UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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![]() 2014 Annual Meeting of Stockholders Meeting Date: July 30, 2014 |
![]() 2 2 Executive Summary We ask for your support at our 2014 Annual Meeting Delivered Strong Performance Superior financial and operational performance in FY 2014 • Revenues of $137.6B (13% increase from FY 2013) • Operating cash flow of $3.1B (24% increase from FY 2013) • Adjusted EPS of $8.35 (31% increase from FY 2013) 65% total shareholder return for the fiscal year ended March 31, 2014 Successfully executed on strategic and operational initiatives, including the $8B international acquisition of Celesio AG Robust Governance Structure is Informed by Shareholder Feedback We value shareholder feedback in the refinement of our compensation and governance practices We implemented and expanded our Lead Independent Director role We have committed to submit a proxy access by-law amendment to our shareholders in 2015 Continued Improvements to the Compensation Program After our 2013 Annual Meeting, we engaged with over 50% of our shareholder base to understand their concerns We made meaningful changes to our CEO’s pension benefit, our executive pay magnitude and incentive plan design Independent and Experienced Board 8 of 9 director nominees are independent Our directors bring a balance of industry-specific and functional expertise We are refreshing our Board – we added 1 new director in April 2014 and expect 4 of our existing directors to retire over the next 3 years (including 1 at the 2014 Annual Meeting) |
![]() 3 3 A History of Strong, Sustained Performance Key Operational, Financial and Strategic Achievements Delivered significant, profitable growth on a top-line, bottom-line, and cash flow basis Undertook strategic and operational actions focusing on areas where we have a leading position in order to improve our efficiency and enhance our ability to continually innovate for our customers Continued execution of disciplined strategic transactions, most recently the $8B acquisition of Celesio AG that expands McKesson’s global platform Balanced capital allocation policy with significant capital return to shareholders through both stock repurchases and dividends Our Executive Team and experienced Board have driven tremendous long-term value for our shareholders 1-Year TSR 3-Year TSR TSR Since Mr. Hammergren Named CEO in FY 2002 127% 88% 29% 195% 80% 25% 628% 129% 65% 0% 100% 200% 300% 400% 500% 600% 700% McKesson FY 2014 Compensation Peer Group (Market Cap Weighted Average) S&P 500 Health Care Index |
![]() Responsive to 2013 Vote and Subsequent Shareholder Feedback 4 Ongoing Board Committee Refreshment Clawback Policy Enhanced Based On Shareholder Proposal Compensation Committee implemented changes to address concerns regarding the scale of the CEO’s pension and the quantum of his pay o Reduced pension by $45M and set a fixed value for pension benefit o Eliminated volatility in pension due to changes in actuarial assumptions Alton Irby, former Chair of the Compensation Committee, has stepped off that Committee Jane Shaw joined the Compensation Committee and assumed the role of Committee Chair New Director N. Anthony Coles joined the Compensation Committee in April 2014 Wayne Budd was appointed Chair of the Governance Committee Policy previously required intentional misconduct or a material negative revision of financial or operating measures to trigger a clawback o “Intent” and “Materiality” restrictions were eliminated, providing the Compensation Committee greater flexibility in determining when to trigger a clawback Policy now requires public disclosure of the results of any deliberations regarding whether to recoup compensation, except where prevented by legal or privacy concerns We engaged with over 50% of our shareholders to understand areas of concern and made meaningful changes in response to shareholder feedback Substantive Compensation Program Changes Made to CEO Pay |
![]() What’s New: Executive Compensation Evaluation of Our CEO’s Pension Benefit 5 Some shareholders had concerns regarding the scale of our CEO’s pension benefit The CEO’s pension benefit is provided under a legacy pension benefit plan and an employment agreement from 1999 The annual increase in pension accumulation is reflected in the Summary Compensation Table and can cause spikes in total disclosed compensation Change reported in 2013 resulted from adjustments to actuarial / interest rate assumptions, which were required in light of a long period of historically low interest rates Representatives of the Board and management reached out to shareholders to understand their perspectives following the 2013 say on pay vote The Compensation Committee evaluated possible changes to the CEO’s pension in the context of important goals Drive the right business outcomes for McKesson Be in the best interests of all shareholders, and responsive to their concerns Retain and motivate our CEO |
![]() 6 What’s New: Executive Compensation Changes to the CEO’s Pension Eliminated growth in CEO’s pension cost Eliminated volatility in CEO’s pension benefit due to changes in actuarial assumptions Eliminated CEO’s incentive to leave based on a changing interest rate environment Due to this change, there will be no future change to the value of the pension, which will simplify Summary Compensation Table disclosure “Fixed” the CEO’s pension benefit with $45M reduction (~30%) from the termination benefit disclosed in 2013 |
![]() 7 What’s New: Executive Compensation FY 2014 Current NEO Compensation Decisions Base Salaries Maintained CEO base salary since May 2010 and other Current NEO base salaries since May 2011 Performance RSUs Reduced target awards by an average of 6% from FY 2013 Option Awards Reduced grant date values by an average of 24% from FY 2013 Long-Term Incentive Plan Reduced maximum payout opportunity for executive officers by 33% for FY 2012 – FY 2014 performance period Reduced target awards by an average 3% from FY 2013 – FY 2015 performance period We heard our shareholders’ views about the level of total compensation and responded by reducing nearly every element of our FY 2014 pay program |
![]() FY 2010 – FY 2014 CEO Direct Pay Down 26% With Total Shareholder Return of 427% 8 (1) (2) Total shareholder return assumes $100 invested at the close of trading on March 31, 2009 and the reinvestment of dividends when paid. Total direct compensation (“TDC”) refers to total compensation disclosed in the Summary Compensation Table minus the amount displayed under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column. We exclude this amount because it does not reflect Compensation Committee decisions based on Company or individual performance. |
![]() Executive Compensation Financial Targets Tied to Operating and Strategic Plans 9 Key Considerations in Development of Financial Targets for Annual and Long-Term Incentive Plans Business Environment Competitive Factors McKesson Objectives Public Policy Analyst Expectations Market Outlook Tax Policy Industry Trends Competitor Performance Competitor Plans Competitive Landscape Market Growth Historical Trends Historical Performance Long Range Planning Capital Deployment Opportunities Recent Capital Deployment Decisions Long Range Corporate Strategy Financial targets for annual and long-term incentive plans tied to 1- year operating plan and rolling 3- year strategic plan This approach has been effective o From FY 2012 to FY 2014, McKesson’s forward earnings guidance grew by more than 30%, representing a compound annual growth rate of approximately 15% o For FY 2015, forward earnings guidance published on May 12, 2014 was 27% greater than the actual earnings result for FY 2014 |
![]() What’s New: Executive Compensation Incentive Plan Changes for FY 2015 10 Shareholder Concerns Impact on FY 2015 Incentive Plan Redundant use of earnings metrics Replaced Adjusted EBITDA with Adjusted OCF as secondary financial metric in Management Incentive Plan (annual cash incentive) Replaced Cumulative Adjusted OCF with Adjusted ROIC as secondary metric in Long-Term Incentive Plan (long-term cash incentive) Lack of shareholder return or relative measure and Short performance period (1- year) in PeRSU program Replaced Performance Restricted Stock Unit (“PeRSU,” former long- term equity incentive) program with new Total Shareholder Return Unit (“TSRU,” new long-term equity incentive) program for executive officers Adopted TSR relative to S&P 500 Health Care Index as sole performance metric in new TSR program o Target payout at 55 th percentile relative to index (above median performance) o Payout capped at target if McKesson TSR is negative All long-term incentive plans for executive officers, including new TSRU program, now have performance or vesting periods of at least 3 years |
![]() 11 Governance Attributes Our Board actively seeks input from shareholders and is committed to continuously monitoring and maintaining effective governance practices * Reflects governance changes adopted or enhanced in last year Key Governance Attributes Shareholder Right to Call Special Meeting * No Supermajority Vote Provisions Majority Voting for Uncontested Director Elections Annual Election of Directors 8 of 9 Director Nominees are Independent Robust Lead Independent Director * Significant Director Equity Ownership Annual CEO Succession Review Regular Executive Sessions of the Board No Poison Pill Related Party Transactions Policy |
![]() 12 Independent, Experienced Board with Diverse Skills & Perspectives McKesson’s Board, with its diverse perspectives, provides valuable guidance, consultation and oversight for management Nominees Bring a Balance of Industry-Specific and Functional Expertise All 9 have served on other public company boards 2 former leaders of pharmaceutical or medical device companies 4 nominees with healthcare experience 3 with financial expertise 3 technology industry experts 2 former CFOs 8 Independent Directors 7 Current or Former CEOs 2 Females 2 African Americans 2 Physicians 89% 78% 22% 22% 22% |
![]() What’s New: Corporate Governance Ongoing Board Refreshment 13 The Governance Committee continues to identify candidates to join the Board and provide fresh perspectives as new independent Directors Expected Composition at 2017 AGM** Current Board Tenure* N. Anthony Coles, M.D., appointed to the Board in April 2014 o Former CEO and Chairman of Onyx Pharmaceuticals (NASDAQ:ONXX) o Extensive experience in biopharmaceuticals and pharmaceuticals o Independent under SEC, New York Stock Exchange and McKesson criteria *Includes Dr. Shaw who will be leaving the Board at the upcoming Annual Meeting **Assumes no expansion in Board size 16+ Years 2 1 4 4 1 0-5 Years 6-10 Years 11-15 Years 16+ Years 4 1 2 0-5 Years 6-10 Years 11-15 Years |
![]() What’s New: Corporate Governance Expansion of Lead Director Role 14 Preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors Serve as liaison between the Chairman and the independent directors Approve information sent to the Board Approve Board meeting agendas and assure that there is sufficient time for discussion of all items Call meetings of the independent directors, as appropriate If requested by major shareholders, ensure that he or she is available for direct communication Lead the annual evaluation of directors and the CEO Assume role of Chairman of the Board on an interim basis in the event of a temporary or permanent absence of the Chairman Provide recommendations to the Governance Committee regarding Board committee memberships selection of committee chairs Retain independent legal, accounting and other advisors Assist in assuring compliance with, and implementation of, the Corporate Governance Guidelines Core Roles and Responsibilities of Lead Independent Director Expansion of Lead Independent Director’s Powers Created role in January 2013, effective July 2013 Expanded role in October 2013 |
![]() What’s New: Governance Proxy Access By-Law in 2015 15 We recently announced plan to submit a proposal at the 2015 Annual Meeting to adopt a proxy access by-law amendment Discussed proxy access with shareholders in reaching decision 3% ownership with a 3-year holding period Shareholders may nominate directors for up to 20% of the available seats McKesson’s plan to seek shareholder approval of proxy access demonstrates our commitment to best practices in corporate governance |
![]() Board Perspectives on Shareholder Proposals Action by Written Consent of Shareholders 16 The Board believes that implementation of this proposal is unnecessary given the ability of shareholders to call special meetings o Currently, any matter that either McKesson or its shareholders wish to present for a vote must be presented at an annual or special meeting; this allows all shareholders to consider, discuss and vote on pending shareholder actions Written consent would permit a small group of shareholders (including those who accumulate a short-term voting position through the borrowing of shares) to initiate action with no prior notice either to the other shareholders or to the Company o Such shareholders may not act in the interests of longer-term holders of our common stock o Action by written consent is not subject to notice periods that are vital to informed decision making o This could prevent all shareholders from having an opportunity to deliberate in an open and transparent manner, and to consider arguments for and against any action o Further, the Board does not have the opportunity to analyze and provide a recommendation, and proponents need not provide any information regarding themselves or their interests in the proposed action to other shareholders or the Company A proposal on this topic in 2013 was opposed by 55% of votes cast, while the special meeting right proposed by the Company was overwhelmingly approved, reflecting shareholder preferences Given the potential for abuse and disenfranchisement of minority shareholders and other adverse consequences associated with the right to act by less than unanimous written consent, the Board recommends a vote “AGAINST” this proposal |
![]() Board Perspectives on Shareholder Proposals Disclosure of Political Contributions 17 McKesson understands that the decisions made by policymakers have a profound impact on our industry, business and customers McKesson primarily engages in the political process through the McKesson Corporation Employees Political Fund (“PAC”) o Contributions are funded entirely by eligible McKesson employees on a voluntary basis; such contributions are not made with corporate assets The Company does not make “independent expenditures” or “super PAC” contributions The Company does make a limited number of corporate political contributions at the state level o This includes corporate contributions to state candidates and political action committees in areas where the Company has a significant employee or facility presence o Political contributions are subject to Board oversight, and all contributions must be approved by the Senior Vice President of Public Affairs, with contributions greater than $1,000 subject to approval by the Chairman of the Board and Chief Executive Officer We agree that transparency and accountability with respect to political expenditures are important o All corporate political contributions are subject to both internal procedures and strict laws regarding transparency We support transparency in reporting; a link to a database of PAC contributions is made available on our website at www.mckesson.com under the caption “About McKesson-Public Affairs,” as well as the aggregate amount of political contributions and a statement about the Company’s political contribution policies Given the limited nature of McKesson’s corporate political contributions, together with recently enhanced transparency and Board oversight of our political engagement, the Board believes this proposal is unnecessary and recommends a vote “AGAINST” |
![]() Board Perspectives on Shareholder Proposals Accelerated Vesting of Equity Awards 18 The Board opposes this proposal because providing for accelerated vesting of equity awards in the event of a named executive officer’s termination following a change in control is in the best interests of shareholders o This “double trigger” for accelerated vesting is consistent with feedback from our shareholders o Executives have employee benefits, including severance and change in control benefits, that the Compensation Committee believes are competitively necessary o Adopting this proposal would limit our ability to provide competitive compensation programs and could disadvantage our ability to attract and retain highly qualified employees Accelerated vesting can help to mitigate some of the uncertainty that will likely arise for executives from a change in control transaction, and reduce the risk of executive turnover during a pending transaction where the risk of job loss is relatively high for senior executives The Board believes that the current structure of the Company’s executive compensation program, including the provisions related to accelerated vesting of equity incentive awards, are appropriate and effective, and align the interests of our executives with those of the Company’s shareholders o These compensation programs are consistent with market practice and provide us with the ability to compete for, attract and retain talented executives The Board believes that the current executive compensation structure, including accelerated vesting of equity incentive awards, is appropriate and effective at aligning the interests of executives and shareholders – a vote “AGAINST” is recommended |
![]() 19 2014 Annual Meeting of Stockholders This information is being provided to shareholders in addition to the proxy statement filed by McKesson Corporation (the “Company”) with the Securities and Exchange Commission (the “SEC”) on June 19, 2014. Please read the complete proxy statement and accompanying materials carefully before you make a voting decision. Even if voting instructions for your proxy have already been given, you can change your vote at any time before the annual meeting by giving new voting instructions as described in more detail in the proxy statement. The proxy statement, and any other documents filed by the Company with the SEC, may be obtained free of charge at www.sec.gov and from the Company’s website at www.mckesson.com. |