The 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 2010’s Fortune 500 and using information found in their 2010 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 know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from CVS Caremark's (NYSE:CVS) 2010 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Total ($)
Edwin M. Banks	271,366
C. David Brown II	261,538
David W. Dorman	270,000
Kristen Gibney Williams	260,747
Marian L. Heard	261,538
William H. Joyce	280,000
Jean-Pierre Millon	260,000
Terrence Murray	280,000
C. A. Lance Piccolo	267,239
Sheli Z. Rosenberg	270,000
Richard J. Swift	260,867

Director Compensation.  During the 2009 fiscal year, the Board of Directors met nine times. Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of the Board Committees on which he or she served.  Each director is fully retained by the company and receives an annual retainer of $260,000. Each of these retainers is paid semi-annually and at least 75% of each retainer must be paid in company common stock.  All non-employee directors must own a minimum of 10,000 shares of CVS Caremark common stock within five years of being elected to the Board.  Directors must retain this minimum level of ownership for at least six months after leaving the Board.

Director Tenure.  William H. Joyce holds the longest tenure as a director, serving on the Board since April 1994.  Dr. Joyce also serves as Chairman of the Board and Chief Executive Officer of Advanced Fusion Systems, LLC, and Hercules, Incorporated.  Mr. Piccolo, Mr. Millon, Ms. Williams, Mr. Banks and Mr. Brown have served the shortest amount of time on the Board, as they all joined the Board in March 2007.  All of these members served on the board of Caremark Rx, Inc., until the closing of the CVS/Caremark merger.  Ms. Williams helped found Caremark PBM.  Many directors also serve on other boards.  Mr. Dorman has been the Non-Executive Chairman of the Board of Motorola, Inc. since May 2008.  Mr. Dorman also served as the Chief Executive Officer and Chairman of the Board for AT&T from November 2002 to November 2005.  Mr. Swift is a director of Public Service Enterprise Group Incorporated, Ingersoll-Rand PLC, Kaman Corporation, and Hubbell Incorporated.  Ms. Rosenberg currently serves as a director of Equity Lifestyle Properties, Inc., Ventas, Inc, and Nanosphere, Inc., and is a trustee of Equity Residential, a real estate investment trust.

CEO Compensation.  Thomas M. Ryan is CVS’ President and Chief Executive Officer and received a salary of $1,400,000 in 2009. He also serves as the Company’s Chairman of the Board.  Mr. Ryan began his career with CVS as an in-store pharmacist thirty-five years ago before becoming CEO in 1998.  Mr. Ryan is paid at slightly above the median of CVS’ peer group.  David B. Rickard, CVS’ Executive Vice President, Chief Financial Officer and Chief Administrative Officer, received a salary of $775,000 in 2009.  Mr. Rickard retired effective December 31st, 2009.  According to his employment agreement, upon retirement all restrictions were eliminated on all of Mr. Rickard’s restricted stock units. In addition, all of his stock options became non-forfeitable and he will be eligible for pro rata payments of earned incentive payments under CVS’ Long Term Incentive Plan.  According to his Supplemental Executive Retirement Plan with CVS, Mr. Rickard will also receive an annual benefit equal to 1.6% of a three-year average of final compensation for each year of service for up to thirty years.  Final compensation under this plan considers the executive’s three highest years of annual salary and annual cash bonus during the last ten years of service.