The Director Compensation Project: CVS Caremark

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from CVS Caremark’s (CVS-NYSE) 2008 proxy statement.

Name	Fees Earned and Paid in Cash ($)	Cash Fees Elected to be Paid in Stock (1) ($)	Stock Awards (1) ($)	All Other Compen-  sation (2) ($)	Total ($)
Edwin M. Banks (3)	45,500	—	286,448	10,894	342,842
C. David Brown II (3)	1,000	45,278	286,448	2,624	335,350
Edwin M. Crawford (3) (4)	10,833	100,370	57,795	—	168,998
David W. Dorman	—	70,833	184,580	—	255,413
Thomas P. Gerrity (5)	10,000	—	126,607	—	136,607
Kristen Gibney Williams (3)	48,500	—	286,448	875	335,823
Roger L. Headrick (3) (6)	1,000	34,191	294,544	1,838	331,573
Marian L. Heard	—	68,500	184,580	—	253,080
William H. Joyce	—	63,500	184,580	—	248,080
Jean-Pierre Millon (3)	1,000	44,278	286,448	—	331,726
Terrence Murray	24,000	32,474	184,554	—	241,028
C. A. Lance Piccolo (3)	10,000	32,474	286,448	6,141	335,063
Sheli Z. Rosenberg	—	70,035	184,554	—	254,589
Richard J. Swift	59,500	—	133,785	—	193,285
Alfred J. Verrecchia (5)	—	9,000	126,607	—	135,607

Director Compensation : CVS Caremark’s board met twelve times last year. Each director attended at least 75% of the meetings, except Mr. Edwin M. Banks, who attended slightly fewer meetings . The non-employee directors as a group averaged $259,938 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards and cash fees elected to be paid in stock.

Director Tenure : On average, the non-employee directors have served on the board for five years. William H. Joyce has the longest tenure at thirteen years. All but one of the directors also sits on other boards. One director alone sits on four additional boards: Avis Budget Group, Equity Lifestyle Properties, Ventas, and Nanosphere.

CEO Compensation : The CEO, Thomas M. Ryan, received $ 26,097,790 in total compensation last year, a relatively small portion of which came in the form of cash ($1,350,000). A portion of his compensation ($556,732) was in the form of “other compensation.” This included $118,468 for personal aircraft usage. Mr. Ryan received $9,390,798 in the form of stock awards, and $3,486,931 in the form of option awards, which were dependant upon company performance.