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 ¨
Check the appropriate box:
| ¨ |
Preliminary Proxy Statement | |||
| ¨ |
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |||
| ¨ |
Definitive Proxy Statement | |||
| þ |
Definitive Additional Materials | |||
| ¨ |
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): | ||||
| þ |
No fee required. | |||
| ¨ |
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | |||
| (1) |
Title of each class of securities to which transaction applies:
| |||
|
| ||||
| (2) |
Aggregate number of securities to which transaction applies:
| |||
|
| ||||
| (3) |
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
| |||
|
| ||||
| (4) |
Proposed maximum aggregate value of transaction:
| |||
|
| ||||
| (5) |
Total fee paid: | |||
|
| ||||
| ¨ |
Fee paid previously with preliminary materials. | |||
| ¨ |
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
| (1) |
Amount Previously Paid:
| |||
|
| ||||
| (2) |
Form, Schedule or Registration Statement No.:
| |||
|
| ||||
| (3) |
Filing Party:
| |||
|
| ||||
| (4) |
Date Filed:
| |||
|
| ||||
 2013
Annual Meeting of Stockholders July 9, 2013 |
 2
Executive Summary
Strong Performance
Over the past five years, McKesson has delivered returns that exceeded both our
compensation peers and the S&P 500
In FY 2013, we generated operating cash flows of $2.5 billion, completed
acquisitions valued at $2.5 billion and ended the year with $2.5 billion in
cash and cash equivalents Substantial
Improvements to
Pay Program
More closely aligned pay and performance and reduced total direct
compensation Further explained and adjusted where appropriate the prevalence
of, and rationale for selecting, our financial metrics
Continued to set ambitious targets for performance-based pay
Significant
Investor Outreach
and Response
We routinely engage with investors to better understand their concerns and address
their expectations In response, the Board and senior management recently
made substantial compensation and governance changes
Reduction of Total
Compensation Levels
Effective Independent
Oversight and
Strong Corporate
Governance Practices
We
have
a
strong,
independent
Board
that
effectively
governs
the
Company,
listens
and
responds
to
stockholder concerns, and has overseen tremendous stockholder value creation
The directors have also exercised independent oversight of pay through our
Compensation Committee, which has retained both independent legal counsel
and an independent compensation consultant and adopted emerging best
practices We
are
aligned
with
best
practices
in
corporate
governance
with,
among
recent
enhancements,
the addition of
a lead independent director with robust powers and responsibilities
We ask for your support at our 2013 Annual Meeting of Stockholders
* Total direct compensation refers to the total compensation
disclosed in the 2013 Summary Compensation Table minus the amount displayed under the
column entitled “Change in Pension Value and Nonqualified Deferred
Compensation Earnings.” Stock price appreciated by 64% while average total direct NEO compensation decreased by 18% since the end of fiscal
year 2010* Reduced payout opportunities under our long-term incentive program |
 3
A History of Strong, Sustained Performance
CEO Oversaw
Turnaround
Mr. Hammergren became co-CEO in 1999, CEO in 2001 and Chairman in 2002
Turned the Company around from period of crisis in 1999 to a market leader
Currently number 14 on the Fortune 500
Over a Decade
of Sustained
Performance
for Investors
Mr. Hammergren’s tenure as CEO is marked by sustained, long-term
performance Cumulative
total
stockholder
return
of
468%
from
FY
2001
through
FY
2013
Stock is currently trading near a record high price
A Company and
Executive Team
That Have Been
Successful for
Investors
The incremental higher pay for McKesson executives has proven beneficial to
investors who have experienced significant returns throughout this
executive team’s tenure As the Compensation Committee moderates pay in
the face of strong Company performance,
it’s
important
to
remember
that
the
executive
team
has
a
consistent
track
record of performance
Our CEO, executive team and experienced Board of Directors
turned the Company around during a time of crisis and have driven
tremendous, long-term value for investors ever since
|
 4
A Stronger Return on Investment vs. Peers
Investors received
a return of more
than 2X on their
investment in
McKesson
*
* Total
stockholder
return
assumes
$100
invested
at
the
close
of
trading
on
March
31, 2008 (the close of our fiscal year) and the reinvestment of dividends
when paid.
McKesson strongly outperformed both
the S&P 500 and its peers over the last five years
$100.00
$100.00
$100.00
$132.64
$176.31
$216.44
S&P 500
Compensation Peer
Group
McKesson
FY 2008
FY 2012 |
 5
Director Nominee:
Alton F. Irby III
Demonstrated
Leadership
Mr. Irby has more than 35 years of experience serving on the boards of a variety
of companies, including a number of public companies in the United States
and Europe He has demonstrated leadership experience and strong
entrepreneurial talent Having served on McKesson’s Board of Directors
since 1999, he offers important institutional knowledge and
experience Expert in
Financial
Services and
Capital Markets
Mr. Irby has more than 40 years of experience in financial services and capital
markets, having served as chief executive officer or founding partner of
several investment and investment banking firms in the United States and
Europe His financial and capital markets experience spans several
industries His experience includes areas of importance to McKesson,
including acquisitions, divestitures and international transactions
Leader of
Committee
Implementing
Changes
As chair of McKesson’s Compensation Committee, Mr. Irby led the Board’s
initiative to make substantial changes to the Company’s executive
compensation program, demonstrating a serious commitment to contemporary
best practices in response to investor feedback
Mr. Irby’s accomplished career in a variety of leadership roles and the
significant program and policy changes implemented under his leadership
make him a valuable Board member and leader of the Compensation Committee
|
 6
Director Nominee:
Jane E. Shaw
Wealth of
Experience
As a former Chairman and CEO, Dr. Shaw brings exceptional leadership, business
management and director experience in the healthcare industry
Dr. Shaw had a distinguished career on Intel’s board, with 19 years of
service including steering the company through compliance with the 2002
Sarbanes-Oxley Act and being named Intel’s first non-executive
chairman in 2009 Poise and
Stability in Time
of Crisis
With
her
strong
financial
background,
valuable
leadership
skills
and
methodical
scientific
training, Dr. Shaw helped navigate a positive course for the Company in the
aftermath of the difficult HBO & Co. acquisition
Dr. Shaw was named a 2010 Outstanding Director by the Outstanding Directors
Exchange and a 2013 Outstanding Director by the San Francisco Business
Times and the Silicon Valley Business Journal
Strong
Institutional
Knowledge
Dr. Shaw’s strong institutional knowledge helped position McKesson as a
leader in the healthcare industry, and as chair of the Governance
Committee, guided our adoption of best practices in corporate
governance Dr. Shaw’s commitment to sound corporate governance
practices has been recognized by the major proxy advisory firms, which have
consistently given McKesson high marks Dr. Shaw’s distinguished executive
career and wealth of experience as a director during challenging times makes
her an outstanding Board member and leader of the Governance Committee
|
 7
Tremendous
Industry
Knowledge and
Experience
Mr.
Hammergren
has
over
30
years
of
business
and
leadership
experience
in
the
healthcare
space
Mr. Hammergren recently served as Chairman of the Healthcare Leadership Council, a
coalition of chief executives of the nation’s leading healthcare
companies and organizations With 17 years at McKesson, Mr. Hammergren has a
deep understanding of McKesson’s customer base, workforce,
competition, challenges and opportunities Exceptional
Leadership Skills
and Consistent
Delivery of
Outstanding
Returns to
Stockholders
Under Mr. Hammergren’s leadership, the Company has experienced exceptional
growth and success
Annual Revenues
FY 1999
FY 2013
$30bn
$122bn
Market Capitalization
FY 1999
FY 2013
$8bn
$25bn
Increased
more than 3X
Mr. Hammergren has a strong track
record of creating tremendous stockholder value
Adjusted EPS Growth*
FY 2007
FY 2013
$3.02
$6.33
13% CAGR
Increased
more than 4X
Director Nominee:
John H. Hammergren
Reflects non-GAAP information calculated on an Adjusted Earnings basis. A reconciliation to
GAAP is available in the 2013 proxy statement and on the Company’s website under the
“Investors” tab.
* |
 8
A Distinguished and Experienced Board
Leadership and
business experience in
the healthcare industry
Strategic planning
and financial expertise
Legal and
regulatory experience
International
business experience
Former healthcare
professionals
Public and private
company directorships
Experience with
legislative initiatives
Former Chief
Executive Officers and
Chief Financial Officers
A Board that engages with
stockholders, responds to their
views and expectations and
incorporates their feedback
Retain our talented Board; vote FOR
each director nominee |
 9
Investor Outreach and Response
We heard the message delivered by our stockholders and
made changes to our compensation program and governance
practices to address investor issues and concerns
We engaged with our investors throughout 2012 and 2013, holding discussions with,
among others: •
Large institutional investors
•
Labor union funds
•
Pension funds
•
Proxy advisors
Feedback from stockholders was clear:
•
Moderate total levels of executive compensation
•
More closely align pay and performance
•
Further explain and adjust where appropriate the prevalence of, and rationale for selecting,
financial metrics •
Describe the role of stockholder return in our incentive program
•
As to governance practices, allow stockholders to take action between annual
meetings and enhance independent director leadership
We listened to our investors:
•
Our Compensation Committee embarked on a measured multi-year effort to balance
pay and performance with executive retention by reducing pay levels and
implementing a number of important changes to our pay practices that
resulted in lower compensation for our CEO and other NEOs •
Our Governance Committee recommended, and the Board approved, (i) by-law
provisions, subject to stockholder approval, to give stockholders the right
to call a special meeting, and (ii) a lead independent director structure |
 10
Reduction of Total Compensation Levels:
FY 2010 to FY 2013
Stock
Appreciation
Average Decrease in
NEO Total Direct
Compensation
Since the end of FY 2010, McKesson’s stock price has risen
while average NEO total direct compensation has decreased
64%
-18% |
 11
Moderation of Total Compensation Levels
Base
Salaries
Maintained
CEO base pay since May 2010, NEO base pay since
May 2011
Long-Term
Incentive
Plan
Reduced
the maximum payout opportunity for executive officers
by
33%,
effective
for
the
FY
2012
–
FY 2014 performance period
Reduced
the
target
payout
opportunity
for
FY
2013
–
FY 2015
by 5% from last year
Performance
RSUs
Reduced
the maximum payout opportunity by 9% from last year
Reduced
Performance RSU target grant amounts by an average
of 4% from last year
Option
Awards
Reduced
the grant date value of option awards by an average
of 5% from last year
We
heard
our
investors’
views about the level of total compensation
and responded by reducing almost every element of our pay program
|
 Closer
Alignment of Pay and Performance •
Established increasingly ambitious targets that reflect Company performance
•
Made a significant portion of our NEOs' target direct compensation (67%)
equity-based Added Financial Metrics and Enhanced Explanation
•
Added
several
new
metrics
that
correlate
to
operational
success,
including
EBITDA,
ROIC
and operating cash flow, which we believe fuel greater stockholder return
•
Additional metrics selected through analysis of historical trends, incentive design
features and performance of comparable U.S. companies, analyst expectations
and investor feedback
•
Performance targets are thoughtfully set to reflect true Company
performance; e.g., earnings
targets established at the beginning of a fiscal year reflect anticipated annual
share buybacks
12
Substantial Improvements to Pay Program
Based on Investor Feedback
We
acted
on
our
investors’
feedback
and
made
several significant revisions to our pay program |
 13
Financial Metrics Driving Our Pay Program
Long-Term (Equity)
Long-Term (Cash)
Annual
Incentive Program
Performance Restricted
Stock Units (PeRSUs)
Share Price
Adjusted EPS
Stock Options
Adjusted ROIC
Long-Term Incentive Plan
(LTIP)
Long-Term
Earnings Growth
Adjusted OCF
Management Incentive Plan
(MIP)
Adjusted EPS
Adjusted EBITDA
Individual Modifier
Focus on a rigorous and sustainable
approach to delivering returns to our investors
* Terms used in this table are defined in McKesson’s
2013 proxy statement. Financial Metrics
*
|
 14
Explanation of the Pension Value Change
Annual
Assessments of
Actuarial
Assumptions
Each year, we must assess the actuarial assumptions underlying the calculation of
our pension
liability,
including
the
“lump-sum
interest
rate”
which
is
used
to
convert
the
estimated pension benefit into a lump sum
The lump-sum value of the pension benefit is inversely correlated to
fluctuations in the lump-sum interest rate
Adjustments to
the Lump-Sum
Interest Rate and
Its Effect on
Pension Accrual
In FY 2013, we lowered the lump-sum interest rate from 4.0% to 2.3% to reflect
the persistent low interest rate environment
This change in interest rate assumption led to a meaningful increase in pension
accrual this
year;
however,
of
the
$24
million
shown
in
the
2013
Summary
Compensation
Table,
$21 million was attributable to the changes in actuarial assumptions
Rise in Pension
Accrual Does Not
Equate to
Granting
Additional
Compensation
In assessing the Compensation Committee’s executive compensation decisions,
we do not believe our investors should factor in pension value swings due
to changes in interest rates These value swings are not in the Compensation
Committee’s control. Just as investors should not give the Company
credit when lump-sum pension values drop significantly because of
interest rate increases, investors should not view the Company as granting
additional compensation when lump-sum pension values rise due to changes in
interest rate assumptions
Investors should evaluate the pension in the context of the amount
contributed, not on the basis of changes in actuarial assumptions
|
 15
Putting Realizable Pay in Context
A Measure of
Pay for
Performance
Alignment
Realizable pay is a measure that some investors utilize to evaluate the alignment
between pay and performance
A
well-designed
incentive
plan
combined
with
strong
company
performance
will
result
in
realizable pay that exceeds grant-date values
In an appropriately performance-based program, when performance is strong,
realizable pay increases; if performance is weak, it declines
Alignment with
Performance
Reflected in
Plan Design
Our plans are performance-based to align executive interests with investor
interests 68% of our CEO’s target direct compensation was granted in
equity In response to feedback from investors and our Board’s
commitment to continually raise the bar on performance for the benefit of
our investors, the Compensation Committee acted to meaningfully reduce
overall pay in almost every category. These reductions required our
management team to stretch even further in their quest for superior
performance in order to realize the outcomes produced. The committee’s
approach is working, as evidenced by the strong continued growth of our
stockholder return for the past several years
Strong
Performance
Over the last three years our performance has been exceptional, which has resulted
in higher realizable pay than grant-date pay
While the use of equity grants to incentivize executives has resulted in improved
outcomes for our management team, it has also resulted in outstanding
returns for McKesson’s investors
(64%
share
price
appreciation
in
the
last
three
fiscal
years)
Investors should be pleased that realizable pay has grown because it reflects
strong long-term performance and the alignment of pay with performance
|
 Structural Alignment with Performance
16
Our Commitment to Align Pay and
Performance has Proven Effective
The vast majority of CEO target
direct compensation for the past
several years was granted in equity
Outstanding performance resulted in
higher realizable pay, benefiting all
investors, including executives who
hold substantial share positions
CEO
Equity-Based
Compensation
(68%)
CEO Cash
Compensation
(32%)
Stock Price
Appreciation = 64%
FY 2010
FY 2013
Strong Company Performance |
 17
Recently Adopted Best Practices
3
Eliminated a golden parachute benefit
Eliminated CEO excise tax gross-up
Prohibited hedging and pledging
1
2
4
5
Implemented majority voting for director elections
6
Adopted lead independent director role with robust powers
and responsibilities
7
Proposed adoption of by-law provisions to give stockholders
the right to call a special meeting
Eliminated supermajority voting provisions |
 Board:
All directors, except one, are independent and must be elected annually by a
majority vote
Lead Director:
Our strong independent board leadership is being enhanced in July 2013
when
a
lead
independent
director
with
clearly
defined
powers
and
responsibilities
begins
his
service
Committee Membership:
All committees, including the Compensation Committee, consist
of entirely independent directors
Independent Advisors:
Our Compensation Committee has engaged and considers the
advice
of
an
independent
compensation
consultant
and
independent
legal
counsel
Investor Input:
•
Our Compensation Committee and senior management have engaged with investors
and have acted on their feedback regarding McKesson’s pay
program •
Our Governance Committee has been responsive to stockholders on corporate
governance matters and recently implemented a number of contemporary best
practices
18
Effective Independent Oversight
Independent directors with an overall
goal of delivering superior stockholder value |
 Election
of Directors •
Strong, experienced and independent directors who effectively govern the
Company and continue to drive tremendous long-term stockholder value
Say on Pay
•
Maintained our track record of superior performance within the market and our
compensation peer group
•
Continued to engage with our investors to enhance our pay program and meet
investor expectations
•
Improved the compensation program to more closely align pay and
performance
•
Moderated total direct compensation levels
•
Continued to follow, and adopt, emerging compensation best practices
19
We Ask for Your Support
Vote FOR
our director nominees and say on pay |