def14a
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. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
McKesson Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
OF McKESSON CORPORATION
The 2008 Annual Meeting of Stockholders of McKesson Corporation
will be held on Wednesday, July 23, 2008 at 8:30 a.m.
at the A.P. Giannini Auditorium, 555 California Street,
San Francisco, California to:
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Elect a slate of ten directors for a one-year term;
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Ratify the appointment of Deloitte & Touche LLP as the
Companys independent registered public accounting firm for
the fiscal year ending March 31, 2009; and
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Conduct such other business as may properly be brought before
the meeting.
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Stockholders of record at the close of business on May 30,
2008 are entitled to notice of and to vote at the meeting or any
adjournment or postponement of the meeting.
By Order of the Board of Directors
Laureen E. Seeger
Executive Vice President,
General Counsel and Secretary
One Post Street
San Francisco, CA
94104-5296
June 23, 2008
YOUR VOTE IS IMPORTANT.
We encourage you to read the proxy statement and vote your
shares as soon as possible. A return envelope for your proxy
card is enclosed for your convenience. You may also vote by
telephone or via the Internet. Specific instructions on how to
vote using either of these methods are included on the proxy
card.
CONTENTS
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PROXY
STATEMENT
General
Information
Proxies
and Voting at the Meeting
The Board of Directors of McKesson Corporation (the
Company or we or us), a
Delaware corporation, is soliciting proxies to be voted at the
Annual Meeting of Stockholders to be held July 23, 2008
(the Meeting), and at any adjournment or
postponement of the Meeting. This proxy statement includes
information about the matters to be voted upon at the Meeting.
On June 23, 2008, the Company began delivering these proxy
materials to all stockholders of record at the close of business
on May 30, 2008 (the Record Date). On the
Record Date, there were approximately 276,699,298 shares of
the Companys common stock outstanding and entitled to
vote. You are entitled to one vote for each share of common
stock you held on the Record Date, including shares:
(i) held directly in your name as the stockholder of
record; (ii) held for you in an account with a broker, bank
or other nominee; or (iii) allocated to your account in the
Companys Profit-Sharing Investment Plan (PSIP).
You can revoke your proxy at any time before the Meeting by
sending a written revocation or a proxy bearing a later date to
the Companys Corporate Secretary. Stockholders may also
revoke their proxies by attending the Meeting in person and
casting a ballot. If you hold your shares through a bank, broker
or other nominee and have instructed the bank, broker or other
nominee as to how to vote your shares, you must follow
directions received from the bank, broker or other nominee in
order to change your vote or to vote at the Meeting.
If you are a stockholder of record or a participant in the
Companys PSIP, you can give your proxy by calling a
toll-free number, by using the Internet, or by mailing your
signed proxy card(s). Specific instructions for voting by means
of the telephone or Internet are set forth on the enclosed proxy
card. The telephone and Internet voting procedures are designed
to authenticate each stockholders identity and to allow
each stockholder to vote his or her shares and confirm that his
or her voting instructions have been properly recorded. If you
do not wish to vote via the Internet or telephone, please
complete, sign and return the proxy card in the self-addressed,
postage-paid envelope provided.
If you have shares held by a broker, bank or other nominee, you
may instruct your nominee to vote your shares by following your
nominees instructions. Your stockholder vote is important.
Please vote as soon as possible to ensure that your vote is
recorded.
All shares represented by valid proxies will be voted as
specified. If no specification is made, the proxies will be
voted FOR:
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the election of the director nominees named in this proxy
statement; and
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the ratification of the appointment of Deloitte &
Touche LLP as the Companys independent registered public
accounting firm for the fiscal year ending March 31, 2009.
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We know of no other matters to be presented at the Meeting. If
any other matters properly come before the Meeting, it is the
intention of the proxy holders to vote on such matters in
accordance with their best judgment.
Attendance
at the Meeting
If you plan to attend the Meeting, you will need to bring your
admission ticket. You will find an admission ticket attached to
the proxy card if you are a registered holder or PSIP
participant. If your shares are held in the name of a bank,
broker or other holder of record and you plan to attend the
Meeting in person, you may obtain an admission ticket in advance
by sending a request, along with proof of ownership, such as a
bank or brokerage account statement, to the Companys
Corporate Secretary, One Post Street, 35th Floor,
San Francisco, California 94104. Stockholders who do
not have an admission ticket will only be admitted upon
verification of ownership at the door.
Dividend
Reinvestment Plan
For those stockholders who participate in the Companys
Automatic Dividend Reinvestment Plan (DRP), the
enclosed proxy card includes all full shares of common stock
held in your DRP account on the Record Date for the Meeting, as
well as your shares held of record.
Vote
Required and Method of Counting Votes
The votes required and the method of calculation for the
proposals to be considered at the Meeting are as follows:
Item 1 Election of
Directors. Each share of the Companys
common stock you own entitles you to one vote. You may vote
for or against, or abstain
from voting for one or more of the director nominees. A nominee
will be elected as a director if he or she receives a majority
of votes cast (that is, the number of votes cast for
a director nominee must exceed the number of votes cast
against that nominee). Abstentions or broker
non-votes (as defined below), if any, will not count as votes
cast. There is no cumulative voting with respect to the election
of directors.
Item 2 Ratification of the Appointment of
Independent Registered Public Accounting
Firm. Ratification of the appointment of
Deloitte & Touche LLP for the current fiscal year
requires the affirmative vote of a majority of the shares
present, in person or by proxy, and entitled to vote on the
proposal at the Meeting. Our 2009 fiscal year began on
April 1, 2008 and will end on March 31, 2009 (FY
2009).
You may vote for or against, or
abstain from voting on, the proposal to ratify the
appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for FY 2009.
The Board
of Directors recommends a vote FOR each nominee
named in Item 1 and FOR Item 2.
Quorum
Requirement
The presence in person or by proxy of holders of a majority of
the outstanding shares of common stock entitled to vote will
constitute a quorum for the transaction of business at the
Meeting. In the event of abstentions or broker non-votes, as
defined below, the shares represented will be considered present
for quorum purposes.
Abstentions
and Broker Non-Votes
If you submit your proxy or attend the Meeting but choose to
abstain from voting on any proposal, you will be considered
present and not voting on the proposal. Generally, broker
non-votes occur when a broker is not permitted to vote on a
proposal without instructions from the beneficial owner, and
instructions are not given.
In the election of directors, abstentions and broker non-votes,
if any, will be disregarded and have no effect on the outcome of
the vote. With respect to the ratification of the appointment of
Deloitte & Touche LLP, abstentions from voting will
have the same effect as voting against such matter; however,
broker non-votes, if any, will be disregarded and have no effect
on the outcome of such vote.
Profit-Sharing
Investment Plan
Participants in the Companys PSIP have the right to
instruct the PSIP Trustee, on a confidential basis, how the
shares allocated to their accounts are to be voted, and will
receive a separate PSIP voting instruction card for that
purpose. In general, the PSIP provides that all shares for which
no voting instructions are received from participants and
unallocated shares of common stock held in the leveraged
employee stock ownership plan established as part of the PSIP,
will be voted by the Trustee in the same proportion as shares as
to which voting instructions are received. However, shares that
have been allocated to PSIP participants PAYSOP accounts
for which no voting instructions are received will not be voted.
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List
of Stockholders
The names of stockholders of record entitled to vote at the
Meeting will be available at the Meeting and for ten days prior
to the Meeting for any purpose germane to the Meeting, during
ordinary business hours, at our principal executive offices at
One Post Street, San Francisco, California, by contacting
the Secretary of the Company.
Online
Access to Annual Reports on
Form 10-K
and Proxy Statements
The notice of annual meeting, proxy statement and Annual Report
on
Form 10-K
for our fiscal year ended March 31, 2008 are available at
http://bnymellon.mobular.net/bnymellon/mck. Instead of
receiving future copies of the proxy statement and Annual Report
on
Form 10-K
by mail, stockholders can elect to receive these documents
electronically, in which case you will receive an
e-mail with
a link to these documents.
Stockholders of Record: You may elect to
receive proxy materials electronically next year in place of
printed materials by logging on to
www.bnymellon.com/shareowner/isd and entering your
Stockholder Account Number, which you can locate on the
accompanying proxy card. You will save the Company printing and
mailing expenses, reduce the impact on the environment and
obtain immediate access to the Annual Report on
Form 10-K,
proxy statement and voting form when they become available.
Beneficial Stockholders: If you hold your
shares through a bank, broker or other holder of record, you may
also have the opportunity to receive copies of the proxy
statement and Annual Report on
Form 10-K
electronically. Please check the information provided in the
proxy materials mailed to you by your bank, broker or other
holder of record regarding the availability of this service or
contact the bank, broker or other holder of record through which
you hold your shares and inquire about the availability of such
an option for you.
If you elect to receive your materials via the Internet, you can
still request paper copies by leaving a message with Investor
Relations at
(800) 826-9360
or by sending an
e-mail to
investors@mckesson.com.
Householding
of Proxy Materials
In a further effort to reduce printing costs and postage fees,
we have adopted a practice approved by the Securities and
Exchange Commission (the SEC) called
householding. Under this practice, stockholders who
have the same address and last name and do not participate in
electronic delivery of proxy materials will receive only one
copy of our proxy materials, unless one or more of these
stockholders notifies us that he or she wishes to continue
receiving individual copies. Stockholders who participate in
householding will continue to receive separate proxy cards.
If you share an address with another stockholder and received
only one set of proxy materials and would like to request a
separate copy of these materials, please: (1) mail your
request to Investor Relations, Box K, McKesson Corporation, One
Post Street, San Francisco, CA 94104; (2) send an
e-mail to
investors@mckesson.com; or (3) call our Investor
Relations department toll-free at
(800) 826-9360.
Similarly, you may also contact us if you received multiple
copies of the proxy materials and would prefer to receive a
single copy in the future.
3
PROPOSALS TO
BE VOTED ON
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Item 1.
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Election
of Directors
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There are ten nominees for election to the Board of Directors
(the Board) of the Company. The directors elected at
the Meeting will hold office until the 2009 Annual Meeting of
Stockholders and until their successors have been elected and
qualified, or until their earlier death, resignation or removal.
If a nominee is unavailable for election, your proxy authorizes
the persons named in the proxy to vote for a replacement nominee
if the Board names one. As an alternative, the Board may reduce
the number of directors to be elected at the Meeting.
Except for Andy D. Bryant and Edward A. Mueller, each of whom
was elected by the Board as a new director on January 23,
2008 and April 23, 2008, respectively, all nominees are
existing directors and were elected to the Board at either the
2007, 2006 or 2005 Annual Meeting of Stockholders. Each nominee
has informed the Board that they are willing to serve as
directors. If any nominee should decline or become unable to
serve as a director for any reason, the persons named in the
enclosed proxy will vote for another person as they determine in
their best judgment.
Majority Voting Standard for Election of
Directors. The Companys Amended and
Restated Bylaws provide for a majority voting standard for the
election of directors, which state that in uncontested director
elections, such as that being conducted this year, a director
nominee will be elected only if the number of votes cast
for the nominee exceeds the number of votes cast
against that nominee. In the case of contested
elections (a situation in which the number of nominees exceeds
the number of directors to be elected), the plurality vote
standard will apply. This majority voting standard is described
further below under the section entitled Corporate
Governance Majority Voting Standard.
The following is a brief description of the age, principal
occupation for at least the past five years and major
affiliations of each of the nominees.
Nominees
The Board of Directors recommends a vote FOR each
Nominee.
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Andy D. Bryant
Executive Vice President and Chief Administrative
Officer
Intel Corporation
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Mr. Bryant, age 58, has served as Executive
Vice President and Chief Administrative Officer of Intel
Corporation since October 2007. He served as Intels Chief
Financial Officer from 1994 to October 2007. Mr. Bryant
joined Intel in 1981 and held a number of management positions
before becoming Chief Financial Officer. He is also a director
of Columbia Sportswear Company and Kryptiq, Inc. Mr. Bryant
has been a director of the Company since January 2008.
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Wayne A. Budd
Senior Counsel
Goodwin Procter LLP
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Mr. Budd, age 66, joined the law firm of
Goodwin Procter LLP as Senior Counsel in October 2004. He had
been Senior Executive Vice President and General Counsel and a
director of John Hancock since 2000 and a director of John
Hancock Life Insurance Company since 1998. From 1996 to 2000,
Mr. Budd was Group President-New England for Bell Atlantic
Corporation (now Verizon Communications, Inc.). From 1994 to
1997, Mr. Budd was a Commissioner, United States Sentencing
Commission and from 1993 to 1996, he was a senior partner at the
law firm of Goodwin Procter LLP. From 1992 to 1993, he was the
Associate Attorney General of the United States and from 1989 to
1992, he was United States Attorney for the District of
Massachusetts. Mr. Budd has been a director of the Company
since October 2003. He is a member of the Audit Committee and
the Committee on Directors and Corporate Governance.
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John H. Hammergren
Chairman of the Board, President and Chief Executive
Officer
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Mr. Hammergren, age 49, was named Chairman of
the Board effective July 2002 and was named President and Chief
Executive Officer of the Company effective April 2001. He was
Co-President and Co-Chief Executive Officer of the Company from
July 1999 until April 2001. He was Executive Vice President of
the Company and President and Chief Executive Officer of the
Supply Management Business from January 1999 to July 1999, Group
President, McKesson Health Systems from 1997 to 1999 and Vice
President of the Company since 1996. He is also a director of
Nadro, S.A. de C.V. (Mexico) and Verispan LLC, entities in which
the Company holds interests, and a director of the
Hewlett-Packard Company. He has been a director of the Company
since July 1999.
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Alton F. Irby III
Chairman and Founding Partner
London Bay Capital
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Mr. Irby, age 67, was the founding partner and
has been Chairman of London Bay Capital, a privately-held
investment firm, since May 2006. He was the founding partner of
Tricorn Partners LLP, a privately-held investment bank from May
2003 to May 2006, a partner of Gleacher & Co. Ltd.
from January 2001 until April 2003, and Chairman and Chief
Executive Officer of HawkPoint Partners, formerly known as
National Westminster Global Corporate Advisory, from 1997 until
2000. He was a founding partner of Hambro Magan Irby Holdings
from 1988 to 1997. He is the Chairman of ContentFilm plc and
also serves as a director of Catlin Group Limited and Thomas
Weisel Partners Group, Inc. He is also a director of an indirect
wholly-owned subsidiary of the Company, McKesson
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Information Solutions UK Limited. Mr. Irby has been a
director of the Company since January 1999. He is Chair of the
Compensation Committee and a member of the Finance Committee.
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M. Christine Jacobs
Chairman of the Board, President and Chief Executive
Officer
Theragenics Corporation
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Ms. Jacobs, age 57, is the Chairman, President
and Chief Executive Officer of Theragenics Corporation, a
manufacturer of prostate cancer treatment devices and surgical
products. She has held the position of Chairman since May 2007,
and previously from 1998 to 2005. She was Co-Chairman of the
Board from 1997 to 1998 and was elected President in 1992 and
Chief Executive Officer in 1993. Ms. Jacobs has been a
director of the Company since January 1999. She is a member of
the Compensation Committee and the Committee on Directors and
Corporate Governance.
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Marie L. Knowles
Executive Vice President and Chief Financial Officer,
Retired
ARCO
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Ms. Knowles, age 61, retired from Atlantic
Richfield Company (ARCO) in 2000 and was Executive
Vice President and Chief Financial Officer from 1996 until 2000
and a director from 1996 until 1998. She joined ARCO in 1972.
Ms. Knowles is also a member of the Board of Trustees of
the Fidelity Funds. She has been a director of the Company since
March 2002. She is the Chair of the Audit Committee and a member
of the Finance Committee.
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David M. Lawrence, M.D
Chairman of the Board and Chief Executive Officer,
Retired
Kaiser Foundation Health Plan, Inc. and Kaiser Foundation
Hospitals
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Dr. Lawrence, age 67, retired as Chairman
Emeritus of Kaiser Foundation Health Plan, Inc. and Kaiser
Foundation Hospitals in December 2002. He served as Chairman of
the Board from 1992 to May 2002 and Chief Executive Officer from
1991 to May 2002 of Kaiser Foundation Health Plan, Inc. and
Kaiser Foundation Hospitals. He held a number of management
positions with these organizations prior to assuming these
positions, including Vice Chairman of the Board and Chief
Operating Officer. He is also a director of Agilent
Technologies, Dynavax Technologies Corporation and Raffles
Medical Group, Inc. Dr. Lawrence has been a director of the
Company since January 2004. He is a member of the Compensation
Committee and the Committee on Directors and Corporate
Governance.
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Edward A. Mueller
Chairman of the Board and Chief Executive Officer
Qwest Communications International Inc.
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Mr. Mueller, age 61, has served as Chairman and
Chief Executive Officer of Qwest Communications International
Inc., a provider of voice, data and video services, since August
2007. He served as Chief Executive Officer of Williams-Sonoma,
Inc., a provider of specialty products for cooking, from January
2003 until July 2006. Prior to joining Williams-Sonoma, Inc.,
Mr. Mueller served as President and Chief Executive Officer
of Ameritech Corporation, a subsidiary of SBC Communications,
Inc., from 2000 to 2002. He is also a director of The Clorox
Company. Mr. Mueller has been a director of the Company
since April 2008.
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James V. Napier
Chairman of the Board, Retired
Scientific-Atlanta, Inc.
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Mr. Napier, age 71, retired as Chairman of the
Board, Scientific-Atlanta, Inc., a cable and telecommunications
manufacturing company, in November 2000. He had been the
Chairman of the Board since 1993. He is also a director of
Vulcan Materials Company, Intelligent Systems Corporation and
Westinghouse Air Brake Technologies Corporation. Mr. Napier
has been a director of the Company since January 1999. He is
Chair of the Finance Committee and a member of the Compensation
Committee.
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Jane E. Shaw
Chairman of the Board and Chief Executive Officer,
Retired
Aerogen, Inc.
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Dr. Shaw, age 69, retired as Chairman of the
Board of Aerogen, Inc., a company specializing in the
development of products for improving respiratory therapy, in
October 2005. She had held that position since 1998. She retired
as Chief Executive Officer of that company in June 2005. She is
also a director of Intel Corporation and Talima Therapeutics,
Inc. Dr. Shaw has been a director of the Company since
April 1992. She is the Chair of the Committee on Directors and
Corporate Governance and a member of the Audit Committee.
7
The
Board, Committees and Meetings
The Board of Directors is the Companys governing body with
responsibility for oversight, counseling and direction of the
Companys management to serve the long-term interests of
the Company and its stockholders. The Boards goal is to
build long-term value for the Companys stockholders and to
assure the vitality of the Company for its customers, employees
and other individuals and organizations that depend on the
Company. To achieve its goals, the Board monitors both the
performance of the Company and the performance of the Chief
Executive Officer (CEO). The Board currently
consists of ten members, all of whom are independent with the
exception of the Chairman.
The Board has, and for many years has had, standing committees:
currently, the Audit Committee, the Compensation Committee, the
Committee on Directors and Corporate Governance, and the Finance
Committee. Each of these committees is governed by a written
charter approved by the Board in compliance with the applicable
requirements of the Securities and Exchange Commission (the
SEC) and the New York Stock Exchange (the
NYSE) listing requirements (collectively, the
Applicable Rules). Each of these charters requires
an annual review by its committee. Each member of our standing
committees is independent, as determined by the Board, under the
NYSE listing standards and the Companys director
independence standards. In addition, each member of the Audit
Committee meets the additional, heightened independence criteria
applicable to audit committee members, as established by the
SEC. The members of each standing committee are appointed by the
Board each year for a term of one-year or until his or her
successor is elected. The members of the committees are
identified in the table below.
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Directors and
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Corporate
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Director
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Audit
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Compensation
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Governance
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Finance
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Andy D. Bryant
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Wayne A. Budd
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John H. Hammergren
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Alton F. Irby III
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Chair
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M. Christine Jacobs
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Marie L. Knowles
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Chair
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David M. Lawrence, M.D.
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Edward A. Mueller
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James V. Napier
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Chair
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Jane E. Shaw
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|
X
|
|
|
|
Chair
|
|
|
Due to their recent election to the Board, Messrs. Bryant
and Mueller do not currently serve on any of the Boards
standing committees. However, it is expected that both
Messrs. Bryant and Mueller will be appointed to serve on
one or more of the Boards standing committees at its
upcoming July 2008 meeting.
Board and
Meeting Attendance
During the fiscal year ended March 31, 2008 (FY
2008), the Board met seven times. No director attended
fewer than 75% of the aggregate number of meetings of the Board
and of all the committees on which he or she served. Directors
meet their responsibilities not only by attending Board and
committee meetings, but also through communication with
executive management on matters affecting the Company. Directors
are also expected to attend the Annual Meeting of Stockholders.
Present at the Annual Meeting of Stockholders held in July 2007
were each of the directors then standing for election and all
directors whose terms were continuing after the meeting.
Audit
Committee
The Audit Committee is responsible for, among other things,
reviewing with management the annual audited financial
statements filed in the Annual Report on
Form 10-K,
including major issues regarding accounting principles and
practices as well as the adequacy and effectiveness of internal
control over financial reporting that could significantly affect
the Companys financial statements; reviewing with
financial management and the
8
independent registered public accounting firm (the
independent accountants) the interim financial
statements prior to the filing of the Companys quarterly
reports on
Form 10-Q;
the appointment of the independent accountants; monitoring the
independence and evaluating the performance of the independent
accountants; approving the fees to be paid to the independent
accountants; reviewing and accepting the annual audit plan,
including the scope of the audit activities of the independent
accountants; at least annually reassessing the adequacy of the
Audit Committees charter and recommending to the Board any
proposed changes; reviewing major changes to the Companys
accounting principles and practices; reviewing the appointment,
performance, and replacement of the senior internal audit
department executive; advising the Board with respect to the
Companys policies and procedures regarding compliance with
applicable laws and regulations and with the Companys code
of conduct; performing such other activities and considering
such other matters, within the scope of its responsibilities, as
the Audit Committee or Board deems necessary or appropriate. The
composition of the Audit Committee, the attributes of its
members, including the requirement that each be
financially literate and have other requisite
experience, and the responsibilities of the Audit Committee, as
reflected in its charter, are in accordance with the Applicable
Rules for corporate audit committees. The Audit Committee met
seven times during FY 2008.
Audit
Committee Financial Expert
The Board has designated Ms. Knowles as the Audit
Committees financial expert and has determined that she
meets the qualifications of an audit committee financial
expert in accordance with SEC rules, and that she is
independent as defined for audit committee members
in the listing standards of the NYSE and in accordance with the
Companys additional director independence standards.
Compensation
Committee
The Compensation Committee has responsibility for, among other
things, reviewing all matters relating to CEO compensation,
including making and annually reviewing decisions concerning
cash and equity compensation, and other terms and conditions of
employment for the CEO, and making decisions with regard to CEO
compensation, incorporating the review of the CEOs
performance against pre-established business and individual
objectives that is conducted annually by the full Board;
reviewing and approving corporate goals and objectives relating
to compensation of other executive officers, and making and
annually reviewing decisions concerning the cash and equity
compensation, and other terms and conditions of employment, for
those executive officers; reviewing and making recommendations
to the Board with respect to adoption of, or amendments to, all
equity-based incentive compensation plans and arrangements for
employees and cash-based incentive plans for senior executive
officers; approving grants of stock, stock options, stock
purchase rights or other equity grants to employees eligible for
such grants (unless such responsibility is delegated pursuant to
the applicable stock plan); interpreting the Companys
stock plans; reviewing its charter annually and recommending to
the Board any changes the Compensation Committee determines are
appropriate; participating with management in the preparation of
the Compensation Discussion and Analysis for the Companys
proxy statement; and performing such other activities required
by applicable law, rules or regulations, and consistent with its
charter, as the Compensation Committee or the Board deems
necessary or appropriate. The Compensation Committee may
delegate to the CEO the authority to grant options to employees
other than directors or executive officers, provided that such
grants are within the limits established by Delaware General
Corporate Law and by resolution of the Board. The Compensation
Committee determines the structure and amount of all executive
officer compensation, including awards of equity, based upon the
initial recommendation of management and in consultation with
the Compensation Committees outside compensation
consultant. The Compensation Committee has engaged Compensation
Strategies, Inc., an independent executive and director
compensation consulting firm, to provide executive compensation
consulting services to the Compensation Committee. Additional
information on the Compensation Committees process and
procedures for consideration of executive compensation are
addressed in the Compensation Discussion and Analysis below. The
Compensation Committee met five times during FY 2008.
Finance
Committee
The Finance Committee has responsibility for, among other
things, reviewing the Companys dividend policy; reviewing
the adequacy of the Companys insurance programs; reviewing
with management the long-range
9
financial policies of the Company; providing advice and counsel
to management on the financial aspects of significant
acquisitions and divestitures, major capital commitments,
proposed financings and other significant transactions; making
recommendations concerning significant changes in the capital
structure of the Company; reviewing tax planning strategies
utilized by management; reviewing the funding status and
investment policies of the Companys tax-qualified
retirement plans; and reviewing and approving the principal
terms and conditions of securities that may be issued by the
Company. The Finance Committee met five times during FY 2008.
Committee
on Directors and Corporate Governance
The Committee on Directors and Corporate Governance (the
Governance Committee) has responsibility for, among
other things, recommending guidelines and criteria to be used to
select candidates for Board membership; reviewing the size and
composition of the Board to assure that proper skills and
experience are represented; recommending the slate of nominees
to be proposed for election at the annual meeting of
stockholders; recommending qualified candidates to fill Board
vacancies; evaluating the Boards overall performance;
developing and administering the Companys related party
transactions policy; advising the Board on matters of corporate
governance, including the Corporate Governance Guidelines and
committee composition; and advising the Board regarding director
compensation and administering the 2005 Stock Plan with respect
to directors equity awards. The Governance Committee met
seven times during FY 2008.
Nominations
for Director
To fulfill its responsibility to recruit and recommend to the
full Board nominees for election as directors, the Governance
Committee considers all qualified candidates who may be
identified by any one of the following sources: current or
former Board members, a professional search firm, Company
executives and other stockholders. Stockholders who wish to
propose a director candidate for consideration by the Governance
Committee may do so by submitting the candidates name,
resume and biographical information and qualifications to the
attention of the Secretary of the Company at One Post Street,
San Francisco, CA 94104. All proposals for recommendation
or nomination received by the Secretary will be presented to the
Governance Committee for its consideration. The Governance
Committee and the Companys CEO will interview those
candidates that meet the criteria described below, and the
Governance Committee will recommend to the Board nominees that
best suit the Boards needs. In order for a recommended
director candidate to be considered by the Governance Committee
for nomination for election at an upcoming annual meeting of
stockholders, the recommendation must be received by the
Secretary not less than 120 days prior to the anniversary
date of the Companys most recent annual meeting of
stockholders.
In evaluating candidates for the Board, the Governance Committee
reviews each candidates biographical information and
credentials, and assesses each candidates independence,
skills, experience and expertise based on a variety of factors.
Members of the Board should have the highest professional and
personal ethics, integrity and values consistent with the
Companys values. They should have broad experience at the
policy-making level in business, technology, healthcare or
public interest, or have achieved national prominence in a
relevant field as a faculty member or senior government officer.
The Governance Committee will consider whether the candidate has
had a successful career that demonstrates the ability to make
the kind of important and sensitive judgments that the Board is
called upon to make, and whether the nominees skills are
complementary to the existing Board members skills. Board
members must take into account and balance the legitimate
interests and concerns of all of the Companys stockholders
and other stakeholders, and must be able to devote sufficient
time and energy to the performance of his or her duties as a
director, as well as have a commitment to diversity.
Messrs. Bryant and Mueller have been nominated to stand for
election by the stockholders for the first time. They were
initially identified as potential director candidates by a
professional search firm and were brought to the attention of
Mr. Hammergren as Chairman of the Board.
Mr. Hammergren in turn informed the Governance Committee of
these potential candidates. Members of the Governance Committee,
as well as Mr. Hammergren, other directors and executive
officers, conducted a series of interviews of Mr. Bryant
and subsequently of Mr. Mueller. After evaluating each
candidates qualifications, the Governance Committee
nominated Mr. Bryant in January 2008 and Mr. Mueller
in April 2008 for election as a director. At the January and
April 2008 Board meetings, the Board elected Mr. Bryant and
Mr. Mueller, respectively, as a director. In May 2008, the
Governance
10
Committee recommended for nomination, and the Board nominated,
Messrs. Bryant and Mueller along with the other eight
nominees to stand for election by the stockholders.
Director
Compensation
The Company believes that compensation for non-employee
directors should be competitive and should encourage increased
ownership of the Companys stock. The compensation for each
non-employee director of the Company includes an annual cash
retainer, an annual restricted stock unit (RSU)
award and per-meeting fees. The committee chairs also receive an
additional annual retainer, and as of July 2007, the Presiding
Director also receives an additional annual retainer.
Non-employee directors are also paid their reasonable expenses
for attending Board and committee meetings. Directors who are
employees of the Company or its subsidiaries do not receive any
compensation for service on the Board.
Cash
Compensation
Directors may receive their annual retainers and meeting fees in
cash, or defer their cash compensation into the Companys
Deferred Compensation Administration Plan III (DCAP
III). Directors may elect in advance to defer up to 100%
of their annual retainer (including any committee chair or
Presiding Director retainer) and all of their meeting fees
earned during any calendar year into the Companys DCAP
III. The minimum deferral period for any amounts deferred is
five years, and if a director ceases to be a director of the
Company for any reason other than death, disability or
retirement, the account balance will be paid in the January
following his or her separation. In the event of death,
disability or retirement, the account balance will be paid in
accordance with the directors distribution election. To
attain retirement, a director must have served on the Board for
at least six successive years. The Compensation Committee
approves the interest rate to be credited each year to amounts
deferred into the DCAP III, and the interest rate for calendar
years 2007 and 2008 was set at 8.0% per annum.
Following a comprehensive review of compensation practices and
levels for non-employee directors, on October 27, 2006, the
Board increased the annual retainer for non-employee directors
from $50,000 to $75,000 and increased by $5,000 the annual
retainer for each committee chair (except for Chair of the
Compensation Committee), which resulted in a $20,000 annual
retainer for the Chair of the Audit Committee and $10,000 for
each of the Chairs of the Finance Committee and the Committee on
Directors and Corporate Governance. The annual retainer for the
Chair of the Compensation Committee was increased to $20,000
from $5,000. These changes became effective on October 1,
2006. Also, at the October 2006 Board meeting, an annual
retainer of $10,000 was established for the Presiding Director
effective July 25, 2007. In addition to payment of an
annual retainer, Board members are entitled to meeting fees of
$1,500 for each Board, Finance Committee, Compensation Committee
or Committee on Directors and Corporate Governance meeting
attended, and $2,000 for each Audit Committee meeting attended.
The following table summarizes the cash compensation provided to
non-employee directors for the fiscal years ended March 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
Non-Employee Director Cash Compensation
|
|
2008
|
|
|
2007(1)
|
|
|
Annual cash retainer
|
|
$
|
75,000
|
|
|
$
|
50,000
|
|
Additional retainer for Presiding Director
|
|
$
|
10,000
|
|
|
|
|
|
Additional retainer for Chairperson of the Audit Committee
|
|
$
|
20,000
|
|
|
$
|
15,000
|
|
Additional retainer for Chairperson of the Compensation Committee
|
|
$
|
20,000
|
|
|
$
|
5,000
|
|
Additional retainer for Chairperson of all other committees
|
|
$
|
10,000
|
|
|
$
|
5,000
|
|
Meeting fee for each Audit Committee meeting attended
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
Meeting fee for each Board or other committee meeting attended
|
|
$
|
1,500
|
|
|
$
|
1,500
|
|
|
|
|
(1) |
|
Non-employee director compensation
was amended as of October 1, 2006.
|
Equity
Compensation
Each July, beginning in 2007, non-employee directors receive an
automatic annual grant of RSUs with an approximate value as of
the grant date equal to $150,000. The actual number of RSUs
under the grant is determined
11
by dividing $150,000 by the closing price of the Companys
common stock on the grant date (with any fractional unit rounded
up to the nearest whole unit). For annual RSU awards made prior
to July 2007, non-employee directors received 2,500 units.
The RSUs granted to non-employee directors vest immediately. For
annual RSU grants made prior to the July 2008 Annual Meeting of
Stockholders, receipt of the underlying stock is deferred until
such time as the director leaves the Board. At its meeting in
July 2007, the Board determined that if a director meets the
director stock ownership guidelines (currently $300,000 in
shares and share equivalents), the director will, on the grant
date, receive the shares underlying the RSU grant unless the
director elects to defer receipt of the shares.
Recipients of RSUs are entitled to dividend equivalents at the
same dividend rate applicable to the Companys common
stockholders. For our directors, dividend equivalents on the
RSUs are credited quarterly to an interest bearing cash account
and are not distributed until the director leaves the Board.
Interest accrues on directors credited dividend
equivalents at the same rate used for the Companys DCAP
III, which for calendar years 2007 and 2008 was set at 8.0% per
annum.
All
Other Compensation and Benefits
Alton F. Irby III is also a director of McKesson
Information Solutions UK Limited, an indirect wholly-owned
subsidiary of the Company, and he currently receives meeting
fees of $1,500 for each board meeting attended. For the fiscal
year ended March 31, 2008, Mr. Irby was paid $1,500
for his service as a board member of McKesson Information
Solutions UK Limited.
Non-employee directors are eligible to participate in the
McKesson Foundations Educational Matching Gifts Program.
Under this program, directors gifts to schools and
educational associations or funds will be matched by the
foundation up to $5,000 per director for each fiscal year.
2008 Director
Compensation Table
The following table sets forth information concerning the
compensation paid or earned by each non-employee director for
the fiscal year ended March 31, 2008. Mr. Hammergren,
our Chairman, President and Chief Executive Officer, is not
included in this table as he is an employee of the Company and
thus receives no compensation for his service as a director. The
compensation received by Mr. Hammergren as an officer of
the Company is shown in the 2008 Summary Compensation Table
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
|
|
|
and Nonqualified
|
|
|
|
|
|
|
|
|
|
Earned or
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
Paid in
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
Compensation
|
|
|
All Other
|
|
|
|
|
|
|
Cash
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
|
($)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)
|
|
|
Andy D.
Bryant(5)
|
|
|
15,717
|
|
|
|
75,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,723
|
|
Wayne A. Budd
|
|
|
112,000
|
|
|
|
150,024
|
|
|
|
|
|
|
|
|
|
|
|
7,057
|
|
|
|
2,070
|
|
|
|
271,151
|
|
Alton F. Irby
III(6)
|
|
|
122,000
|
|
|
|
150,024
|
|
|
|
|
|
|
|
|
|
|
|
6,149
|
|
|
|
2,034
|
|
|
|
280,207
|
|
M. Christine Jacobs
|
|
|
103,500
|
|
|
|
150,024
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
|
2,674
|
|
|
|
257,147
|
|
Marie L. Knowles
|
|
|
126,000
|
|
|
|
150,024
|
|
|
|
|
|
|
|
|
|
|
|
6,948
|
|
|
|
1,936
|
|
|
|
284,908
|
|
David M. Lawrence, M.D.
|
|
|
96,000
|
|
|
|
150,024
|
|
|
|
|
|
|
|
|
|
|
|
3,460
|
|
|
|
2,155
|
|
|
|
251,639
|
|
Robert W. Matschullat
|
|
|
25,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,369
|
|
|
|
864
|
|
|
|
33,405
|
|
Edward A.
Mueller(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James V. Napier
|
|
|
103,795
|
|
|
|
150,024
|
|
|
|
|
|
|
|
|
|
|
|
2,557
|
|
|
|
2,121
|
|
|
|
258,497
|
|
Jane E. Shaw
|
|
|
124,500
|
|
|
|
150,024
|
|
|
|
|
|
|
|
|
|
|
|
7,079
|
|
|
|
5,089
|
|
|
|
286,692
|
|
|
|
|
(1) |
|
Consists of the director annual
retainer and meeting fees, and if applicable, the annual chair
and Presiding Director retainers (whether paid or deferred).
|
12
|
|
|
(2) |
|
Amounts shown in this column
reflect the Companys accounting expense for these awards
and do not reflect whether the recipient has actually realized a
financial benefit from the award. Due to the fact that these
awards are fully vested at grant (whether paid or deferred),
this column represents the full grant date fair value of the
directors automatic annual grant of RSUs as computed
pursuant to Statement of Financial Accounting Standards
No. 123(R), Share-based Payment
(SFAS 123(R)). For additional information on
the assumptions used to calculate the value of such awards,
refer to Note 19 of the Companys consolidated
financial statements in the Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008, as filed with the
SEC on May 7, 2008.
|
|
(3) |
|
Represents the amount of
above-market interest earned under the Companys Deferred
Compensation Administration Plans, and above-market interest
credited on undelivered dividend equivalents. A discussion of
the Companys Deferred Compensation Administration Plans is
provided below in the subsection entitled Narrative
Disclosure to the 2008 Nonqualified Deferred Compensation
Table.
|
|
(4) |
|
Represents the amount of dividend
equivalents credited on RSUs granted under the Companys
2005 Stock Plan and 1997 Directors Plan. Recipients
of RSUs are entitled to dividend equivalents at the same
dividend rate applicable to the Companys common
stockholders. For directors, dividend equivalents are not
distributed until he or she leaves the Board at which time these
amounts are also credited with an 8.0% return.
|
|
(5) |
|
Messrs. Bryant and Mueller
were elected to the Board of Directors on January 23, 2008
and April 23, 2008, respectively. The amount shown for
Mr. Bryant under the column entitled Fees Earned or
Paid in Cash represents a prorated amount of the quarterly
director retainer payable for the fourth quarter of FY 2008.
Because Mr. Mueller was elected to the Board after FY 2008
had ended, he did not receive or earn any director compensation
for FY 2008.
|
|
(6) |
|
Includes $1,500 paid to
Mr. Irby for his service as a board member of McKesson
Information Solutions UK Limited.
|
Corporate
Governance
The Board is committed to, and for many years has adhered to,
sound and effective corporate governance practices. The Board is
also committed to diligently exercising its oversight
responsibilities of the Companys business and affairs
consistent with the highest principles of business ethics, and
to meeting the corporate governance requirements of both federal
law and the NYSE. In addition to its routine monitoring of best
practices, each year the Board and its committees review the
Companys current corporate governance practices, the
corporate governance environment and current trends, and update
their written charters and guidelines as necessary. The Board
has adopted independence standards for its members, Corporate
Governance Guidelines, as well as the charters for the Audit,
Compensation, Finance and Governance Committees, all of which
can be found on the Companys website at
www.mckesson.com under the caption Governance
and are described more fully below. Printed copies of these
documents may be obtained by any stockholder from the Corporate
Secretary upon request, One Post Street, 35th Floor,
San Francisco, California 94104.
Majority
Voting Standard
The Companys Amended and Restated By-Laws (the
By-Laws) provide for a majority voting standard for
the election of directors. This standard states that in
uncontested director elections, a director nominee will be
elected only if the number of votes cast for the
nominee exceeds the number of votes cast against
that nominee. To address the holdover director
situation in which, under Delaware law a director remains on the
Board until his or her successor is elected and qualified, the
By-Laws require each director nominee to submit an irrevocable
resignation in advance of the stockholder vote. The resignation
would be contingent upon both the nominee not receiving the
required vote for reelection and acceptance of the resignation
by the Board pursuant to its policies.
If a director nominee receives more against votes
for his or her election, the Boards Governance Committee,
composed entirely of independent directors, will evaluate and
make a recommendation to the Board with respect to the proffered
resignation. In its review, the Governance Committee will
consider, by way of example, the following factors: the impact
of the acceptance of the resignation on stock exchange listing
or other regulatory requirements; the financial impact of the
acceptance of the resignation; the unique qualifications of the
director whose resignation has been tendered; the reasons the
Governance Committee believes that stockholders cast votes
against the election of such director (such as a vote
no campaign on an illegitimate or wrongful basis); and any
alternatives for addressing the against votes.
The Board must take action on the Governance Committees
recommendation within 90 days following certification of
the stockholders vote. Absent a determination by the Board
that it is in the best interests of the Company
13
for an unsuccessful incumbent to remain on the Board, the Board
shall accept the resignation. The majority vote standard states
that the Board expects an unsuccessful incumbent to exercise
voluntary recusal from deliberations of the Governance Committee
or the Board with respect to the tendered resignation. In
addition, the standard requires the Company to file a current
report on
Form 8-K
with the SEC within four business days after the Boards
acceptance or rejection of the resignation, explaining the
reasons for any rejection of the tendered resignation. Finally,
the standard also provides procedures to address the situation
in which a majority of the members of the Governance Committee
are unsuccessful incumbents or all directors are unsuccessful
incumbents.
If the Board accepts the resignation of an unsuccessful
incumbent director, or if in an uncontested election a nominee
for director who is not an incumbent director does not receive a
majority vote, the Board may fill the resulting vacancy or
decrease the size of the Board. In contested elections, the
plurality vote standard will apply. A contested election is an
election in which a stockholder has duly nominated a person to
the Board and has not withdrawn that nomination at least five
days prior to the first mailing of the notice of the meeting of
stockholders.
Codes of
Business Conduct and Ethics
The Company is committed to the highest standards of ethical and
professional conduct and has adopted a Code of Business Conduct
and Ethics that applies to all directors, officers and
employees, and provides guidance for conducting the
Companys business in a legal, ethical and responsible
manner. In addition, the Company has adopted a Code of Ethics
applicable to the Chief Executive Officer, Chief Financial
Officer, Controller and Financial Managers (Senior
Financial Managers Code) that supplements the Code
of Business Conduct and Ethics by providing more specific
requirements and guidance on certain topics. Both of the Codes
are available on the Companys website at
www.mckesson.com under the caption
Governance, or a printed copy may be obtained by any
stockholder from the Corporate Secretary upon request, One Post
Street, 35th Floor, San Francisco, California 94104.
The Company intends to post any amendments to, or waivers from,
its Senior Financial Managers Code on its website within
four business days after such amendment or waiver.
Related
Party Transactions Policy
The Company has a written Related Party Transactions Policy
requiring approval or ratification of certain transactions
involving executive officers, directors and nominees for
director, beneficial owners of more than five percent of the
Companys common stock, and immediate family members of any
such persons where the amount involved exceeds $100,000. Under
the policy, the Companys General Counsel initially
determines if a transaction or relationship constitutes a
transaction that requires compliance with the policy or
disclosure. If so, the matter will be referred to the Chief
Executive Officer for consideration with the General Counsel as
to approval or ratification in the case of other executive
officers
and/or their
immediate family members, or to the Governance Committee in the
case of transactions involving directors, nominees for director,
the General Counsel, the Chief Executive Officer or holders of
more than five percent of the Companys common stock.
Annually directors, nominees and executive officers are asked to
identify any transactions that might fall under the policy as
well as identify immediate family members. Additionally, they
are required to promptly notify the General Counsel of any
proposed related party transaction. The policy is administered
by the Governance Committee. The transaction may be ratified or
approved if it is fair and reasonable to the Company and
consistent with its best interests. Factors that may be taken
into account in making that determination include: (i) the
business purpose of the transaction; (ii) whether it is
entered into on an arms-length basis; (iii) whether it
would impair the independence of a director; and
(iv) whether it would violate the provisions of the
Companys Code of Business Conduct and Ethics.
The Company and its subsidiaries may, in the ordinary course of
business, have transactions involving more than $100,000 with
unaffiliated companies of which certain of the Companys
directors are directors
and/or
executive officers. Therefore, under the policy, the Governance
Committee reviews such transactions. However, the Company does
not consider the amounts involved in such transactions to be
material in relation to its businesses, the businesses of such
other companies or the interests of the directors involved. In
addition, the Company believes that such transactions are on the
same terms generally offered by such other companies to other
entities in comparable transactions.
14
Corporate
Governance Guidelines
The Board for many years has had directorship practices
reflecting sound corporate governance practices and, in response
to the NYSE listing requirements, in 2003 adopted Corporate
Governance Guidelines which address matters including, among
others: director qualification standards and the director
nomination process; stockholder communications with directors;
director responsibilities; selection and role of the Presiding
Director; director access to management and, as necessary and
appropriate, independent advisors; director compensation;
director stock ownership guidelines; director orientation and
continuing education; management succession; and an annual
performance evaluation of the Board. The Governance Committee is
responsible for overseeing the guidelines and annually assessing
its adequacy. The Board most recently approved revised Corporate
Governance Guidelines on April 23, 2008, which can be found
on the Companys website at www.mckesson.com under
the caption Governance, or a printed copy may be
obtained by any stockholder from the Corporate Secretary upon
request.
Director
Stock Ownership Guidelines
Prior to July 25, 2007, pursuant to the Companys
Director Stock Ownership Guidelines, directors were expected to
own shares or share equivalents of the Companys common
stock equal to three times the annual board retainer within
three years of joining the Board. At its July 25, 2007
meeting, the Board amended the Companys Director Stock
Ownership Guidelines such that directors are now expected to own
shares or share equivalents of the Companys common stock
equal to four times the annual board retainer within three years
of joining the Board. As of May 30, 2008, all of our
directors were in compliance with the Companys amended
Director Stock Ownership Guidelines. In accordance with the
terms of our Director Stock Ownership Guidelines, due to their
recent election to the Board, Messrs. Bryant and Mueller
have until 2011 to accumulate shares or share equivalents of the
Companys common stock equal to four times the annual board
retainer.
Director
Independence
Under the Companys Corporate Governance Guidelines, the
Board must have a substantial majority of directors who meet the
applicable criteria for independence required by the NYSE. The
Board must determine, based on all relevant facts and
circumstances, whether in its business judgment, each director
satisfies the criteria for independence, including the absence
of a material relationship with the Company, either directly or
indirectly. The Board has established standards to assist it in
making a determination of director independence, which go beyond
the criteria required by the NYSE. A director will not be
considered independent if, within the preceding five years:
a) The director receives, or whose immediate family member
receives, more than $100,000 per year in direct compensation
from the Company, other than director and committee fees and
pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way
on continued service);
b) The director is affiliated with or employed by, or whose
immediate family member is affiliated with or employed in a
professional capacity by, a present or former internal or
external auditor of the Company;
c) The director is employed, or whose immediate family
member is employed, as an executive officer of another company
where any of the Companys present executives serve on that
companys compensation committee;
d) The director is an executive officer or an employee, or
whose immediate family member is an executive officer, of
another company (A) that accounts for at least 2.0% of the
Companys consolidated gross revenues, or (B) for
which the Company accounts for at least 2.0% or $1,000,000,
whichever is greater, of such other companys consolidated
gross revenues;
e) The director is an executive officer of another company
that is indebted to the Company, or to which the Company is
indebted, and the total amount of either companys
indebtedness to the other is more than 2.0% of the respective
companys total assets measured as of the last completed
fiscal year;
15
f) The director serves as an officer, director or trustee
of a charitable organization and the Companys
discretionary charitable contributions are more than 2.0% of
that organizations total annual charitable receipts; (the
Companys matching of employee charitable contributions
will not be included in the amount of the Companys
contributions for this purpose); and
g) For relationships not covered by the guidelines above,
or for relationships that are covered, but as to which the Board
believes a director may nonetheless be independent, the
determination of independence shall be made by the directors who
satisfy the NYSE independence rules and the guidelines set forth
above. However, any determination of independence for a director
who does not meet these standards must be specifically explained
in the Companys proxy statement.
These standards can also be found on the Companys website
at www.mckesson.com under the caption
Governance. Provided that no relationship or
transaction exists that would disqualify a director under these
standards, and no other relationship or transaction exists of a
type not specifically mentioned in these standards that, in the
Boards opinion, taking into account all relevant facts and
circumstances, would impair a directors ability to
exercise his or her independent judgment, the Board will deem
such person to be independent. Applying these standards, and all
other applicable laws, rules or regulations, the Board has
determined that, with the exception of John H. Hammergren, each
of the current directors, namely Andy D. Bryant, Wayne A. Budd,
Alton F. Irby III, M. Christine Jacobs, Marie L. Knowles,
David M. Lawrence, M.D., Edward A. Mueller, James V. Napier
and Jane E. Shaw, is independent.
Executive
Sessions of the Board
The independent directors of the Board meet in executive session
without management present on a regularly scheduled basis. The
members of the Board designate a Presiding Director
to preside at such executive sessions and the position rotates
annually each July among the committee chairs. The Presiding
Director establishes the agenda for each executive session
meeting and also determines which, if any, other individuals,
including members of management and independent advisors, should
attend each such meeting. The Presiding Director also, in
collaboration with the Chairman and the Corporate Secretary,
reviews the agenda in advance of the Board of Directors
meetings. Jane E. Shaw, Chair of the Governance Committee, is
the current Presiding Director until her successor is chosen by
the other independent directors at the Boards meeting in
July 2008.
Communications
with Directors
Stockholders and other interested parties may communicate with
the Presiding Director, the nonmanagement directors, or any of
the directors by addressing their correspondence to the Board
member or members,
c/o the
Corporate Secretarys Office, McKesson Corporation, One
Post Street, 35th Floor, San Francisco, CA 94104, or
via e-mail
to presidingdirector@mckesson.com or to
nonmanagementdirectors@mckesson.com. The
Board has instructed the Corporate Secretary, prior to
forwarding any correspondence, to review such correspondence
and, in her discretion, not to forward certain items if they are
not relevant to and consistent with the Companys
operations, policies and philosophies, are deemed of a
commercial or frivolous nature or otherwise inappropriate for
the Boards consideration. The Corporate Secretarys
office maintains a log of all correspondence received by the
Company that is addressed to members of the Board. Members of
the Board may review the log at any time, and request copies of
any correspondence received.
Indemnity
Agreements
The Company has entered into indemnity agreements with each of
its directors and executive officers that provide for defense
and indemnification against any judgment or costs assessed
against them in the course of their service. Such agreements do
not, however, permit indemnification for acts or omissions for
which indemnification is not permitted under Delaware law.
16
|
|
Item 2.
|
Ratification
of Appointment of Deloitte & Touche LLP as the
Companys Independent Registered Public Accounting Firm for
Fiscal Year 2009
|
The Audit Committee of the Companys Board of Directors has
approved Deloitte & Touche LLP (D&T)
as the Companys independent registered public accounting
firm to audit the consolidated financial statements of the
Company and its subsidiaries for the fiscal year ending
March 31, 2009. D&T has acted in this capacity for the
Company for several years, is knowledgeable about the
Companys operations and accounting practices, and is well
qualified to act as the Companys independent registered
public accounting firm.
We are asking our stockholders to ratify the selection of
D&T as the Companys independent registered public
accounting firm. Although ratification is not required by our
By-Laws or otherwise, the Board is submitting the selection of
D&T to our stockholders for ratification as a matter of
good corporate practice. If stockholders fail to ratify the
selection, the Audit Committee will reconsider whether or not to
retain D&T. Even if the selection is ratified, the Audit
Committee in its discretion may select a different registered
public accounting firm at any time during the year if it
determines that such a change would be in the best interests of
the Company and our stockholders. Representatives of D&T
are expected to be present at the Meeting to respond to
appropriate questions and to make a statement if they desire to
do so. For the fiscal years ended March 31, 2008 and 2007,
professional services were performed by D&T, the member
firms of Deloitte Touche Tohmatsu, and their respective
affiliates (collectively, Deloitte &
Touche), which includes Deloitte Consulting. Fees paid for
those years were as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Audit Fees
|
|
$
|
9,662,161
|
|
|
$
|
9,220,394
|
|
Audit-Related Fees
|
|
|
1,265,721
|
|
|
|
2,072,770
|
|
|
|
|
|
|
|
|
|
|
Total Audit and Audit-Related Fees
|
|
|
10,927,882
|
|
|
|
11,293,164
|
|
Tax Fees
|
|
|
1,772,000
|
|
|
|
284,000
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,699,882
|
|
|
$
|
11,577,164
|
|
Audit Fees. This category consists of fees
billed for professional services rendered for the audit of the
Companys consolidated annual financial statements, the
audit of the Companys internal control over financial
reporting as required by the Sarbanes-Oxley Act of 2002, review
of the interim consolidated financial statements included in
quarterly reports, and services that are normally provided by
D&T in connection with statutory and regulatory filings or
engagements. This category also includes advice on accounting
matters that arose during, or as a result of, the audit or the
review of interim financial statements, foreign statutory audits
required by
non-U.S. jurisdictions,
registration statements and comfort letters.
Audit-Related Fees. This category consists of
fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of
the Companys consolidated financial statements and are not
reported under Audit Fees. These services include
fees related to employee benefit plan audits, accounting
consultation and due diligence in connection with mergers and
acquisitions, attest services related to financial reporting
that are not required by statute or regulation, and
consultations concerning financial accounting and reporting
standards.
Tax Fees. This category consists of fees
billed for professional services rendered for U.S. and
international tax compliance and consulting, including due
diligence in connection with mergers and acquisitions.
All Other Fees. This category consists of fees
for products and services other than the services reported
above. The Company paid no fees in this category for the fiscal
years ended March 31, 2008 and 2007.
Policy on
Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting
Firm
Pursuant to the Applicable Rules, and as set forth in the terms
of its charter, the Audit Committee has sole responsibility for
appointing, setting compensation for, and overseeing the work of
the independent registered public accounting firm. The Audit
Committee has established a policy which requires it to
pre-approve all audit and permissible non-audit services,
including audit-related and tax services to be provided by
Deloitte & Touche, and
17
between meetings the Chair of the Audit Committee is authorized
to pre-approve services, which are reported to the Committee at
its next meeting. All of the services described in the fee table
above were approved in conformity with the Audit
Committees pre-approval process.
Audit
Committee Report
The Audit Committee of the Companys Board of Directors
assists the Board in fulfilling its responsibility for oversight
of the quality and integrity of the Companys financial
reporting processes. The functions of the Audit Committee are
described in greater detail in the Audit Committees
written charter adopted by the Companys Board of
Directors, which may be found on the Companys website at
www.mckesson.com under the caption
Governance. The Audit Committee is composed
exclusively of directors who are independent under the
applicable SEC and NYSE rules and the Companys
independence standards. The Audit Committees members are
not professionally engaged in the practice of accounting or
auditing, and they necessarily rely on the work and assurances
of the Companys management and the independent registered
public accounting firm. Management has the primary
responsibility for the financial statements and the reporting
process, including the system of internal control over financial
reporting. The independent registered public accounting firm of
Deloitte & Touche LLP is responsible for performing an
independent audit of the Companys consolidated financial
statements in accordance with generally accepted auditing
standards and expressing opinions on the conformity of those
audited financial statements with United States generally
accepted accounting principles, the effectiveness of the
Companys internal control over financial reporting and
managements assessment of the internal control over
financial reporting. The Audit Committee has reviewed and
discussed with management the audited financial statements of
the Company for the fiscal year ended March 31, 2008 (the
Audited Financial Statements). In addition, the
Audit Committee has discussed with D&T the matters required
to be discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committees), as amended.
The Audit Committee also has received the written disclosures
and the letter from D&T required by the Independence
Standards Board Standard No. 1 (Independence Discussions
with Audit Committees) and has discussed with that firm its
independence from the Company. The Audit Committee further
considered whether the provision of non-audit related services
by D&T to the Company is compatible with maintaining the
independence of that firm from the Company. The Audit Committee
has also discussed with management of the Company and D&T
such other matters and received such assurances from them as it
deemed appropriate.
The Audit Committee discussed with the Companys internal
auditors and D&T the overall scope and plans for their
respective audits. The Audit Committee meets regularly with the
internal auditors and D&T, with and without management
present, to discuss the results of their examinations, the
evaluation of the Companys internal control over financial
reporting and the overall quality of the Companys
accounting.
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board of Directors, and
the Board has approved, that the Audited Financial Statements be
included in the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008 for filing with
the SEC.
Audit Committee of the
Board of Directors
Marie L. Knowles, Chair
Wayne A. Budd
Jane E. Shaw
18
PRINCIPAL
STOCKHOLDERS
Security
Ownership of Certain Beneficial Owners
The following table sets forth information regarding ownership
of the Companys outstanding common stock by any entity or
person, to the extent known by us or ascertainable from public
filings, to be the beneficial owner of more than five percent of
the outstanding shares of common stock:
|
|
|
|
|
|
|
|
|
|
|
Amount and
|
|
|
|
|
Nature of
|
|
|
|
|
Beneficial
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Ownership
|
|
Class*
|
|
AXA Financial, Inc.
|
|
|
32,642,260
|
(1)
|
|
|
11.30
|
%
|
1290 Avenue of the Americas
|
|
|
|
|
|
|
|
|
New York, NY 10104
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP
|
|
|
32,250,759
|
(2)
|
|
|
11.17
|
%
|
75 State Street
|
|
|
|
|
|
|
|
|
Boston, MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Based on 288,764,846 common shares
outstanding as of December 31, 2007.
|
|
(1) |
|
This information is based on a
Schedule 13G/A filed with the SEC on February 14, 2008
by AXA Financial, Inc., as a parent holding company, on behalf
of itself and its related parties AXA, AXA Courtage Assurance
Mutuelle, AXA Assurances Vie Mutuelle and AXA Assurances
I.A.R.D. Mutuelle, which generally reports sole voting and sole
dispositive power with respect to 25,698,260 and
32,633,301 shares, respectively, and shared voting and
shared dispositive power with respect to 3,008,400 and
8,959 shares, respectively. The filing also notes that a
majority of the shares reported in the Schedule 13G/A are
held by unaffiliated third-party client accounts managed by
Alliance Capital Management L.P., as an investment adviser, and
that Alliance Capital Management L.P. is a majority-owned
subsidiary of AXA Financial, Inc.
|
|
(2) |
|
This information is based upon a
Schedule 13G/A filed with the SEC on February 14, 2008
by Wellington Management Company, LLP, as an investment adviser,
which reports shared voting power with respect to
11,192,766 shares and shared dispositive power with respect
to 32,250,759 shares.
|
19
Security
Ownership of Directors, Nominees and Executive
Officers
The following table sets forth, as of May 30, 2008, except
as otherwise noted, information regarding ownership of the
Companys outstanding common stock by: (i) each
executive officer named in the 2008 Summary Compensation Table
below; (ii) each director, each of whom is also a director
nominee; and (iii) all directors and executive officers as
a group. The table also includes shares of common stock that
underlie outstanding RSU awards and options to purchase common
stock of the Company that either vest or become exercisable
within 60 days of May 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
Percent of
|
|
Name of Individual
|
|
Beneficially
Owned(1)
|
|
|
Class
|
|
|
Andy D. Bryant
|
|
|
1,184
|
(2)
|
|
|
*
|
|
Wayne A. Budd
|
|
|
19,375
|
(2)(3)(4)
|
|
|
*
|
|
Jeffrey C. Campbell
|
|
|
368,637
|
(3)(5)
|
|
|
*
|
|
John H. Hammergren
|
|
|
4,723,220
|
(3)(4)(5)
|
|
|
1.71
|
%
|
Alton F. Irby III
|
|
|
96,555
|
(2)(3)(4)
|
|
|
*
|
|
M. Christine Jacobs
|
|
|
83,220
|
(2)(3)
|
|
|
*
|
|
Paul C. Julian
|
|
|
1,540,243
|
(3)(5)
|
|
|
*
|
|
Marie L. Knowles
|
|
|
9,342
|
(2)
|
|
|
*
|
|
David M. Lawrence, M.D.
|
|
|
17,754
|
(2)(3)
|
|
|
*
|
|
Edward A. Mueller
|
|
|
703
|
(2)
|
|
|
*
|
|
James V. Napier
|
|
|
98,183
|
(2)(3)(4)
|
|
|
*
|
|
Marc E. Owen
|
|
|
307,588
|
(3)(5)
|
|
|
*
|
|
Pamela J. Pure
|
|
|
276,577
|
(3)(4)(5)
|
|
|
*
|
|
Jane E. Shaw
|
|
|
103,074
|
(2)(3)(4)
|
|
|
*
|
|
All Directors and Executive Officers as a group (17 persons)
|
|
|
8,110,349
|
(2)(3)(4)(5)
|
|
|
2.93
|
%
|
|
|
|
*
|
|
Less than 1.0%. The number of
shares beneficially owned and the percentage of shares
beneficially owned are based on 276,699,298 shares of the
Companys common stock outstanding as of May 30, 2008.
|
|
(1) |
|
Except as otherwise indicated in
the footnotes to this table, the persons named have sole voting
and investment power with respect to all shares of common stock
shown as beneficially owned by them, subject to community
property laws where applicable.
|
|
(2) |
|
Includes vested RSUs or common
stock units accrued under the 2005 Stock Plan, Directors
Deferred Compensation Administration Plan and the 1997
Non-Employee Directors Equity Compensation and Deferral
Plan (which plan has been replaced by the 2005 Stock Plan) as
follows: Mr. Bryant, 1,184 units; Mr. Budd,
9,900 units; Mr. Irby, 9,752 units;
Ms. Jacobs, 12,418 units; Ms. Knowles,
9,342 units; Dr. Lawrence, 10,254 units;
Mr. Mueller, 703 units; Mr. Napier,
10,112 units; Dr. Shaw, 27,841 units; and all
directors as a group, 91,506 units. Directors have neither
voting nor investment power with respect to such units.
|
|
(3) |
|
Includes shares that may be
acquired by exercise of stock options or vesting of RSUs within
60 days of May 30, 2008 as follows: Mr. Budd,
9,375 shares; Mr. Campbell, 351,250 shares;
Mr. Hammergren, 4,431,016 shares; Mr. Irby,
78,453 shares; Ms. Jacobs, 69,802 shares;
Mr. Julian, 1,510,834 shares; Dr. Lawrence,
7,500 shares; Mr. Napier, 70,071 shares;
Mr. Owen, 292,000 shares; Ms. Pure,
257,150 shares; Dr. Shaw, 63,651 shares; and all
directors and executive officers as a group,
7,564,977 shares.
|
|
(4) |
|
Includes shares held by immediate
family members who share a household with the named person, or
family trusts as to which each of the following individuals and
their respective spouses have shared voting and investment
power: Mr. Budd, 100 shares; Mr. Hammergren,
288,388 shares; Mr. Irby, 1,550 shares;
Mr. Napier, 1,840 shares; Ms. Pure,
5 shares; Dr. Shaw, 11,182 shares; and all
directors and executive officers as a group, 303,065 shares.
|
|
(5) |
|
Includes shares held under the
Companys PSIP as of May 30, 2008 as to which
participants have sole voting but no investment power as
follows: Mr. Campbell, 812 shares;
Mr. Hammergren, 3,816 shares; Mr. Julian,
207 shares; Mr. Owen, 1,240 shares,
Ms. Pure, 1,290 shares, and all executive officers as
a group, 12,121 shares.
|
20
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Our
Compensation Philosophy and Objectives
The foundation of our executive compensation program is
pay for performance. At our Company, this means that
for an executive to receive compensation above his or her
predetermined target amount, the Companys performance must
exceed pre-established financial metrics and the executive must
be able to identify his or her contributions to those results.
To foster a culture where performance is highlighted in
everything we do, at all levels of the Company, our pay for
performance philosophy applies to both short- and long-term
compensation elements. As an example, FY 2008 marks the third
year that the Compensation Committee utilized diluted earnings
per share (EPS) as the primary performance measure
for both of our short- and long-term compensation programs. As
described in more detail below, performance based awards are
designed such that above target payouts occur only if the
Company achieves superior levels of EPS growth.
Our compensation program is shaped by the highly competitive
nature of the healthcare industry, and also by the highly
competitive market for exceptional management talent. The amount
of compensation paid to each named executive officer is designed
to reflect the officers experience, his or her individual
performance and the performance of the Company. Consistent with
our goal to pay for performance, as an executive officers
responsibility and ability to impact the Companys
financial performance increase, the individuals at-risk
performance based compensation increases as a proportion of his
or her total compensation. Moreover, the percentage of long-term
relative to short-term compensation increases proportionately
with job responsibility. Ultimately, our executive compensation
program is designed to provide above-market compensation for
achieving above-market financial results, and below-market
compensation when the Company
and/or
individual performance fails to meet objectives.
Achievement
of Performance Based Compensation
Over the last five years, the Companys strategic and
financial results have been excellent. The Company has made
significant progress growing revenues, earnings per share and
stockholder value. During the five-year period beginning
April 1, 2003 and ending March 31, 2008, our revenues
increased from $68.0 billion to $101.7 billion, a
compound annual growth rate of 8.38%; EPS, excluding adjustments
for the securities litigation reserves, increased from $2.19 to
$3.31, a compound annual growth rate of 8.61%; and market
capitalization increased from $8.7 billion to
$14.5 billion, a compound annual growth rate of 10.76%.
Finally, over this same five-year period, our total stockholder
return outperformed both the S&P 500 Index and the Value
Line Healthcare Sector Index.
21
Five-Year
EPS and Total Revenue
Fiscal
year results through March 31, 2008
|
|
|
(*)
|
|
EPS, excluding adjustments for the
securities litigation reserves, for the fiscal years ended
March 31, 2004 through 2008.
|
Comparison
of Five-Year Cumulative Total Return (*)
Performance results through March 31,
2008
|
|
|
(*)
|
|
Cumulative total return assumes
$100 invested at the close of trading on March 31, 2003 in
McKesson Corporations common stock, the S&P 500 Index
and the Value Line Healthcare Sector Index, and assumes
reinvestment of dividends when paid.
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Over the same five-year period, we have centralized operations
and services to gain efficiencies of scale while increasing the
quality of our products and services, improved operating
processes using Six Sigma, introduced
22
innovative new solutions to drive customer satisfaction, and
increased employee engagement and retention. Over the past three
years, we have deployed approximately $8.0 billion of
capital, including $2.7 billion in FY 2008 to:
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reshape the organization, expand market penetration and increase
EPS through reinvestment in our business;
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complete a series of value-creating acquisitions; and
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expand and execute on an aggressive stock repurchase program.
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At its April 2008 meeting, the Board authorized an additional
$1.0 billion stock repurchase program and approved a
doubling of the quarterly dividend from six cents to twelve
cents per share. This progress has come under the leadership of
the executive management team assembled by John H. Hammergren,
our Chairman, President and Chief Executive Officer.
This discussion of executive compensation primarily reflects
individual and Company performance for two periods: namely, the
current fiscal year and the three-year period ended on
March 31, 2008. During these two periods, as explained
above, the Companys financial performance has been
excellent. As a result, short- and long-term performance related
compensation for all named executive officers was superior.
Moreover, due to the satisfaction of performance metrics,
Mr. Hammergrens FY 2008 total compensation includes a
meaningful performance based payment in his short- and long-term
incentive compensation, as described in the subsections below
entitled 2008 Summary Compensation Table and
2008 Grants of Plan Based Awards Table. In turn,
Mr. Hammergrens cash compensation directly affected
the current value of his pension benefits as displayed in the
tables below.
Oversight
of Executive Officer Compensation
The Compensation Committee has responsibility for overseeing all
forms of compensation for our executive officers, including the
named executive officers listed in the 2008 Summary Compensation
Table below (collectively, the Companys NEOs).
For FY 2008, our NEOs and their respective titles were as
follows:
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John H. Hammergren, Chairman, President and Chief Executive
Officer;
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Jeffrey C. Campbell, Executive Vice President and Chief
Financial Officer;
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Paul C. Julian, Executive Vice President, Group President;
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Marc E. Owen, Executive Vice President, Corporate Strategy
and Business Development; and
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Pamela J. Pure, Executive Vice President, President, McKesson
Technology Solutions.
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The Compensation Committee directly employs its own independent
compensation consultant, Compensation Strategies, Inc., and
independent legal counsel, Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP. Compensation Strategies,
Inc. also provides consulting services to the Governance
Committee in the area of director compensation. These advisors
do not provide any other services to the Company, except as to
matters related to the activities mentioned above and as further
described below.
Use
and Selection of the Peer Group
Annually, the Compensation Committees independent
compensation consultant develops information that captures the
levels of total compensation and individual components of pay
(base salary and short- and long-term incentive potential) for
executives at a diverse group of public companies with duties
and responsibilities similar to the Companys executives.
Information sources used by the independent compensation
consultant include the Hewitt Associates Total Compensation
Database and compensation information published by other public
companies. From this larger sampling of companies, the
Compensation Committees review of salary data focuses on a
smaller group of companies that represent the types of companies
with which the Company historically competes for executive
talent. This diverse selection of peer group companies, as
identified in the chart below, provides the Compensation
Committee with a broad picture of the market for executive
talent. The Compensation Committee uses the compensation
information about the pay practices of our peer group and the
information provided by our independent compensation consultant
as a guideline to assist the committee in its decisions about
overall compensation, the elements of compensation, the amount
of each element of compensation and relative
23
compensation among our executives. Although the Compensation
Committee uses various metrics derived from the peer group data
to provide context for its own determinations and strategies, it
does not set compensation or any element of compensation for our
NEOs at any specified level within the peer group.
Composition of the Companys peer group is reviewed by the
Compensation Committee and its independent consultant every
other year. As part of its biannual review process, the
Compensation Committee and its independent compensation
consultant endeavor to design the Companys peer group such
that the addition or removal of any single company would not
have a material impact on the survey results. For the fiscal
years ended March 31, 2007 and 2008, the following
companies were members of the Companys peer group:
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Revenue in
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Billions ($)*
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Abbott Laboratories
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25.9
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Aetna Inc.
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27.6
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AmerisourceBergen Corporation
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66.1
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Amgen Inc.
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14.8
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Automatic Data Processing, Inc.
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7.8
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Baxter International Inc.
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11.3
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Becton, Dickinson and Company
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6.4
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BMC Software, Inc.
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1.7
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Bristol-Myers Squibb Company
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19.3
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Cardinal Health, Inc.
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86.9
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Computer Sciences Corporation
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14.9
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CVS Caremark Corporation
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76.3
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Electronic Data Systems Corporation
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22.1
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Express Scripts, Inc.
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18.3
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FedEx Corporation
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35.2
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General Electric Company
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172.7
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Ingram Micro Inc.
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35.0
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Johnson & Johnson
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61.1
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Eli Lilly and Company
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18.6
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Medco Health Solutions, Inc.
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44.5
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Medtronic, Inc.
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12.3
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Omnicare, Inc.
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6.2
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Oracle Corporation
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18.0
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Rite Aid Corporation
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24.3
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Safeway Inc.
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42.3
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Schering-Plough Corporation
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12.7
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Stryker Corporation
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6.0
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Sysco Corporation
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35.0
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Thermo Fisher Scientific, Inc.
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9.7
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Tyco International Ltd.
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18.8
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Walgreen Co.
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53.8
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WellPoint, Inc.
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61.1
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McKesson Corporation
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101.7
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*
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Financial results are for the most
recently completed fiscal year as publicly reported by each
company listed above as of May 30, 2008.
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24
At its January 2008 meeting, the Compensation Committee
reevaluated the FY 2007 FY 2008 slate of peer group
companies. As a consequence of its review, the Compensation
Committee replaced Tyco International Ltd. with Covidien Ltd.
and added Merck & Co., Inc., Pfizer Inc. and
UnitedHealth Group Incorporated to the listing of peer group
companies for fiscal years 2009 and 2010. The substitution of
Tyco International Ltd. was necessary to reflect its divestiture
of Covidien Ltd., as the latter represented substantially all of
its healthcare business. Due to the Companys continued
revenue growth over the last five years, Merck & Co.,
Inc. and Pfizer Inc. were also added as comparable peer
companies. Finally, while not previously on the list due to
internal issues, UnitedHealth Group Incorporated was added as a
peer group company.
Our
Compensation Review and Determination Process
The Compensation Committee has responsibility for setting
performance targets and payout scales for all incentive
compensation programs. While performance targets are initially
developed by senior management, and reflect the one-year and
three-year strategic business operating plans reviewed with the
Board, the Compensation Committee in its sole discretion
approves or amends managements recommendations.
The executive compensation review process is one part of a
detailed annual performance review process that begins with the
April meeting of the Board and the Compensation Committee. At
the beginning of each fiscal year, all members of the
Companys senior management team are required to prepare a
written analysis of their performance goals for the upcoming
fiscal year. These individual performance goals are established
by senior management with reference to the Companys annual
budget and strategic planning processes. The process includes
face-to-face meetings between our CEO and each of the other
executive officers at which both strategic and tactical
priorities for the upcoming fiscal year are established.
Concurrent with establishing performance goals for the upcoming
year, each member of senior management will review with our CEO
his or her actual performance against the goals established for
the prior fiscal year. For employees in the senior management
ranks, including our NEOs, this review includes an examination
of their leadership abilities, financial performance, strategic
performance and their professional development and mentoring of
subordinates. Each executive officer is also evaluated on their
commitment to the Companys ICARE principles,
which guide all our employees. These principles are:
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I Integrity;
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C Customer first;
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A Accountability;
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R Respect; and
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E Excellence.
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ICARE is the cultural foundation of the Company, and the
principles unify the Company and guide individuals
behavior toward each other, customers, vendors and other
stakeholders.
Our CEO, in consultation with the Compensation Committees
independent compensation consultant and the Executive Vice
President, Human Resources, will then develop compensation
recommendations for each executive officer. Factors that our CEO
weighs in making individual target compensation recommendations
include:
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the performance review conducted by our CEO;
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value of the job in the marketplace;
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relative importance of the position within our executive ranks;
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individual tenure and experience; and
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individual contributions to the Companys results.
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At its April meeting, the Board conducts a performance review of
our CEO on the same basis described for all other executive
officers. In advance of this meeting, Mr. Hammergren will
distribute to the Board a written analysis of his
accomplishments keyed to the business and individual goals he
established for the prior fiscal year. At the Board
25
meeting, our CEO presents his individual performance results for
the prior fiscal year and individual goals for the new fiscal
year, and responds to any questions that may arise. Upon
completion of his performance review, the Board discusses in
executive session our CEOs performance for the prior
fiscal year and approves his individual goals for the new fiscal
year.
At its May meeting, the Compensation Committee reviews and
evaluates compensation matters for all executive officers of the
Company, including our CEO. At this meeting, Mr. Hammergren
presents his findings and compensation recommendations for each
executive officer for the Compensation Committees review
and consideration. In addition to our CEOs findings and
recommendations, the Compensation Committee examines a
compensation tally sheet for each executive officer,
including our CEO. This tally sheet is prepared with the
assistance of the Compensation Committees independent
compensation consultant and details for each executive officer,
by element of compensation, the actual compensation delivered in
the prior fiscal year, and the compensation that is proposed by
senior management to be provided for the upcoming fiscal year.
At the same meeting, the Compensation Committee reviews a
compilation of each executive officers total holdings,
which includes the status of all stock option grants, current
unvested grants of full-value shares (such as RSUs) and
outstanding awards under the Companys cash long-term
incentive plan. In connection with the preparation of our annual
proxy statement, at its May meeting the Compensation Committee
reviews a display detailing the elements of current compensation
and estimated benefits on separation from service due to
voluntary and involuntary termination, and termination
coincident with a
change-in-control,
for each of our NEOs. The Compensation Committee finds tools
like tally sheets and displays of total holdings helpful in its
analysis of the Companys executive compensation program,
but in determining the specific levels of compensation, the
Compensation Committee is generally more focused on individual
elements of our executive compensation program and the
measurement of these elements against similarly situated
executives in the peer group of companies. The Compensation
Committee, in its sole discretion, will then (i) determine
the level of payout to each executive officer under our short-
and long-term compensation programs for the completed fiscal
year; and (ii) establish for each executive officer the
base salary, the individual target for performance based
compensation and the Company performance measures for the new
fiscal year.
At the May meeting the Compensation Committee meets in executive
session, without our CEO present, to determine our CEOs
compensation with input from the Compensation Committees
independent compensation consultant. The Compensation
Committees assessment of CEO compensation is completed on
the same basis described above for all other executive officers,
and incorporates the Boards evaluation of our CEOs
performance conducted at the April meeting. In addition to the
tally sheets and assessment of total holdings that are presented
with regard to all executive officers, the Compensation
Committees independent compensation consultant prepares
and presents to the Compensation Committee a display of the
three-year history of compensation delivered by the Company to
our CEO.
Finally, in October of each year, the Compensation Committee
conducts a detailed review of all elements of executive
compensation, including review of individual tally sheets for
each executive officer, including our NEOs. This second set of
tally sheets displays the elements of current compensation and
estimated benefits on separation from service due to voluntary
and involuntary termination, and termination coincident with a
change-in-control
with respect to the then-current fiscal year. At the same
October meeting, management updates the Compensation Committee
on actual performance against the pre-established goals for all
outstanding performance based compensation programs.
Elements
of Executive Officer Compensation
There are four basic elements of our executive compensation
program, which are short-term compensation, long-term
compensation, other compensation and benefits, and severance and
change-in-control
benefits. Annually, the Compensation Committee reviews both
short- and long-term compensation to determine the relative
competitiveness of the Companys compensation program,
which is examined in relation to the 50th and
75th percentiles of our peer group of companies. Each
element of compensation and total compensation is then reviewed
across our executive ranks to ensure internal consistency.
26
The Compensation Committees objective is to target
executive pay at levels that are comparable to similarly
situated executives within our peer group of companies.
Short-term compensation, which includes both a fixed base salary
and annual at-risk performance based compensation, is reviewed
in relation to the 50th percentile for that position within
the Companys peer group, which we refer to as the target
peer group range. In turn, long-term compensation is reviewed in
relation to the 50th and 75th percentiles of the peer
group.
Short-term
Compensation
Short-term compensation is delivered in cash with a substantial
portion at risk and contingent on the successful accomplishment
of pre-established performance goals. We believe it is important
to have at-risk compensation that can be focused on short-term
Company and individual goals. For executive officers, including
our CEO and other NEOs, depending on the officers
seniority level the proportion of target short-term compensation
at-risk ranges from approximately 40% to 60%.
Base Salary. Base salary for executive
officers is assessed the same way base salary is determined for
all employees base salary for a fully functioning
employee is reviewed in relation to the 50th percentile for
that position within the Companys peer group.
The 2008 Summary Compensation Table below reflects FY 2007 and
FY 2008 base salaries for each NEO. The FY 2007 salaries were
reviewed by the Compensation Committee at its May 2007 meeting,
at which time FY 2008 salaries for all NEOs were increased
effective May 27, 2007. Base salary increases for FY 2008
ranged from 7.5% to 10.4% for all NEOs other than our CEO, and
for our CEO, his base salary was increased by 8.0%. These
increases resulted from the performance evaluations described
above, and in response to market data from the Companys
peer group analyzed by the Compensation Committee with the
assistance of its independent compensation consultant. FY 2008
base salaries for all NEOs, including our CEO, fell within the
target peer group range selected by the Compensation Committee
for short-term compensation. Differences in NEOs base
salaries and base salary increases occur because the
Compensation Committee considers a number of factors when
evaluating base salaries in relation to the peer group data,
including job performance, skill set, prior experience, the
executives time in his or her position
and/or with
the Company, internal consistency regarding pay levels for
similar positions or skill levels within the Company, external
pressures to attract and retain talent, and market conditions
generally.
Base salaries were again reviewed by the Compensation Committee
at its May 2008 meeting. Consistent with prior practice,
effective May 25, 2008, the Compensation Committee approved
FY 2009 base salary increases for the Companys NEOs,
including our CEO, based on the evaluation and review process
described above. Base salary increases for FY 2009 ranged from
6.4% to 9.4% for all NEOs other than our CEO, and our CEOs
base salary was increased by 6.0%.
Annual Incentive. The Management Incentive
Plan (MIP) is an annual cash incentive program with
payment conditioned on the achievement of individual and Company
performance goals. The MIP, like base salary, is designed to
generally deliver short-term cash incentive compensation at the
50th percentile of the Companys peer group when
performance meets objectives. For FY 2008, our NEOs were
eligible for MIP target award opportunities that ranged from 75%
to 135% of their base salary. The aggregate cash value delivered
to each NEO can range from zero to 300% of the target award
amount, which is adjusted in reference to (i) the
Companys fiscal year EPS performance, and (ii) the
results of each NEOs performance review.
In May 2007, the Compensation Committee approved an EPS goal of
$3.22 as the MIP performance target for FY 2008. EPS was chosen
as the relevant performance measure because it is a key metric
used by management to direct and measure the Companys
business performance, and the basis upon which we communicate
forward-looking financial information to the investment
community. Moreover, we believe that EPS measures are clearly
understood by both our employees and stockholders, and that
incremental EPS growth leads to the creation of long-term
stockholder value.
The Companys EPS performance alone can result in a MIP
payout range of zero to 200% of the NEOs target cash
award. As described in the narrative following the 2008 Summary
Compensation Table, MIP payouts are conditioned on the
achievement of a minimum EPS goal below which no award is
earned, and conversely, payouts are subject to a maximum EPS
goal above which no additional award is earned. The Compensation
Committee has the authority to adjust the EPS target and award
scale to reflect a number of unusual events,
27
including acquisitions, divestures and unusual stock buybacks.
For FY 2008, the Companys actual EPS performance of $3.31
from continuing operations, excluding adjustments to the
securities litigation reserves, exceeded the pre-established EPS
target goal noted above by nine cents per share; and the
Compensation Committee determined that an adjustment to reported
EPS was appropriate to reflect certain acquisition costs that
were not included in the Companys FY 2008 operating plan
such that all corporate employee participants would be eligible
to receive 128% of their initial MIP target cash award.
The Compensation Committee has the authority to further adjust
the MIP payout based upon the NEOs individual performance
review. Individual performance goals are established at the
beginning of the fiscal year and reviewed by the Board in the
case of our CEO, or by our CEO in the case of all other
executive officers. The individual performance modifier can
adjust individual payouts to zero, or increase the cash award
payout by an additional 100% of target, to reflect the
employees individual impact on achieving the
Companys financial results. Applying the individual
performance modifiers to FY 2008, our NEOs other than our CEO
achieved an aggregate MIP payout ranging from 179% to 192% of
the initial targeted amount, and our CEO achieved a MIP payout
of 192% of the initial targeted amount. The FY 2008 MIP cash
payout for each of our NEOs is reflected in the 2008 Summary
Compensation Table below.
In May 2008, the Compensation Committee decided to continue
using EPS and individual performance as MIP modifiers for the
fiscal year ending March 31, 2009. The FY 2009 EPS target
approved by the Compensation Committee is consistent with the
guidance published by the Company on May 5, 2008, which
disclosed a projected earnings range between $3.75 and $3.90 per
share. The Company and the Compensation Committee believe that
the EPS goal for a target MIP payout can be characterized as
stretch but attainable, meaning that based on
historical performance this payout level is not assured but can
reasonably be anticipated, while equally providing strong
motivation for executives to strive to exceed the EPS goal in a
way that balances short- and long-term stockholder value
creation. For FY 2009, comparable with the Companys prior
practice, our NEOs are eligible for MIP target cash award
opportunities of 80% to 150% of their base salary, which equate
to $2,370,000, $718,200, $1,084,600, $504,000 and $689,400 for
Messrs. Hammergren, Campbell, Julian and Owen and
Ms. Pure, respectively.
Long-term
Compensation
We believe that a significant portion of compensation for
executive officers should be contingent on delivering value to
all stockholders. We believe that long-term compensation is a
critical component of any executive compensation program because
of the need to foster a long-term focus on the Companys
financial results. Long-term compensation is an incentive tool
that management and the Compensation Committee use to align the
financial interests of executives and other key contributors to
sustained stockholder value creation.
The Companys long-term compensation program includes three
primary components: namely, a three-year cash incentive program,
an annual stock option award grant and an annual award of
performance based restricted stock units. We believe retention
value is generated by the three-year performance cycle for our
cash incentive program, and by the vesting requirements of
equity awards. Generally, within long-term compensation, the
Compensation Committee seeks to allocate awards on the basis of
20% performance based cash incentive, 40% stock options and 40%
performance based restricted stock units. The Compensation
Committee reviews long-term compensation for NEOs in reference
to the 50th and 75th percentiles of the Companys
peer group. The awards actually made to our NEOs in May 2007
fell within this range, primarily in recognition of the
exceptionally strong individual and Company performance over the
prior fiscal year. Similar to base salary, differences in
targeted amounts for NEOs long-term compensation occur
because the Compensation Committee considers a number of
individual factors when selecting a benchmark. For long-term
compensation, these factors include job performance, skill set,
prior experience, the executives time in his or her
position
and/or with
the Company, internal consistency regarding pay levels for
similar positions or skill levels within the Company, external
pressures to attract and retain talent, and market conditions
generally.
Cash. The cash portion of the Companys
long-term incentive compensation program is designed to motivate
executives to exceed multi-year financial goals. The performance
targets used in this program directly reflect the Companys
long-term strategic operating plan that is reviewed with the
Board. The cash opportunities under the Companys Long Term
Incentive Plan (LTIP) span a three-year performance
cycle. A new three-year cycle with
28
new target incentives and performance goals begins each fiscal
year. Now that it has matured, this portion of the long-term
incentive compensation program has three, three-year performance
cycles running concurrently. As described in the narrative
following the 2008 Summary Compensation Table, participants may
earn zero to 300% of their LTIP target opportunity depending on
the Companys actual performance versus pre-established
goals. Performance is assessed and payments that may be earned
are approved in May, following the close of the third fiscal
year of the performance cycle.
The FY 2006 FY 2008 LTIP performance period, which
ended March 31, 2008, was aligned with a cumulative EPS
goal of $7.25 per share. The actual three-year result for the FY
2006 FY 2008 period was a cumulative EPS of $8.72,
using for each of the three fiscal years the adjusted EPS that
the Compensation Committee used to determine the payout for the
MIP. Therefore, at its May 2008 meeting, the Compensation
Committee approved a payout for the FY 2006 FY 2008
LTIP at 300% in accordance with the cash performance target and
scale adopted in May 2005. The FY 2006 FY 2008 LTIP
cash payout for each of our NEOs is reflected in the 2008
Summary Compensation Table below.
At its May 2008 meeting, the Compensation Committee established
a FY 2009 FY 2011 LTIP target of $2,700,000,
$675,000, $1,375,000, $400,000 and $675,000 for
Messrs. Hammergren, Campbell, Julian and Owen and
Ms. Pure, respectively. The three-year cumulative EPS
target approved by the Compensation Committee for the FY
2009 FY 2011 LTIP is consistent with the FY 2009
guidance published by the Company on May 5, 2008 and the
three-year strategic operating plan reviewed by the Board. The
Company and the Compensation Committee believe that the EPS goal
for a target FY 2009 FY 2011 LTIP payout can be
characterized as stretch but attainable, meaning
that based on historical performance this payout level is not
assured but can reasonably be anticipated, while equally
providing strong motivation for executives to strive to exceed
the cumulative EPS goal in a way that balances short- and
long-term stockholder value creation. The FY 2009 FY
2011 LTIP target amounts were selected by the Compensation
Committee based on its target allocation of long-term
compensation, evaluation of each NEOs individual
performance, and in response to market data derived from the
Companys peer group as reviewed by the Compensation
Committee with its independent compensation consultant.
Stock Options. We believe stock options align
executive officer financial interests directly with stockholders
via stock price appreciation. Stock option grants are awarded
each fiscal year at the May meeting of the Compensation
Committee, generally vest in four equal annual installments over
a four-year period and have a seven-year life. The grant date
fair value is targeted to be approximately 40% of the total
long-term compensation for the fiscal year. Consistent with its
review of stock option awards granted to executives by companies
within the Companys peer group, during FY 2008 the
Compensation Committee awarded a stock option to
Messrs. Hammergren, Campbell, Julian and Owen and
Ms. Pure for 300,000, 75,000, 145,000, 44,000 and
75,000 shares, respectively. Similarly, for FY 2009, the
Compensation Committee awarded a stock option to
Messrs. Hammergren, Campbell, Julian and Owen and
Ms. Pure for 400,000, 159,000, 252,000, 86,000 and
159,000 shares, respectively.
Performance Based Restricted Stock
Units. Performance based restricted stock units,
referred to as PeRSUs, are awards conditioned on the
achievement of individual and Company performance goals, which
after completion of a one-year performance period, are settled
in RSUs that vest over the subsequent three-year period. We
believe the use of PeRSUs focuses executives attention on
annual financial goals, individual contributions to the
Companys success and stock price appreciation.
PeRSU target award opportunities are set at the beginning of
each fiscal year. The actual number of RSUs granted one year
later upon settlement of PeRSUs can range from zero to 150% of
the initial target amount, depending on the accomplishment of
pre-determined performance goals based on EPS. The Compensation
Committee has the authority to further adjust the PeRSU payout
based upon the NEOs individual performance review.
Specifically, the performance modifier can adjust individual
payouts to zero, or increase the equity award by an additional
50%, to reflect the employees individual impact on
achieving the Companys financial results. For the FY 2008
PeRSU target awards, vesting of the RSUs issued upon settlement
occurs in two phases, with 50% vesting in each of the second and
fourth years after the PeRSU target performance awards are
established.
In May 2007, the Compensation Committee approved an EPS goal of
$3.22 as the Companys PeRSU performance target for FY
2008. For FY 2008, the Companys actual EPS performance of
$3.31 from continuing operations, excluding adjustments to the
securities litigation reserves, exceeded the pre-established EPS
target goal noted above
29
by nine cents per share; and the Compensation Committee
determined that an adjustment to reported EPS was appropriate to
reflect certain acquisition costs that were not included in the
Companys FY 2008 operating plan such that all executive
officers would be eligible to receive 117% of their initial
PeRSU target award. Similar to the MIP, the results were further
modified based on the individual performance of each NEO.
Accordingly, at its May 2008 meeting, for the FY 2008
performance period the Compensation Committee awarded
Messrs. Hammergren, Campbell, Julian and Owen and
Ms. Pure a total of 193,050, 36,036, 77,220, 29,835 and
38,610 RSUs, respectively.
At its May 2008 meeting, the Compensation Committee established
a FY 2009 PeRSU target award opportunity of 150,000, 41,000,
65,000, 22,000 and 41,000 shares for
Messrs. Hammergren, Campbell, Julian and Owen and
Ms. Pure, respectively. The FY 2009 PeRSU target awards
were selected by the Compensation Committee based on its target
allocation of long-term compensation and evaluation of each
NEOs individual performance, and in response to market
data derived from the Companys peer group as reviewed by
the Compensation Committee with its independent compensation
consultant. Effective with the FY 2009 PeRSU target awards,
vesting of the RSUs issued upon settlement was modified such
that vesting will now occur in a single phase at the completion
of the fourth year after the PeRSU target performance awards
have been established. In addition to improving employee
retention, the Compensation Committee modified the PeRSU vesting
schedule to a four-year cliff in order to more closely align
NEOs equity incentives with the creation of long-term
stockholder value.
All Other
Compensation and Benefits
The Company provides a broad array of benefits to all employees.
These broad based benefits are comparable to those offered by
other employers in our industry and geographic locations. A
limited number of additional benefits are also provided to
executive officers as part of the total compensation package
because we believe that it is customary to provide such
benefits, or otherwise in our best interest to do so. In
providing such benefits, both management and the Compensation
Committee determined that these elements are appropriate for the
attraction and retention of executive talent. In addition to the
discussion of benefits below, the compensation associated with
these programs is included in the All Other Compensation Table,
which follows the 2008 Summary Compensation Table.
The Company has two benefit plans under which participation is
restricted to executive officers with approval of the
Compensation Committee. These benefit plans are reviewed
periodically to ensure that they continue to meet their
objectives. The two executive officer benefit plans are as
follows:
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the Executive Survivor Benefit Plan (the ESBP),
which provides a supplemental death benefit in addition to the
voluntary life insurance plan provided to all employees; and
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the Executive Benefit Retirement Plan (the EBRP), a
final pay pension plan. Effective June 1, 2007, this plan
was phased-out with participation restricted to the then current
roster of executive officers, including each of our NEOs.
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At its October 2007 meeting, upon the recommendation of
management, the Compensation Committee discontinued the
Companys Executive Medical Plan and Executive Salary
Continuation Program effective January 1, 2008. In the
absence of an Executive Medical Plan, at its April 2008 meeting
the Compensation Committee approved a policy allowing for the
reimbursement of expenses associated with the annual physical
examination of executive officers and their spouses, effective
January 1, 2008.
The Company also offers two voluntary nonqualified deferred
compensation plans:
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the Deferred Compensation Administration Plan III
(DCAP III); and
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the Supplemental Profit-Sharing Investment Plan II
(SPSIP II).
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These plans are not tax-qualified plans under the
U.S. Internal Revenue Code of 1986, as amended (the
Code). The DCAP III is offered to all employees
eligible for the MIP with a bonus target of at least 15%,
including all executive officers and other select highly
compensated employees. The SPSIP II is offered to all employees
who may be impacted by the compensation limits that restrict
participation in the Companys qualified 401(k) plan, the
Profit-Sharing Investment Plan (PSIP), including
executive officers.
30
Pursuant to the Companys Executive Officer Security
Policy, our CEO has been directed by the Board to use the
corporate aircraft for both business and personal travel for
security, protection and privacy reasons. For these same
reasons, our CEO may authorize the use of the corporate aircraft
for personal use by Mr. Julian and Ms. Pure, which is
generally expected to occur in conjunction with business related
activities. Likewise, as directed by the Companys
Executive Officer Security Policy, the Company provides security
services for Mr. Hammergren, Mr. Julian and
Ms. Pure, including reimbursement of reasonable expenses
related to installation and maintenance of home security at
their residences. A car and driver are available for use by
Mr. Hammergren, Mr. Julian and other executive
officers.
Severance
and
Change-in-Control
Benefits
Selected senior executives, including the NEOs, are covered by
the Companys
Change-in-Control
Policy for Selected Executive Employees (the CIC
Policy), which was updated effective November 1,
2006. We believe the protection afforded under the CIC Policy is
in line with current market practice. Specific
change-in-control
language, consistent with the CIC Policy, is included in
Ms. Pures and Mr. Julians employment
agreements. All contracts, policies and plans with
change-in-control
protections require an individuals termination in
connection with an underlying
change-in-control
of the Company, a so-called double trigger, to
invoke the protection. Coverage under the CIC Policy is
administered by the Compensation Committee. A detailed
description of our CIC Policy is provided below under the
subsection entitled Executive Employment
Agreements
Change-in-Control
Policy.
Each of the Companys stockholder-approved equity
compensation plans includes
change-in-control
provisions consistent with current market practice and the
Companys CIC Policy. These plans generally provide that
there is no change in the timing of vesting unless there is an
involuntary or constructive termination of employment following
a
change-in-control.
The Company has an Executive Severance Policy, which applies in
the event an executive officer is terminated by the Company for
reasons other than for cause and the termination is
not covered by the Companys CIC Policy. We believe the
protection afforded under the Executive Severance Policy is in
line with current market practice. The Executive Severance
Policy is not applicable to Mr. Hammergren, Mr. Julian
or Ms. Pure, as the policy is superseded by their
individual employment agreements. A detailed description of the
Executive Severance Policy is provided below under the
subsection entitled Executive Employment
Agreements Executive Severance Policy.
Mr. Hammergrens employment agreement provides for
severance benefits in the case of voluntary, involuntary and
constructive termination with or without a
change-in-control,
as defined in his agreement and summarized below under
Executive Employment Agreements.
Mr. Hammergrens employment agreement, in
substantially its current form, was extended to him when he was
offered the position of co-CEO in 1999. The severance provisions
of that employment agreement were not materially different from
the agreement of his predecessor, including provisions regarding
pension rights.
The aggregate value of
change-in-control,
severance and termination benefits for each NEO is summarized
below under the subsections entitled Post-Employment
Compensation and Benefits and Executive Employment
Agreements.
Information
on Other Compensation-Related Topics
Stock
Ownership Guidelines
In January 2007, the Company revised its guidelines for stock
ownership by executive officers, which had been originally
adopted in 2002. The Companys stock ownership guidelines
were revised to include the MIP as a measuring component, such
that the ownership requirement is now expressed as a multiple of
base salary and target MIP. The effect of such amendment was to
substantially increase the ownership requirement for each of the
Companys executive officers. The ownership requirement for
our CEO under the revised stock ownership guidelines is four
times his combined base salary and target MIP, whereas each of
the Companys remaining NEOs must achieve stock ownership
equal in value to three times his or her combined base salary
and target MIP. In
31
light of this increase, our executive officers were allowed five
years from January 2007 to meet the stock ownership guidelines.
However, as of May 30, 2008, each of our NEOs has satisfied
the Companys revised stock ownership guidelines.
The stock ownership guidelines may be met with common stock
owned outright, shares owned in through the PSIP (the
Companys 401(k) plan), and any shares of restricted stock
or RSUs. Stock options, whether vested or unvested, do not count
toward meeting the stock ownership guidelines. Compliance with
the Companys stock ownership guidelines is reviewed each
May as part of the executive officers total compensation
review.
The Companys directors are also subject to stock ownership
guidelines, which are summarized above in the subsection
entitled Corporate Governance Director Stock
Ownership Guidelines.
Equity
Grant Practices
The Company has adopted a written policy stating that stock
options will be awarded at an exercise price equal to the
closing price of the Companys common stock reported on the
date of the grant. In most situations, the date of grant is the
same day that the Compensation Committee meets to approve the
grant. From time to time, the Compensation Committees
meeting occurs shortly before or after the Companys
earnings are released to the investment community. When this
occurs, the Compensation Committee delays setting the equity
grant date to the third trading day following the date the
Companys earnings are released to the investment
community. Under the terms of our 2005 Stock Plan, stock option
re-pricing is not permitted.
Tax
Deductibility
Section 162(m) of the Internal Revenue Code limits the
Companys tax deduction to $1,000,000 for compensation paid
to NEOs, unless the compensation is performance
based within the meaning of that section and regulations.
The Compensation Committees intention is and has been to
comply with the requirements of Code Section 162(m) unless
the Compensation Committee concludes that adherence to the
limitations imposed by these provisions would not be in the best
interest of the Company or its stockholders. While base salary
in excess of $1,000,000 is not tax deductible, the Company
believes that payments made under its MIP and LTIP programs, and
the grants of RSUs made under its PeRSU program, qualify as
performance based compensation eligible for an exception from
the deduction limitation of Code Section 162(m).
Clawback
Policy
As described in the Companys standard award documentation,
the Compensation Committee may seek to recoup any economic gains
from equity grants from any employee who engages in conduct
which is not in good faith and which disrupts, damages, impairs
or interferes with the business, reputation or employees of the
Company or its affiliates.
Compensation
Committee Report on Executive Compensation
We have reviewed and discussed the Compensation Discussion and
Analysis contained in this proxy statement with management.
Based on such review and discussion, we have recommended to the
Board of Directors that the Compensation Discussion and Analysis
be included in this proxy statement and in McKesson
Corporations Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008.
Compensation Committee of the
Board of Directors
Alton F. Irby III, Chair
M. Christine Jacobs
David M. Lawrence, M.D.
James V. Napier
32
2008
Summary Compensation Table
The following table sets forth information concerning the
compensation for the fiscal years ended March 31, 2008 and
March 31, 2007 for our Chief Executive Officer, our Chief
Financial Officer, and our three other most highly-compensated
executive officers (collectively, our NEOs):
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Change in
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Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Salary
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Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(1)
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($)(1)
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($)(2)
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($)(3)(4)
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($)(5)
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($)
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John. H. Hammergren
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2008
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1,472,808
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11,955,799
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2,277,872
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11,962,000
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11,254,288
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1,019,858
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39,942,625
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Chairman, President and Chief Executive Officer
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2007
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1,366,716
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10,837,632
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935,629
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10,981,932
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6,402,494
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567,494
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31,091,897
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Jeffrey C. Campbell
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2008
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741,997
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2,354,940
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1,236,075
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2,642,000
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350,268
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165,750
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7,491,030
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Executive Vice President and Chief Financial Officer
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2007
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687,365
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2,306,866
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1,051,208
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3,050,000
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243,012
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145,074
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7,483,525
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Paul C. Julian
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2008
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894,281
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5,196,259
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1,117,314
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5,059,000
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1,792,573
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360,541
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14,419,968
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Executive Vice President, Group President
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2007
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830,829
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5,273,634
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466,172
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4,450,000
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965,808
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347,269
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12,333,712
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Marc E. Owen
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2008
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581,415
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1,733,529
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334,847
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1,450,000
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720,597
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107,139
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4,927,527
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Executive Vice President, Corporate Strategy and Business
Development
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2007
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526,969
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1,582,402
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137,891
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1,800,000
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388,186
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75,362
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4,510,810
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Pamela J. Pure
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2008
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689,966
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2,286,263
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650,940
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2,042,000
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775,761
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170,591
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6,615,521
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Executive Vice President, President, McKesson Technology
Solutions
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2007
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627,238
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2,224,523
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324,884
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2,200,000
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563,551
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193,249
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6,133,445
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(1) |
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Amounts shown reflect the
accounting expense recognized by the Company for financial
statement reporting purposes in accordance with
SFAS 123(R), and do not reflect whether the NEO has
actually realized a financial benefit from the award. For
information on the assumptions used to calculate the value of
the awards, refer to Note 19 of the Companys
consolidated financial statements in its Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008, as filed with the
SEC on May 7, 2008. However, in accordance with SEC rules,
the amounts shown exclude the impact of estimated forfeitures
related to service-based vesting conditions.
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(2) |
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Amounts shown consist of payouts
under two compensation programs, the Companys MIP and the
LTIP, as follows:
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FY
2008
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MIP for FY 2008: Mr. Hammergren,
$3,862,000; Mr. Campbell, $1,142,000; Mr. Julian,
$1,909,000; Mr. Owen, $850,000; and Ms. Pure,
$1,142,000.
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LTIP for FY 2006 FY
2008: Mr. Hammergren, $8,100,000;
Mr. Campbell, $1,500,000; Mr. Julian, $3,150,000;
Mr. Owen, $600,000; and Ms. Pure, $900,000. Target
amounts for these awards were established by the Compensation
Committee at its May 2005 meeting, and were as follows:
Mr. Hammergren, $2,700,000; Mr. Campbell, $500,000;
Mr. Julian, $1,050,000; Mr. Owen, $200,000; and
Ms. Pure, $300,000.
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FY
2007
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MIP for FY 2007: Mr. Hammergren,
$5,581,932; Mr. Campbell, $1,550,000; Mr. Julian,
$2,350,000; Mr. Owen, $1,200,000; and Ms. Pure,
$1,600,000.
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LTIP for FY 2005 FY
2007: Mr. Hammergren, $5,400,000;
Mr. Campbell, $1,500,000; Mr. Julian, $2,100,000;
Mr. Owen, $600,000; and Ms. Pure, $600,000.
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(3) |
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Amounts shown represent the
increase in annual actuarial present value of pension benefits,
above-market interest earned from amounts deferred into the
Companys nonqualified deferred compensation plans, and
above-market interest credited on undelivered dividend
equivalents, as follows:
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FY
2008
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Pension: Mr. Hammergren, $11,074,000;
Mr. Campbell, $349,000; Mr. Julian, $1,673,000;
Mr. Owen, $574,000; and Ms. Pure, $708,000.
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33
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Nonqualified deferred
compensation: Mr. Hammergren, $172,661;
Mr. Campbell, $0; Mr. Julian, $115,997; Mr. Owen,
$145,564; and Ms. Pure, $66,663.
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Dividend equivalents: Mr. Hammergren,
$7,627; Mr. Campbell, $1,268; Mr. Julian, $3,576;
Mr. Owen, $1,033; and Ms. Pure, $1,098.
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FY
2007
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Pension: Mr. Hammergren, $6,264,000;
Mr. Campbell, $242,000; Mr. Julian, $866,000;
Mr. Owen, $301,000; and Ms. Pure, $531,000.
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Nonqualified deferred
compensation: Mr. Hammergren, $130,748;
Mr. Campbell, $0; Mr. Julian, $96,789; Mr. Owen,
$86,306; and Ms. Pure, $31,548.
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Dividend equivalents: Mr. Hammergren,
$7,746; Mr. Campbell, $1,012; Mr. Julian, $3,019;
Mr. Owen, $880; and Ms. Pure, $1,003.
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(4) |
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The assumptions used in calculating
the increase in pension benefits are set forth in the 2008
Pension Benefits Table below, under the subsection entitled
Actuarial Assumptions.
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(5) |
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The amounts shown are detailed in
the supplemental table below entitled All Other
Compensation Table.
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Narrative
to the 2008 Summary Compensation Table
Long
Term Incentive Plan
The 2008 Summary Compensation Table above reflects the amounts
earned under the Companys LTIP, which are reported under
the column entitled Non-Equity Incentive Plan
Compensation. The performance measure approved by the
Compensation Committee for the FY 2006 FY 2008 LTIP
performance period was cumulative EPS of $7.25 over the
three-year period ended March 31, 2008. At its meeting in
May 2008, during its annual review of compensation for executive
officers, the Compensation Committee assessed the Companys
performance versus the performance measure approved for the FY
2006 FY 2008 LTIP performance period. Reported
cumulative EPS was $8.72 resulting in targets being approved at
300%, in accordance with the following payout scale:
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Cumulative Three-Year EPS
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LTIP Modifier
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$7.53 and above
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300
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%
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$7.49
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260
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%
|
$7.45
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|
220
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%
|
$7.41
|
|
|
180
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%
|
$7.33
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|
140
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%
|
$7.25
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|
|
100
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%
|
$7.15
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|
|
80
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%
|
$7.05
|
|
|
60
|
%
|
$6.95
|
|
|
40
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%
|
$6.90
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|
|
30
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%
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$6.75 and below
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0
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%
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34
Management
Incentive Plan
The 2008 Summary Compensation Table above reflects the amounts
earned under the Companys MIP, which are reported under
the column entitled Non-Equity Incentive Plan
Compensation. At its meeting in May 2007, during its
annual review of compensation for executive officers, the
Compensation Committee approved target awards (expressed as a
percent of annual base salary), the performance measure and the
award scale for the FY 2008 MIP. The threshold, target and
maximum payouts for FY 2008 MIP are displayed below in the 2008
Grants of Plan Based Awards Table, and the Compensation
Committee approved an EPS target for FY 2008 of $3.22.
At its meeting in May 2008, during its annual review of
compensation for executive officers, the Compensation Committee
assessed the Companys performance versus the MIP
performance measures approved in May 2007. For FY 2008, the
Companys actual EPS performance of $3.31 from continuing
operations, excluding adjustments to the securities litigation
reserves, exceeded the pre-established EPS target goal noted
above by nine cents per share; and the Compensation Committee
determined that an adjustment to reported EPS was appropriate to
reflect certain acquisition costs that were not included in the
Companys FY 2008 operating plan such that all corporate
employee participants would be eligible to receive 128% of their
initial MIP target cash award, in accordance with the following
payout scale:
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EPS for FY 2008
|
|
MIP Modifier
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|
|
$3.54 and above
|
|
|
200
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%
|
$3.47
|
|
|
175
|
%
|
$3.40
|
|
|
150
|
%
|
$3.34
|
|
|
125
|
%
|
$3.22
|
|
|
100
|
%
|
$3.10
|
|
|
75
|
%
|
$2.97
|
|
|
50
|
%
|
$2.96 and below
|
|
|
0
|
%
|
As is the case for all of the Companys performance based
payout scales, for an EPS result that falls between the above
identified reference points, the modifier is adjusted ratably
along the slope selected by the Compensation Committee at the
beginning of each fiscal year. The Compensation Committee
further adjusted MIP awards to reflect individual contributions
to the overall results.
Performance
Based Restricted Stock Units
The 2008 Summary Compensation Table above reflects the amounts
earned under the Companys PeRSU program, which are
reported under the column entitled Stock Awards. At
its meeting in May 2007, during its annual review of
compensation for executive officers, the Compensation Committee
approved target awards, the EPS performance measure and the
award scale for the FY 2008 PeRSU awards. The threshold, target
and maximum payouts for FY 2008 PeRSU are displayed below in the
2008 Grants of Plan Based Awards Table, and the Compensation
Committee approved an EPS target for FY 2008 of $3.22.
At its meeting in May 2008, during its annual review of
compensation for executive officers, the Compensation Committee
assessed the Companys performance versus the PeRSU
performance measures approved in May 2007. For FY 2008, the
Companys actual EPS performance of $3.31 from continuing
operations, excluding adjustments to the securities litigation
reserves, exceeded the pre-established EPS target goal noted
above by nine cents per share; and the Compensation Committee
determined that an adjustment to reported EPS was appropriate to
reflect certain acquisition costs that were not included in the
Companys FY 2008 operating plan such that all executive
35
officers would be eligible to receive 117% of their initial
PeRSU target award, in accordance with the following payout
scale:
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|
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EPS for FY 2008
|
|
PeRSU Modifier
|
|
|
$3.61 and above
|
|
|
150
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%
|
$3.42
|
|
|
125
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%
|
$3.22
|
|
|
100
|
%
|
$3.14
|
|
|
75
|
%
|
$3.06
|
|
|
50
|
%
|
$2.98
|
|
|
25
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%
|
$2.89 and below
|
|
|
0
|
%
|
As is the case for all of the Companys performance based
payout scales, for an EPS result that falls between the above
identified reference points, the modifier is adjusted ratably
along the slope selected by the Compensation Committee at the
beginning of each fiscal year. The Compensation Committee
further adjusted PeRSU awards to reflect individual
contributions to the overall results.
All Other
Compensation Table
Components of the amounts reported as All Other Compensation in
the preceding 2008 Summary Compensation Table are described
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
John H.
|
|
Jeffrey C.
|
|
Paul C.
|
|
Marc E.
|
|
Pamela J.
|
Elements of All Other Compensation
|
|
Year
|
|
Hammergren
|
|
Campbell
|
|
Julian
|
|
Owen
|
|
Pure
|
|
PSIP (401(k))
Match($)(a)
|
|
|
2008
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
|
2007
|
|
|
|
7,846
|
|
|
|
8,800
|
|
|
|
8,800
|
|
|
|
8,771
|
|
|
|
8,800
|
|
SPSIP II
Match($)(b)
|
|
|
2008
|
|
|
|
273,190
|
|
|
|
82,680
|
|
|
|
120,771
|
|
|
|
17,805
|
|
|
|
50,599
|
|
|
|
|
2007
|
|
|
|
205,869
|
|
|
|
58,695
|
|
|
|
86,833
|
|
|
|
8,792
|
|
|
|
36,789
|
|
DCAP III
Match($)(c)
|
|
|
2008
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
44,451
|
|
|
|
32,000
|
|
|
|
|
2007
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
31,087
|
|
|
|
20,500
|
|
Dividend Equivalents on RSUs Settled in
Cash($)(d)
|
|
|
2008
|
|
|
|
126,959
|
|
|
|
21,872
|
|
|
|
57,179
|
|
|
|
17,106
|
|
|
|
21,852
|
|
|
|
|
2007
|
|
|
|
110,981
|
|
|
|
17,443
|
|
|
|
47,552
|
|
|
|
13,753
|
|
|
|
17,847
|
|
Executive Medical
Plan($)(e)
|
|
|
2008
|
|
|
|
11,133
|
|
|
|
11,133
|
|
|
|
11,133
|
|
|
|
11,133
|
|
|
|
11,133
|
|
|
|
|
2007
|
|
|
|
7,791
|
|
|
|
7,791
|
|
|
|
7,791
|
|
|
|
7,791
|
|
|
|
7,791
|
|
Financial
Consulting($)(f)
|
|
|
2008
|
|
|
|
13,619
|
|
|
|
11,212
|
|
|
|
12,036
|
|
|
|
6,143
|
|
|
|
12,000
|
|
|
|
|
2007
|
|
|
|
14,296
|
|
|
|
13,088
|
|
|
|
12,399
|
|
|
|
5,168
|
|
|
|
12,000
|
|
Housing
Relocation($)(g)
|
|
|
2008
|
|
|
|
-0-
|
|
|
|
28,352
|
|
|
|
85,000
|
|
|
|
-0-
|
|
|
|
31,752
|
|
|
|
|
2007
|
|
|
|
-0-
|
|
|
|
39,257
|
|
|
|
85,000
|
|
|
|
-0-
|
|
|
|
31,752
|
|
Company
Aircraft($)(h)
|
|
|
2008
|
|
|
|
48,844
|
|
|
|
-0-
|
|
|
|
36,136
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
2007
|
|
|
|
133,825
|
|
|
|
-0-
|
|
|
|
78,191
|
|
|
|
-0-
|
|
|
|
8,340
|
|
Tax
Gross-up($)
|
|
|
2008
|
|
|
|
15,647
|
(h)
|
|
|
-0-
|
|
|
|
6,883
|
(i)(h)
|
|
|
-0-
|
|
|
|
543
|
(h)
|
|
|
|
2007
|
|
|
|
74,268
|
(h)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
15,941
|
(k)
|
Car and
Driver($)(i)
|
|
|
2008
|
|
|
|
5,089
|
|
|
|
-0-
|
|
|
|
5,902
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
2007
|
|
|
|
9,290
|
|
|
|
-0-
|
|
|
|
12,908
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Home Security($)
|
|
|
2008
|
|
|
|
514,528
|
(j)
|
|
|
-0-
|
|
|
|
15,000
|
(j)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
2007
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
33,184
|
(k)
|
Legal
Fees($)(l)
|
|
|
2008
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
2007
|
|
|
|
2,860
|
|
|
|
-0-
|
|
|
|
7,326
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Miscellaneous($)(m)
|
|
|
2008
|
|
|
|
1,849
|
|
|
|
1,501
|
|
|
|
1,501
|
|
|
|
1,501
|
|
|
|
1,712
|
|
|
|
|
2007
|
|
|
|
469
|
|
|
|
-0-
|
|
|
|
469
|
|
|
|
-0-
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals ($)
|
|
|
2008
|
|
|
|
1,019,858
|
|
|
|
165,750
|
|
|
|
360,541
|
|
|
|
107,139
|
|
|
|
170,591
|
|
|
|
|
2007
|
|
|
|
567,494
|
|
|
|
145,074
|
|
|
|
347,269
|
|
|
|
75,362
|
|
|
|
193,249
|
|
36
|
|
|
(a) |
|
Represents the aggregate value of
the Companys stock contributions under the Companys
PSIP (the Companys 401(k) plan).
|
|
(b) |
|
Represents the Companys
matching contributions under the SPSIP II, which is described
below in the subsection entitled Narrative Disclosure to
the 2008 Nonqualified Deferred Compensation Table.
|
|
(c) |
|
Represents the Companys
matching contributions under the DCAP III, which is described
below in the subsection entitled Narrative Disclosure to
the 2008 Nonqualified Deferred Compensation Table.
|
|
(d) |
|
Represents the amount of dividend
equivalents credited for outstanding RSUs during FY 2008.
Recipients of RSUs are entitled to dividend equivalents at the
same dividend rate applicable to the Companys common
stockholders, which upon vesting, are to be settled in cash.
|
|
(e) |
|
Reflects the aggregate incremental
cost to the Company of the Executive Medical Plan, determined by
first calculating the difference between: (i) the cost to
the Company of the benefits actually paid under the Executive
Medical Plan, and (ii) what would have been the cost to the
Company had the claims been processed through a medical plan
available to all employees. The total amount of such difference
was then divided among the executive officers equally, and the
cost allocated to each NEO is shown in the table immediately
above. The Companys Executive Medical Plan was
discontinued effective January 1, 2008. The amounts shown
represent the cost of coverage for the period from April 1,
2007 through December 31, 2007.
|
|
(f) |
|
Represents the total cost of
financial counseling services, which include tax preparation
services, paid for by the Company on behalf of the NEOs.
|
|
(g) |
|
Represents housing relocation
payments for Messrs. Campbell and Julian and Ms. Pure.
Mr. Julians housing relocation payment was
contributed by the Company to his DCAP III account.
|
|
(h) |
|
Represents primarily the aggregate
incremental cost to the Company of personal travel on the
Company aircraft by Messrs. Hammergren and Julian. In
calculating that cost, the Company determined the direct
operating cost per flight hour for each aircraft, which includes
costs for fuel, maintenance, labor, parts, engine restoration,
landing and parking fees, crew expenses, supplies and catering.
The direct operating cost per flight hour was then multiplied by
the total number of personal flight hours for each of these
NEOs. As directed by the Companys Executive Officer
Security Policy, Mr. Hammergren uses Company aircraft for
both business and personal travel for security, productivity and
privacy reasons. The Company reimbursed Messrs. Hammergren
and Julian and Ms. Pure for taxes due on the income imputed
to them for personal travel on Company aircraft.
|
|
(i) |
|
Represents the aggregate
incremental cost of the personal use by Messrs. Hammergren
and Julian of a Company-provided car and driver, calculated by
multiplying: (i) the amount paid for the drivers
services and various vehicle operating costs by (ii) a
fraction, the denominator of which is the total hours of
available car service, and the numerator of which is the number
of hours of personal travel by each of these NEOs. The Company
also provides reimbursement for taxes due on the income imputed
from the Company-provided car and driver.
|
|
(j) |
|
Represents the reimbursement by the
Company to Messrs. Hammergren and Julian of costs for
installing home security devices and for security monitoring
services at their residences as directed by the Companys
Executive Officer Security Policy. The amounts shown for
Mr. Hammergren represent costs reimbursed during FY 2008
for the installation of home security devices and for security
monitoring services at his residences over the last three fiscal
years, as was directed by the Board prior to FY 2005. The Board
required these security measures for the Companys benefit,
and believes these security costs and expenses are appropriate
and necessary.
|
|
(k) |
|
Represents the reimbursement by the
Company to Ms. Pure of costs for installing home security
devices at her residence as directed by the Companys
Executive Officer Security Policy. The Company also reimbursed
Ms. Pure for taxes due on the resulting imputed income. The
Board required these security measures for the Companys
benefit, and believes these security costs and expenses are
appropriate and necessary.
|
|
(l) |
|
Represents the reimbursement by the
Company of the legal expenses incurred by
Messrs. Hammergren and Julian in connection with the review
and revision of their employment agreements in order to comply
with the proposed regulations issued under Code
Section 409A.
|
|
(m) |
|
Represents primarily items provided
in connection with the annual Board retreat attended by
executive officers and their spouses, which items may be
considered to provide a personal benefit.
|
37
2008
Grants of Plan Based Awards Table
The following table sets forth certain information with respect
to stock and option awards and other plan based awards granted
during the fiscal year ended March 31, 2008 to our NEOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Exercise
|
|
|
Grant Date
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
Estimated Future Payouts
|
|
|
Number of
|
|
|
or Base
|
|
|
Fair Value
|
|
|
|
|
|
|
Under Non-Equity
|
|
|
Under Equity Incentive
|
|
|
Securities
|
|
|
Price of
|
|
|
of Stock and
|
|
|
|
|
|
|
Incentive Plan
Awards(1)
|
|
|
Plan
Awards(2)
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Options
|
|
|
Awards
|
|
|
Awards
|
|
Name
|
|
Date
|
|
|
($)(3)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)(4)
|
|
|
($)
|
|
|
($)(5)
|
|
|
John H. Hammergren
|
|
|
5/22/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
62.21
|
|
|
|
5,377,290
|
|
LTIP
|
|
|
|
|
|
|
-0-
|
|
|
|
2,700,000
|
|
|
|
8,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PeRSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
110,000
|
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
6,843,100
|
|
MIP
|
|
|
|
|
|
|
1,005,750
|
|
|
|
2,011,500
|
|
|
|
6,034,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey C. Campbell
|
|
|
5/22/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
62.21
|
|
|
|
1,344,323
|
|
LTIP
|
|
|
|
|
|
|
-0-
|
|
|
|
675,000
|
|
|
|
2,025,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PeRSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
22,000
|
|
|
|
44,000
|
|
|
|
|
|
|
|
|
|
|
|
1,368,620
|
|
MIP
|
|
|
|
|
|
|
318,750
|
|
|
|
637,500
|
|
|
|
1,912,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul C. Julian
|
|
|
5/22/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,000
|
|
|
|
62.21
|
|
|
|
2,599,024
|
|
LTIP
|
|
|
|
|
|
|
-0-
|
|
|
|
1,375,000
|
|
|
|
4,125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PeRSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
44,000
|
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
2,737,240
|
|
MIP
|
|
|
|
|
|
|
497,200
|
|
|
|
994,400
|
|
|
|
2,983,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc E. Owen
|
|
|
5/22/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,000
|
|
|
|
62.21
|
|
|
|
788,669
|
|
LTIP
|
|
|
|
|
|
|
-0-
|
|
|
|
400,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PeRSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
17,000
|
|
|
|
34,000
|
|
|
|
|
|
|
|
|
|
|
|
1,057,570
|
|
MIP
|
|
|
|
|
|
|
221,250
|
|
|
|
442,500
|
|
|
|
1,327,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pamela J. Pure
|
|
|
5/22/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
62.21
|
|
|
|
1,344,323
|
|
LTIP
|
|
|
|
|
|
|
-0-
|
|
|
|
675,0000
|
|
|
|
2,025,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PeRSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
22,000
|
|
|
|
44,000
|
|
|
|
|
|
|
|
|
|
|
|
1,368,620
|
|
MIP
|
|
|
|
|
|
|
297,500
|
|
|
|
595,000
|
|
|
|
1,785,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown in these columns
represent the range of possible cash payouts for each NEO under:
(i) the Companys LTIP for the FY 2008-FY 2010
performance period, and (ii) the Companys MIP for the
FY 2008 performance period, as determined by the Compensation
Committee at its May 2007 meeting. Amounts actually earned under
the Companys FY 2008 MIP are included above in the 2008
Summary Compensation Table under the column entitled
Non-Equity Incentive Plan Compensation. Information
regarding the operation of the LTIP and MIP can be found in the
Compensation Discussion and Analysis under Long-term
Compensation Cash and Short-term
Compensation Annual Incentive, respectively,
and above under Narrative to the 2008 Summary Compensation
Table.
|
|
(2) |
|
The amounts shown in these columns
represent the range of possible PeRSU awards for the FY 2008
performance period, as determined by the Compensation Committee
at its May 2007 meeting. As the result of individual and Company
accomplishment of pre-determined performance goals, the actual
amount of RSUs awarded to each NEO, which was determined at the
Compensation Committees May 2008 meeting, was as follows:
Mr. Hammergren, 193,050 units; Mr. Campbell,
36,036 units; Mr. Julian, 77,220 units;
Mr. Owen, 29,835 units; and Ms. Pure,
38,610 units. Amounts disclosed in these columns do not
include dividend equivalents that will accrue to the RSU awards.
Recipients of RSUs are entitled to dividend equivalents at the
same dividend rate applicable to the Companys common
stockholders, and upon vesting, dividend equivalents are to be
paid in cash. PeRSUs, including their vesting schedule, are
described in the Compensation Discussion and Analysis under
Long-term Compensation Performance Based
Restricted Stock Units.
|
|
(3) |
|
The amounts shown for the MIP
represent 50% of the target cash payout for the FY 2008
performance period, which under the Companys MIP plan,
equates to the minimum threshold award payment. However, as
described in the narrative following the 2008 Summary
Compensation Table, MIP payouts are conditioned on the
achievement of a minimum EPS goal below which no award is earned.
|
|
(4) |
|
Stock options vest at the rate of
25% per year over a four-year period, beginning on the first
grant date anniversary, subject to the NEOs continued
employment. The Companys stock options generally expire
seven years from the date of grant.
|
|
(5) |
|
Calculated in accordance with
SFAS 123(R).
|
38
2008
Outstanding Equity Awards Table
The following table sets forth information concerning stock
options and stock awards held by the NEOs as of March 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market Value of
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Shares or Units
|
|
|
Shares or Units
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
of Stock That
|
|
|
of Stock That
|
|
|
|
Options (#)
|
|
|
Options
(#)(1)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested
(#)(2)
|
|
|
Vested
($)(3)
|
|
|
John H. Hammergren
|
|
|
66,666
|
|
|
|
|
|
|
$
|
90.9332
|
|
|
|
5/29/2008
|
|
|
|
529,019
|
|
|
|
27,704,725
|
|
|
|
|
66,667
|
|
|
|
|
|
|
$
|
113.4955
|
|
|
|
5/29/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
66,667
|
|
|
|
|
|
|
$
|
136.7416
|
|
|
|
5/29/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
19,850
|
|
|
|
|
|
|
$
|
73.0000
|
|
|
|
1/27/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
$
|
73.0000
|
|
|
|
1/27/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
93,666
|
|
|
|
|
|
|
$
|
29.8125
|
|
|
|
8/16/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
$
|
28.2500
|
|
|
|
10/30/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
$
|
32.6700
|
|
|
|
1/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
$
|
38.6500
|
|
|
|
7/25/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
$
|
38.2000
|
|
|
|
1/29/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
275,000
|
|
|
|
|
|
|
$
|
32.9200
|
|
|
|
7/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
275,000
|
|
|
|
|
|
|
$
|
28.6000
|
|
|
|
1/28/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
|
$
|
34.3600
|
|
|
|
7/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
$
|
34.9400
|
|
|
|
5/25/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
$
|
45.0200
|
|
|
|
7/27/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
71,250
|
|
|
|
213,750
|
|
|
$
|
47.9700
|
|
|
|
5/23/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
$
|
62.2100
|
|
|
|
5/22/2014
|
|
|
|
|
|
|
|
|
|
Jeffrey C. Campbell
|
|
|
150,000
|
|
|
|
|
|
|
$
|
29.0100
|
|
|
|
1/27/2014
|
|
|
|
92,203
|
|
|
|
4,828,671
|
|
|
|
|
95,000
|
|
|
|
|
|
|
$
|
34.9400
|
|
|
|
5/25/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
71,000
|
|
|
|
|
|
|
$
|
45.0200
|
|
|
|
7/27/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
15,750
|
|
|
|
47,250
|
|
|
$
|
47.9700
|
|
|
|
5/23/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
$
|
62.2100
|
|
|
|
5/22/2014
|
|
|
|
|
|
|
|
|
|
Paul C. Julian
|
|
|
200,000
|
|
|
|
|
|
|
$
|
73.0000
|
|
|
|
1/27/2009
|
|
|
|
239,615
|
|
|
|
12,548,638
|
|
|
|
|
250,000
|
|
|
|
|
|
|
$
|
38.6500
|
|
|
|
7/25/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
$
|
38.2000
|
|
|
|
1/29/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
$
|
32.9200
|
|
|
|
7/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
$
|
34.3600
|
|
|
|
7/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
139,584
|
|
|
|
|
|
|
$
|
34.9400
|
|
|
|
5/25/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
164,000
|
|
|
|
|
|
|
$
|
45.0200
|
|
|
|
7/27/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
35,500
|
|
|
|
106,500
|
|
|
$
|
47.9700
|
|
|
|
5/23/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,000
|
|
|
$
|
62.2100
|
|
|
|
5/22/2014
|
|
|
|
|
|
|
|
|
|
Marc E. Owen
|
|
|
75,000
|
|
|
|
|
|
|
$
|
39.8100
|
|
|
|
10/25/2011
|
|
|
|
72,529
|
|
|
|
3,798,344
|
|
|
|
|
30,000
|
|
|
|
|
|
|
$
|
32.9200
|
|
|
|
7/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
$
|
28.2800
|
|
|
|
1/27/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
$
|
34.3600
|
|
|
|
7/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
34.9400
|
|
|
|
5/25/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
45.0200
|
|
|
|
7/27/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
10,500
|
|
|
|
31,500
|
|
|
$
|
47.9700
|
|
|
|
5/23/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,000
|
|
|
$
|
62.2100
|
|
|
|
5/22/2014
|
|
|
|
|
|
|
|
|
|
Pamela J. Pure
|
|
|
100,000
|
|
|
|
|
|
|
$
|
38.2000
|
|
|
|
1/29/2012
|
|
|
|
91,282
|
|
|
|
4,780,438
|
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
29.7500
|
|
|
|
3/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
42,400
|
|
|
|
|
|
|
$
|
34.9400
|
|
|
|
5/25/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
62,000
|
|
|
|
|
|
|
$
|
45.0200
|
|
|
|
7/27/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
13,750
|
|
|
|
41,250
|
|
|
$
|
47.9700
|
|
|
|
5/23/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
$
|
62.2100
|
|
|
|
5/22/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Except as otherwise noted, options
vest at the rate of 25% per year over a four-year period,
beginning on the first grant date anniversary, subject to the
NEOs continued employment.
|
|
(2) |
|
The stock awards vest as follows:
|
|
|
|
|
|
May 22, 2008 Mr. Hammergren,
94,050 shares; Mr. Campbell, 18,525 shares;
Mr. Julian, 43,890 shares; Mr. Owen,
14,535 shares; and Ms. Pure, 18,810 shares;
|
39
|
|
|
|
|
May 24, 2008 Mr. Hammergren,
27,919 shares; Mr. Campbell, 4,653 shares;
Mr. Julian, 9,835 shares; Mr. Owen,
3,046 shares; Ms. Pure, 6,662 shares;
|
|
|
|
May 23, 2009 Mr. Hammergren,
133,000 shares; Mr. Campbell, 30,500 shares;
Mr. Julian, 72,000 shares; Mr. Owen,
20,413 shares; and Ms. Pure, 32,000 shares;
|
|
|
|
May 25, 2009 Mr. Hammergren,
180,000; Mr. Campbell, 20,000; Mr. Julian, 70,000;
Mr. Owen, 20,000; and Ms. Pure, 15,000;
|
|
|
|
May 22, 2010 Mr. Hammergren,
94,050 shares; Mr. Campbell, 18,525 shares;
Mr. Julian, 43,890 shares; Mr. Owen,
14,535 shares; and Ms. Pure, 18,810 shares.
|
|
|
|
(3) |
|
Based on a closing price of the
Companys common stock of $52.37 on March 31, 2008, as
reported by the NYSE.
|
2008
Option Exercises and Stock Vested Table
The following table provides information concerning option and
stock awards exercised and vested, respectively, for NEOs during
the fiscal year ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
Name
|
|
Exercise (#)
|
|
|
Exercise
($)(1)
|
|
|
Vesting (#)
|
|
|
Vesting
($)(2)
|
|
|
John H. Hammergren
|
|
|
800,000
|
|
|
|
25,041,961
|
|
|
|
188,000
|
|
|
|
11,790,180
|
|
Jeffrey C. Campbell
|
|
|
30,000
|
|
|
|
795,644
|
|
|
|
39,025
|
|
|
|
2,434,912
|
|
Paul C. Julian
|
|
|
445,416
|
|
|
|
14,791,424
|
|
|
|
82,300
|
|
|
|
5,168,228
|
|
Marc E. Owen
|
|
|
55,000
|
|
|
|
1,475,123
|
|
|
|
24,052
|
|
|
|
1,510,089
|
|
Pamela J. Pure
|
|
|
157,000
|
|
|
|
4,623,416
|
|
|
|
36,700
|
|
|
|
2,304,612
|
|
|
|
|
(1) |
|
Represents the amounts realized
based on the difference between the market price of the
Companys common stock on the date of exercise and the
exercise price.
|
|
(2) |
|
Represents the amount realized
based on the market price of the Companys common stock on
the vesting date. Upon vesting amounts accrued as dividend
equivalents and interest thereon were distributed to each NEO,
which for Messrs. Hammergren, Campbell, Julian and Owen and
Ms. Pure, totaled $77,822, $9,462, $26,334, $8,050 and
$11,803, respectively.
|
2008
Pension Benefits Table
The following table sets forth the actuarial present value of
the benefits accumulated by each NEO under the Companys
Executive Benefit Retirement Plan (EBRP), calculated
as of December 31, 2007, the plan measurement date used for
financial statement reporting purposes, and using the same
assumptions as are used in the Companys audited financial
statements, except that retirement age is assumed to be the
normal retirement age as defined in the EBRP or as provided in
the executive officers employment agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Present Value of
|
|
|
Payments
|
|
|
|
|
|
|
Years Credited
|
|
|
Accumulated
|
|
|
During Last
|
|
Name
|
|
Plan Name
|
|
|
Service (#)
|
|
|
Benefit
($)(1)
|
|
|
Fiscal Year ($)
|
|
|
John H. Hammergren
|
|
|
EBRP
|
|
|
|
11
|
|
|
|
45,732,000
|
|
|
|
|
|
Jeffrey C. Campbell
|
|
|
EBRP
|
|
|
|
4
|
|
|
|
2,349,000
|
(2)
|
|
|
|
|
Paul C. Julian
|
|
|
EBRP
|
|
|
|
11
|
|
|
|
6,071,000
|
|
|
|
|
|
Marc E. Owen
|
|
|
EBRP
|
|
|
|
6
|
|
|
|
1,989,000
|
|
|
|
|
|
Pamela J. Pure
|
|
|
EBRP
|
|
|
|
6
|
|
|
|
2,408,000
|
|
|
|
|
|
|
|
|
(1) |
|
The present value of these benefits
are shown based on the assumptions used in determining our
annual pension expense, as shown in the table below in the
subsection entitled Actuarial Assumptions. Certain
assumptions, however, are required to be different, such as
future salary increases. The above amounts do not reflect any
future salary growth because the amounts above are required to
be calculated based on compensation and service as of
December 31, 2007.
|
|
(2) |
|
Participants become vested in the
EBRP benefits after completing five years of service. As
Mr. Campbells service is less than five years, he has
not yet vested in the Companys EBRP.
|
40
Actuarial
Assumptions
The amounts shown in the 2008 Summary Compensation Table and the
2008 Pension Benefits Table above are actuarial present values
of the benefits accumulated through the date shown. An actuarial
present value is calculated by estimating expected future
payments starting at an assumed retirement age, weighting the
estimated payments by the estimated probability of surviving to
each post-retirement age, and discounting the weighted payments
at an assumed discount rate to reflect the time value of money.
The actuarial present value represents an estimate of the amount
which, if invested today at the discount rate, would be
sufficient on an average basis to provide estimated future
payments based on the current accumulated benefit. The assumed
retirement age for each executive is the earliest age at which
the executive could retire without any benefit reduction due to
age. Actual benefit present values will vary from these
estimates depending on many factors, including an
executives actual retirement age. The pension benefit
values are based on the following actuarial assumptions:
|
|
|
|
|
|
|
December 31, 2007
|
|
December 31, 2006
|
|
Discount rate
|
|
5.95%
|
|
5.74%
|
Lump-sum interest rate
|
|
4.00%
|
|
4.00%
|
Retirement ages
|
|
|
|
|
EBRP
|
|
62
|
|
62
|
Employment Agreement Mr. Hammergren
|
|
55 and one month
|
|
55 and one month
|
Withdrawal, disability or mortality before retirement
|
|
None
|
|
None
|
Post-retirement mortality rate
|
|
RP2000 Healthy Annuitants
|
|
RP2000 Healthy Annuitants
|
|
|
Mortality table projected by
|
|
Mortality table projected by
|
|
|
scale AA to 2015
|
|
scale AA to 2014
|
Future salary increases
|
|
None
|
|
None
|
Form of payment EBRP and Employment Agreement for
Mr. Hammergren
|
|
Lump-sum
|
|
Lump-sum
|
For additional information on the Companys pension
obligations, refer to Note 13 of the Companys
consolidated financial statements in the Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008, as filed with the
SEC on May 7, 2008.
Narrative
Disclosure to the 2008 Pension Benefit Table
For
Retirement at Age 62 or Older:
Participants become vested in the EBRP benefits after completing
five years of service. The following is a brief summary of the
benefits that would be provided to a participant in the
Companys EBRP, assuming retirement at age 62 or older
and five or more years of credited service.
A participant who separates from service on or after reaching
age 62 with five or more years of credited service receives
benefits calculated by applying the following benefit formula:
(i) a service-based percentage of his or her average
final compensation, as it is defined below, minus
(ii) the hypothetical annualized benefit payable under the
Companys Retirement Share Plan (the
Basic Retirement Benefits). The Retirement Share
Plan, introduced in January 1997 and discontinued after
March 31, 2004, was an element offered under the
Companys 401(k) plan, the PSIP. As of March 31, 2008,
only Messrs. Hammergren and Julian maintained a balance
under the Retirement Share Plan such that it would serve as an
offset to the calculation of their Basic Retirement Benefits.
Calculation
of the Average Final Compensation
The EBRP provides that the benefit percentage described below
will be applied to the average final compensation. Average final
compensation is defined as the average annual compensation
during the five consecutive years of full-time employment in the
participants final fifteen years before separation from
service that produces the highest average more
simply, the highest consecutive five in the final fifteen years.
Compensation recognized in the
41
benefit formula includes annual base salary and payments under
the MIP, even if the participant has voluntarily deferred such
compensation under a Company provided deferred compensation
plan. For Mr. Hammergren, pursuant to his employment
agreement, 150% of MIP payments are included in the calculation
of average final compensation. The calculation of the average
final compensation is ratably reduced if the participant has
less than five years of full-time continuous employment.
Payments under the LTIP and the value received from stock
options and restricted stock units are among the forms of
compensation not recognized in the benefit formula.
Percentage
of Average Final Compensation
The gross EBRP benefit is expressed as a percentage of the
participants average final compensation. The percentage is
equal to an initial base percentage benefit of 20%, which is
increased by 1.77% for each completed year of service (0.148%
for each completed month of service, if the executive completes
less than a full year of service in the year in which he or she
separates from service). The maximum benefit generally is 60% of
average final compensation; however, the Compensation Committee
has the authority to approve, or a participants written
employment agreement may provide, a different benefit formula
including a percentage higher than 60% for an individual
participant.
Mr. Hammergrens employment agreement provides that he
is entitled to a benefit percentage of at least 60% of his
average final compensation, and that percentage is increased by
1.5% for each completed year of service after April 1, 2004
to a maximum benefit of 75% of his average final compensation.
Service
Credit
The EBRP measures service from the commencement date of an
executives employment, that is, service prior to being
named a participant counts in the final calculation, until the
date that the participant separates from service. Separation
from service has the same meaning as provided in the regulations
issued under Code Section 409A, which is further described
below under Executive Employment Agreements. The
EBRP provides that service credit will be given for certain
rehire situations, leaves of absence and periods in which a
participant is receiving severance pay. Moreover, when
determining the service credit to be applied, the Company may
consider the duration of the participants
break-in-service,
as applicable.
Basic
Retirement Benefits
For purposes of calculating the Basic Retirement Benefits to be
conveyed under the Companys EBRP, the offset for the
hypothetical annuity benefit payable under the Retirement Share
Plan is calculated by first determining the value of each share
credited to the participants account as of the date it was
credited, and then applying an annual rate of 12% to that value
from the date the share was credited to the account to the date
the participants EBRP benefit is scheduled to begin. The
aggregate value of all of the shares credited to the
participants Retirement Share Plan is then converted to a
straight life annuity. The resulting annuity is converted to a
lump-sum amount using the interest rate prescribed by the
Pension Benefit Guaranty Corporation for purposes of determining
the present value of a lump-sum distribution for the month in
which the participant retires, and a table based upon the 1994
Group Annuity Reserving Table (1994 GAR) (the Present
Value Calculation).
Distribution
of Benefits
The EBRP benefit is an amount based on a straight life annuity
of monthly payments over the participants lifetime
converted to a lump-sum using the above described Present Value
Calculation. Lump-sum payments are made on the first day of the
eighth month after a participant separates from service.
A participant may elect to receive his or her benefits in the
form of an actuarial equivalent annuity, or any other form that
the Companys Executive Vice President of Human Resources
may approve. Any election to change the form of the benefit must
be done in the time prescribed under Code Section 409A.
For
Separation from Service Prior to Age 62:
The following is a brief summary of the benefits that would be
conveyed to a participant in the Companys EBRP, assuming
retirement prior to age 62 and five or more years of
credited service.
42
As mentioned above, participants become vested in the EBRP
benefits after completing five years of service. A participant
who is terminated for cause will not receive any EBRP benefits.
Approved
Retirement Prior to Age 62
The EBRP provides that a participant will have an Approved
Retirement, and thus be eligible to receive a pension
benefit prior to reaching age 62, if the participant:
|
|
|
|
|
Involuntarily separates from service after age 55 and
completion of at least 15 years of service;
|
|
|
|
Separates from service after age 55, but prior to
age 62, with approval of the Compensation Committee; or
|
|
|
|
Separates from service at any other time, with approval of the
Board or as provided in the participants employment
agreement.
|
A participant who has an Approved Retirement will receive the
same EBRP benefits as if he or she had retired after attaining
age 62 (as described above), with the following adjustments:
|
|
|
|
|
The percentage of average final compensation, used in the
benefit formula, is reduced by 0.3% for each month that the
actual separation from service date precedes the date the
participant will reach age 62; and
|
|
|
|
The Basic Retirement Benefits will be calculated as of the
participants age at the time he or she separates from
service.
|
At March 31, 2008, none of the NEOs met the age and service
levels to qualify for Approved Retirement under either voluntary
or involuntary termination. Recognition of additional service
and age, either under individual employment agreements or the
CIC Policy described below, does not make any NEO, except
Mr. Hammergren, eligible for Approved Retirement.
Mr. Hammergren, according to the provisions of his
employment agreement, will be provided with an Approved
Retirement pension benefit (an Approved Retiree)
should his employment terminate for any reason other than for
cause.
Other
Separations from Service Prior to Age 62:
Vested participants who separate from service for reasons other
than for cause, but who separate prior to attaining age 62
under circumstances that do not constitute an Approved
Retirement, are also entitled to an immediate lump-sum benefit,
but the benefit is calculated differently. The EBRP provides
that a vested participant who separates from service will
receive the same EBRP benefits as if he or she had terminated
due to an Approved Retirement prior to attaining age 62;
however, the percentage of average final compensation used in
the benefit formula is multiplied by a pro rata percentage, as
described below, and calculated as the present value of a
benefit payable at age 65.
The pro rata percentage is the higher of the following two
percentages (but not greater than 100%):
|
|
|
|
|
The percentage determined by dividing the number of the
participants whole months of employment with the Company
by the number of whole months from the date that the participant
was first hired by the Company to the date that the participant
will reach age 65 and multiplying by 100; or
|
|
|
|
The percentage determined by multiplying 4.44% by the number of
the participants whole and partial years of completed
employment with the Company.
|
The present value of the benefit is calculated on the basis of
the 30-year
U.S. Treasury yield (GATT) used to determine the present
value of a lump-sum distribution under a tax-qualified defined
benefit retirement plan for the month in which the
participants separates from service, and a table based
upon the 1994 Group Annuity Reserving Table (1994 GAR) as
prescribed by the U.S. Internal Revenue Service.
2008
Nonqualified Deferred Compensation Table
The Company sponsors two nonqualified deferred compensation
plans. One plan, the Supplemental Profit-Sharing Investment
Plan II (SPSIP II), is specifically for
employees impacted by Code Section 401(a)(17), which limits
participation of highly paid employees in tax qualified 401(k)
plans. The second plan is the Deferred Compensation
43
Administration Plan III (DCAP III), which is a
voluntary nonqualified deferred compensation plan. Compensation
eligible to be deferred into either the SPSIP II or DCAP III
includes base annual salary and cash payments under the
Management Incentive Plan (MIP) and Long Term
Incentive Plan (LTIP). Amounts deferred into the
SPSIP II are credited with interest at the same rate as the
Standish Mellon Stable Value Fund, which is an investment option
generally available to all Company employees under our 401(k)
plan, or the PSIP. As described in greater detail below, amounts
deferred into the DCAP III for FY 2008 were credited with
interest at 8.0%, which is set annually by the Compensation
Committee.
Displayed in the table below are amounts credited and released
with regard to dividend equivalents. Recipients of RSUs are
entitled to dividend equivalents at the same dividend rate
applicable to the Companys common stockholders. For our
employees, dividend equivalents on the RSUs are credited
quarterly to an interest bearing cash account, and upon vesting,
are paid in cash. Interest accrues on credited dividend
equivalents at the same rate used for the Companys DCAP
III, which for calendar years 2007 and 2008 was set at 8.0% per
annum.
The following table shows the contributions, earnings and
account balances for the NEOs participating in a Company
sponsored nonqualified deferred compensation program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
|
|
|
|
|
Contributions
|
|
Contributions
|
|
Earnings
|
|
|
|
Aggregate
|
|
|
in Last
|
|
in Last
|
|
in Last
|
|
Aggregate
|
|
Balance
|
|
|
Fiscal Year
|
|
Fiscal Year
|
|
Fiscal Year
|
|
Withdrawals/
|
|
at Last Fiscal
|
Name
|
|
($)(1)(2)
|
|
($)(3)
|
|
($)(4)
|
|
Distributions
($)(5)
|
|
Year-End ($)
|
|
John H. Hammergren
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPSIP II
|
|
|
341,487
|
|
|
|
273,190
|
|
|
|
149,670
|
|
|
|
-0-
|
|
|
|
3,545,315
|
|
DCAP III
|
|
|
750,000
|
|
|
|
-0-
|
|
|
|
489,798
|
|
|
|
-0-
|
|
|
|
6,729,559
|
|
Dividend Equivalents
|
|
|
-0-
|
|
|
|
126,959
|
|
|
|
19,853
|
|
|
|
77,822
|
|
|
|
303,735
|
|
Jeffrey C. Campbell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPSIP II
|
|
|
103,350
|
|
|
|
82,680
|
|
|
|
12,750
|
|
|
|
-0-
|
|
|
|
350,354
|
|
DCAP III
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Dividend Equivalents
|
|
|
-0-
|
|
|
|
21,872
|
|
|
|
2,816
|
|
|
|
9,462
|
|
|
|
44,939
|
|
Paul C. Julian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPSIP II
|
|
|
150,964
|
|
|
|
120,771
|
|
|
|
52,051
|
|
|
|
-0-
|
|
|
|
1,257,393
|
|
DCAP III
|
|
|
-0-
|
|
|
|
85,000
|
|
|
|
328,889
|
|
|
|
-0-
|
|
|
|
4,481,912
|
|
Dividend Equivalents
|
|
|
-0-
|
|
|
|
57,179
|
|
|
|
8,276
|
|
|
|
26,334
|
|
|
|
129,376
|
|
Marc E. Owen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPSIP II
|
|
|
22,257
|
|
|
|
17,805
|
|
|
|
2,862
|
|
|
|
-0-
|
|
|
|
86,914
|
|
DCAP III
|
|
|
1,561,285
|
|
|
|
44,451
|
|
|
|
412,066
|
|
|
|
-0-
|
|
|
|
5,898,554
|
|
Dividend Equivalents
|
|
|
-0-
|
|
|
|
17,106
|
|
|
|
2,405
|
|
|
|
8,050
|
|
|
|
37,796
|
|
Pamela J. Pure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPSIP II
|
|
|
63,248
|
|
|
|
50,599
|
|
|
|
15,922
|
|
|
|
-0-
|
|
|
|
405,527
|
|
DCAP III
|
|
|
1,100,000
|
|
|
|
32,000
|
|
|
|
188,664
|
|
|
|
-0-
|
|
|
|
2,759,386
|
|
Dividend Equivalents
|
|
|
-0-
|
|
|
|
21,852
|
|
|
|
2,616
|
|
|
|
11,803
|
|
|
|
41,803
|
|
|
|
|
(1) |
|
Reflects the amounts deferred for
each individual, which is reported as compensation to such NEO
in the 2008 Summary Compensation Table above.
|
|
(2) |
|
Represents amounts deferred by the
NEOs into their SPSIP II and DCAP III accounts.
|
|
(3) |
|
Represents Company contributions to
the NEOs SPSIP II and DCAP III accounts, and amounts
credited on undelivered dividend equivalents.
|
|
(4) |
|
The SPSIP II is a successor plan to
the Companys Supplemental Profit-Sharing and Investment
Plan (SPSIP, and together with SPSIP II, the
SPSIP Plans), which was frozen December 31,
2004. The DCAP III is a successor plan to the Companys
Deferred Compensation Administration Plan II (DCAP
II, and together with DCAP III, the DCAP
Plans), which was frozen on December 31, 2004.
Amounts shown include earnings on compensation previously
deferred by NEOs into the SPSIP Plans and DCAP Plans.
|
|
(5) |
|
Represents amounts distributed in
cash to each NEO upon vesting of RSUs as dividend equivalents
and interest thereon.
|
44
Narrative
Disclosure to the 2008 Nonqualified Deferred Compensation
Table
Supplemental
Profit-Sharing Investment Plan II
The SPSIP II was adopted by the Board effective on
January 1, 2005, and is the successor plan to the
Supplemental Profit-Sharing and Investment Plan, which was
frozen effective December 31, 2004. The SPSIP II has
participation and distribution provisions intended to comply
with the regulations issued under Code Section 409A.
Participants accounts in the legacy SPSIP continue to be
credited with earnings on the same basis as accounts in the
SPSIP II.
Employees, including our NEOs, may voluntarily elect to
participate in the SPSIP II. Part of the election process
includes the employee electing a deferral percentage of 1.0% to
5.0% of pay, in whole percentages, that will apply to covered
compensation earned after the Code Section 401(a)(17) limit
is reached (currently, set at $230,000) and participation in the
PSIP (the Companys 401(k) plan) stops for the year. An
election to participate in SPSIP II is valid until the
participant informs the plan administrator that he or she wishes
participation to cease, and such an election is effective at the
beginning of the next calendar year. All of our NEOs have
elected to participate in the plan at the 5.0% level. At an
employee participation level of 5.0%, the Company contributes an
additional 4.0% of the participants pay as a matching
contribution, consistent with the terms of the PSIP (the
Company Match). Participants are always 100% vested
in both the Company Match and their own contributions to the
SPSIP II.
Participants in the Companys SPSIP Plans can elect when
distributions of their deferred amounts are to start; that is,
either at separation from service or some other designated fixed
number of years following separation from service. Participants
may also elect the number of annual distributions within a range
of one to ten. A separate distribution election can be made for
a separation from service due to death. Distributions under both
SPSIP and SPSIP II are subject to ordinary income taxes.
Accounts in SPSIP II are credited with earnings at a rate equal
to the amount earned during the same period by the Standish
Mellon Stable Value Fund investment option in the Companys
PSIP. Because earnings on SPSIP II accounts are based on a
publicly available mutual fund, credited earnings are not
considered above-market earnings by the U.S. Internal
Revenue Service, and thus are not subject to federal Social
Security and Medicare taxes in the year credited.
Unlike tax qualified retirement accounts, the SPSIP Plans are
not directly supported by Company assets. Rather, amounts paid
under these plans are paid from the Companys general
corporate funds, and each participant and his or her
beneficiaries are unsecured general creditors of the Company
with no special or prior right to any assets of the Company for
payment of any obligation.
Deferred
Compensation Administration Plan III
The DCAP III was adopted by the Board effective on
January 1, 2005, and is the successor plan to the Deferred
Compensation Administration Plan II, which was frozen effective
December 31, 2004. The DCAP III has participation and
distribution provisions intended to comply with the regulations
issued under Code Section 409A. Participants accounts
in the legacy DCAP II continue to be credited with earnings on
the same basis as accounts in the DCAP III.
Like the SPSIP II, eligible employees may voluntarily elect to
participate in the DCAP III. Participation is open to all
employees eligible for participation in the MIP with a bonus
target of at least 15%, and other highly compensated employees.
For calendar year 2007, approximately 3,500 employees were
eligible to participate in DCAP III, including all our NEOs.
Participants may elect to defer into the DCAP III up to 75% of
their annual base salary, up to 90% of their annual MIP payment,
and for those who also participate in the cash LTIP, up to 90%
of any LTIP payment. An election to participate is valid for
only one calendar year. The Compensation Committee annually sets
the crediting rate for amounts deferred, and for calendar years
2008 and 2007, the crediting rate was set at 8.0%. Since the
crediting rate is discretionary, a portion of the earnings
accumulated each year may be subject to federal Social Security
and Medicare taxes in the year credited.
Employees who elect to participate in DCAP III must also make a
distribution election at the same time they select their level
of participation. Separate elections as to timing and form of
distribution can be made for separations from
45
service due to retirement, disability or death. The participant
can also elect the time distributions start in a
particular year or some designated fixed number of years
following the separation from service. The participant may also
elect to receive distribution of deferred amounts in one to ten
annual payments. However, if the separation from service is not
due to retirement, disability or death, the entire account
balance is distributed as a lump-sum at a time such payment
would comply with Code Section 409A. Distributions under
both DCAP plans are subject to ordinary income taxes.
Earnings that are deferred into DCAP III are not considered
covered compensation for PSIP or SPSIP II purposes,
as it is defined by these plans. As such, no PSIP or SPSIP II
employee deductions are taken from compensation deferred into
DCAP III. To keep the DCAP III participant whole with respect to
the Company Match, an amount is credited to his or her DCAP III
account equal to the additional Company Match that would have
been credited to PSIP
and/or SPSIP
II had he or she not participated in DCAP III.
Similar to the SPSIP Plans, the DCAP Plans are not directly
supported by Company assets. Amounts paid under these plans are
paid from the Companys general corporate funds, and each
participant and his or her beneficiaries are unsecured general
creditors of the Company with no special or prior right to any
assets of the Company for payment of any obligation.
Executive
Employment Agreements
The Company entered into employment agreements with each of
Messrs. Hammergren and Julian and Ms. Pure that
provide for, among other things, the term of employment,
compensation and benefits payable during the term of the
agreement as well as for specified payments in case of
termination of employment. In each case, the agreement provides
that the executive will participate in all compensation and
fringe benefit programs made available to all executive
officers. Effective November 1, 2006, the Compensation
Committee approved amendments to each of the employment
agreements primarily to ensure that post-employment payments and
benefits under the agreements comply with the proposed
regulations issued under Code Section 409A, a new section
of the Code that governs certain deferred compensation and
severance arrangements. In addition, the post-employment
restrictions were strengthened.
The descriptions that follow are qualified in their entirety by
the agreements themselves, which have been included as exhibits
to the Companys Quarterly Reports on
Form 10-Q
for the periods ended September 30, 2006 and
December 31, 2006, as filed with the SEC on
November 1, 2006 and January 30, 2007.
Mr. John
H. Hammergren
The Company entered into an amended and restated Employment
Agreement (the Hammergren Agreement) with John H.
Hammergren, initially effective June 21, 1999, and as
amended on April 1, 2004 and November 1, 2006. The
Hammergren Agreement renews automatically so that the then
remaining term is always three years. The Hammergren Agreement
provides for an annual base salary of at least $1,490,000
effective May 27, 2007 and such additional incentive
compensation, if any, as may be determined by the Compensation
Committee. Any incentive compensation awarded to
Mr. Hammergren under the Companys MIP is calculated
using an individual target award of not less than 135% of his
base salary. Mr. Hammergren is entitled to receive all
other benefits generally available to other members of the
Companys management, and those benefits for which key
executives are or become eligible.
The agreement provides that if the Company terminates
Mr. Hammergren without Cause, or he terminates
for Good Reason (both as defined in the Hammergren
Agreement, and described below under Definition of
Cause and Definition of Good Reason), and he
remains in compliance with his post-employment nondisclosure and
nonsolicitation restrictions, he will be entitled to receive:
(A) payment of his final monthly base salary and incentive
compensation for the remainder of the term of the Hammergren
Agreement (the Severance Period); (B) lifetime
coverage under one of the Companys medical plans and
financial counseling program, as well as lifetime office space
and secretarial support; (C) continued participation in
DCAP III for the Severance Period; (D) continued accrual
and vesting of his rights and benefits under the Executive
Survivor Benefits Plan (ESBP) and the EBRP for the
Severance Period, with a final EBRP benefit calculated on the
basis of his receiving: (i) approved retirement, as defined
in the EBRP (Approved Retirement) commencing on the
expiration of the Hammergren Agreement,
46
and (ii) a benefit equal to 60% of his Average Final
Compensation then specified in the EBRP, increased by 1.5%
for each year of completed service from April 1, 2004
through the end of the Severance Period (subject to a maximum of
75%), without any reduction for early retirement;
(E) accelerated vesting of stock options and restricted
stock, subject to certain forfeiture and repayment provisions;
(F) continued participation in pro rata awards under the
Companys LTIP for the remainder of the Severance Period;
and (G) for purposes of DCAP III and the 1994 Stock Option
and Restricted Stock Plan (or any similar plan or arrangement),
his termination will be deemed to have occurred as if the sum of
his age and years of service to the Company is at least 65.
Continuation of his then-applicable base salary and incentive
compensation, and payment of his benefit under the EBRP, may be
delayed following his separation from service in order to comply
with Code Section 409A. Any payments delayed as a result of
such compliance will accrue interest at the rate applicable to
the Companys nonqualified deferred compensation program.
If Mr. Hammergrens employment is terminated within
six months preceding, or within two years following, a
Change-in-Control
(as defined in his employment agreement and described below
under Definition of
Change-in-Control),
he will receive a lump-sum payment in lieu of the salary and
incentive payments described in subsection A of the preceding
paragraph, and he will continue to receive all of the other
severance benefits described in the preceding paragraph. This
lump-sum payment will be equal to the greater of: (1) the
sum of the above referenced salary and incentive compensation
payments, and (2) 2.99 multiplied by his base
amount (as determined pursuant to Code Section 280G).
The
Change-in-Control
severance payment, payment of his benefit under the EBRP and his
tax gross-up
payment may be delayed following his separation from service to
comply with Code Section 409A. Any payments delayed as a
result of such compliance will accrue interest at the rate
applicable to the Companys nonqualified deferred
compensation program.
If Mr. Hammergren is prevented from carrying out his duties
and responsibilities due to disability, he would continue to
receive his then-current salary for a period of up to twelve
months. At the end of that twelve-month period,
Mr. Hammergren would be eligible to receive benefits for an
Approved Retirement under the EBRP, calculated at the rate in
effect at the time of the disability, without any reduction for
early retirement. The payment for this Approved Retirement would
be no less than the payment (the Minimum Lump-Sum
Payment) that would have been provided under
Mr. Hammergrens prior employment agreement for an
Approved Retirement under the EBRP.
If Mr. Hammergrens employment is terminated for Cause
(as defined in the Hammergren Agreement and described below
under Definition of Cause), the Companys
obligations under the Hammergren Agreement cease and terminate.
Any rights he may have under the Companys benefit plans
will be determined solely in accordance with the express terms
of those plans.
If Mr. Hammergren dies during the term of his agreement,
the Company will continue to pay his salary to his surviving
spouse or designee for a period of six months. The Company also
will pay to his spouse or designee the benefits payable under
the EBRP, calculated at the rate in effect at the time of his
death, without any reduction for early retirement, subject to
the Minimum Lump-Sum Payment requirement.
If Mr. Hammergren voluntarily terminates his employment
with the Company other than for Good Reason (as defined in the
Hammergren Agreement and described below under Definition
of Good Reason), he will be entitled to receive the
benefits set forth in clauses (B), (D)(i) and (G) above,
without any reduction to his EBRP benefit for early retirement,
and subject to the Minimum Lump-Sum Payment requirement.
If the benefits received by Mr. Hammergren under his
agreement are subject to the excise tax provision set forth in
Section 4999 of the Code, the Company will provide him with
a full
gross-up
payment to cover any excise taxes and interest imposed on
excess parachute payments as defined in
Section 280G of the Code and all income and other taxes
imposed on the
gross-up
payment (the Full
Gross-Up
Payment).
The Hammergren Agreement provides that, for a period of at least
two years following the termination of his employment with the
Company, Mr. Hammergren may not solicit or hire employees
or solicit competitive business from any person or entity that
was a customer of the Company within the two years prior to his
termination. In addition, he is forever prohibited from using or
disclosing any of the Companys Confidential Information,
as defined in the Hammergren Agreement.
47
Mr. Paul
C. Julian
The Company entered into an Amended and Restated Employment
Agreement with Paul C. Julian, effective as of November 1,
2006 (the Julian Agreement), superseding his
previous April 1, 2004 agreement. The Julian Agreement
provides that the Company will continue to employ
Mr. Julian as Executive Vice President and Group President,
or in such other executive capacities as may be specified by our
CEO, until October 31, 2009, with the term automatically
extending for one additional year commencing on November 1,
2009, and on each November 1 thereafter. The Julian Agreement
provides for an annual base salary of at least $904,000
effective May 27, 2007 and such additional incentive
compensation, if any, as may be determined by the Compensation
Committee. Any incentive compensation awarded to Mr. Julian
under the MIP shall be calculated using an individual target
award of 110% of his base salary. Mr. Julian also shall
receive all other benefits generally available to other members
of the Companys management and those benefits for which
key executives are or become eligible.
The agreement provides that if the Company terminates
Mr. Julian without Cause, or he terminates for Good Reason
(both as defined in the Julian Agreement, and described below
under Definition of Cause and Definition of
Good Reason), the Company shall: (A) continue his
then monthly base salary, reduced by any compensation he
receives from a subsequent employer, for the remainder of the
term; (B) consider him for a prorated bonus under the
Companys MIP for the fiscal year in which termination
occurs; (C) continue his medical plan benefits until the
expiration of the term; and (D) continue the accrual and
vesting of his rights, benefits and existing awards for the
remainder of the term of his agreement for purposes of the EBRP,
ESBP and the Companys equity compensation plans.
Continuation of his then-applicable base salary and incentive
compensation and payment of his benefit under the EBRP may be
delayed following his separation from service to comply with
Code Section 409A. Any payments delayed as a result of such
compliance will accrue interest at the rate applicable to the
Companys nonqualified deferred compensation program.
If Mr. Julians employment is terminated within six
months preceding, or within two years following, a
Change-in-Control
(as defined in his agreement and described below under
Definition of
Change-in-Control),
he will receive a lump-sum payment in lieu of the salary and
incentive payments described in subsections (A) and
(B) above, and he would continue to receive all of the
other severance benefits described in the preceding paragraph.
This lump-sum payment would be equal to 2.99 multiplied by his
Executive Earnings, as described below in the
Change-in-Control
Policy narrative.
If the benefits received by Mr. Julian under his agreement
are subject to the excise tax provision set forth in
Section 4999 of the Code, the Company will provide him with
a Full
Gross-Up
Payment to cover any excise taxes and interest imposed on
excess parachute payments as defined in
Section 280G of the Code. The
Change-in-Control
severance payment, payment of his benefit under the EBRP and his
tax gross-up
payment may be delayed following his separation from service to
comply with Code Section 409A. Any payments delayed as a
result of such compliance will accrue interest at the rate
applicable to the Companys nonqualified deferred
compensation program.
If Mr. Julian is prevented from carrying out his duties and
responsibilities due to disability, he would continue to receive
his then-current salary for a period of up to twelve months. If
Mr. Julians employment with the Company is terminated
by his death, the Company will continue to pay his salary to his
surviving spouse or designee for a period of six months.
If Mr. Julians employment is terminated for Cause,
the Companys obligations under his agreement cease and
terminate. Any rights he may have under the Companys
benefit plans will be determined solely in accordance with the
express terms of those plans.
The Julian Agreement provides that, for a period of at least two
years following the termination of his employment with the
Company, Mr. Julian may not solicit or hire employees, or
solicit competitive business from any person or entity that was
a customer of the Company within the two years prior to his
termination. In addition, he is forever prohibited from using or
disclosing any of the Companys Confidential Information,
as defined in the Julian Agreement.
48
Ms. Pamela
J. Pure
The Company entered into an amended and restated Employment
Agreement with Pamela J. Pure effective as of November 1,
2006 (the Pure Agreement), superseding her previous
agreement effective as of April 1, 2004. The Pure Agreement
provides that the Company will continue to employ Ms. Pure
as Executive Vice President and President McKesson Provider
Technologies, or in such other executive capacities as may be
specified by our CEO, until October 31, 2009, with the term
automatically extending for one additional year commencing on
November 1, 2009, and on each November 1 thereafter. The
Pure Agreement provides for an annual base salary of at least
$700,000 effective May 27, 2007 and such additional
incentive compensation, if any, as may be determined by the
Compensation Committee of the Board. Any incentive compensation
awarded to her under the MIP shall be calculated using an
Individual Target Award of 85% of her base salary. Ms. Pure
will also receive a mortgage allowance, and all other benefits
generally available to other members of the Companys
management and those benefits for which key executives are or
become eligible.
The agreement provides that if the Company terminates
Ms. Pure without Cause, or she terminates for Good Reason
(both as defined in the Pure Agreement and described below under
Definition of Cause and Definition of Good
Reason), the Company shall (A) continue her then
monthly base salary, reduced by any compensation she receives
from a subsequent employer, for the remainder of the term;
(B) consider her for a prorated bonus under the
Companys MIP for the fiscal year in which termination
occurs; (C) continue her medical plan benefits until the
expiration of the term; and (D) continue the accrual and
vesting of her rights, benefits and existing awards for the
remainder of the term of the Pure Agreement for purposes of the
EBRP, ESBP and the Companys equity compensation plans.
Continuation of her then-applicable base salary and incentive
compensation and payment of her benefit under the EBRP may be
delayed following her separation from service to comply with
Code Section 409A. Any payments delayed as a result of such
compliance will accrue interest at the rate applicable to the
Companys nonqualified deferred compensation program.
If Ms Pures employment is terminated within six months
preceding, or within two years following, a
Change-in-Control
(as defined in her agreement and described below under
Definition of
Change-in-Control),
she will receive a lump-sum payment in lieu of the salary and
incentive payments described in subsections (A) and
(B) above, and she would continue to receive all of the
other severance benefits described in the preceding paragraph.
This lump-sum payment would be equal to 2.99 multiplied by her
Executive Earnings, as described below in the Change-in
Control Policy narrative.
If the benefits received by Ms. Pure under her agreement
are subject to the excise tax provision set forth in
Section 4999 of the Code, the Company will provide her with
a Full
Gross-Up
Payment to cover any excise taxes and interest imposed on
excess parachute payments as defined in
Section 280G of the Code. The
Change-in-Control
severance payment, payment of her benefit under the EBRP and her
tax gross-up
payment may be delayed following her separation from service to
comply with Code Section 409A. Any payments delayed as a
result of such compliance will accrue interest at the rate
applicable to the Companys nonqualified deferred
compensation program.
If Ms. Pure is prevented from carrying out her duties and
responsibilities due to disability, she would continue to
receive her then-current salary for a period of up to twelve
months. If Ms. Pures employment with the Company is
terminated by her death, the Company will continue to pay her
salary to her surviving spouse or designee for a period of six
months.
If Ms. Pures employment is terminated for Cause, the
Companys obligations under the Pure Agreement cease and
terminate. Any rights she may have under the Companys
benefit plans will be determined solely in accordance with the
express terms of those plans.
The agreement provides that, for a period of at least two years
following the termination of her employment with the Company,
Ms. Pure may not perform services for a competitor similar
to those she provided for the Company, solicit or hire
employees, or solicit competitive business from any person or
entity that was a customer of the Company within the two years
prior to her termination. She is also obligated to not disclose
or use the Companys Trade Secret and Confidential
Information, as defined in the Pure Agreement.
49
Executive
Severance Policy
The Executive Severance Policy applies in the event an executive
officer is terminated by the Company for reasons other than for
cause, and the termination is not covered by the
Companys CIC Policy. The benefit payable to executive
officers under the Executive Severance Policy is equal to
12 months base salary, plus one months pay per
year of service, up to a maximum of 24 months. Such
benefits would be reduced or eliminated by any income the
executive officer receives from subsequent employers during the
severance payment period. Executive officers who are age 55
or older and have 15 or more years of service with the Company
at the time of such involuntary termination are granted
Approved Retirement for purposes of the EBRP and the
ESBP. In addition, vesting of stock options and lapse of
restrictions on restricted stock awards will cease as of the
date of termination, and no severance benefits will be paid to
an executive who is beyond age 62. A terminated executive
who is receiving payments under the terms of an employment
agreement he or she may have with the Company is not entitled to
receive additional payments under the Executive Severance
Policy. Continuation of his or her then-applicable base salary
benefits under the EBRP may be delayed following his or her
separation from service to comply with Code Section 409A.
Any payments delayed as a result of such compliance will accrue
interest at the rate applicable to the Companys
nonqualified deferred compensation program. Pursuant to the
Executive Severance Policy, the Company will seek stockholder
approval for any future severance agreements with senior
executive officers that provide specified benefits in an amount
exceeding 2.99 times the sum of the executives base salary
and target bonus.
Change-in-Control
Policy
The Board approved the
Change-in-Control
Policy for Selected Executive Employees (the CIC
Policy), effective November 1, 2006. The CIC Policy
provides severance payments to certain employees of the Company
(including executive officers) upon separation from service,
without Cause (as defined in the policy) or for
Good Reason (as defined in the policy), as the
result of a
change-in-control
of the Company. The CIC Policy replaces any individual
agreements between the Company and its officers with respect to
change-in-control
benefits (except with respect to Mr. Hammergren,
Mr. Julian and Ms. Pure, each of whom has a written
employment agreement with the Company as described above) and
expands eligibility for benefits to a larger employee group.
Participants in the CIC Policy are designated by the
Compensation Committee to participate in one of three tiers.
Executive officers, including our NEOs, are considered tier one
participants and are entitled to a cash benefit equal to 2.99
times the Executives Earnings, defined by the policy as:
(i) annual base salary, and (ii) the greater of
(A) the participants target bonus under the
Companys MIP or (B) the average of the
participants MIP award for the latest three years for
which the participant was eligible to receive a bonus (or such
lesser period of time during which the participant was eligible
to receive a bonus). CIC Policy participants are eligible for a
Full
Gross-Up
Payment if the
change-in-control
benefits paid under the policy are subject to an excise tax
under Code Section 4999. In addition, if a tier one
participant is covered by the EBRP, his or her straight life
annuity benefits under that plan will be calculated by adding
three additional years of age and three additional years of
service to the participants actual age and service. Tier
one participants are eligible for three years of continued
coverage under the applicable health and life insurance plans.
The CIC Policy severance payments may be delayed following a
participants separation from service to comply with Code
Section 409A.
Definition
of a
Change-in-Control
For purposes of the Companys executive employment
agreements and CIC Policy, a
Change-in-Control
is generally defined as the occurrence of any change in
ownership of the Company, change in effective control of the
Company, or change in the ownership of a substantial portion of
the assets of the Company, as defined in Code Section 409A,
the regulations thereunder, and any other published interpretive
authority, as issued or amended from time to time.
For purposes of Mr. Hammergrens Agreement, a
Change-in-Control
of the Company is deemed to have occurred if any of the events
set forth in any one of the following subparagraphs shall occur:
(A) during any period of not more than twelve consecutive
months, any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act) excluding the
Company or any of its affiliates, a trustee or any fiduciary
holding securities under an employee benefit plan of the Company
or any of its affiliates, an underwriter temporarily holding
securities pursuant to an offering of such securities, or a
corporation owned,
50
directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the
Company), is or becomes the beneficial owner (as
defined in Rule 13(d)(3) under the Exchange Act), directly
or indirectly, of securities of the Company representing 35% or
more of the combined voting power of the Companys then
outstanding securities; (B) during any period of not more
than twelve consecutive months, individuals who at the beginning
of such period constitute the Board and any new director (other
than a director designated by a Person who has entered into an
agreement with the Company to effect a transaction described in
clause (A), (C) or (D) of this paragraph) whose
election by the Board or nomination for election by the
Companys stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof;
(C) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (x) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee
benefit plan of the Company, at least 50% of the combined voting
power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation, or (y) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person acquires more than 50% of the
combined voting power of the Companys then outstanding
securities; or (D) the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Companys assets.
Notwithstanding the foregoing, under the terms of
Mr. Hammergrens Agreement, no
Change-in-Control
is deemed to have occurred if there is consummated any
transaction or series of integrated transactions immediately
following which, in the judgment of the Compensation Committee,
the holders of the Companys common stock immediately prior
to such transaction or series of transactions continue to have
the same proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately prior
to such transaction or series of transactions.
Definition
of Good Reason
Each of Messrs. Hammergren and Julian and Ms. Pure
have Good Reason to resign if any of the following actions are
taken without their express written consent: (A) any
material change by the Company in the executive officers
functions, duties or responsibilities, if that change would
cause their position with the Company to become of less dignity,
responsibility, or importance; (B) any reduction in the
executive officers base salary, other than one in
conjunction with an across-the-board reduction for all executive
employees of the Company; (C) any material failure by the
Company to comply with any of the provisions of the
executives employment agreement; (D) relocation to an
office more than 25 miles from the office at which the
executive officer is currently based; or (E) in the event
of a
Change-in-Control,
any change in the level of the officer within the Company to
whom the executive officer reports as such level existed
immediately prior to the
Change-in-Control.
Under the Hammergren Agreement, the following additional actions
constitute Good Reason: (i) termination of his obligation
and right to report directly to the Board, but not if he ceases
to serve as Chairman, unless such action is taken in conjunction
with a
Change-in-Control;
(ii) if the Board removes him as Chairman at or after a
Change-in-Control
(or prior to a
Change-in-Control
if at the request of any third party participating in or causing
the
Change-in-Control),
unless such removal is required by then applicable law;
(iii) a change in the majority of the members of the Board
as it was construed immediately prior to the
Change-in-Control;
(iv) failure by the Company to obtain the express
assumption of his agreement by any successor or assign of the
Company; or (v) cancellation of the automatic renewal
provision in his agreement. Any incapacity he may develop due to
physical or mental illness will not affect his ability to resign
for Good Reason.
Definition
of Cause
Cause is expressly defined in each of the
executive employment agreements, as described below, and also in
the Companys benefit plans and programs. Generally, under
the Companys plans and programs, Cause means
the willful misconduct, and in some cases the negligent
misconduct, on the part of the executive, which is injurious to
the Company. The specific consequences of such behavior are
reflected in the agreement or plan documents.
51
Under the terms of his agreement, the Company will have Cause to
terminate Mr. Hammergren if he: (i) willfully engages
in misconduct that is demonstrably and materially injurious to
the Company and its subsidiaries taken as a whole;
(ii) engages in willful and material dishonesty involving
the Companys assets, or those of any of its affiliated
companies; or (iii) materially fails to comply with any of
the provisions of his agreement. The Company must provide him
with formal written notice, give him a fifteen day opportunity
to cure his conduct, and have his termination confirmed by
arbitration before it takes effect.
Similarly, Mr. Julian and Ms. Pure may also be
terminated for Cause. Under their respective agreements,
Cause means: (i) the executive officers
willful misconduct, habitual neglect or dishonesty with respect
to matters involving the Company or its subsidiaries which is
materially and demonstrably injurious to the Company; or
(ii) a material breach by the executive officer of one or
more terms of his or her agreement. The Company must provide
each of them with formal written notice, give him or her a
fifteen day opportunity to cure the conduct giving rise to the
termination, and have the termination confirmed by arbitration
before it takes effect.
Potential
Payments upon Termination or
Change-in-Control
The narrative and tables that follow describe potential payments
and benefits to our NEOs or their respective beneficiaries under
existing employment agreements, plans or arrangements, whether
written or unwritten, for various scenarios including
change-in-control
and/or
termination of employment. The amounts shown assume a
termination effective as of March 31, 2008, as well as a
closing price of the Companys common stock on
March 31, 2008 of $52.37 per share, and thus include
amounts earned through such time and are estimates of amounts
that would be paid out to the NEOs upon their separation or
termination. Unless otherwise noted, all cash benefits are
stated as the total present value of the obligation. In
circumstances where the Companys obligation is
service-based (i.e., provision for future office and
secretarial support), the present discounted value of the
obligation is included in the following tables. However, these
amounts are estimates only, as the actual obligation can be
determined only at the time of the NEOs separation from
the Company.
The following tabular presentation has been keyed to six general
events upon which an NEO or his or her beneficiary would be
entitled to a benefit: (i) death, (ii) disability,
(iii) termination for cause, (iv) voluntary
termination, (v) involuntary termination and
(vi) involuntary termination following a
change-in-control.
Due to the nature of benefits delivered, for both death and
disability, the narrative and tabular disclosures encompass all
benefits that may be conveyed to each NEO. Starting with
involuntary termination, to avoid repetition, the narrative and
tabular disclosure is stated as the incremental value that may
be conveyed to each NEO.
The amounts displayed below in the column entitled
Executive Pension (EBRP) are different from those
presented in the column entitled Present Value of
Accumulated Benefits in the 2008 Pension Benefits Table
above. As required, the values presented below assume the NEO
terminated employment on March 31, 2008. Whereas, the
amounts shown above under the column labeled Present Value
of Accumulated Benefits is the amount of a payment at a
future date the retirement date
discounted to the pension benefit measurement date,
December 31, 2007. The payment amount stated above is
determined using current service, actual plan compensation
through FY 2008 (FY 2008 MIP cash bonus is estimated to be equal
to target amount), and a lump-sum interest rate that is
consistent with our presentation under the 2008 Pension Benefits
Table above. The payment amount stated in the tables below use
current service, actual plan compensation through FY 2008 (FY
2008 MIP cash bonus was estimated to be equal to 130% of the
target amount), the NEOs age on March 31, 2008 and
the lump-sum conversion rate prescribed in the EBRP for a
termination on March 31, 2008.
As of March 31, 2008, under the terms of his employment
agreement, Mr. Hammergren is entitled to an unreduced
pension benefit as an Approved Retiree under the
EBRP for any termination other than for Cause. For purposes of
the tables that follow, Mr. Hammergrens lump-sum EBRP
benefit has been computed as of March 31, 2008 using a 3.0%
interest rate, as prescribed by the Pension Benefit Guaranty
Corporation for purposes of determining the present value of a
lump-sum distribution on plan termination. The prescribed
interest rate of 4.52% (as of February 2008) was used to
determine the lump-sum EBRP benefit for all other NEOs as of
March 31, 2008, which is the interest rate applicable to
those not yet retirement eligible, but with vested benefits
under the EBRP. The determination of these benefits is more
fully explained in the narrative following the 2008 Pension
Benefit Table above. For Mr. Hammergren, valuing his
pension as an immediate benefit payable March 31, 2008 at
age 49, rather
52
than a future benefit discounted to a present value, increased
the benefit value by approximately $27,000,000. Moving the
lump-sum interest rate from the 4.0% actuarial assumption used
in the 2008 Pension Benefits Table to the 3.0% prescribed in the
EBRP for a March 31 termination, further increased his benefit
value by approximately $11,000,000. All of these values are
estimates affected by subsequent events, such as changes in
actuarial assumptions, changes to the applicable Pension Benefit
Guaranty Corporation and the
30-year
U.S. Treasury (GATT) interest rates and changes in
compensation used to calculate the NEOs pension benefits.
All of the Companys executive officers, including the
NEOs, participate in the Companys Executive Survivor
Benefit Plan (ESBP). The ESBP provides a
supplemental cash death benefit, on a tax neutral basis, to the
executives named beneficiary. Under the terms of the ESBP,
each NEOs beneficiary is entitled to a cash death benefit
of 300% of the executives annual base salary, up to a
maximum of $2,000,000, should he or she die while an active
employee.
Under the ESBP, participants are entitled to post-employment
coverage if they are granted Approved Retirement
under the EBRP. However, the benefit to be conveyed under the
ESBP is 150% of the executive officers final base annual
salary up to a maximum of $1,000,000. Under the terms of his
employment agreement, Mr. Hammergren is entitled to
Approved Retirement should he terminate for any reason other
than cause.
Benefits
and Payments upon Death
In the event of death or disability, all participants in the
plans below, including the NEOs, receive acceleration of the
vesting of outstanding equity awards under the Companys
stockholder approved equity plans, vesting of a pro rata portion
of their MIP award, and vesting of a prorated portion of the
LTIP award for any performance period that is at least 50%
completed, with payment made when all other payments for that
performance period are made to other participants. Under such a
scenario, the NEOs beneficiaries have three years to
exercise outstanding stock options, or if earlier, until the
expiration date.
The table below reflects the benefits payable in the event of
death of our NEOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
Salary
|
|
|
Value of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
Death
|
|
|
Executive
|
|
|
|
Continuation
|
|
|
Option
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Pension
|
|
|
|
to Spouse
|
|
|
Acceleration
|
|
|
Acceleration
|
|
|
MIP
|
|
|
LTIP
|
|
|
(ESBP)
|
|
|
(EBRP)
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
($)(6)
|
|
|
John H. Hammergren
|
|
|
745,000
|
|
|
|
940,500
|
|
|
|
27,704,725
|
|
|
|
3,862,000
|
|
|
|
9,900,000
|
|
|
|
3,430,000
|
|
|
|
75,647,649
|
|
Jeffrey C. Campbell
|
|
|
|
|
|
|
207,900
|
|
|
|
4,828,671
|
|
|
|
1,142,000
|
|
|
|
1,900,000
|
|
|
|
3,430,000
|
|
|
|
3,656,057
|
|
Paul C. Julian
|
|
|
452,000
|
|
|
|
468,600
|
|
|
|
12,548,638
|
|
|
|
1,909,000
|
|
|
|
4,066,667
|
|
|
|
3,430,000
|
|
|
|
9,345,800
|
|
Marc E. Owen
|
|
|
|
|
|
|
138,600
|
|
|
|
3,798,344
|
|
|
|
850,000
|
|
|
|
866,667
|
|
|
|
3,035,550
|
|
|
|
3,259,161
|
|
Pamela J. Pure
|
|
|
350,000
|
|
|
|
181,500
|
|
|
|
4,780,438
|
|
|
|
1,142,000
|
|
|
|
1,266,667
|
|
|
|
3,430,000
|
|
|
|
4,056,920
|
|
|
|
|
(1) |
|
Amounts for each NEO represent six
months of base salary as of March 31, 2008, payable in
accordance with the terms of the NEOs employment agreement.
|
|
(2) |
|
Amounts represent the value of
unvested stock option and RSU awards as of March 31, 2008
for which the vesting would be accelerated. The value entered
for stock option awards is the difference between the option
exercise price and $52.37, the closing price of the
Companys common stock on March 31, 2008 as reported
by the NYSE. In such circumstances, under the terms of the
Companys 2005 Stock Plan, beneficiaries have three years
to exercise the stock option awards. For more information on the
number of unvested equity awards held by NEOs, refer to the
2008 Outstanding Equity Awards Table above.
|
|
(3) |
|
For presentation purposes only, the
amounts shown represent actual MIP award payments for FY 2008,
as reported in the 2008 Summary Compensation Table
above. However, in the event of death, each NEO would be
entitled to only a pro rata portion of his or her MIP award.
|
|
(4) |
|
For presentation purposes only, the
amounts represent the actual LTIP award payout for FY
2006 FY 2008, as reported in the 2008 Summary
Compensation Table above, as well as a prorated (66.7%)
portion of the target award for the FY 2007 FY 2009
LTIP performance period.
|
|
(5) |
|
Represents 300% of the NEOs
annual base salary and an estimated tax
gross-up to
reflect the tax neutral basis of the benefit to be conveyed.
|
53
|
|
|
(6) |
|
The EBRP provides a death benefit
for active participants that assume the participant was granted
Approved Retirement on the day before death and had elected to
receive benefits in the actuarially reduced form of a joint and
100% survivor annuity. The amounts shown represent the present
value of a lump-sum pension benefit payable to the surviving
spouse assuming the age of the spouse to be the same age as the
NEO.
|
Benefits
and Payments upon Termination Due to Disability
The table below reflects benefits payable to our NEOs upon
termination due to their permanent and total disability, and for
purposes of this presentation, is considered to be a
voluntary termination under the Executive Severance
Policy for Messrs. Campbell and Owen and the employment
agreements for Messrs. Hammergren and Julian and
Ms. Pure. The presentation further assumes that
March 31, 2008 was the
12-month
anniversary of the first day the NEO was unable to perform
services for the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
Death
|
|
|
Executive
|
|
|
|
|
|
|
Office and
|
|
|
Financial
|
|
|
Option
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Pension
|
|
|
|
Medical
|
|
|
Secretary
|
|
|
Counseling
|
|
|
Acceleration
|
|
|
Acceleration
|
|
|
MIP
|
|
|
LTIP
|
|
|
(ESBP)
|
|
|
(EBRP)
|
|
Name
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
($)(6)
|
|
|
John H. Hammergren
|
|
|
316,723
|
|
|
|
2,869,237
|
|
|
|
269,329
|
|
|
|
940,500
|
|
|
|
27,704,725
|
|
|
|
3,862,000
|
|
|
|
9,900,000
|
|
|
|
1,715,000
|
|
|
|
84,624,121
|
|
Jeffrey C. Campbell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207,900
|
|
|
|
4,828,671
|
|
|
|
1,142,000
|
|
|
|
1,900,000
|
|
|
|
|
|
|
|
|
|
Paul C. Julian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468,600
|
|
|
|
12,548,638
|
|
|
|
1,909,000
|
|
|
|
4,066,667
|
|
|
|
|
|
|
|
2,743,626
|
|
Marc E. Owen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,600
|
|
|
|
3,798,344
|
|
|
|
850,000
|
|
|
|
866,667
|
|
|
|
|
|
|
|
539,390
|
|
Pamela J. Pure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,500
|
|
|
|
4,780,438
|
|
|
|
1,142,000
|
|
|
|
1,266,667
|
|
|
|
|
|
|
|
739,483
|
|
|
|
|
(1) |
|
Pursuant to his employment
agreement, Mr. Hammergren will be provided post-employment
medical coverage, an office and secretary and financial
counseling during his lifetime. To determine the present value
of these benefits, the following assumptions were used:
|
|
|
|
|
|
Medical: a monthly full family remittable rate
of $1,698, less employee contributions of $588; a future value
discount rate of 6.18%; a health care trend of 8.5%, grading
down 0.5% per year to an ultimate trend rate of 5.0%; and the
RP2000 Healthy Annuitants Mortality Table projected with scale
AA to 2015.
|
|
|
|
Office and Secretary, Financial Counseling: an
annual cost of $134,051 and $12,583 for the office and secretary
and financial counseling, respectively; a 5.0% trend rate for
cost appreciation and a future value discount rate of 5.78%; a
utilization rate of 100% to age 67, decreasing 5.0% per
year to age 85 and then 1.0% per year to age 90; and
the RP2000 Healthy Annuitants Mortality Table projected with
scale AA to 2015.
|
|
|
|
(2) |
|
Amounts represent the value of
unvested stock option and RSU awards as of March 31, 2008
for which the vesting was accelerated. The value entered for
stock option awards is the difference between the option
exercise price and $52.37, the closing price of the
Companys common stock on March 31, 2008 as reported
by the NYSE. In such circumstances, under the terms of the
Companys 2005 Stock Plan, beneficiaries have three years
to exercise the stock option awards. For more information on the
amount of unvested securities held by NEOs, refer to the
2008 Outstanding Equity Awards Table above.
|
|
(3) |
|
For presentation purposes only, the
amounts shown represent actual MIP award payments for FY 2008,
as reported in the 2008 Summary Compensation Table
above. However, in the event of death, each NEO would be
entitled to only a pro rata portion of his or her MIP award.
|
|
(4) |
|
For presentation purposes only, the
amounts represent the actual LTIP award payout for FY
2006 FY 2008, as reported in the 2008 Summary
Compensation Table above, as well as a prorated (66.7%)
portion of the target award for the FY 2007 FY 2009
LTIP performance period.
|
|
(5) |
|
As an Approved Retiree,
Mr. Hammergren is eligible for a post-employment benefit
under the ESBP of $1,000,000 on a tax neutral basis.
|
|
(6) |
|
In accordance with his employment
agreement, Mr. Hammergren is an Approved Retiree under the
EBRP. Messrs. Julian and Owen and Ms. Pure have a
vested EBRP benefit, and therefore are entitled to a vested
pension upon termination.
|
Termination
for Cause
If an NEO is terminated for cause, as it is described above
under Definition of Cause and as defined in the
Companys contracts, plans and policies, all obligations or
commitments to the employee are void. Under such circumstances,
all outstanding equity grants, including vested stock option
awards, are cancelled. Any benefits
54
under the MIP and LTIP are voided. Any benefits under the EBRP,
a plan for executive officers only, are voided. However,
payments required by employment law such as accrued but unpaid
salary and paid time off will be made.
Benefits
and Payments upon Voluntary Termination
If an NEO terminates voluntarily, all unvested equity is
cancelled and participation in MIP and any LTIP performance
periods will be cancelled
and/or
prorated depending on the employees age plus service.
Employees whose age plus service exceeds 65 (65
points) at time of termination, are entitled to a prorated
LTIP award for any performance period that is at least 50%
completed at the time of termination. Furthermore, the 2005
Stock Plan provides that such employees will have three years to
exercise vested stock option awards or the term of the option,
whichever is sooner, rather then the typical 90 days. None
of our NEOs had 65 points on March 31, 2008; however,
pursuant to his employment agreement, Mr. Hammergren will
be deemed to have 65 points for the purposes of the 2005 Stock
Plan and the DCAP Plans, but not the LTIP.
As in the case of termination due to disability, and as more
fully described under the heading Executive Employment
Agreements and the narrative accompanying the 2008 Pension
Benefits Table, in the event of a voluntary termination
Mr. Hammergren is entitled to Approved Retirement under the
EBRP. Specifically, he is entitled to a lump-sum payment based
on the conversion of an immediate unreduced pension reflecting
his age, years of service and compensation history. Approved
Retirement status also extends the ESBP coverage into retirement
at a level of 150% of final salary, up to a maximum of
$1,000,000, on a tax neutral basis. Finally, under the terms of
his employment agreement, for the remainder of his lifetime
Mr. Hammergren is entitled to continued coverage under one
of the Companys medical plans, an office and secretary and
financial counseling.
The table below reflects the benefits and payments due in the
event of a voluntary termination by our NEOs effective as of
March 31, 2008, and for purposes of the calculations, uses
the same assumptions as those used in the event of the
disability of our NEOs, as presented above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Death
|
|
|
Executive
|
|
|
|
|
|
|
Office and
|
|
|
Financial
|
|
|
Benefit
|
|
|
Pension
|
|
|
|
Medical
|
|
|
Secretary
|
|
|
Counseling
|
|
|
(ESBP)
|
|
|
(EBRP)
|
|
Name
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
John H. Hammergren
|
|
|
316,723
|
|
|
|
2,869,237
|
|
|
|
269,329
|
|
|
|
1,715,000
|
|
|
|
84,624,121
|
|
Jeffrey C. Campbell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul C. Julian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,743,626
|
|
Marc E. Owen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
539,390
|
|
Pamela J. Pure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,483
|
|
|
|
|
(1) |
|
Pursuant to his employment
agreement, Mr. Hammergren will be provided post-employment
medical coverage, an office and secretary and financial
counseling during his lifetime. To determine the present value
of these benefits, the following assumptions were used:
|
|
|
|
|
|
Medical: a monthly full family remittable rate
of $1,698, less employee contributions of $588; a future value
discount rate of 6.18%; a health care trend of 8.5%, grading
down 0.5% per year to an ultimate trend rate of 5.0%; and the
RP2000 Healthy Annuitants Mortality Table projected with scale
AA to 2015.
|
|
|
|
Office and Secretary, Financial Counseling: an
annual cost of $134,051 and $12,583 for the office and secretary
and financial counseling, respectively; a 5.0% trend rate for
cost appreciation and a future value discount rate of 5.78%; a
utilization rate of 100% to age 67, decreasing 5.0% per
year to age 85 and then 1.0% per year to age 90; and
the RP2000 Healthy Annuitants Mortality Table projected with
scale AA to 2015.
|
|
|
|
(2) |
|
As an Approved Retiree,
Mr. Hammergren is eligible for a post-employment benefit
under the ESBP of $1,000,000 on a tax neutral basis.
|
|
(3) |
|
In accordance with his employment
agreement, Mr. Hammergren is an Approved Retiree under the
EBRP. Messrs. Julian and Owen and Ms. Pure have a
vested EBRP benefit, and therefore are entitled to a vested
pension upon termination.
|
55
Incremental
Benefits and Payments upon Involuntary Termination
Under the terms of their respective employment agreements, which
are described above under Executive Employment
Agreements, Messrs. Hammergren and Julian and
Ms. Pure are entitled to severance benefits upon
termination without cause, or if he or she terminates for good
reason. Specifically, upon such termination,
Mr. Hammergrens agreement provides for accelerated
vesting of all outstanding equity grants, and he continues to be
considered an active employee for the purposes of the DCAP III,
the ESBP and outstanding LTIP performance periods.
Ms. Pures and Mr. Julians agreements
provide for continued vesting of all outstanding equity grants
for the remainder of the term of their agreements. Severance
benefits for all other executive officers, including the other
NEOs, are provided under the Companys: (i) Executive
Severance Policy, amended and restated as of January 1,
2005; and
(ii) Change-in-Control
Policy for Selected Executive Employees, adopted as of
November 1, 2006.
The Executive Severance Policy covers employees nominated by
management and approved by the Compensation Committee. At this
time, the Executive Severance Policy applies to the five
executive officers without individual employment agreements. The
Change-in-Control
Policy for Selected Executive Employees (the CIC
Policy) covers employees nominated by management and
approved by the Compensation Committee. At this time, the CIC
Policy applies to the five executive officers without individual
employment agreements, and 158 other senior managers. Provisions
of the Executive Severance Policy and CIC Policy are described
above in the section entitled Executive Employment
Agreements.
The 2005 Stock Plan also provides that upon termination in
conjunction with a
change-in-control,
the vesting date of all outstanding unvested equity awards will
be accelerated. Moreover, the LTIP provides that upon
termination in conjunction with a
change-in-control,
an immediate payment will be made reflecting outstanding target
awards and performance, versus performance measures, through the
last completed fiscal year.
In addition to those amounts displayed above under voluntary
termination, the table below reflects the incremental
compensation and benefits for each NEO had the individual been
involuntarily terminated, not for cause, on March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
Salary
|
|
|
|
|
|
Office
|
|
|
|
|
|
Value of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
Death
|
|
|
Executive
|
|
|
|
Continuation/
|
|
|
|
|
|
and
|
|
|
Financial
|
|
|
Option
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Pension
|
|
|
|
Severance
|
|
|
Medical
|
|
|
Secretary
|
|
|
Counseling
|
|
|
Acceleration
|
|
|
Acceleration
|
|
|
MIP
|
|
|
LTIP
|
|
|
(ESBP)
|
|
|
(EBRP)
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
|
($)
|
|
|
($)(3)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
($)
|
|
|
($)(6)
|
|
|
John H. Hammergren
|
|
|
4,470,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
940,500
|
|
|
|
27,704,725
|
|
|
|
9,896,500
|
|
|
|
10,800,000
|
|
|
|
-0-
|
|
|
|
905,698
|
|
Jeffrey C. Campbell
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul C. Julian
|
|
|
2,260,000
|
|
|
|
33,293
|
|
|
|
|
|
|
|
|
|
|
|
468,600
|
|
|
|
12,548,638
|
|
|
|
1,909,000
|
|
|
|
|
|
|
|
|
|
|
|
1,263,290
|
|
Marc E. Owen
|
|
|
885,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
Pamela J. Pure
|
|
|
1,750,000
|
|
|
|
33,293
|
|
|
|
|
|
|
|
|
|
|
|
181,500
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4,780,438
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1,142,000
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468,164
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(1) |
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Represents for
Messrs. Hammergren and Julian and Ms. Pure, salary
continuation pursuant to their respective employment agreements,
and for Messrs. Campbell and Owen, amounts payable as
severance under the Executive Severance Policy.
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(2) |
|
For Mr. Julian and
Ms. Pure, pursuant to their respective employment
agreements, amounts shown represent the monthly remittable rate
for post-employment medical coverage under the Companys
medical plan for thirty months, which aligns to the remaining
terms of their respective employment agreements.
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(3) |
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Pursuant to
Mr. Hammergrens employment agreement, amounts shown
represent the value of unvested stock option and RSU awards as
of March 31, 2008 for which the vesting date would be
accelerated. Under the terms of the Companys 2005 Stock
Plan, Mr. Hammergren would have three years to exercise his
vested stock option awards. Pursuant to Mr. Julians
and Ms. Pures employment agreements, they are
entitled to continued vesting of their stock option and RSU
awards during the remaining terms of their respective employment
agreements, and amounts shown represent those grants that will
vest during this period. The value entered for stock option
awards is the difference between the option exercise price and
$52.37, the closing price of the Companys common stock on
March 31, 2008 as reported by the NYSE. For more
information on the amount of unvested securities held by NEOs,
refer to the 2008 Outstanding Equity Awards Table
above.
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(4) |
|
For Mr. Hammergren, per his
employment agreement, the amount shown represents the FY 2008
MIP as paid plus three years of his FY 2008 MIP paid at target.
For Mr. Julian and Ms. Pure, in accordance with their
employment agreements, the amounts shown represent only the FY
2008 MIP as paid.
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(5) |
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Under his employment agreement,
Mr. Hammergren is eligible for continued participation in
the LTIP. For presentation purposes only, the amounts shown
represent the actual LTIP award payout for FY 2006-FY 2008, as
reported in the 2008
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56
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Summary Compensation Table above,
as well as a prorated (66.7%) portion of the target award for
the FY 2007 FY 2009 LTIP performance period and
(33.3%) of the target award for the FY 2008 FY 2010
LTIP performance period.
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(6) |
|
In accordance with his employment
agreement, Mr. Hammergren is an Approved Retiree under the
EBRP. Messrs. Julian and Owen and Ms. Pure have a
vested EBRP benefit, and therefore are entitled to a vested
pension upon termination. For Messrs. Hammergren and Julian
and Ms. Pure, amounts are included for their additional
service for the remaining terms of their respective employment
agreements.
|
Incremental
Benefits and Payments upon Involuntary Termination in
Conjunction with a
Change-in-Control
In addition to those amounts displayed above under voluntary and
involuntary termination, the table below reflects the
incremental compensation and benefits had the Companys
NEOs been involuntarily terminated in conjunction with a
change-in-control,
as described above:
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Cash
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Value of
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Value of
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Death
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Executive
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Office and
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Financial
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Option
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Stock
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Benefit
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Pension
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Gross-up
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Severance
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Medical
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Secretary
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Counseling
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Acceleration
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Acceleration
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MIP
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LTIP
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(ESBP)
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(EBRP)
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Name
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($)(1)
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($)(1)
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($)(2)
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($)
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($)
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($)(3)
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($)(3)
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($)(1)(4)
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($)(5)
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($)
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($)(6)
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John H. Hammergren
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39,390,703
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69,434,847
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-0-
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-0-
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-0-
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-0-
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-0-
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(6,034,500
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)
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2,700,000
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-0-
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4,869,529
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Jeffrey C. Campbell
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4,332,167
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39,951
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207,900
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4,828,671
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1,142,000
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2,750,000
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737,347
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Paul C. Julian
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5,112,343
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6,658
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-0-
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-0-
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5,900,000
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210,597
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Marc E. Owen
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2,830,601
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3,061,800
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39,951
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138,600
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3,798,344
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850,000
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1,400,000
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283,233
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Pamela J. Pure
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3,482,500
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6,658
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-0-
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-0-
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2,125,000
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49,340
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(1) |
|
Pursuant to his employment
agreement, Mr. Hammergren is entitled to a severance
benefit in lieu of salary and MIP continuation, and the amount
shown represents the added incremental amount that he would
receive in salary continuation. These amounts assume there is no
delay in making payments to comply with Code Section 409A.
For the other NEOs, amounts shown represent 2.99 times base
salary and the greater of their target MIP, and the average
actual MIP payments over the last three fiscal years pursuant to
the CIC Policy and/or their respective employment agreements.
These amounts are incremental to the amounts received under the
Executive Severance Policy, or pursuant to employment agreements
in the event of an involuntary termination, not for cause.
Amounts to be distributed as severance are subject to a
gross-up for
tax purposes.
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(2) |
|
Amounts shown for
Messrs. Campbell and Owen represent the monthly remittable
rate for post-employment medical coverage under the
Companys medical plan for three years pursuant to that
plan, and for Mr. Julian and Ms. Pure, incremental
amounts in addition to those reflected above in the event of an
involuntary termination, not for cause.
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(3) |
|
Messrs. Campbell, Julian and
Owen and Ms. Pure are entitled to accelerated vesting of
outstanding stock option, restricted stock and RSU awards
pursuant to the 2005 Stock Plan. For Mr. Julian and
Ms. Pure, the table reflects the vesting of stock option
awards not otherwise vested due to involuntary termination, not
for cause. The value entered for stock option awards is the
difference between the option exercise price and $52.37, the
closing price of the Companys common stock on
March 31, 2008 as reported by the NYSE.
|
|
(4) |
|
For Mr. Hammergren, the amount
shown represents a reduction from the amount that would be
payable in the event of an involuntary termination, not for
cause, because the amount shown in this table under
Severance, as described in footnote (1), is in lieu
of a MIP payment as well as salary. Messrs. Campbell and
Owen are eligible for MIP payments at target.
|
|
(5) |
|
In the event of a
change-in-control
the LTIP provides for an immediate payment reflecting
outstanding target awards and performance, versus performance
measures, through the last completed fiscal year. For
Mr. Hammergren, this represents the increase over his
prorated LTIP payment shown in the event of an involuntary
termination, not for cause, and for the other NEOs, amounts
represent the LTIP payment at target.
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|
(6) |
|
Under the EBRP, in the event of a
change-in-control,
the NEOs are credited with an additional three years of service
and the amounts are to be disbursed immediately in a lump-sum
payment.
|
57
Certain
Relationships and Related Transactions
The Company and its subsidiaries may have transactions in the
ordinary course of business with unaffiliated companies of which
certain of the Companys directors are directors
and/or
executive officers. The Company does not consider the amounts
involved in such transactions to be material in relation to its
businesses, the businesses of such other companies or the
interests of the directors involved. In addition, the Company
believes that such transactions are on the same terms generally
offered by such other companies to other entities in comparable
transactions. The Company anticipates that similar transactions
may occur in FY 2009. In addition, the
brother-in-law
of Mr. Hammergren is employed in the Companys
Distribution Solutions segment and received approximately
$143,786 in salary and bonus during FY 2008. Such compensation
was established by the Company in accordance with its employment
and compensation practices applicable to employees with
equivalent qualifications and responsibilities and holding
similar positions. The Company believes that any such
relationships and transactions described herein were on terms
that were reasonable and in the best interests of the Company.
Indebtedness
of Executive Officers
As of March 31, 2008, Mr. Paul E. Kirincic, our
Executive Vice President, Human Resources, was indebted to the
Company in the amount of $500,000. The loan reflects the balance
owed on a secured housing loan provided to Mr. Kirincic
prior to the adoption of the Sarbanes-Oxley Act of 2002, which
prohibits loans to executive officers after its enactment. The
loan provided to Mr. Kirincic is without interest unless
and until he fails to pay any amount under the loans when due
and thereafter at a market rate.
58
ADDITIONAL
CORPORATE GOVERNANCE MATTERS
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), requires certain
persons, including the Companys directors and executive
officers, to file reports of ownership and changes in ownership
with the SEC. Based on the Companys review of the
reporting forms received by it, the Company believes that all
such filing requirements were satisfied for FY 2008.
Solicitation
of Proxies
The Company is paying the cost of preparing, printing and
mailing these proxy materials. We will reimburse banks,
brokerage firms and others for their reasonable expenses in
forwarding proxy materials to beneficial owners and obtaining
their instructions. A few officers and employees of the Company
may also participate in the solicitation without additional
compensation.
Other
Matters
In addition to voting choices specifically marked, and unless
otherwise indicated by the stockholder, the proxy card confers
discretionary authority on the named proxy holders to vote on
any matter that properly comes before the Meeting which is not
described in these proxy materials. At the time this proxy
statement went to press, the Company knew of no other matters
which might be presented for stockholder action at the Meeting.
Compliance
with Corporate Governance Listing Standards
The Company submitted an unqualified certification to the NYSE
in calendar year 2007 regarding the Companys compliance
with the NYSE corporate governance listing standards.
Stockholder
Proposals for the 2009 Annual Meeting
To be eligible for inclusion in the Companys 2009 proxy
statement pursuant to
Rule 14a-8
under the Exchange Act, stockholder proposals must be sent to
the Secretary of the Company at the principal executive offices
of the Company, One Post Street, San Francisco, CA 94104,
and must be received no later than February 23, 2009. The
Companys Advance Notice By-Law provisions require that
stockholder proposals made outside of
Rule 14a-8
under the Exchange Act must be submitted in accordance with the
requirements of the By-Laws, no later than April 24, 2009
and no earlier than March 25, 2009.
A copy of the full text of the Companys Advance Notice
By-Law provisions referred to above may be obtained by writing
to the Secretary of the Company.
By Order of the Board of Directors
Laureen E. Seeger
Executive Vice President,
General Counsel and Secretary
June 23, 2008
A copy of the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008, on file with the
Securities and Exchange Commission, excluding certain exhibits,
may be obtained without charge by writing to Investor Relations,
Box K, McKesson Corporation, One Post Street,
San Francisco, CA 94104.
59
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x
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Votes must
be indicated (x) in
Black or Blue ink.
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Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
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Please Mark Here
for Address
Change or
Comments
|
o |
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SEE REVERSE SIDE |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE NAMED IN ITEM 1 AND FOR ITEM 2.
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1. Election of Directors |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN |
1(a)
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Andy D.
Bryant
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o
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o
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o
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1 |
(e) |
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M. Christine
Jacobs
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o
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o
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o
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1(i) James V. Napier
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o
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o
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o |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
|
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ABSTAIN |
1(b)
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Wayne A.
Budd
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o
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o
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o
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1 |
(f) |
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Marie L.
Knowles
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o
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o
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o
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1(j) Jane E. Shaw
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o
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o
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o |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN |
1(c)
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John H.
Hammergren
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o
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o
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o
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1 |
(g) |
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David M.
Lawrence, M.D.
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o
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o
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o
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2.
Ratification
of the
appointment of Deloitte &
Touche LLP as the Companys
independent registered
public accounting firm for
the fiscal year ending
March 31, 2009.
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o
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o
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o |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN |
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1(d)
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Alton F.
Irby III
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o
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o
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o
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1 |
(h) |
|
Edward A.
Mueller
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o
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o
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o
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Please mark this box if you
plan to attend the Annual
Meeting.
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o |
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Signature
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Co-owner sign here |
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Date |
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Note:
Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give title as such.
5 FOLD AND DETACH HERE 5
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Please cast your vote by telephone or via the Internet as instructed below, or complete, date, sign and mail this proxy card
promptly in the enclosed business reply envelope. You can vote by phone or via the Internet anytime prior to
July 23, 2008. If you do so, you do not need to mail in your proxy
card.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
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INTERNET http://www.eproxy.com/mck
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TELEPHONE 1-866-580-9477 |
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OR |
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Use the Internet to vote your proxy.
Have your proxy card in hand
when you access the web site.
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Use any touch-tone telephone to
vote your proxy. Have your proxy
card in hand when you call.
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ON-LINE DELIVERY OF PROXY MATERIALS
You may elect to receive your proxy materials electronically next year in place of printed materials. Choose Investor ServiceDirect® for fast, easy and secure 24/7 online access to your future proxy materials and more. Simply log on to:
www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment.
MCKESSON CORPORATION
Proxy for Annual Meeting of Stockholders
8:30
A.M., July 23, 2008
Solicited on Behalf of the Board of Directors of the
Corporation
The undersigned, whose signature appears on the reverse side, hereby
constitutes and appoints John H. Hammergren, Laureen E. Seeger and Willie C. Bogan, and each of them, with full power of
substitution, proxies to vote all stock of McKesson Corporation which the undersigned is entitled to vote at the Annual
Meeting of Stockholders to be held at the A.P. Giannini Auditorium, 555 California Street, San Francisco, California on July
23, 2008 at 8:30 A.M. and any adjournment or postponement thereof, as specified upon the matters indicated on the reverse
side, and in their discretion upon any other matter that may properly come before said meeting.
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Your
shares will not be voted unless you (1) vote by telephone, as instructed on the
reverse side, (2) vote via the Internet, as instructed on
the reverse side, or (3) sign and return this card.
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|
Your proxy, when
properly provided in a manner specified above, will be voted as directed, but if no direction is given, your proxy will be
voted FOR each nominee named in Item 1 and FOR Item 2. |
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(Continued and to be marked, dated and signed on the other
side) |
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Address
Change/Comments
(Mark the corresponding box on the
reverse side) |
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5 FOLD AND DETACH
HERE 5
ANNUAL MEETING OF
STOCKHOLDERS
OF
McKESSON CORPORATION
8:30 A.M.
Wednesday, July 23, 2008
A.P. Giannini
Auditorium
555 California Street
San Francisco, CA 94104
Please present this ADMISSION TICKET at the
Annual
Meeting of Stockholders as verification of your
McKesson Corporation share
ownership.
You can now access your MCKESSON CORPORATION account online.
Access your McKesson Corporation stockholder account
online via Investor ServiceDirect® (ISD).
The transfer agent for McKesson Corporation now makes it easy and convenient to get current information on your
stockholder account.
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View account status |
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View payment history for dividends |
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View certificate history |
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Make address changes |
|
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View book-entry information |
|
|
|
Obtain a duplicate 1099 tax form |
|
|
|
|
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|
|
Establish/change your PIN |
Visit us on the web at
http://www.bnymellon.com/shareowner/isd
For Technical Assistance Call 1-877-978-7778 between
9am-7pm
Monday-Friday Eastern Time
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x
|
|
Votes must be indicated
(x) in Black or Blue ink.
|
|
Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
|
|
Please
Mark Here
for Address
Change or
Comments
|
o |
|
|
|
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|
|
SEE REVERSE SIDE |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE NAMED IN ITEM 1 AND FOR ITEM 2.
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1. Election of Directors |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN
|
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FOR
|
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AGAINST
|
|
ABSTAIN |
1(a)
|
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Andy D.
Bryant
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|
o
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o
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o
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1 |
(e) |
|
M. Christine
Jacobs
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o
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o
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o
|
|
1(i) James V. Napier
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o
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o
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o |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN |
1(b)
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Wayne A.
Budd
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o
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o
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o
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1 |
(f) |
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Marie L.
Knowles
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o
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o
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o
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1(j) Jane E. Shaw
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o
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o
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o |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN |
1(c)
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John H.
Hammergren
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o
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o
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o
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1 |
(g) |
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David M.
Lawrence, M.D.
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o
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o
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o
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2.
Ratification
of the
appointment of Deloitte &
Touche LLP as the Companys
independent registered
public accounting firm for
the fiscal year ending
March 31, 2009.
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o
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o
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o |
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FOR
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AGAINST
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ABSTAIN
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FOR
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AGAINST
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ABSTAIN |
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1(d)
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Alton F.
Irby III
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o
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o
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o
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1 |
(h) |
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Edward A.
Mueller
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o
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o
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o
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Please mark this box if you
plan to attend the Annual
Meeting.
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o |
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Signature
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Co-owner
sign here
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Date
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Note: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian, please give title as such. |
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Please cast your vote by telephone or via the Internet as instructed below, or complete, date, sign and mail this proxy card
promptly in the enclosed business reply envelope. You can vote by phone or via the Internet anytime prior to
July 21, 2008. If you do so, you do not need to mail in your
proxy card.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
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INTERNET http:/ /www.eproxy.com/mck
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TELEPHONE 1-866-580-9477 |
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Use the Internet to vote your proxy. Have your proxy
card in hand when you access the web site. |
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OR |
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Use any touch-tone telephone to vote your proxy. Have
your proxy card in hand when you call.
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MCKESSON CORPORATION
Proxy for Annual
Meeting of Stockholders
8:30 A.M., July 23, 2008
PSIP Voting Card
Directions To Trustee, McKesson Corporation Profit-Sharing
Investment Plan
To: Fidelity Management Trust Company
I direct you, as Trustee of the McKesson Corporation Profit-Sharing Investment Plan, to
vote (in person or by Proxy), as I have specified on the reverse side all shares of McKesson Corporation common stock allocated to
my accounts under the plan, at the Annual Meeting of Stockholders of McKesson Corporation to be held on July 23, 2008. You may
vote according to your discretion (or that of your proxy holder) on any matter that may properly come before the meeting.
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Your shares will not be voted unless you (1) vote by telephone, as instructed on the
reverse side, (2) vote via the Internet, as instructed on the reverse side, or (3) sign
and return this card.
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Your proxy when
properly provided in a manner specified above, will be voted as
directed, but if no direction is given, your proxy will be voted
FOR each nominee named in Item 1 and FOR Item 2. |
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(Continued, and to be
marked, dated and signed, on the other side) |
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Address
Change/Comments
(Mark the corresponding box on the
reverse side) |
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5 FOLD
AND DETACH HERE 5
ANNUAL MEETING OF
STOCKHOLDERS
OF
McKESSON CORPORATION
8:30 A.M.
Wednesday, July 23, 2008
A.P. Giannini
Auditorium
555 California Street
San Francisco, CA 94104
Please present this ADMISSION TICKET at the
Annual
Meeting of Stockholders as verification of your
McKesson Corporation share
ownership.