McKesson (MCK) DEFA14A Additional proxy soliciting materials

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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Exchange Act of 1934 (Amendment No. )

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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.