CVS HEALTH Corp
For the period ended May 16, 2024. Filed Apr 5, 2024.
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What shareholders are asked to vote on at a company's meeting. It is where to find what directors and top executives are paid, and who owns the most shares.
May 16, 2024 · Filed Apr 5, 2024
Contents
Proxy Statement Highlights
This summary highlights selected information in this proxy statement – please review the entire document before voting.
All of our Annual Meeting materials are available at**www.cvshealthannualmeeting.com.**There, you can download electronic copies of our Annual Report and proxy statement and use the link to vote.
Voting Items
| ITEM 1 Election of directors Our 12 continuing directors are seasoned leaders who bring a mix of skills and qualifications to our Board of Directors | FOR each director nominee 15-20 |
|---|---|
| ITEM 2 Ratify the appointment of the Company’s independent registered public accounting firm for 2024 Based on its recent evaluation, our Audit Committee believes that the retention of Ernst & Young LLP is in the best interests of the Company and its stockholders | FOR 42-43 |
| ITEM 3 Say on pay - an advisory vote on the approval of the Company’s executive compensation Our executive compensation program reflects our unwavering commitment to paying for performance and reflects feedback received from stockholder outreach | FOR 44-45 |
| ITEM 4 Adopt amendments to the Company’s 2017 Incentive Compensation Plan (the “2017 ICP”) The amendments to our 2017 ICP will replenish the shares available under the plan and replace two recently acquired existing equity compensation plans; it will be an important tool to attract and retain quality executives and employees | FOR 98-107 |
| ITEMS 5-8 Stockholder proposals See the Board of Directors’ statement of opposition AGAINST each stockholder proposal | AGAINST 108-119 |
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The CVS Health Board
Edward J. Ludwig, an independent member of the Board of Directors (the “Board”), will not be standing for re-election and is retiring from the Board at the 2024 Annual Meeting after an accomplished 30-plus year career in the field of medical technology. Upon the retirement of Mr. Ludwig, the size of the Board will be reduced to 12 directors.
You are asked to vote on the election of the following 12 nominees to serve on the Board of CVS Health Corporation (“CVS Health” or the “Company”). All directors are elected by a majority of votes cast, and all presently serve on the Board. The information below reflects the current leadership and expected membership of each of the Board’s committees after the Annual Meeting.
| Director Since | Independent | Other Public Company Boards | Committees |
|---|---|---|---|
| Name · A · MP&D · N&CG · HS&T · E | |||
| Fernando Aguirre, 66 Former Chairman, President and CEO of Chiquita Brands International, Inc. | 2018 | YES | 2 |
| Jeffrey R. Balser, M.D., Ph.D., 62 President and Chief Executive Officer of Vanderbilt University Medical Center | 2022 | YES | None |
| C. David Brown II, 72 Partner and Former Member of Executive Committee of Nelson Mullins Riley & Scarborough LLP | 2007 | YES | None |
| Alecia A. DeCoudreaux, 69 President Emerita of Mills College at Northeastern University, and Former Executive at Eli Lilly and Company | 2015 | YES | 1 |
| Nancy-Ann M. DeParle, 67 Managing Partner and Co-Founder of Consonance Capital Partners, LLC and Former Director of White House Office of Health Reform | 2013 | YES | 1 |
| Roger N. Farah, 71 Independent Chair of the Board of CVS Health Corporation; Former Chairman of the Board of Tiffany & Co. and Former Executive at Tory Burch and Ralph Lauren | 2018 | YES | 1 |
| Anne M. Finucane, 71 Chair of the Board of Rubicon Carbon and Former Vice Chairman of Bank of America Corporation | 2011 | YES | 1 |
| J. Scott Kirby, 56 CEO and a Member of the Board of Directors of United Airlines Holdings, Inc. | 2023 | YES | 1 |
| Karen S. Lynch, 61 President and CEO of CVS Health Corporation | 2021 | NO | None |
| Michael F. Mahoney, 59 Chairman of the Board, President and CEO of Boston Scientific Corporation | 2023 | YES | 1 |
| Jean-Pierre Millon, 73 Former President and CEO of PCS Health Systems, Inc. | 2007 | YES | None |
| Mary L. Schapiro, 68 Vice Chair of Global Public Policy and Special Advisor to the Chairman of Bloomberg L.P. and Former Chairman of the U.S. Securities and Exchange Commission | 2017 | YES | 1 |
| Key | ||||
|---|---|---|---|---|
| Member | A Audit | N&CG | Nominating and Corporate Governance | E Executive |
| Committee Chair | MP&D Management Planning and Development | HS&T | Health Services and Technology | |
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Our Directors Nominated for Election at the Annual Meeting
The demographic information presented below is based on voluntary self-identification by each director nominee. Additional biographical information regarding each director nominee is set out starting on page 15.
| Director Independence | Financial Expertise | Director Tenure | Diversity of Gender and Background |
|---|---|---|---|
| Financial Experts | 0-4 years | Female | |
| 11 director nominees are independent of the Company and management. Ms. Lynch, our President and CEO, is our only non-independent director nominee. | Qualified as Financial Experts Financially Literate Four nominees who are members of our 2023 Audit Committee are designated Audit Committee Financial Experts. Four other nominees have qualifications to be financial experts, and the remaining four are financially literate. | 5-9 years 10+ years Our directors bring a balance of experience and fresh perspective to our boardroom. The average tenure of our director nominees is ~7.5 years. | Racially or Ethnically Diverse Born Outside of the U.S. Approximately 42% of our director nominees are women. Our director nominees come from varied backgrounds, including three who identify as racially or ethnically diverse and two who were born outside of the U.S. |
Director Nominee Expertise, Skills and Experience
Our director nominees possess relevant experience, skills and qualifications that allow the Board to effectively oversee the Company’s strategy and management. The Board has identified key skills, qualifications and experience that are important to the Board as a whole in light of our current business strategy and expected needs. Our director nominees have developed competencies in these skills through education, direct experience and oversight responsibilities. While many of our nominees have experience across most or all of these important skills and qualifications, the following graphic identifies the five most relevant for each nominee (in addition to Senior Leadership, which all of them possess). See page 13 for an individual skills matrix, along with details as to how these skills and expertise link to the Company’s strategy.
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Board and Corporate Governance Highlights
The Board continues to evaluate the Company’s corporate governance policies and practices to ensure that the right mix of individuals are present in our boardroom to best serve the stockholders we represent by ensuring effective oversight of our strategy and management. We are committed to maintaining the highest standards of corporate governance and have established a strong and effective framework by which the Company is governed and reviewed.
| 2023-2024 Board and Corporate Governance Developments | Further Information |
|---|---|
| • On July 19, 2023, the Board elected J. Scott Kirby to serve on the Board, effective October 2023. Mr. Kirby is a well-known airline industry veteran, with a broad and accomplished three-decade-long career in significant leadership roles and is a strategic leader adept at innovating through technology in a highly regulated, consumer-driven industry. • On September 20, 2023, the Board elected Michael F. Mahoney to serve on the Board, effective November 1, 2023. Mr. Mahoney is an accomplished health care executive and his focus on improvements in health outcomes and increasing access to care align with our mission. | pages 18, 22 pages 19, 22 |
| • Edward J. Ludwig will not be standing for re-election and is retiring from our Board after an accomplished 30-plus year career in the field of medical technology to spend more time on personal interests. He has served as a director of CVS Health since November 2018 and served as a member of the board of directors of Aetna Inc. (“Aetna”), including as presiding or lead director from 2011 until the closing of Aetna’s merger transaction with CVS Health in November 2018 ( the “Aetna Transaction”). | pages 5, 22 |
| • The Nominating and Corporate Governance Committee (“N&CG Committee”) reviewed and approved the Board skills/experience list with the skills and experience most relevant to CVS Health and its business and strategy. As a result of its ongoing evaluation, the N&CG Committee combined “Legal and Regulatory” into the “Risk Management” category. Risk Management encompasses the board oversight of risk, including legal, regulatory and compliance matters, and four director nominees who previously self-identified Legal and Regulatory as a principal area of expertise are now included under Risk Management expertise, while one director is now also identified as having Regulated Industries expertise. In response to stockholder feedback, the N&CG Committee also approved the use of a Board skills matrix that displays each nominee’s most significant skills, along with background information for each nominee. | pages 6, 13-14, 21 |
| • Throughout 2023, the N&CG Committee undertook a comprehensive review of our Board’s overall committee structure, membership, leadership and responsibilities in an effort to enhance its oversight and efficiency. As a result of this review, in January 2024, the Board, at the recommendation of the N&CG Committee, approved a new structure consisting of four standing committees: Audit, Management Planning and Development (“MP&D”), N&CG, and Health Services and Technology (“HS&T”); along with the Executive Committee, which meets on an ad hoc, as-needed basis. As part of this committee realignment, the Board eliminated the Investment and Finance Committee (“I&F Committee”) and reallocated its responsibilities among the standing committees. | pages 32-33 |
| • In December 2023, the Board increased the Company’s quarterly cash dividend by 10%, from $0.605 to $0.665, effective with the dividend distribution on February 1, 2024. | pages 25, 35, 56 |
| • During the fourth quarter of 2023, the Company entered into a $3.0 billion fixed dollar accelerated share repurchase transaction, which became effective on January 3, 2024 and was effected under the share repurchase program authorized by the Board in December 2021 and expanded in November 2022. | pages 25, 35 |
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| Board Communication and Stockholder Rights | |
|---|---|
| • Our Board supports and participates in our stockholder outreach program and has responded to stockholder input with changes in our compensation program, governance practices. • See our Certificate of Incorporation, By-laws and Corporate Governance Guidelines at https://investors.cvshealth.com under “Governance Documents” | pages 9-11, 51-55 |
| Director Alignment with Stockholder Interests | |
| • Generally, 75% of our directors’ annual retainer is paid in shares of CVS Health common stock. The annual retainer for 2023 was voluntarily reduced by 10% as previously disclosed to align with stockholders after considering a legal settlement charge; the reduction was applied against the stock compensation for the directors elected at the 2023 Annual Meeting. | pages 40-41 |
| • Directors must own at least 10,000 shares of CVS Health common stock within five years of election to our Board. | pages 76, 120 |
| • Director nominee meeting attendance averaged 98%, and each director nominee attended at least 90% of the meetings of the Board and the committees of which he or she was a member. | page 40 |
| • The Board is focused on Board diversity and Board committee leadership. | pages 5, 6, 13-14, 21, 32-33 |
| • Our overboarding policy limits service by our directors to four other public company boards and also restricts audit committee service. | page 21 |
| Board Oversight of Risk | |
| • Full Board and individual committees focus on understanding and assessing Company risks. | pages 26-29 |
| • Our Independent Chair and our CEO are focused on the Company’s and the Board’s risk management efforts and ensure that enterprise risks are appropriately brought to the Board and/or its committees for review. | pages 26-29 |
| • The Board also reviews the Company’s succession planning, including in the case of the incapacitation, retirement or removal of the CEO. The CEO provides an annual report to the Board recommending potential successors, and the Board reviews succession planning with respect to the Company’s other key executives. | page 25 |
| • The Board implements its risk oversight function both as a whole and through delegation to Board committees, which meet regularly and report back to the Board, as appropriate. Each of the Board’s standing committees is responsible for oversight of risk management practices for categories of risks relevant to their functions. Each of the Board committees can engage advisors and experts as the committee deems necessary in connection with its risk oversight responsibilities. | pages 26-29 |
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Stockholder Outreach – Governance and Compensation Actions
Stockholder Engagement
We have a long standing, robust stockholder outreach program through which we solicit feedback on our corporate governance, executive compensation program, disclosure practices and sustainability and impact programs and goals. Our annual engagement program helps us better understand stockholder priorities and perspectives, gives us an opportunity to elaborate upon our initiatives with relevant experts and fosters constructive dialogue. We take feedback and insights from our engagement with stockholders and other stakeholders into consideration as we review and evolve our practices and disclosures and further share them with our Board as appropriate. In addition to CVS Health’s annual stockholder outreach and engagement program, the Company engages in activities designed to inform and seek stockholder input throughout the year including, without limitation, quarterly earnings calls, industry presentations and conferences, Company-hosted events and presentations and securities analyst meetings.
In the latter part of 2023 and early 2024, at the Board’s direction, management reached out to 31 stockholders representing approximately 50% of our outstanding stock in the aggregate and ultimately held 23 meetings with stockholders representing approximately 40% of our outstanding stock. This includes meetings with smaller stockholders and other investor organizations who proactively requested to engage with us. We also contacted the leading proxy advisory firms. Several stockholders and proxy advisory firms that we contacted indicated that a meeting was not necessary at the time. We held calls with all stockholders and advisory firms who responded to our outreach with a request to meet. The Independent Chair of the Board and/or Chair of the MP&D Committee participated in engagements with stockholders representing approximately 28% of our outstanding stock, as well as the proxy advisory firm that scheduled an engagement call. Our MP&D Committee Chair, David Brown, as well as Roger Farah, our Independent Board Chair and an MP&D Committee member, played a meaningful role in conversations with stockholders, assisted by our legal, human resources and investor relations staff. The MP&D Committee discussed stockholders’ feedback, which it found to be substantive and thoughtful.
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We also engaged with each of the stockholders who submitted proposals for inclusion in this proxy statement. As a result of productive discussions with stockholder proponents, two stockholder proposals related to the process for the consideration of stockholder-nominated director nominees were withdrawn after we agreed to make clarifying changes to the Company’s Corporate Governance Guidelines, which are available on the Corporate Governance pages of our Investor Relations website athttps://investors.cvshealth.com.
We were pleased to engage in productive conversations with our stockholders during which we discussed a number of topics relevant to the Company’s strategy, board composition and oversight, corporate governance and our environmental and social initiatives. We also discussed the structure of our executive compensation program and steps we have taken in recent years to align our compensation program with our evolving business strategy and stockholder experience and reflect their feedback. The Compensation Discussion and Analysis (“CD&A”) section of this proxy statement provides details on the executive compensation topics that were addressed with stockholders.
Our annual engagement program helps us better understand stockholder priorities and perspectives, gives us an opportunity to elaborate upon our initiatives with relevant experts and fosters constructive dialogue. We share the feedback and insights from our engagement with stockholders and other stakeholders with our Board and take them into consideration as we review and evolve our practices and disclosures.
| Integrated Engagement Team | ||||
|---|---|---|---|---|
| Corporate Secretary | Human Resources | Investor Relations | Sustainability | Independent Directors |
| 1 | Source: Capital IQ; represents percentage of outstanding shares as of March 18, 2024. |
The key issues we discussed with our stockholders are summarized below:
| Board Composition and Oversight; Corporate Governance | • Board composition and the relevant qualifications and skillsets our directors possess to deliver impactful oversight of the Company • Recent refreshment of the Board, including the addition of new directors with differentiated experience • The Board’s responsibility for the oversight of human capital management and talent development, as well as key risk areas including cyber and information security • The Board’s review of the results of stockholder voting at the 2023 Annual Meeting, including its consideration of stockholder proposals that received votes of at least 25% in favor |
|---|---|
| Environmental and Social Strategy | • Our Healthy 2030 strategy, and how it guides our commitment to improving the health of the people and communities we serve • Key initiatives supporting the Healthy 2030 strategy, including efforts to increase access to health services in underserved communities and providing social impact investments in our local communities • Steps we have taken to support our workforce and the well-being and development of our colleagues |
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| Compensation Actions | • The MP&D Committee spent extensive time considering: • Results of the 2023 say on pay vote and comments we received from stockholders regarding compensation rationale; and • Whether several components of our existing compensation structure are not aligned to broader market or industry, which may have unintended consequences for CVS Health and our stockholders in terms of attracting and retaining the best possible talent during this critical time in the Company’s strategic journey • The MP&D Committee approved several changes to the executive compensation program effective for 2024: • Updated the long-term incentive target mix to be comprised of 60% performance stock units (“PSUs”), 20% stock options and 20% restricted stock units (“RSUs”) (from the prior mix of 75% PSUs and 25% stock options); • Reduced the holding period following the vesting of the three-year PSUs from two years to one year to move closer to competitive pay practices in the broader marketplace; • Evolved the Workforce Modifier to reflect a more comprehensive measure of inclusion and belonging; • Included an additional metric in the long-term equity plan to align with commitments made at our December 2023 Investor Day that is objective and measurable over a three-year period and designed to focus our most senior leaders on specific strategic initiatives to support long-term growth; and • Adopted an executive severance policy, effective for 2024, that the Company would not enter into any new employment, severance or separation agreements or establish any new severance plan or policy that would provide cash severance benefits to Section 16 officers, including our Named Executive Officers, exceeding 2.99x base plus target bonus without seeking stockholder approval. |
|---|
For details on these compensation actions please see pages 52-55, and 67 of the CD&A.
The entire Board appreciated the many positive comments from stockholders about the performance of the Company, the quality of our senior leadership, the fundamental design of our executive compensation program and the Company’s corporate governance practices. Our corporate governance and compensation practices are informed by ongoing dialogue with our stockholders and meet intended objectives.
For more information on our executive compensation program, see the letter from the MP&D Committee beginning on page 46, “Stockholder Outreach” beginning on page 51 and “Elements of Our Executive Compensation Program” beginning on page 59. For more information on corporate governance at CVS Health, please refer to pages 12-41 of this proxy statement and to the Corporate Governance pages of our Investor Relations website athttps://investors.cvshealth.com.
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The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.