UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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McKESSON CORPORATION
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![]() 2015 Annual Meeting of Stockholders Meeting Date: July 29, 2015 |
![]() 2 2 Executive Summary We ask for your support at our 2015 Annual Meeting Strong Performance Delivered strong financial and operational performance in FY 2015 Increased Adjusted EPS by 29% year-over-year and achieved a three-year compound annual growth rate of almost 21% Generated $3.1 billion in operating cash flow Delivered total shareholder return of 29%, adding $11.7 billion in market value Expanded our scale and global reach with the acquisition of Celesio AG Robust Governance Practices We value shareholder feedback in the refinement of our governance practices Recently elected our Lead Independent Director to an additional two-year term Delivering on our commitment, we are pleased to submit proxy access by-law amendments to shareholders at the 2015 Annual Meeting Improvements to the Compensation Program Engaged with over 62% of our shareholder base since the 2014 Annual Meeting Continued to enhance our compensation program in response to feedback: o Introduced new performance metrics o Performance or vesting periods for new long-term awards of at least three years Independent and Experienced Board 10 of 11 director nominees are independent Our directors bring a balance of industry-specific and functional expertise We are refreshing our Board – we added three new independent directors in FY 2015 and expect three of our current directors to retire over the next two years |
![]() 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 Deepened relationships with customers and manufacturing partners while expanding scale and global reach Focused growth on emerging technology solutions and enhanced customer relationships in distribution solutions Continued execution of disciplined strategic transactions, most recently the $8 billion acquisition of Celesio AG that expanded 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 * Total shareholder return (“TSR”) is calculated as stock price appreciation (or reduction) over the measurement period, including reinvestment of dividends when paid, divided by the stock price at the beginning of the period. |
![]() Responsive to Shareholder Feedback 4 Ongoing Board Refreshment Substantive Compensation Program Changes In FY 2014, implemented changes to address concerns regarding the scale of our CEO’s pension and the quantum of his pay: o Reduced pension benefit to a fixed value almost 30% less than the amount he would have received had he resigned at the end of FY 2013 o Eliminated volatility in pension due to changes in actuarial assumptions In FY 2015, continued to enhance our executive compensation program: o Introduced a new relative performance metric and strengthened pay for performance alignment o Relative total shareholder return metric is part of a long-term incentive program that also uses absolute financial performance metrics o All executive officers receive long-term incentive awards with performance or vesting periods of at least three years In FY 2014, implemented a number of changes to our Board’s leadership structure: o Alton F. Irby III, former Chair of the Compensation Committee, stepped off that Committee o Jane E. Shaw, Ph.D., joined the Compensation Committee and then assumed the role of Chair o Wayne A. Budd was appointed Chair of the Governance Committee In FY 2015, refreshed Board committees and Board composition: o Appointed a new Chair of the Compensation Committee, Andy D. Bryant, upon retirement of the former Chair o Three new members joined our Board of Directors - N. Anthony Coles, M.D., Donald R. Knauss and Susan R. Salka o In addition to a fresh perspective, Dr. Coles and Ms. Salka both bring years of leadership in the healthcare industry and Mr. Knauss brings unique branding and retailer knowledge We expect three of our current directors to retire over the next two years: Alton F. Irby III, David M. Lawrence, M.D. and Wayne A. Budd We regularly engage with our shareholders to understand their views and make meaningful changes in response to shareholder feedback |
![]() Total Shareholder Return of 258%, CEO Direct Pay Down 21% 5 Total Shareholder Return (1) vs. CEO Total Direct Compensation (2) (1) Total shareholder return assumes $100 invested at the close of trading on March 31, 2010 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. (2) |
![]() Executive Compensation Financial Targets Tied to Operating and Strategic Plans 6 Key Considerations in Development of Annual and Long-Term Goals Business Environment Competitive Factors McKesson Objectives International Trends 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 annual operating plan and rolling three-year strategic plan This approach has been effective: o From FY 2013 to FY 2015, McKesson’s forward earnings guidance grew at its midpoint by more than 47%, representing a compound annual growth rate of more than 21% o For FY 2015, forward earnings guidance published on May 12, 2014 represented 25% to 30% growth year- over-year on a constant currency basis o The growth marked by our FY 2015 forward guidance was incorporated into each of the financial performance targets approved by the Compensation Committee in May 2014 for use in McKesson’s executive compensation program Rigorous operational and strategic planning supports the development of relevant and challenging incentive targets |
![]() What’s New: Executive Compensation Incentive Plan Changes for FY 2015 7 Shareholder Feedback Impact on FY 2015 Incentive Plans Redundant use of earnings metrics Replaced Adjusted EBITDA with Adjusted OCF as secondary financial metric in the Management Incentive Plan (annual cash incentive) Replaced Cumulative Adjusted OCF with Adjusted ROIC as secondary metric in the Long-Term Incentive Plan (long-term cash incentive) Lack of shareholder return or relative measure Replaced Performance Restricted Stock Unit program (“PeRSU,” former long-term equity incentive) with a new Total Shareholder Return Unit program (“TSRU,” new long-term equity incentive) for executive officers Adopted TSR relative to S&P 500 Health Care Index as sole performance metric in new TSRU program: o Target payout at 55 th percentile relative to index (above median performance) o Payout capped at target if McKesson TSR is negative Short performance period (one- year) in PeRSU program All long-term incentive plans for executive officers, including the new TSRU program, now have performance or vesting periods of at least three years |
![]() Vital Balance of Industry and Functional Expertise 8 Experienced Leaders Global Leadership All 11 nominees are experienced business leaders, which equips them to provide constructive insight to our management team. 8 of the nominees have substantial international experience, which brings critical perspective to our Board with our expansion in the global marketplace. Healthcare Financial Expertise 5 of the nominees are experienced leaders in the healthcare industry, including leaders of pharmaceutical and medical device companies and organizations providing healthcare services. 10 of the nominees have valuable financial experience having spent a significant portion of their careers focused on finance or as chief executives, with 3 of them previously having served as Chief Financial Officers. Supply Chain Technology 8 of the nominees bring supply chain or manufacturing experience to our boardroom, which enhances the Board’s oversight of our Distribution Solutions businesses. 5 of the nominees are experienced leaders in the technology industry, which allows them to effectively oversee the management of our Technology Solutions businesses. The Governance Committee has worked to build a vibrant Board that blends the right expertise and perspectives to oversee McKesson |
![]() 9 Independent, Experienced and Diverse Board McKesson’s Board, with its diverse perspectives, provides valuable guidance, consultation and oversight for management Actively Refreshing the Board with New Talent During FY 2015, three new members joined our Board of Directors: N. Anthony Coles, M.D., Donald R. Knauss and Susan R. Salka In addition to the fresh perspectives they provide the Board, Dr. Coles and Ms. Salka both bring years of leadership in the healthcare industry, and Mr. Knauss brings unique branding and retailer knowledge Jane E. Shaw, Ph.D., our longest-tenured director, retired from the Board at the 2014 Annual Meeting of Stockholders, and we expect three additional directors to retire over the next two years: Alton F. Irby III, David M. Lawrence, M.D. and Wayne A. Budd The Governance Committee maintains a robust self-assessment and nomination process and will continue to draw from a pool of highly qualified, diverse and independent director candidates for nomination to the Board |
![]() What’s New: Governance 10 In 2014, we announced plans to submit a proposal at the 2015 Annual Meeting to adopt proxy access by-law amendments Over the last 12 months, we continued to actively engage with shareholders to understand their views on proxy access On June 1 st , we announced that our Board adopted proxy access by-law amendments, subject to shareholder approval at the 2015 Annual Meeting, with the following terms: o 3% ownership with a three-year holding period o Shareholders may nominate directors for up to 20% of the available seats The by-law amendments will become effective immediately if approved by shareholders Our Board remains committed to strong, shareholder-focused, contemporary corporate governance practices consistent with our goal of creating long-term, sustainable value for McKesson’s shareholders Delivering on Proxy Access Reelection of Lead Independent Director In 2013, the Board created the role of Lead Independent Director and elected Edward A. Mueller as McKesson’s first Lead Independent Director to serve a two-year term In April 2015, the independent directors of the Board elected Mr. Mueller to serve an additional two-year term as Lead Independent Director, subject to his continuing reelection and status as an independent director |
![]() Board Perspectives on Shareholder Proposals Disclosure of Political Contributions 11 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” Decisions made by policymakers have a profound impact on our industry, business and customers We primarily engage in the political process through the McKesson Corporation Employees Political Fund (“PAC”) Contributions are funded entirely by eligible McKesson employees on a voluntary basis; such contributions are not made with corporate assets Transparency and accountability with respect to political expenditures are important All corporate political contributions are subject to both internal procedures and strict laws regarding transparency www.mckessoncorporatecitizenship.com provides a detailed description of our approach and total corporate political contributions (under “Our Company — Engagement and Collaboration”), and our PAC files monthly reports with the Federal Election Commission McKesson does not make “independent expenditures” or “super PAC” contributions McKesson makes a limited number of corporate political contributions at the state level This includes corporate contributions to state candidates and political action committees in areas where the Company has a significant employee or facility presence 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 Participating in the Political Process Contributions Funded by Employees Transparency and Disclosure Limited Corporate Contributions |
![]() Board Perspectives on Shareholder Proposals Accelerated Vesting of Equity Awards 12 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 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 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, is appropriate and effective, and aligns 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 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 Accelerated Vesting Subject to a Double Trigger Benefits Shareholders Aligning Incentives Retaining Key Talent |
![]() 13 2015 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 15, 2015. 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. |