The Director Compensation Project: CVS Caremark Corporation

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation.  We are for the most part including companies from 2011’s Fortune 500 and using information found in their 2011 proxy statements. 

Nasdaq and the NYSE have similar rules with respect to director independence.  NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director does not qualify as “independent” if he or she has a “material relationship with the company.”  NYSE Rule 303A.02(a).  In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.  NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3).

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the CVS Caremark (NYSE: CVS) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Cash Fees Elected to be Paid in Stock ($)	All Other Compensation** ($)	Total ($)
Edwin M. Banks	6,500	195,000	0	2,324	262,324
C. David Brown II	40	202,500	67,460	1,627	271,627
David W. Dorman*	47	345,000	114,953	0	460,000
Anne M. Finucane	37,952	259,965	48,750	0	346,667
Kristen Gibney Williams	65,027	194,973	0	1,415	261,415
Marian L. Heard	65,000	195,000	0	1,627	261,627
Jean-Pierre Millon	65,027	194,973	0	946	260,946
Terrence Murray	37	195,000	64,963	0	260,000
C.A. Lance Piccolo	65,027	194,973	0	5,475	265,475
Richard J. Swift	70,024	209,976	0	1,627	281,627
Tony L. White	75,891	227,442	0	322	303,655

*       Mr. David W. Dorman became the independent Chairman of the Board on May 11, 2011.

*       Other Compensation reflects an additional retainer received by directors serving on subcommittees.

Director Compensation.  During the 2011 fiscal year, CVS Caremark held eight meetings of the board of directors.  Each director attended at least 75% of these meetings.  Directors received an annual retainer worth $260,000; seventy-five percent was paid in shares of the company’s stock, and the other 25% was paid in cash or stock, at the option of the individual director.  Several directors also served on subcommittees.  This service qualified each to receive an additional retainer of either $10,000 or $20,000.  These retainers were paid semi-annually and at least 75% were paid in shares of Caremark common stock.  

Director Tenure.  Ms. Heard has been a director since 1999, making her the longest-serving member.  Directors serving on other boards include Mr. Richard J. Swift, who currently serves as a director of Public Service Enterprise Group Inc.; Hubbell Inc.; and Ingersoll-Rand PLC, and Mr. Dorman, who serves as director of Yum! Brands, Inc. 

CEO Compensation.  During the 2011 fiscal year, CVS Caremark’s President and Chief Executive Officer, Larry J. Merlo, received a compensation package totaling $14,074,790.  Mr. Merlo was appointed as Chief Executive Officer in March 2011.  Mark S. Cosby, the Executive Vice President, earned $9,594,923 in salary, stock options, and other compensation.  The company has implemented a long-term incentive compensation program to reinforce strategic objectives and continued employment at CVS.  This component represents a significant portion of total compensation earned by executive officers, and a total of $3,834,020 for Mr. Merlo.  CVS Caremark provided a financial planning allowance so that each executive officer could hire a financial planner.  The company also required the CEO to use its corporate aircraft for business and personal travel.