | | | 2,756,250 | | – | | Immediate Vesting of Equity | | | | | | | | | | | | | | | | | Value of Options | | – | | – | | | – | | | – | | | – | | – | | Value of RSUs | | 5,131,550 | | (5,131,550 | ) | | (5,131,550 | ) | | 2,141,251 | | | 5,131,550 | | 4,936,525 | | Value of LTIP Cycles | | 3,250,000 | | (3,250,000 | ) | | (3,250,000 | ) | | 3,250,000 | | | 6,750,000 | | 5,750,000 | | Benefits and Other | | | | | | | | | | | | | | | | | Health Insurance | | – | | – | | | – | | | 20,905 | | | 20,905 | | – | | SERP | | – | | – | | | – | | | – | | | – | | – | | Excise Tax Gross-Up | | – | | – | | | – | | | – | | | – | | – | | Total | | 8,381,550 | | (8,381,550 | ) | | (8,381,550 | ) | | 6,987,156 | | | 16,233,705 | | 10,686,525 | | | Thomas M. Moriarty
Executive Vice President,
Chief Policy and External Affairs Officer
and General Counsel | | | | Death
($) | | | Termination
for Cause
($) | | | Voluntary
Termination
($) | | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
Prior to CIC
($) | | Termination
w/o Cause or
Constructive
Termination
w/o Cause
After CIC
($) | | Cash Severance Value | | | | | | | | | | | | | | | | | Base Salary | | | | – | | | – | | | – | | | 1,125,000 | | 1,125,000 | | Bonus | | | | – | | | – | | | – | | | – | | 1,687,500 | | Immediate Vesting of Equity | | | | | | | | | | | | | | | | | Value of Options | | | | – | | | – | | | – | | | – | | – | | Value of RSUs | | | | 3,165,930 | | | (3,165,930 | ) | | (3,165,930 | ) | | 1,393,160 | | 3,165,930 | | Value of LTIP Cycles | | | | 1,875,000 | | | (1,875,000 | ) | | (1,875,000 | ) | | 1,875,000 | | 3,750,000 | | Benefits and Other | | | | | | | | | | | | | | | | | Health Insurance | | | | – | | | – | | | – | | | 19,481 | | 19,481 | | SERP | | | | – | | | – | | | – | | | – | | – | | Excise Tax Gross-Up | | | | – | | | – | | | – | | | – | | – | | Total | | | | 5,040,930 | | | (5,040,930 | ) | | (5,040,930 | ) | | 4,412,641 | | 9,747,911 |
cvshealthannualmeeting.com | | 63 |
Table of Contents
CEO Pay Ratio
We invest in our employees at all levels in 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 offer affordable benefits and programs that meet the diverse needs of our employees and their families. In February 2018, we announced significant investments in our colleagues including increasing the starting wage to at least $11 per hour effective in April 2018, and increasing pay ranges and rates for many of our retail employees effective July 2018, to ensure a competitive compensation structure that supports the Company's plans to evolve its retail stores into a health care destination. In addition, as part of ensuring access to affordable health care, CVS Health did not increase employee premiums for the 2018-2019 plan year. And, the Company created a new paid parental leave program that was effective in April 2018.
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, 2017. 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 notapply any cost-of-living adjustments as part of the calculation. As permitted by SEC rules under the deminimis exception, we excluded approximately 1,300 employees located in Brazil, who represent less than 5% of our total employees. We also excluded employees who joined CVS Health through businesses that we acquired during 2017.
Using this methodology, our median employee was determined to be a full-time, hourly employee. The annual compensation for our median employee was $38,372, calculated in accordance with the rules applicable to the Summary Compensation Table (SCT) found on page 54 of this proxy statement. The annual compensation for our median employee includes the company-paid portion of health benefits plus company contributions to our 401(k) plan. For 2017, the annual compensation for Mr. Merlo was $12,266,076, which is $13,212 higher than the amount shown in our SCT because of the inclusion of company-paid medical benefits, which are not reflected in the SCT in accordance with SEC rules.The ratio of Mr. Merlo’s annual compensation to that of our median employee for 2017 is 320-to-1.
Given the different methodologies that various public companies will use to determine their estimates of pay ratio, including different methodologies, exclusions, estimates and assumptions allowed under SEC rules, and different employment and compensation practices among companies, the ratios reported above should not be used as a basis for comparison between CVS Health and other companies.1
1 | Note that in 2017 and prior years, a portion of Mr. Merlo’s performance-based long-term incentive compensation was cash-denominated at grant and thus not included in the SCT until after the vesting period when the value earned had been determined, per SEC reporting requirements. However, beginning in 2018, this portion of Mr. Merlo’s compensation will be denominated in shares and thus will be included the SCT in the year of grant. As shown above in a supplemental table on page 37 in the CD&A, Mr. Merlo’s 2017 annual compensation in the SCT would have been $5,760,000 higher had we historically been denominating this compensation in shares, and the resulting ratio for Mr. Merlo’s annual compensation to that of our median employee would have been 470-to-1. |
64 | | 2018 Proxy Statement |
Table of Contents
Additional Management Proposal
Item 4: Proposal to Approve an Amendment to the Company’s Certificate of Incorporation to Reduce the Threshold for Our Stockholders’ Right to Call Special Meetings |
The Board recommends that the Company’s stockholders approve an amendment to the Company’s Amended and Restated Certificate of Incorporation (the Charter) that would change the threshold required for stockholders to call a special meeting of stockholders from the existing twenty-five (25%) percent of the voting power of the Company’s outstanding capital stock to fifteen percent (15%) of the voting power of the Company’s outstanding capital stock. We refer to the proposed amendment as the Charter Amendment.
The Company’s stockholders have had the right to call a special meeting of stockholders since 2010. While the Board continues to believe that the 25% threshold was appropriate, the Board also recognizes that, at the 2017 Annual Meeting of Stockholders, a majority of our stockholders (approximately 52% of votes cast, and 40% of shares outstanding) voted in favor of a stockholder proposal to lower the threshold to fifteen percent (15%). The Board is therefore recommending that stockholdersapprovethe Charter Amendment. The Board believes, however, that a special meeting should only be held to cover special or extraordinary events when fiduciary, strategic, significant transactional or similar considerations dictate that the matter be addressed on an expeditious basis, ratherthan waiting until the next annual meeting. Organizing and preparing for a special meeting involves significant management commitment of time and focus, and imposes substantial legal, administrative and distribution costs. The Board believes that setting the threshold too low would carry a risk of frequent meeting requests, potentially covering agenda items relevant to particular constituencies as opposed to stockholders generally, with attendant significant cost, management distraction and diversion of management and financial resources.
The complete text of the proposed Charter amendment is set forth inExhibit A.
The proposed Charter Amendment under this Item 4 requires the affirmative vote of a majority of our outstanding shares of common stock. If the Charter Amendment is approved, it will become effective upon filing with the Delaware Secretary of State, which filing will be completed promptly after the Annual Meeting. The Board has also adopted a corresponding amendment to the threshold for the calling of special meetings found in the Company’s Amended and Restated By-laws, to be effective upon the approval by stockholders of the Company’s proposal to amend the Charter and the subsequent filing of the Charter Amendment with the Delaware Secretary of State.
The Board unanimously recommends a vote✓ FOR approval of the Amendment to the Company’s Certificate of Incorporation.
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Table of Contents
Stockholder Proposal
Item 5: Stockholder Proposal Regarding Executive Pay Confidential Voting |
On or about November 26, 2017 (revised November 30, 2017),December 19, 2018, the Company received the following proposal from Mr. William Steiner, c/o Komlossy Law,The City of Philadelphia Public Employees Retirement System (the “PPERS”), Sixteenth Floor, Two Penn Center Plaza, Philadelphia, PA 4700 Sheridan Street, Suite J, Hollywood, FL 33021, and his proxy John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, who represent19102-1712, which represents that Mr. Steiner is the beneficial owner of no lessPPERS has held more than 100 shares$2,000 worth of the Company’s stock. In accordance with SEC rules, we are reprinting the proposal and supporting statement (which we refer to as the William Steiner Proposal)“PPERS Proposal”) in this proxy statement as they were submitted to us: Proposal 5 – Executive Pay Confidential Voting
Shareholders request ourRESOLVED that shareholders of CVS Health Corporation (“CVS”) urge the Board of Directors to take the steps necessary to adopt a policy that no financial performance metric shall be adjusted to exclude Legal or Compliance Costs when evaluating performance for purposes of determining the amount or vesting of any senior executive Incentive Compensation award. “Legal or Compliance Costs” are expenses or charges associated with any investigation, litigation or enforcement action related to drug manufacturing, sales, marketing or distribution, including legal fees; amounts paid in fines, penalties or damages; and amounts paid in connection with monitoring required by lawany settlement or judgment of claims of the kind described above. “Incentive Compensation” is compensation paid pursuant to short-term and long-term incentive compensation plans and programs. The policy should be implemented in a way that priordoes not violate any existing contractual obligation of the Company or the terms of any compensation or benefit plan.
SUPPORTING STATEMENT As CVS shareholders, we support compensation arrangements that incentivize senior executives to drive growth while safeguarding company operations and reputation over the long-term. CVS adjusts certain financial metrics when calculating progress on goals for the purposes of awarding incentive compensation. While some adjustments may be appropriate, we believe senior executives should not be insulated from legal risks, particularly on matters that are core to the Annual Meeting,company’s business. These considerations are especially critical at CVS given the preliminary outcomepotential reputational, legal and regulatory risks CVS faces over its role in the nation’s opioid epidemic. In June 2018, the U.S. Attorney’s Office for the Eastern District of votes castNew York announced that CVS agreed to settle claims that a number of its pharmacy stores located in Long Island violated the federal Controlled Substances Act (“CSA”) by failing to timely report the loss or theft of controlled substances, including hydrocodone. Pharmacies, such as CVS, are required by the CSA to promptly report the loss or theft of controlled substances to the DEA. (https://www.justice.gov/usao-edny/pr/cvs-pharmacy-inc-pay-15-million-settle-civil-penalty-claims-violations-controlled) In its August 2018 quarterly report, CVS disclosed that it is named in more than 200 federal court cases filed by counties, cities, hospitals, Indian tribes, and others, asserting claims regarding the impacts of prevalent opioid abuse. Approximately 25 similar cases that name the Company in some capacity are pending in state courts. As of July 2018, theWall Street Journal reported that over 600 lawsuits have been filed by municipalities, states and Native American tribes related to the opioid epidemic. The majority of these lawsuits have been consolidated to the Northern District Court of Ohio, where CVS is one of the named defendants. (https:/www.wsj.com/articles/ new-front-on-opioid-litigation-suits-over-rising-premiums-1525279402) In the midst of such scrutiny, we take issue with CVS’s use of adjusted operating profit and adjusted return on net assets, each of which exclude legal settlements, according to page 52 of CVS’s 2018 proxy statement. We believe a superior approach is to include Legal and Compliance Costs, particularly those associated with opioid litigation. We urge shareholders to vote for this proposal. |
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Table of Contents Stockholder Proposal Item 4 STATEMENT OF THE BOARD OF DIRECTORS RECOMMENDING A VOTE AGAINST THE PHILADELPHIA PUBLIC EMPLOYEES RETIREMENT SYSTEM PROPOSAL The PPERS Proposal requests that the Board adopt a policy that would require that all financial performance metrics used to determine performance for calculating senior executive incentive compensation award not exclude expenses or charges associated with any investigation, litigation or enforcement action related to drug manufacturing, sales, marketing or distribution, including legal fees, amounts paid in fines, penalties or damages. By imposing a broad and indiscriminate restriction, the PPERS Proposal does not provide the Board and its Management Planning and Development Committee (the “MP&D Committee”) with any flexibility to address factors that would be critical in assessing whether such costs should in fact be considered in calculating executive incentive compensation. The PPERS Proposal unduly restricts the ability of the Board and the MP&D Committee to distinguish between matters that relate to an action for which the Company was successful in its defense, matters that arise from a business dispute in the ordinary course or a matter that relates to a decision attributable to a prior management team for whom compensation decisions are not being made. In the ordinary course of business, the Company is subject to a number of frivolous and meritless suits which the Company, in the best interests of its shareholders, aggressively defends. Under the PPERS Proposal, the costs and expenses of a successful defense of any such matter, as well as the costs and expenses associated with a business dispute with a supplier or a contractual party that breach the terms of an agreement, could not be excluded from calculations necessary to determine executive incentive compensation. In including, for example, all possible litigation claims that could be made against the Company, the PPERS Proposal, which is predicated on the idea that “senior executives should not be insulated from legal risks” is a standard that goes far beyond the stated objective. The Company believes that decisions related to legal risks faced by the Company and the responsibility for managing those risks are nuanced and an arbitrary policy reflected by the PPERS Proposal ignores many important considerations. The Company believes the Board is best suited to address these matters. The MP&D Committee is composed entirely of independent, non-management directors who are best equipped to make decisions about metric selection and adjustments for use in our incentive compensation program, which is currently aligned with our stated strategic objectives and the long-term interests of our stockholders. The MP&D Committee carefully selects performance metrics for executive compensation, taking into account feedback from our annual stockholder engagement efforts, and sets goals based on available information at the time the goals are set. The PPERS Proposal would unduly restrict the MP&D Committee’s judgment in determining executive compensation levels and structure, and limit the Committee’s ability to be flexible and responsive. The MP&D Committee has selected certain non-GAAP metrics for our compensation program. It believes that adjustments to some financial measures are necessary to assess our year-over-year performance and can provide a more accurate view of our core operational performance. The Committee cannot anticipate extraordinary matters that may occur in the future, and each year has consistently applied adjustments, both positively and negatively, when evaluating the Company’s performance at the end of a period. In the event any additional adjustments are made, we disclose the circumstances and rationale. Further, we are transparent about our use of non-GAAP measures and provide a detailed explanation regarding how non-GAAP measures have been calculated. For an explanation of non-GAAP measures included in this proxy statement, see page 60 and Annex A. The MP&D Committee considers risk management criteria, but it does so in a holistic manner by considering the facts and circumstances of events, including litigation brought against or by the Company. Our businesses operate in highly regulated and litigious industries. As disclosed in our quarterly and annual securities filings, we are currently subject to various litigation matters, investigations, audits, inspections, government inquiries, and regulatory and legal proceedings, including the matters described in the PPERS Proposal. The Company is defending all such matters and we believe that our commitment to compliance mitigates compliance risk and litigation exposure. Our President and Chief Executive Officer and our Board have established an enterprise-wide culture that promotes the importance of compliance. Our compliance program, including our Code of Conduct adopted by the Board of Directors, incorporates the seven elements of an effective program as outlined in the Federal Sentencing Guidelines, and applies broadly to all colleagues, vendors and the Board of Directors.
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Table of Contents Stockholder Proposal Item 4 CVS Health has made addressing the opioid abuse epidemic a cornerstone of our social responsibility initiatives. We have enhanced the Company’s broad commitment to fighting the national opioid abuse epidemic and are dedicated to helping the communities we serve address and prevent opioid abuse. We have implemented company-wide initiatives supporting safe drug disposal, utilization management of pain medications and funding for treatment and recovery programs. Additional information about these initiatives can be found inside the back cover of this proxy statement, in our 2018 Corporate Social Responsibility Report, available at https://cvshealth.com/social-responsibility/corporate-social-responsibility-csr, and on certain executive pay matters, including a running tallyour opioid response website page, available at http://www.cvshealth.com/OpioidResponse. Our investments work to ensure clear, safe and effective protocols for opioid prescriber practices, to strengthen and systematize partnerships with specialists and community-based organizations, and to help create safe, non-judgmental environments for all patients. We are not alone in making these kinds of votes forinvestments and against, shalltaking positive steps to address the opioid abuse epidemic – many in our industry are doing the same. The opioid abuse epidemic requires these kinds of efforts, along with partnerships with local, state and federal policymakers. A policy like the PPERS Proposal is not be availablean appropriate or effective response to management orthe opioid abuse epidemic facing our country. In summary, the Board believes the PPERS Proposal is overly broad and would unnecessarily limit the ability of the Board and shallits MP&D Committee to design and administer the Company’s incentive compensation program. We also believe that the PPERS Proposal is not be usedan appropriate response to solicit votes. Certain maters [sic] include the topicsopioid abuse epidemic facing our country. Further, we believe that adoption of say on executive pay and management-sponsored or board-sponsored resolutions seeking approval of executive pay plans. This proposal wouldthe policy requested by the proponent does not prohibit management accessserve to shareholder comments submitted along with shareholder meeting ballots. This proposalenhance a compensation decision-making process that is limited to executive pay items. Shareholders could still waive the confidentiality of their ballots on executive pay items – for instance by checking a boxfocused on the ballot. Our management can now monitor incoming votes and then use shareholder money to blast shareholders with costly solicitations on matters where they have a direct self-interest such as the ratification of lucrative stock options and to obtain artificially high votes for their lucrative executive pay.
Our management can now do an end run on the effectiveness of say on pay votes. Instead of improving executive pay practices in response to disapproving shareholder votes, our management can efficiently manipulate the say on pay vote to a higher percentage. Without confidential voting our management can simply blast shareholders by using multiple professional proxy solicitor firms at shareholder expense (no disclosure of the cost) with one-way communication by mail and electronic mail (right up to the deadline) to artificially boost the vote for their self-interest executive pay ballot items.
38% of shares rejected CVS executive pay at our 2017 annual meeting. This compares to a 5% rejection rate at many companies. It is important for shareholders that the company get executive pay right in order to give management the best-focused incentive for long-term shareholder value.
Meanwhile shareholders gave 52%-support to a 2017 shareholder proposals [sic] asking for an improved shareholder right to call a special meeting.
Other issues of concern at CVS included our Audit Committee Chairman Richard Swift being overworked by serving on 4 additional boards including as Lead Director at Ingersoll-Rand plc. In addition, CVS' s Audit Committee was not fully independent due to the membership of Richard Bracken, a retired Chairman/CEO of HCA Holdings, Inc. The Audit Committee demands heightened director independence.
Anne Finucane, who was on our Nomination Committee [sic], received up to 35-times as many negative votes as other CVS directors. Thus serious consideration should be given to removing Ms. Finucane from any important CVS Board Committee.
Nell Minow, co-author of Power and Accountability (with Robert A.G. Monks) said, “If the board can’t get executive compensation right, it’s been shown it won’t get anything else right either.”
Please vote to enhance CVS accountability to shareholders
Executive Pay Confidential Voting – Proposal 5
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Stockholder Proposal: | Item 5 |
Statement of the Board of Directors Recommending a Vote AGAINST the William Steiner Proposal
CVS Health is strongly committed to good governance practices and is keenly interested in the views and concerns of our stockholders. The Board recommends a voteAGAINSTthe William Steiner Proposal because it would undermine CVS Health’s ability to engage with stockholders to better understand and respond to their concerns. Additionally, it would restrict our management’s and the Board’s access to routine information that allows us to efficiently monitor the overall voting results and conduct our annual meeting of stockholders. Moreover, the proposed bylaw simply is unnecessary to allow stockholders to keep their votes confidential on executive compensation matters.
CVS Health regularly engages in an open and transparent dialogue with stockholders regarding a variety of issues, including executive compensation and governance matters, to better understand their views and concerns. We and our stockholders mutually benefit from this exchange. The Company believes this dialogue is an important component to our ongoing growth.
This proposal would eliminate a key aspect of our ability to understand stockholder views on our executive compensation. Although CVS Health actively monitors stockholder input throughout the year, the period leading up to our annual meeting of stockholders is a particularly important time for stockholders to provide feedback and express their concerns regarding executive compensation matters. Preliminary voting information helps CVS Health to identify institutions or groups of stockholders who likely have not yet voted on proposals. Based on an analysis of preliminary voting information, our management and Board can engage directly to conduct productive meetings with those stockholders prior to the final vote tally to determine how best to respond to stockholders’ concerns, clarify any points of confusion, and encourage voting.
Preventing our management and the Board from monitoring aggregate voting results and thereby restricting access to routine information regarding our annual meeting processes would hinder our ability to effectively engage with stockholders and allocate our stockholder engagement resources in a cost-effective and productive manner.
Finally, this proposal is not necessary to provide our stockholders with the ability to keep their voting decisions confidential. The Corporate Governance Guidelinesperformance of CVS Health, include a provision ensuring the confidentiality of all stockholder votes on all matters. Under this policy, all ballots, proxy formstaking into account best practices, market competitiveness and voting instructions returned to banks, brokerage firmsour strategic, operational and financial goals and other holdersappropriate factors in the Committee’s judgment. Adoption of record are kept confidential. Only the proxy solicitor, proxy tabulatorPPERS Proposal would not support these objectives and would not be in the Inspector of Election, none of whom are CVS Health employees, have access to the individual ballots, proxy forms and voting instructions. Manybest interests of our stockholders hold their shares through a bank or broker, which means CVS Health has access only to the name of the bank or broker, but not to the name of the stockholder who is the actual beneficial owner. Stockholders who hold their shares through a bank or broker can elect to have their identity withheld from CVS Health, thereby keeping their voting status confidential. For the overwhelming majority of our stockholders, who in fact hold their shares through banks or brokers, individual voting decisions are already confidential. Any stockholder who owns shares of CVS Health in their own name (i.e., not through a bank or broker) can obtain the same confidentiality by re-registering their shares in the name of a bank or broker. As a result, a mechanism already exists that allows stockholders to choose whether or not they want to keep their voting decisions confidential, and our policy is to keep individual voting decisions confidential in any event. The by-law described in this proposal is both unnecessary and likely to result in inefficiency in CVS Health’s engagement with its stockholders.
|  | The Board unanimously recommends a vote✕ AGAINSTthe William SteinerPPERS Proposal. cvshealthannualmeeting.com | | 67 |
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Table of Contents Executive Officers and Ownership of and Trading in Our Stock | Table Executive Officers of ContentsOwnership of and Trading in Our Stock
Executive Officer and Director Stock Ownership Requirements |
CVS Health has long been mindful |
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: Lisa G. Bisaccia, age 62, Executive Vice President of CVS Health since March 2016 and Chief Human Resources Officer of CVS Health since January 2010; Senior Vice President of CVS Health from January 2010 through February 2016. Ms. Bisaccia is also a member of the board of the importance of equity ownership by directors of Aramark, a leading global provider of food, facilities and uniform services. Eva C. Boratto, age 52, Executive Vice President and Chief Financial Officer of CVS Health since November 2018; Executive Vice President – Controller and Chief Accounting Officer of CVS Health from March 2017 through November 2018; Senior Vice President – Controller and Chief Accounting Officer of CVS Health from July 2013 through February 2017. Troyen A. Brennan, M.D., age 64, Executive Vice President and Chief Medical Officer of CVS Health since November 2008; Executive Vice President and Chief Medical Officer of Aetna from February 2006 through November 2008. James D. Clark, age 54, Senior Vice President – Controller and Chief Accounting Officer of CVS Health since November 2018; Vice President – Finance and Accounting of CVS Pharmacy, Inc. (CVS Pharmacy) from September 2009 through October 2018. Joshua M. Flum, age 49, Executive Vice President, Enterprise Strategy and Digital of CVS Health since November 2018; Executive Vice President, Corporate Strategy and Business Development of CVS Pharmacy from June 2016 through October 2018; Executive Vice President – Pharmacy Services of CVS Pharmacy from March 2015 through May 2016; Senior Vice President of Retail Pharmacy of CVS Pharmacy from December 2010 through February 2015. Mr. Flum is a member of the board of directors of CreditRiskMonitor.com, Inc., a company that facilitates the analysis of corporate financial risk, mostly in the context of the extension of trade credit from one business to another. Kevin P. Hourican, age 45, Executive Vice President of CVS Health and President of CVS Retail since April 2018; Executive Vice President – Retail Pharmacy and Supply Chain of CVS Pharmacy from June 2016 through March 2018; Senior Vice President, Field Operations and Supply Chain of CVS Pharmacy from June 2014 through May 2016; Senior Vice President, Field Operations of CVS Pharmacy from June 2012 through May 2014. Alan M. Lotvin, M.D., age 57, Executive Vice President — Transformation of CVS Health since June 2018; Executive Vice President – Specialty Pharmacy, CVS Caremark from November 2012 through May 2018. Karen S. Lynch, age 56, Executive Vice President of CVS Health and President of the Aetna Business Unit since November 2018; President of Aetna from January 2015 to the present; Executive Vice President, Local and Regional Businesses of Aetna from February 2013 through December 2014; Executive Vice President, Head of Specialty Products of Aetna from July 2012 through January 2013. Ms. Lynch is a member of the board of directors of U.S. Bancorp, a banking and financial services company. Larry J. Merlo, age 63, President and Chief Executive Officer of CVS Health since March 2011; President and Chief Operating Officer of CVS Health from May 2010 through March 2011; President of CVS Pharmacy from January 2007 through August 2011; Executive Vice President of CVS Health from January 2007 through May 2010; also a director of CVS Health since May 2010. See Mr. Merlo’s Director biography on page 15. Thomas M. Moriarty, age 55, Executive Vice President and General Counsel of CVS Health since October 2012 and Chief Policy and External Affairs Officer since March 2017; Chief Strategy Officer from March 2014 through February 2017. Derica W. Rice, age 54, Executive Vice President of CVS Health and President of CVS Caremark since March 2018; Executive Vice President of Global Services and Chief Financial Officer of Eli Lilly and Company from May 2006 through December 2017. Mr. Rice was formerly a director of Target Corporation from September 2007 until January 2018, and became a director of The Walt Disney Company in March 2019. Jonathan C. Roberts, age 63, Executive Vice President and Chief Operating Officer of CVS Health since March 2017; Executive Vice President of CVS Health and President of CVS Caremark from September 2012 through February 2017; Executive Vice President of CVS Health and Chief Operating Officer of CVS Caremark from October 2010 through August 2011. | cvshealthannualmeeting.com | 79 |
Table of Contents Executive Officers and Ownership of and Trading in Our Stock Executive Officer and Director Stock Ownership Requirements | Executive Officer and executive management as an effective link to stockholders and, as such, the Board maintains stock ownership guidelines for all directors, as well as for the officers serving on the Company’s Business Planning Committee (BPC), and requires that directors and BPC members achieve compliance with the ownership requirements within five years of becoming a director or BPC member.Our named executive officers, who appear in the Summary Compensation Table on page 54, must maintain ownership levels as set forth in the table below. Shares included in thecalculationDirector 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 BPC, and requires that directors and BPC members achieve compliance with the ownership requirements within five years of becoming a director or BPC member. In November 2018, the Management Planning and Development Committee voted to increase the multiples for the CEO and the members of the BPC and also expanded ownership requirements to include minimum ownership levels for all corporate-level executive vice presidents and senior vice presidents. Our Named Executive Officers, who appear in the Summary Compensation Table beginning on page 63, must maintain ownership levels as set forth in the table below. Shares included in the calculation to assess compliance with the guidelines include shares owned outright, unvested RSUs, shares held in the Deferred Stock Compensation Plan and shares purchased through our Employee Stock Purchase Plan. Unexercised stock options do not count toward satisfying the guidelines. The Board believes that these requirements emphasize the importance of equity ownership for the Board and executive management, which in turn reinforces alignment with stockholder interests. To further reinforce this commitment, the Board annually reviews this policy and compliance by directors and executives. | Executive Name | | Multiple of Salary
Required | | In Compliance | | Larry J. Merlo | | 7x | | Yes | | Eva C. Boratto | | 4x | | Yes | | Jonathan C. Roberts | | 4x | | Yes | | Derica W. Rice | | 4x | | Yes | | Thomas M. Moriarty | | 4x | | Yes | | David M. Denton | | 4x | | Yes |
All non-employee directors must own a minimum of 10,000 shares of CVS Health common stock, which is worth $574,000 based on the March 21, 2019 closing price of our common stock of $57.40, or approximately 8.2 times the amount of the annual cash retainer ($70,000). Directors must attain this minimum ownership level within five years of being elected to the Board and must retain this minimum ownership level for at least six months after leaving the Board. The current level of stock pay in the director’s mix of annual compensation is intended to facilitate the directors’ ability to meet the ownership level within the timeframe. Each of our directors who has served in such capacity for at least five years has timely attained the minimum ownership level, as have Messrs. Aguirre, Bertolini, and Ludwig. Ms. Schapiro and Mr. Farah are on track to meet this requirement. | 80 | | 2019 Proxy Statement |
Table of Contents Executive Officers and Ownership of and Trading in Our Stock Share Ownership of Directors and Certain Executive Officers | Share Ownership of Directors and Certain Executive Officers |
The following table shows the share ownership, as of March 21, 2019, of each director, each Named Executive Officer appearing in the Summary Compensation Table beginning on page 63 and all directors and executive officers as a group, based on information provided by these individuals. Each individual beneficially owns less than 1% of our common stock and, except as described in the footnotes to the table, each person has sole investment and voting power over the shares. None of the shares listed below has been pledged as collateral. | | Ownership of Common Stock1 | | Name | | Number | | | Percent | | Fernando Aguirre | | 16,890 | 2 | | * | | Mark T. Bertolini | | 110,072 | 3 | | * | | Eva C. Boratto | | 153,634 | 1,4 | | * | | Richard M. Bracken | | 11,392 | | | * | | C. David Brown II | | 170,807 | 5 | | * | | Alecia A. DeCoudreaux | | 13,718 | 5 | | * | | David M. Denton | | 279,306 | 1,4,6,7 | | * | | Nancy-Ann M. DeParle | | 15,879 | 5 | | * | | David W. Dorman | | 139,478 | 5 | | * | | Roger N. Farah | | 3,821 | | | * | | Anne M. Finucane | | 25,773 | 5,8 | | * | | Edward J. Ludwig | | 18,457 | 9 | | * | | Larry J. Merlo | | 2,943,106 | 1,4,6,10,11 | | * | | Jean-Pierre Millon | | 91,504 | 12 | | * | | Thomas M. Moriarty | | 382,385 | 1,4,10 | | * | | Derica W. Rice | | 68,977 | 1,4 | | * | | Jonathan C. Roberts | | 909,610 | 1,4,6,10,11 | | * | | Mary L. Schapiro | | 7,947 | 5 | | * | | Richard J. Swift | | 66,102 | 5 | | * | | William C. Weldon | | 23,279 | 5 | | * | | Tony L. White | | 27,497 | 13 | | * | | All directors and executive officers as a group (28 persons) | | 6,888,177 | 2,3,4,5,6,7,8,9,10,11,12,13 | | 0.53% |
| * | Less than 1%. | | 1 | Includes the following shares of common stock not currently owned, but subject to options which were outstanding on March 21, 2019 and were exercisable within 60 days thereafter: Ms. Boratto, 97,544; Mr. Denton, 172,684; Mr. Merlo, 1,407,003; Mr. Moriarty, 267,177; Mr. Rice, 29,191; Mr. Roberts, 602,827; and all executive officers as a group, 3,440,719. | | 2 | Includes a total of 668 shares held by Mr. Aguirre’s spouse and adult children. | | 3 | Includes 100,072 shares held in a Charitable Lead Annuity Trust, for which Mr. Bertolini is the grantor and serves as investment advisor. | | 4 | Includes the following shares of common stock granted under the Company’s 2010 Incentive Compensation Plan and 2017 Incentive Compensation Plan and, for legacy Aetna employees, the Aetna Inc. 2010 Stock Incentive Plan (together, the Plans), that remain subject to certain restrictions regarding employment and transfer as provided in the Plans: Ms. Boratto, 11,278; Mr. Denton, 104,447; Mr. Merlo, 127,881; Mr. Moriarty, 34,270; Mr. Rice, 31,724; Mr. Roberts, 57,867; and all executive officers as a group, 589,318. | | 5 | Includes the following shares of common stock constituting deferred non-employee director compensation, which do not have voting rights: Mr. Brown, 59,555; Ms. DeCoudreaux, 10,748; Ms. DeParle, 3,496; Mr. Dorman, 17,176; Ms. Finucane, 5,794; Ms. Schapiro, 7,947; Mr. Swift, 62,844; Mr. Weldon 21,688; and all non-employee directors as a group, 189,248. | | 6 | Includes shares of common stock held by the Trustee of the CVS Health Future Fund 401(k) Plan that are allocated to the executive officers as follows: Mr. Denton, 1,772; Mr. Merlo, 6,917; Mr. Roberts, 5,539; and all executive officers as a group, 14,829. | | 7 | Excludes stock options, RSUs and restricted shares held in constructive trust for the sole benefit of Mr. Denton’s ex-wife. Mr. Denton has no beneficial ownership of these securities. | | 8 | Includes 19,979 shares held in a family trust. | | 9 | Includes 11,079 shares held in a revocable trust. | | 10 | Includes the following shares of common stock that were receivable upon the lapse of restrictions on restricted stock units or the exercise of options, but the actual receipt of which was deferred pursuant to the Company’s Deferred Stock Compensation Plan, and shares purchased through our Employee Stock Purchase Plan. Unexercised stock optionswhich do not count toward satisfying the guidelines. The Board believes that these requirements emphasize the importance of equity ownership for the Boardhave voting rights: Mr. Merlo, 651,164; Mr. Moriarty, 42,632; Mr. Roberts, 208,188; and executive management, which in turn reinforces alignment with stockholder interests. To further reinforce this commitment, the Board annually reviews the policy and compliance by directors and executives. Executive Name | | Multiple of Salary
Required | | Multiple of Salary
Held as of March 29, 2018 | | In Compliance | Larry J. Merlo | | 5x | | 58x | | Yes | David M. Denton | | 3x | | 10x | | Yes | Helena B. Foulkes 1 | | 3x | | – | | – | Jonathan C. Roberts | | 3x | | 17x | | Yes | Thomas M. Moriarty | | 3x | | 9x | | Yes |
1 | Ms. Foulkes resigned effective February 9, 2018. At the time of her resignation Ms. Foulkes was in compliance with the stock ownership requirement. |
All non-employee directors must own a minimum of 10,000 shares of CVS Health common stock, which is worth approximately $622,100 based on the March 29, 2018 closing sale price of $62.21, or approximately 9 times the amount of the annual cash retainer ($70,000). Directors must attain this minimum ownership level within five years of being elected to the Board and must retain this minimum ownership level for at least six months after leaving the Board. The current level of stock pay in the director’s mix of annual compensation is intended to facilitate the directors’ ability to meet the ownership level within the timeframe. Each of our directors who has served in such capacity for at least five years has timely attained the minimum ownership level. Ms. Schapiro and Mr. Bracken, both of whom has five years from the date of her or his election to the Board to attain the ownership requirement, are on track to meet this requirement.
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Ownership of and Trading in Our Stock: | Share Ownership of Directors and Certain Executive Officers |
Share Ownership of Directors and Certain Executive Officers |
The following table shows the share ownership, as of March 29, 2018, of each director, each executive officer appearing in the Summary Compensation Table found on page 54 and all directors and executive officers as a group, based on information provided by these individuals. Each individualbeneficially owns less than 1%948,148.
| | 11 | Includes the following hypothetical shares of our common stock and, except as describedheld in notional accounts in the footnotes to the table, each person has sole investment and voting power over the shares. None of the shares listed below has been pledged as collateral. | | Ownership of Common Stock1 | | Name | | Number | | | Percent | | Richard M. Bracken | | 8,263 | | | * | | C. David Brown II | | 144,862 | 1 | | * | | Alecia A. DeCoudreaux | | 10,430 | 1 | | * | | David M. Denton | | 232,938 | 2 3 4 5 | | * | | Nancy-Ann M. DeParle | | 12,805 | 1 | | * | | David W. Dorman | | 97,006 | 1 | | * | | Anne M. Finucane | | 22,631 | 1 6 | | * | | Helena B. Foulkes | | 106,356 | 4 7 | | * | | Larry J. Merlo | | 2,916,541 | 2 3 4 7 8 | | * | | Jean-Pierre Millon | | 88,534 | 9 | | * | | Thomas M. Moriarty | | 276,294 | 2 3 7 | | * | | Jonathan C. Roberts | | 785,233 | 2 3 4 7 8 | | * | | Mary L. Schapiro | | 3,807 | 1 | | * | | Richard J. Swift | | 61,053 | 1 | | * | | William C. Weldon | | 18,732 | 1 | | * | | Tony L. White | | 24,527 | 10 | | * | | All directors and executive officers as a group (19 persons) | | 5,401,451 | 1 2 3 4 5 6 7 8 9 10 | | 0.53% |
* | Less than 1%.
| 1 | Includes the following shares of common stock constituting deferred non-employee director compensation, which do not have current voting rights: Mr. Brown, 53,610; Ms. DeCoudreaux, 10,430; Ms. DeParle, 3,392; Mr. Dorman, 16,668; Ms. Finucane, 5,622; Ms. Schapiro, 3,807; Mr. Swift, 57,795; Mr. Weldon 17,141; and all non-employee directors as a group, 168,465.
| 2 | Includes the following shares of common stock not currently owned, but subject to options which were outstanding on March 29, 2018 and were exercisable within 60 days thereafter: Mr. Denton, 96,910; Mr. Merlo, 1,416,511; Mr. Moriarty, 168,617; Mr. Roberts, 510,894; and all executive officers as a group, 2,544,122.
| 3 | Includes the following shares of common stock granted under the Company’s stockholder-approved Incentive Compensation Plans (ICPs) that remain subject to certain restrictions regarding employment and transfer as provided in the ICPs: Mr. Denton, 114,041; Mr. Merlo, 184,116; Mr. Moriarty, 43,668; Mr. Roberts, 70,780; and all executive officers as a group, 483,342.
| 4 | Includes shares of common stock held by the Trustee of the 401(k) Plan and the Employee Stock Ownership Plan of CVS Health Corporation and Affiliated Companies (ESOP) that are allocated to the executive officers as follows: Mr. Denton, 1,735; Ms. Foulkes, 4,183; Mr. Merlo, 6,825; Mr. Roberts, 5,465; and all executive officers as a group, 18,801.
| 5 | Excludes stock options, RSUs and restricted shares held in constructive trust for the sole benefit of Mr. Denton’s ex-wife. Mr. Denton has no beneficial ownership of these securities.
| 6 | Includes 17,009 shares held in a family trust.
| 7 | Includes the following shares of common stock that were receivable upon the lapse of restrictions on restricted stock units or the exercise of options, but the actual receipt of which was deferred pursuant to the Company’s Deferred Stock Compensation Plan, and which do not have current voting rights: Ms. Foulkes, 57,066; Mr. Merlo, 634,408; Mr. Moriarty, 41,370; Mr. Roberts, 162,911; and all executive officers as a group, 926,277.
| 8 | Includes the following hypothetical shares of common stock held in notional accounts in the Company’s unfunded Deferred Stock Compensation Plan, which do not have current voting rights: Mr. Merlo, 5,145; Mr. Roberts, 1,421 and all executive officers as a group, 7,034.
| 9 | Consists of 88,534 shares held in a family trust.
| 10 | Includes 7 shares held by Mr. White’s wife.
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Table of Contents
Ownership of and Trading in Our Stock: | Share Ownership of Principal Stockholders |
Share Ownership of Principal Stockholders |
We have been notified by the entities in the following table that each is the beneficial owner (as defined by the rules of the SEC) of more than five percent of our common stock. According to the most recent Schedule 13G filed by the beneficial owner with the SEC, these shares were acquired in the ordinary course of business and were not acquired for the purpose of, and do not have the effectvoting rights: Mr. Merlo, 5,159; Mr. Roberts, 1,424 and all executive officers as a group, 7,052.
| | 12 | Consists of changing or influencing control over us.91,504 shares held in a family trust. Title of Class | | Name and Address of
Beneficial Owner | | No. of Shares
Beneficially Owned | | Percent of
Class Owned | | 13 | Includes 7 shares held by Mr. White’s wife. |
| cvshealthannualmeeting.com | 81 |
Table of Contents Executive Officers and Ownership of and Trading in Our Stock Share Ownership of Principal Stockholders | Share Ownership of Principal Stockholders |
We have been notified by the entities in the following table that each is the beneficial owner (as defined by the rules of the SEC) of more than five percent of our common stock. According to the most recent Schedule 13G filed by each of these beneficial owners with the SEC, these shares were acquired in the ordinary course of business and were not acquired for the purpose of, and do not have the effect of, changing or influencing control over us. | Title of Class | | Name and Address of
Beneficial Owner | | No. of Shares
Beneficially Owned | | Percent of
Class Owned | | Common Stock | | BlackRock, Inc.1 | | 93,814,9581 | | 7.3%11 | | 67,011,0121 | | 6.6%1 | | | 55 East 52ndStreet | | | | | | | New York, NY 10055 | | | | | | Common Stock | | The Vanguard Group, Inc.2 | | 109,213,4522 | | 8.4%2 | | | 100 Vanguard Blvd. | | | | | | | Malvern, PA 19355 | | | | | | | New York, NY 10055 | | | | | Common Stock | | The Vanguard Group, Inc.2 |
| 1 | | 78,578,0782 | | 7.7%2 | | | 100 Vanguard Blvd. | | | | | | | Malvern, PA 19355 | | | | Information based on a Schedule 13G/A filed February 11, 2019. BlackRock, Inc. (BlackRock) is the parent holding company of a number of subsidiaries that hold CVS Health common stock for the benefit of various investors. BlackRock and/or its subsidiaries have sole voting power with respect to 81,862,331 of these shares and sole dispositive power with respect to all of these shares. |
1 | Information based on a Schedule 13G/A filed January 29, 2018. BlackRock, Inc. (BlackRock) is the parent holding company of a number of subsidiaries that hold CVS Health common stock for the benefit of various investors. BlackRock and/or its subsidiaries have sole voting power with respect to 55,940,668 of these shares and sole dispositive power with respect to 67,011,012
| | 2 | Information based on a Schedule 13G/A filed February 11, 2019. The Vanguard Group, Inc. (Vanguard) directly or through its subsidiaries, holds CVS Health common stock for the benefit of various investors. Vanguard and/or its subsidiaries have sole voting power with respect to 1,508,097 of these shares, shared voting power with respect to 316,851 of these shares, sole dispositive power with respect to 107,420,666 of these shares and shared dispositive power with respect to 1,792,786 of these shares. | 2 | Information based on a Schedule 13G/A filed February 8, 2018. The Vanguard Group, Inc. (Vanguard) directly or through its subsidiaries, holds CVS Health common stock for the benefit of shared various investors. Vanguard and/or its subsidiaries have sole voting power with respect to 1,423,052 of these shares, shared voting power with respect to 230,993 of these shares, sole dispositive power with respect to 76,958,565 of these shares and shared dispositive power with respect to 1,620,242 of these shares.
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Section 16(a) Beneficial Ownership Reporting Compliance |
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and any persons who own more than 10% of our common stock (Reporting Persons) to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. These Reporting Persons are required by SEC regulation to furnish us with copies of all Forms 3, 4 and 5that they file with the SEC, though as a practical matter CVS Health assists its directors and executive officers by monitoring transactions and completing and filing such forms on their behalf. Based on a review of forms filed with the SEC and written representations from our Reporting Persons, CVS Health believes that all forms were filed in a timely manner during 2017.
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Table of Contents
Other Information
Information about the Annual Meeting and Voting |
The Board of Directors of CVS Health is soliciting your proxy to vote at our 2018 Annual Meeting of Stockholders (or at any adjournment of the meeting, referred to as the Meeting or Annual Meeting). This proxy statement summarizes the information you need to know to vote at the Meeting.
We began mailing this proxy statement and the enclosed proxy card on or about April 25, 2018 to all stockholders entitled to vote. CVS Health’s 2017 Annual Report, which includes our financial statements, is being sent with this proxy statement.
Date, time and place of the annual meeting
| Date: | | June 4, 2018 | | Time: | | 8:00 A.M. Eastern Time | | Place: | | CVS Health Customer Support Center | | | | (Company Headquarters) | | | | One CVS Drive | | | | Woonsocket, Rhode Island 02895 |
| | | | | | | | | Section 16(a) Beneficial Ownership Reporting Compliance |
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and any persons who own more than 10% of our common stock (Reporting Persons) to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. These Reporting Persons are required by SEC regulation to furnish us with copies of all Forms 3, 4 and 5 that they file with the SEC, though as a practical matter CVS Health assists its directors and executive officers by monitoring transactions and completing and filing such forms on their behalf. Based on a review of forms filed with the SEC and written representations from our Reporting Persons, CVS Health believes that all forms were filed in a timely manner during 2018, except that due to a clerical error one Form 4 for Director Tony White, reporting the award of his annual Board retainer, was inadvertently filed one day late. | 82 | | 2019 Proxy Statement |
Table of Contents Other Information | Information about the 2019 Annual Meeting and Voting |
The Board of Directors of CVS Health is soliciting your proxy to vote at our 2019 Annual Meeting of Stockholders (or at any adjournment of the meeting, referred to as the Meeting or Annual Meeting). This proxy statement summarizes the information you need to know to vote at the Meeting. We began mailing this proxy statement and the enclosed proxy card on or about April 5, 2019 to all stockholders entitled to vote. CVS Health’s 2018 Annual Report, which includes our financial statements, is being sent with this proxy statement. DATE, TIME AND PLACE OF THE ANNUAL MEETING | Date: | | May 16, 2019 | | Time: | | 8:00 a.m. Eastern Time | | Place: | | CVS Health Customer Support Center | | | | (Company Headquarters) | | | | One CVS Drive | | | | Woonsocket, Rhode Island 02895 |
Stockholders must present a form of personal photo identification in order to be admitted to the Meeting. No cell phones, cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Meeting. | |
Shares Entitled to Vote
Stockholders entitled to vote are those who owned CVS Health common stock at the close of business on the record date, which is April 10, 2018. As of the record date, there were 1,017,521,240 shares of common stock outstanding. Each share of CVS Health common stock that you own entitles you to one vote.
The Bank of New York Mellon presently holds shares of common stock as Trustee under the 401(k) Plan and the Employee Stock Ownership Plan of CVS Health Corporation and Affiliated Companies (ESOP). Each participant in the ESOPinstructs the Trustee of the ESOP how to vote his or her shares. As to shares with respect to which the Trustee receives no timely voting instructions, the Trustee, pursuant to the ESOP Trust Agreement, votes these shares in the same proportion as it votes all the shares as to which it has received timely voting instructions. The results of the voting will be held in strict confidence by the Trustee. Please note that the cut-off date by which participants of the ESOP must submit their vote to the tabulator in order to be counted is 12:01 a.m. Eastern Time on May 30, 2018.
Types of Ownership of Our Stock
If your shares are registeredadmitted to the Meeting. No cell phones, cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in your name with CVS Health’s transfer agent, Equiniti Trust Company, you are the “stockholder of record” of those shares. This proxy statement and any accompanying materials have been provided directly to you by CVS Health.Meeting.
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of those shares, and this proxy statement and any accompanying documents have been provided toyou by your broker, bank or other holder of record, which is your “nominee”. As the beneficial owner, you have the right to direct your nominee how to vote your shares by using the voting instruction card provided by your nominee or by following the nominee’s instructions for voting by telephone or on the Internet.
Voting
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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 21, 2019. As of the record date, there were 1,298,405,172 shares of common stock outstanding. Each share of CVS Health common stock that you own entitles you to one vote. We maintain two 401(k) plans for our employees: the CVS Health Future Fund 401(k) Plan and the Aetna 401(k) Plan (each a Plan, and collectively, the Plans). The Bank of New York Mellon presently holds shares of common stock as Trustee under the CVS Health Future Fund 401(k) Plan, and State Street Bank and Trust Company presently holds shares of common stock as Trustee under the Aetna 401(k) Plan. Each participant in the Plans instructs the respective Trustees of the Plans how to vote his or her shares. As to shares with respect to which the Trustees receive no timely voting instructions, the Trustees vote these shares in the same proportion as they vote all the shares as to which they have received timely voting instructions unless contrary to ERISA. The results of the voting will be held in strict confidence by the Trustees. Please note that the cut-off date by which participants of the Plans must submit their vote to the tabulator in order to be counted is 11:59 p.m. Eastern Time on May 13, 2019. TYPES OF OWNERSHIP OF OUR STOCK If your shares are registered in your name with CVS Health’s transfer agent, Equiniti Trust Company, you are the “stockholder of record” of those shares. This proxy statement and any accompanying materials have been provided directly to you by CVS Health. If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of those shares, and this proxy statement and any accompanying documents have been provided to you by your broker, bank or other holder of record, which is your “nominee”. As the beneficial owner, you have the right to direct your nominee how to vote your shares by using the voting instruction card provided by your nominee or by following the nominee’s instructions for voting by telephone or on the Internet. VOTING Whether or not you plan to attend the Annual Meeting, we urge you to vote. Stockholders of record may vote by calling a toll-free telephone number, by using the Internet or by mailing your signed proxy card in the postage-paid envelope provided. If you vote by telephone or the Internet, you do NOT need to return your proxy card. Returning the proxy card by mail or voting by telephone or Internet will not affect your right to attend the Annual Meeting and change your vote, if desired. If you are a beneficial owner, you will receive instructions from your nominee that you must follow in order for your shares to be voted. Many of these institutions offer telephone and Internet voting. | cvshealthannualmeeting.com | 83 |
Table of Contents Other Information Information about the 2019 Annual Meeting and Voting The enclosed proxy card indicates the number of shares that you own as of the record date. cvshealthannualmeeting.com | | 71 |
Table of Contents
Other Information: | Information about the Annual Meeting and Voting |
Voting instructions are included on your proxy card. If you properly fill in your proxy card and send it to us in time to vote, or vote by telephone or the Internet, one of the individuals named on your proxy card (your “proxy”) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will follow the Board’s recommendations. The Board of Directors and the Company’s management have not received notice of, and are not aware of, any business to come before the Meeting other than the agenda items referred to in this proxy statement. Revoking Your Proxy Card If you are a stockholder of record, you may revoke your proxy card by: | ● | sending in another signed proxy card with a later date; | | | | ● | providing subsequent telephone or Internet voting instructions; | | | | ● | notifying our Corporate Secretary in writing before the Annual Meeting that you have revoked your proxy card; or | | | ● | voting in person at the Annual Meeting. |
If you are a beneficial owner of shares, you may submit new voting instructions by contacting your nominee.
Voting in Person
If you plan to attend the Annual Meeting and votethat you have revoked your proxy card; or
| | ● | voting 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 April 10, 2018, the record date for voting.Appointing Your Own Proxy
If you want to give your proxy to someone other than the individuals named as proxies on the proxy card, you may cross out the names of those individuals and insert the name of the individual you are authorizing to vote. Either you or that authorized individual must present the proxy card at the Annual Meeting.
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If you are a beneficial owner of shares, you may submit new voting instructions by contacting your nominee. Voting in Person If you plan to attend the Annual Meeting and vote in person, we will give you a ballot when you arrive. However, if your shares are held in the name of a nominee, you must bring an account statement or letter from the nominee indicating that you were the beneficial owner of the shares on March 21, 2019, the record date for voting. Appointing Your Own Proxy If you want to give your proxy to someone other than the individuals named as proxies on the proxy card, you may cross out the names of those individuals and insert the name of the individual you are authorizing to vote. Either you or that authorized individual must present the proxy card at the Annual Meeting to vote. Proxy Solicitation We are soliciting this proxy on behalf of our Board of Directors and will bear the solicitation expenses. We are making this solicitation by mail but we may also solicit by telephone, e-mail or in person. We have hired Morrow Sodali LLC, 470 West Avenue, Stamford, CT 06902, for a fee of $20,000, plus out-of-pocket expenses, to provide customary assistance to us in the solicitation. We will reimburse banks, brokerage houses and other institutions, nominees and fiduciaries, if they so request, for their expenses in forwarding proxy materials to beneficial owners. Householding Under SEC rules, a single set of annual reports and proxy statements may be sent to any household at which two or more of our stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as “householding,” reduces the volume of duplicate information stockholders receive, conserves natural resources and reduces mailing and printing expenses for the Company. Nominees with accountholders who are stockholders may be householding our proxy materials. As indicated in the notice previously provided by these nominees to our stockholders, a single annual report and proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from an affected stockholder. Once you have received notice from your nominee that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate annual report and proxy statement, please notify your nominee so that separate copies may be delivered to you. Beneficial owners who currently receive multiple copies of the annual report and proxy statement at their address who would prefer that their communications be householded should contact their nominee. Stockholders of record who currently receive multiple copies of the annual report and proxy statement at their address who would prefer that their communications be householded, or stockholders of record who are currently participating in householding and would prefer to receive separate copies of our proxy materials, should contact our transfer agent, EQ Shareowner Services, by writing to P.O. Box 64874, St. Paul, MN 55164-0874; by calling toll-free, 877-287-7526; or by e-mailing to stocktransfer@eq-US.com. Quorum Requirement
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Table of Contents Other Information Stockholder Proposals and Other Business for Our Annual Meeting in 2020 QUORUM REQUIREMENT A quorum of stockholders is necessary to hold a valid meeting. The presence in person or by proxy at the Annual Meeting of holders of shares representing a majority of shares entitled to vote constitutes a quorum. Abstentions and broker “non-votes”are counted as present for establishing a quorum. A broker non-vote occurs on an item when a broker is not permitted to vote on that item absent instruction from the beneficial owner of the shares and no instruction is given. 72 | | 2018 Proxy Statement |
VOTE NECESSARY TO APPROVE PROPOSALS TableItem 1: Election of ContentsOther Information: | Stockholder Proposals and Other Business for Our Annual Meeting in 2019 |
Vote Necessary to Approve Proposals | Item 1: Election of directorsdirectors | | Each director is elected by a majority of the votes cast with respect to that director’s election (at a meeting for the election of directors at which a quorum is present) by the holders of shares of common stock present in person or by proxy at the meeting and entitled to vote. A “majority of votes cast” means that the number of votes “for” a director’s election must exceed 50% of the votes cast with respect to that director’s election. Votes “against” a director’s election will count as a vote cast, but “abstentions” and “broker non-votes” will not count as a vote cast with respect to that director’s election and will have no effect.
| Item 4: Charter Amendment | | Approval of the Charter Amendment requires the favorable vote of the majority of shares outstanding. Abstentions are counted as shares present or represented and voting and have the effect of a vote. Broker non-votes are not counted as shares present or represented and voting and have no effect on the vote.
| All other items | | For Items 2, 3 and 5, approval is by affirmative vote (at a meeting at which a quorum is present) of a majority of the votes represented by the shares of common stock present at the meeting in person or by proxy and entitled to vote. Abstentions are counted as shares present or represented and voting and have the effect of a vote against. Broker non-votes are not counted as shares present or represented and voting and have no effect on the vote. |
Broker Voting
Under NYSE rules, if the record holder of your shares (usually a nominee) holds your shares in its name, your nominee is permitted to vote your shares on Item 2, Ratification of Auditors,in its discretion, even if it does not receive voting instructions from you. On all other Items, your nominee is not permitted to vote your shares without your instructions and uninstructed shares are considered broker non-votes.
Stockholder Proposals and Other Business for Our Annual Meeting in 2019 |
If you want to submit a proposal for possible inclusion in our proxy statement for the 2019 Annual Meeting of Stockholders, you must ensure your proposal is received by us on or before December 26, 2018 and is otherwise in compliance with SEC rules.
Under our proxy access by-law, if a stockholder (or a group of up to 20 stockholders) who has owned at least 3% of our shares for at least three years and has complied with the other requirements set forth in the Company’s by-laws wants us to include director nominees (up to the greater of two nominees or 20% of the Board) in our proxy statement for the 2018 Annual Meeting of Stockholders, the nominations must be received by our Corporate Secretary and must arrive at the Company in a timely manner, between 120 and 150 days prior to the anniversary of the date our proxy statement was first sent to stockholders in connection with our last annual meeting, which would be no earlier than November 26 and no later than December 26, 2018.
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 February 4 and no later than March 6, 2019. Under our by-laws, any stockholder notice for presenting business at a meeting must include, among other things (1) the name and address, as they appear in our books, of the stockholder giving the notice, (2) the class and number of shares that are beneficially owned by the stockholder (including information concerning derivative ownership and other arrangements concerning our stock), (3) a brief description of the business to be brought before the meeting and the reasons for conducting such business at the meeting and (4) any material interestentitled to vote.
A “majority of votes cast” means that the number of votes “for” a director’s election must exceed 50% of the stockholder in such business. See “Stockholder Submission on Nominees” forvotes cast with respect to that director’s election. Votes “against” a descriptiondirector’s election will count as a vote cast, but “abstentions” and “broker non-votes” will not count as a vote cast with respect to that director’s election and will have no effect. | | All other items | | For Items 2, 3 and 4, approval is by affirmative vote (at a meeting at which a quorum is present) of a majority of the information requiredvotes represented by the shares of common stock present at the meeting in person or by proxy and entitled to vote. Abstentions are counted as shares present or represented and voting and have the effect of a vote against. Broker non-votes are not counted as shares present or represented and voting and have no effect on the vote. |
Broker Voting Under NYSE rules, if the record holder of your shares (usually a nominee) holds your shares in its name, your nominee is permitted to vote your shares on Item 2, Ratification of Auditors, in its discretion, even if it does not receive voting instructions from you. On all other Items, your nominee is not permitted to vote your shares without your instructions and uninstructed shares are considered broker non-votes. | Stockholder Proposals and Other Business for Our Annual Meeting in 2020 |
If you want to submit a proposal for possible inclusion in our proxy statement for the 2020 Annual Meeting of Stockholders, you must ensure your proposal is received by us on or before December 6, 2019 and is otherwise in compliance with SEC rules. Under our proxy access by-law, if a stockholder (or a group of up to 20 stockholders) who has owned at least 3% of our shares for at least three years and has complied with the other requirements set forth in the Company’s by-laws wants us to include director nominees (up to the greater of two nominees or 20% of the Board) in our proxy statement for the 2018 Annual Meeting of Stockholders, the nominations must be received by our Corporate Secretary and must arrive at the Company in a timely manner, between 120 and 150 days prior to the anniversary of the date our proxy statement was first sent to stockholders in connection with our last annual meeting, which would be no earlier than November 6 and no later than December 6, 2019. In addition, if a stockholder would like to present business at an annual meeting of stockholders that is not to be included in our proxy statement, the stockholder must provide notice to the Company as provided in its by-laws. Such notice must be addressed to our Corporate Secretary and must arrive at the Company in a timely manner, between 90 and 120 days prior to the anniversary of our last annual meeting, which would be no earlier than February 4 and no later than March 6, 2019. Under our by-laws, any stockholder notice for presenting business at a meeting must include, among other things (1) the name and address, as they appear in our books, of the stockholder giving the notice, (2) the class and number of shares that are beneficially owned by the stockholder (including information concerning derivative ownership and other arrangements concerning our stock), (3) a brief description of the business to be brought before the meeting and the reasons for conducting such business at the meeting, and (4) any material interest of the stockholder in such business. See “Stockholder Submission on Nominees” for a description of the information required for director nominations. We do not know of any matters to be acted upon at the Annual Meeting other than those discussed in this proxy statement. If any other matter is presented, your proxy will vote on the matter in his best judgment. April 25,
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Table of Contents Annex A | Reconciliation of Certain Amounts to the Most Directly Comparable GAAP Measure |
The Company defines Adjusted Earnings per share, or Adjusted EPS, as income before income tax provision (GAAP measure) excluding the impact of certain adjustments such as the amortization of intangible assets, acquisition-related transaction and integration costs, goodwill and long-lived asset impairments, gains/losses on divestitures, net interest expense on financing associated with proposed acquisitions (for periods prior to the acquisition), and any other items specifically identified herein, divided by the Company’s weighted average diluted shares outstanding. Adjusted EPS for the year ended December 31, 2018 is calculated utilizing weighted average diluted shares outstanding, which includes 3 million potential common shares, as the impact of the potential common shares was dilutive. The potential common shares were excluded from the calculation of GAAP loss per share for the year ended December 31, 2018, as the shares would have had an anti-dilutive effect as a result of the GAAP net loss incurred in the period. Management believes that this non-GAAP measure enhances investors’ ability to compare the Company’s past financial performance with its current performance. The following is a reconciliation of income before income tax provision to adjusted income from continuing operations attributable to CVS Health and a calculation of Adjusted EPS for the year ended December 31, 2018: | | 2018 | | | In millions, except per share amounts | | | | | | Income before income tax provision (GAAP measure) | | $ | 1,406 | | | Non-GAAP adjustments: | | | | | | Amortization of intangible assets | | | 1,006 | | | Acquisition-related transaction and integration costs1 | | | 492 | | | Goodwill impairments2 | | | 6,149 | | | Impairment of long-lived assets3 | | | 43 | | | Loss on divestiture of subsidiary4 | | | 86 | | | Net interest expense on financing for the acquisition of Aetna5 | | | 894 | | | Adjusted income before income tax provision | | | 10,076 | | | Adjusted income tax provision6 | | | 2,660 | | | Adjusted income from continuing operations | | | 7,416 | | | Loss from continuing operations attributable to noncontrolling interests | | | 2 | | | Adjusted income allocable to participating securities | | | (12 | ) | | Adjusted income from continuing operations attributable to CVS Health | | $ | 7,406 | | | Weighted average diluted shares outstanding7 | | | 1,047 | | | Adjusted EPS | | $ | 7.08 | |
| 1 | Acquisition-related transaction and integration costs relate to the acquisitions of Aetna and Omnicare. | | 2 | The goodwill impairments relate to the LTC reporting unit within the Retail/LTC segment. | | 3 | The impairment of long-lived assets primarily relates to the impairment of property and equipment within the Retail/LTC segment. | | 4 | The loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for $725 million on January 2, 2018. | | 5 | Interest expense of $1.4 billion related to (i) bridge financing costs, (ii) interest expense on the $40 billion of 2018cvshealthannualmeeting.com | | 73 Senior Notes and (iii) the $5 billion term loan facility. The interest expense was reduced by related interest income of $536 million earned on the proceeds of the 2018 Senior Notes. | | 6 | The Company computes its adjusted income tax provision after taking into account items excluded from adjusted income before income tax provision. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision. | | 7 | Adjusted earnings per share for the year ended December 31, 2018 is calculated utilizing weighted average diluted shares outstanding, which includes 3 million potential common shares, as the impact of the potential common shares was dilutive. The potential common shares were excluded from the calculation of GAAP loss per share for the year ended December 31, 2018, as the shares would have had an anti-dilutive effect as a result of the GAAP net loss incurred in the period. |
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Table of Contents CVS Health Corporate Social Responsibility (CSR) Report Highlights At CVS Health, we have long been focused on improving not only the health of our patients and consumers, but the health of all of the communities we serve. Our CSR strategy ensures we put our businesses and resources to work – not just at a global or national level, but in tangible ways that make a difference in our communities and people’s lives. There is no more pressing issue than fixing what is broken with the U.S. health care system, and CVS Health is positioned to lead the change. We welcome the opportunity to work with our partners, stockholders and other stakeholders. Together, we will deliver better health, all toward better communities and a better world. 
Larry J. Merlo
President and CEO Our CSR Strategy Table of Contents
Exhibit ABetter Health, Better Community, Better World.
Certificate of Amendment of the
Certificate of Incorporation of
At CVS Health, Corporationwe share a single, clear purpose: helping people on their path to better health. Whether in our pharmacies or through our pharmacy and health services and plans, we are pioneering a bold new approach to total health - making quality care more affordable, accessible, simple and seamless. As we integrate Aetna into our enterprise, our innovative new business model will allow us to bring real, meaningful change to the marketplace. PursuantIn 2018, we took the opportunity to Section 242reframe our CSR strategy to be more inclusive of our broader enterprise and maximize our impact. Our refreshed CSR framework, Better Health, Better Community, Better World, conveys our mission to leverage our scale, expertise and innovative spirit in ways that positively impact all of our stakeholders. It charts our course for the future and focuses in the three key areas:
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Building Healthier Communities
Making community health and wellness central to our charge for a better world | | To ensure we are accountable in delivering our strategy, we track our progress against 23 measurable, multi-year performance targets. We continue to work with internal and external stakeholders to deliver on these commitments, identify new opportunities to strengthen our performance, and increase transparency. | | 
Leading & Inspiring Growth
Leveraging the power and scale of our business to create economic opportunities and value for employees, customers, suppliers and investors | | | 
Protecting Our Planet
Ensuring environmental sustainability is embedded in our approach to business operations and product development | | To read our full 2018 Corporate Social Responsibility Report, please visitGeneral Corporation Law of the State of Delaware www.CVSHealth.com/CSR.A. | The name of the corporation (hereinafter referred to as the “Corporation”) is CVS HEALTH CORPORATION. The date of filing of its original Certificate of Incorporation with the Secretary of the State of Delaware is August 22, 1996. | | | | | B. | At a meeting of the Board of Directors of the Corporation on January 25, 2018, resolutions were duly adopted approving the following proposed amendment of the Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) of the Corporation and declaring said amendment to be advisable. The proposed amendment was as follows:
| | | Article NINTH of the Corporation’s Certificate of Incorporation is hereby amended to read in its entirety as set forth below: | | | NINTH: Special meetings of the stockholders may be called (i) by the Board of Directors, the Chair of the Board of Directors or the Chief Executive Officer of the Corporation or (ii) upon written request from holders of record of at least fifteen percent (15%) of the voting power of the outstanding capital stock of the Corporation entitled to vote on the matter or matters to be brought before the proposed special meeting, filed with the Secretary of the Corporation and otherwise in accordance with the By-laws, and may not be called by any other person or persons. Notwithstanding the foregoing, whenever holders of one or more classes or series of Preferred Stock or Preference Stock shall have the right, voting separately as a class or series, to elect directors, such holders may call, to the extent provided in Article FOURTH (or pursuant to the terms of the resolution or resolutions adopted by the Board of Directors pursuant to ARTICLE FOURTH hereof), special meetings of holders of such Preferred Stock or Preference Stock. | | | C. | Thereafter, pursuant to a resolution of its Board of Directors, a meeting of the stockholders of the Corporation was duly called and held on [June 4, 2018], upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. | | | D. | The foregoing amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. | | | E. | The effective date of the amendment shall be [June 4, 2018]. | | | IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed in its corporate name this [4th] day of [June], 2018.
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| CVS HEALTH CORPORATION
Table of Contents | Better Health, Better Community, Better World | | | | | By: | | | | Name: |
2018 CSR Achievements  | Building Healthier Communities | | | Title: |
Access to Health Care
cvshealthannualmeeting.com | | A-1 |
$100 million
New philanthropic commitment: to make community health and wellness central to our charge for a better world by supporting initiatives and nonprofits across three categories: improving local access to affordable quality care; impacting public health challenges; and partnering with local communities on the most pressing health issues
80,000/$5 million
reached 80,000 people in underserved communities with free health screenings, delivering more than $5 million free health services | | TableCharitable Giving and Disaster Relief
$100+ million
provided in charitable giving through the CVS Health Foundation, corporate grants, in-kind gifts, employee giving and fundraising, and other community investments
Tobacco
228 schools
including 34 Historically Black Colleges and Universities, awarded grants as part of Contentsthe Tobacco-Free Generation Campus Initiative
9 million youth
reached through programs, partnerships and strategic investments to provide smoking cessation and prevention messaging
Prescription for a Better World
2017 CSR Achievements
| | Prescription Drug Programs
About 450,000
students reached with prescription drug abuse education through Pharmacists Teach; 9,800 presentations in 48 states, DC and Puerto Rico
217+ metric tons
of unwanted medications collected in our safe medication disposal program through more than 1,650 total locations in 2018
Provided grants to 12 more community health centers
to support increased access to medication-assisted treatment and other recovery services |
 | Health
in Action | Leading and Inspiring Growth | |  | Planet
in Balance | |  | Leader
in Growth | Access to Health Care
$122M
worth of free health offerings provided under Project Health since 2006
50+
optical and audiology locations, offering low-cost solutions on a walk-in basis
Charitable Giving and Disaster Relief
$100M+
provided in charitable giving through the CVS Health Foundation, corporate grants, in-kind gifts, employee giving and fundraising, and other community investments
$11M+
to support hurricane relief and rebuilding efforts from the CVS Health Foundation, CVS Pharmacy, colleagues and customers
Tobacco
126 schools
including 34 Historically Black Colleges and Universities, awarded grants as part of the Tobacco-Free Generation Campus Initiative
Prescription Drug Programs
350,000+
students reached with prescription drug abuse education through Pharmacists Teach; 7,300 presentations in 45 states, DC and Puerto Rico
140+
metric tons of unwanted medications collected in our safe medication disposal program over the past 2 years; expanding to 750 stores and 1,600 total locations in 2018
| | Emissions Reductions
submitted science-based emissions reduction target for approval from the Science Based Targets initiative
26%
reduction in carbon intensity, compared to 2010 baseline
$30M
saved through lighting retrofit in more than 7,000 retail locations
SPF 15
the only national retailer that has removed all sun care products with SPF lower than 15 from shelves
600
store brand beauty and personal care products from which chemicals of concern were removed
| | $3.7M
in value of employee volunteer hours provided to communities
4,700
Registered Apprentices hired
6,500
colleagues participated in workforce development programs
40,000+
underserved young people introduced to careers in health care
Supplier Diversity
●38,032
|
$5.3 million
in value of employee volunteer hours provided to communities | | 15,000
colleagues hired with military experience and employed more than 4,000 military spouses since 2015 | | Supplier Diversity ●38,000 jobs supported ●$532 million in wages
●$1.9 billion in incomes earned
●$5.8 billion contributed to the U.S. economy | |  | Awards & Recognition |
 | Protecting Our Planet | | 100 Best Corporate Citizens, 2017
(#38)
Corporate Responsibility Magazine
Sustainability Index
Dow-Jones, 5thstraight year
Civic 50– List of 50 most community-minded companies in the U.S.Points of Light Institute
America’s Greenest Companies (#39)
Newsweek’s Green Rankings
Best Place to Work for LGBT Equality
Human Rights Campaign
Corporate Equality Index
Human Rights Campaign
Achieved 100% score for fourth consecutive year
| | World’s Most Admired Companies (#39)
Fortune Magazine
Top 50 Companies for Diversity
DiversityInc
100% Disability Equality Index Score – Best Places to Work List
American Association of People with Disabilities and US Business Leadership Network
Billion Dollar Roundtable
Joined group that is spending more than $1 billion annually with diverse suppliers
Trendsetter
2017 CPA-Zicklin Index of Corporate Political Disclosure and Accountability (top 10%)
|
Science-based emissions reduction target approved by the Science Based Targets initiative
| | Table 2 million
CVS Health colleagues, in partnership with the Ocean Conservancy & the International Coastal Cleanup removed 2 million+ cigarette butts from shorelines around the country
| | 115 million yards
of Contentsreceipt paper saved by delivering more than 99 million digital CVS Pharmacy receipts in 2018 |
 | Awards & Recognition |
100 Best Corporate Citizens, 2018 (#26)
Corporate Responsibility Magazine Sustainability IndexDow-Jones, 6th
straight year Civic 50– List of 50 most community-minded companies in the U.S. Points of Light Institute, for the second year in a row America’s Greenest Companies (#39)
Newsweek’s Green Rankings Learning Elite Silver Finalist (#27)Chief Learning Officer magazineHealthfor continuously improving the learning and development for our organization and industry | | Corporate Equality Index
Human Rights CampaignAchieved 100% score for fifth consecutive year World’s Most Admired Companies (#35)
Fortune Magazine Top 50 Companies for Diversity
DiversityInc 100% Disability Equality Index Score (second year in a row)–Best Places to Work List
American Association of People with Disabilities and US Business Leadership Network | | Billion Dollar Roundtable
Joined group that is spending more than $1 billion annually with diverse suppliers #10 Top Companies for Supplier Diversity
Recognized by DiversityInc for our focus on expanding our engagement of minority and women-owned businesses in our supply chain |
Table of Contents We are
health care
innovators  Our Purpose
Helping people on their path to better health | | Our Strategy
Creating unmatched human connections to transform the health care experience | | Our Values
Innovation
Collaboration
Caring
Integrity
Accountability |
Table of Contents  CVS HEALTH CORPORATION
C/O EQ SHAREOWNER SERVICES
P.O. BOX 64945
ST. PAUL, MN 55164-0945  VOTE BY INTERNET -www.proxyvote.com or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on May 15, 2019 for shares held directly and by 11:59 P.M. ET on May 13, 2019 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET on May 15, 2019 for shares held directly and by 11:59 P.M. ET on May 13, 2019 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, MARK BLOCKS BELOW | | | | IN BLUE OR BLACK INK, DETACH, AND RETURN IN THE ENCLOSED ENVELOPE: | | E69548-P18898-Z74361 | | KEEP THIS PORTION FOR YOUR RECORDS | | | | | DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | CVS HEALTH CORPORATION | | | | | | | The Board of Directors recommends you vote FOR
each of the Nominees: | | 1. | | Election of Directors | | | | | | | | | Nominees: | | For | | Against | | Abstain | | | 1a. | | Fernando Aguirre | | ☐ | | ☐ | | ☐ | | | 1b. | | Mark T. Bertolini | | ☐ | | ☐ | | ☐ | | | 1c. | | Richard M. Bracken | | ☐ | | ☐ | | ☐ | | | 1d. | | C. David Brown II | | ☐ | | ☐ | | ☐ | | | 1e. | | Alecia A. DeCoudreaux | | ☐ | | ☐ | | ☐ | | | 1f. | | Nancy-Ann M. DeParle | | ☐ | | ☐ | | ☐ | | | 1g. | | David W. Dorman | | ☐ | | ☐ | | ☐ | | | 1h. | | Roger N. Farah | | ☐ | | ☐ | | ☐ | | | 1i. | | Anne M. Finucane | | ☐ | | ☐ | | ☐ | | | 1j. | | Edward J. Ludwig | | ☐ | | ☐ | | ☐ | | | 1k. | | Larry J. Merlo | | ☐ | | ☐ | | ☐ | | | 1l. | | Jean-Pierre Millon | | ☐ | | ☐ | | ☐ |
| | | | For | | Against | | Abstain | | | 1m. | | Mary L. Schapiro | | ☐ | | ☐ | | ☐ | | | 1n. | | Richard J. Swift | | ☐ | | ☐ | | ☐ | | | 1o. | | William C. Weldon | | ☐ | | ☐ | | ☐ | | | 1p. | | Tony L. White | | ☐ | | ☐ | | ☐ |
| | | | | | | | The Board of Directors recommends you vote FOR the following proposals: | | For | | Against | | Abstain | | | | | | | | | 2. | | Proposal to ratify appointment of independent registered public accounting firm for 2019. | | ☐ | | ☐ | | ☐ | | | | | | | | | 3. | | Say on Pay, a proposal to approve, on an advisory basis, the Company's executive compensation. | | ☐ | | ☐ | | ☐ | | | | | | | | | The Board of Directors recommends you vote AGAINST the following proposal: | | For | | Against | | Abstain | | | | | | | | | 4. | | Stockholder proposal regarding exclusion of legal or compliance costs from financial performance adjustments for executive compensation. | | ☐ | | ☐ | | ☐ | | | | | | | | | NOTE:In their discretion, the proxies may vote on such other business as may properly come before the meeting or any adjournment thereof. | | | | | | |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. The signer hereby revokes all proxies heretofore given by the signer to vote at the 2019 Annual Meeting of Stockholders of CVS Health Corporation and any adjournment thereof. | | | Signature [PLEASE SIGN WITHIN BOX] | Date |
| | | Signature (Joint Owners) | Date |
Table of Contents
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice of Meeting and Proxy Statement and Annual Report are available at
www.proxyvote.com and at www.cvshealthannualmeeting.com.
CVS HEALTH CORPORATION
Annual Meeting of Stockholders
May 16, 2019, 8:00 A.M., EDT This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Larry J. Merlo and David W. Dorman, and each of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of CVS HEALTH CORPORATION that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 8:00 A.M., EDT, on May 16, 2019 at the CVS Health Customer Support Center, One CVS Drive, Woonsocket, RI 02895, and any adjournment or postponement thereof. Additional Voting Instructions for Certain CVS Health and Aetna Employees:To the extent the undersigned is a participant in (i) the CVS Health Future Fund 401(k) Plan (the "CVS Plan") or (ii) the Aetna 401(k) Plan (the "Aetna Plan", and together with the CVS Plan, the "Plans"), the undersigned hereby instructs The Bank of New York Mellon, as trustee under the CVS Plan, and/or State Street Bank and Trust Company, as trustee under the Aetna Plan, to vote as indicated on the reverse side, all shares of CVS Health common stock held in the Plan(s), as to which the undersigned would be entitled to give voting instructions if present at the Annual Meeting. Shares held under the Plan(s) for which voting instructions are not properly completed or signed, or received in a timely manner (no later than 11:59 P.M., EDT on May 13, 2019), will be voted in the same proportion as those shares for which voting instructions were properly completed and signed and received in a timely manner, as long as such vote is in accordance with the provisions of the Employment Retirement Income Security Act of 1974, as amended. All votes will be kept confidential by the trustee(s). This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side
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