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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| ☐ | Preliminary Proxy Statement | |
| ☐ | Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| ☐ | Definitive Proxy Statement | |
| ☑ | Definitive Additional Materials | |
| ☐ | Soliciting Material Under Rule 14a-12 | |
CVS HEALTH CORPORATION
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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CVS Health Executive Compensation Overview
Compensation Program Core Principles
Five core principles drive our executive compensation philosophy and promote company growth:
Compensation Program Reflects Stockholder Feedback
The Management Planning and Development (MP&D) Committee of the CVS Health Board annually reviews the results of the stockholder advisory vote on executive compensation (“say on pay”)
| • | Approximately 91% of votes were cast in favor of our say on pay proposals in the last two years |
The MP&D Committee also considers feedback received through our direct engagement with stockholders
| • | In the latter part of 2019 and early 2020, we reached out to stockholders representing approximately 52% of our outstanding shares and held calls with holders of nearly 22% of our outstanding shares |
We have made numerous enhancements to our executive compensation program to incorporate stockholder input
Recent Enhancements to Compensation Program
|
Simplification of Performance Stock Unit (PSU) structure: single PSU in place of the two forms of PSUs awarded in 2018 |
| Alignment of PSU metrics to shift in business strategy and enhanced transparency in metric selection and target setting process |
| Committed to disclose methodology for calculation of any Non-GAAP financial measures in pay program |
| Enhanced disclosure of Recoupment Policy and amended to include commitment to transparency |
| Enhanced disclosure on the selection of comparator companies in peer groups that reflect evolving business |
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Compensation Program Aligns to Company Performance
| • | Our pay-for-performance philosophy places a majority of an executive officer’s compensation at risk and emphasizes long-term incentives tied to defined individual and Company performance goals and continued service |
| • | More than 70% of executive officer target total compensation is provided through equity, including PSUs and stock options |
2019 Compensation Program –
Performance Metrics that Support Strategy and Growth
| Performance Metric | Weighting | Metric Rationale |
| Annual Cash Incentive | MIP Adjusted Operating Income | 80% | · | Key measure of profitability followed closely by investors |
| Retail Customer Service, PBM Client Satisfaction and Health Care Benefits Member Satisfaction Result | 20% |
·
· |
Important drivers of recurring revenue and the achievement of long-term strategic and operational goals Emphasize and reinforce the business objectives of the Enterprise | |
| Individual Performance Goals | Modifier 0-120% | ·
· |
Position-specific performance goals that are established early in the fiscal year MP&D Committee has sole authority to determine the amount, if any, of each annual cash incentive award | |
| PSUs | 2021 Adjusted EPS | 100% | · | Measures profitability and performance during the final year of the 3-year performance period |
| Leverage Ratio |
Modifier +/- 25% |
·
· |
Measures achievement of our goal of debt reduction over the 3-year performance period Also measures ability to maintain a strong capital structure which enables the resumption of normal capital deployment | |
| Relative Total Shareholder Return |
Modifier +/- 25% |
· | Considers the Company’s TSR performance relative to the broad market of companies with which we compete for talent and capital over the 3-year performance period |
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CEO Compensation Determinations
| • | The excerpt from the Summary Compensation Table (SCT) below reflects disclosures as required by SEC rules. To the right of the SCT, we show the MP&D Committee’s CEO compensation determination for 2019 which we believe is a more representative presentation since it removes Mr. Merlo’s August 2019 PSUs and the LTIP related double reporting. |
| 2019 Summary Compensation Table |
2019 MP&D Compensation Determination Total ($) | ||||||
|
Salary ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
All Other Compensation ($) |
Total ($) | ||
|
Larry J. Merlo President and Officer |
1,630,000 |
20,249,968
|
3,374,998 |
10,625,000
|
571,783 |
36,451,749 |
19,576,764 |
| • | The 2019 Summary Compensation Table includes equity grants for multiple years. In addition to the 2019 PSUs with a grant date value of $10.1 million for the 2019 – 2021 performance cycle, it includes: |
 |
$10.1 million for 2020 PSUs which were granted early in place of a 2020 annual award (see below), and |
 |
$6.75 million representing 100% of the value earned for the LTIP granted in 2017 and earned for the 2017-2019 performance cycle |
| • | Our CEO’s 2019 total compensation value is $19.6 million excluding the $16.85 million in equity not reflective of annual compensation for fiscal year 2019 |
| • | Reflecting feedback from stockholders, we have adjusted our equity grant denomination practices to better align to SEC reporting requirements, which will eliminate the double reporting of historical and go-forward awards effective in 2020 and will be reported in the 2021 Proxy Statement |
2020 PSU Award for our CEO Granted in August 2019
In August 2019, the MP&D Committee approved accelerating the grant date of our CEO’s 2020 annual PSU award.
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Leading Practices In Compensation Programs
Our pay practices align with and support our core compensation principles
| ü | Performance measures aligned with strategy | |
| ü | Majority of total compensation opportunity is performance-based | |
| ü | No excise tax gross-ups | |
| ü | No option repricing | |
| ü | No recycling of shares | |
| ü | Robust recoupment policy and disclosure commitment | |
| ü | Broad anti-pledging and anti-hedging policy | |
| ü | Policy to limit executive severance | |
| ü | Limited perquisites and personal benefits | |
| ü | SERP closed to new participants | |
| ü | Double trigger vesting of equity awards | |
| ü | Robust stock ownership guidelines | |
| ü | Two-year post vesting holding period on PSU shares earned | |
| ü | No dividend equivalents on unvested awards | |
| ü | Cap on annual cash incentive awards | |
| ü | Relative TSR modifier incorporated into long-term program |
MIP Adjusted Operating Income is a non-GAAP measure used in our compensation program. The definition of MIP Adjusted Operating Income and a reconciliation of 2019 operating income to MIP Adjusted Operating Income can be found in Annex A of the Company’s 2020 Proxy Statement.
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