Director Compensation Project: CVS Caremark Corporation

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

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 $120,000 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, 5605(a)(2), 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 the CVS Caremark Corporation (CVS-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Cash Fees Elected to be Paid in Stock ($)	Stock Awards ($)	All Other Compensation ($)	Total ($)
Edwin M. Banks	78,000	-	361,120	13,959	453,079
C. David Brown II	-	76,754	361,120	2,462	440,336
David W. Dorman	-	79,478	368,620	-	448,098
Kristen Gibney Williams	75,000	-	361,120	946	437,066
Marian L. Heard	-	78,000	361,120	738	439,858
William H. Joyce	-	79,000	376,120	-	455,120
Jean-Pierre Millon	-	73,828	361,120	-	434,948
Terrence Murray	19,000	69,964	376,120	1,078	466,162
C.A. Lance Piccolo	6,000	64,992	361,120	9,704	441,816
Sheli Z. Rosenberg	-	78,250	368,620	-	446,870
Richard J. Swift	75,000	-	361,120	-	436,120

Director Compensation. The CVS board met eight times in 2008. All directors attended at least 75% of the board meetings. Only five directors received cash compensation, ranging from $6,000 to $78,000. Non-management directors averaged $445,407 in total compensation for 2008, while fees paid in stock, on average, comprised approximately 98% of director compensation.

Director Tenure. Seven CVS board members have served only since 2006; however, the four other non-management directors have a tenure of at least ten years. Mr. Joyce has the longest tenure, serving on the board since 1994. Several directors serve on other boards. Mr. Heard is a serves on the board of Sovereign Bancorp and BioSphere Medical Inc., while director Piccolo is also a director for NovaMed, Inc. and MedAssets, Inc.

CEO Compensation. Mr. Thomas Ryan is Chairman, President and CEO for CVS Caremark. His total 2008 compensation was $24,102,648, which included a $1,400,000 salary, stock awards of $8,902,769, and $446,115 in “other compensation.” This last figure includes $110,854 worth of personal use of the company aircraft, $2,885 of personal use of a company car, and home security expenses totaling $5,798. Mr. Ryan’s compensation changed little from his $26,097,790 2007 earnings. Mr. Larry Merlo, Executive Vice President and President-CVS/pharmacy-Retail, was the company’s second highest paid employee at $8,241,994.