UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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 2014
Annual Meeting of Stockholders Meeting Date: July 30, 2014
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 2
2
Executive Summary
We ask for your support at our 2014 Annual Meeting
Delivered Strong
Performance
Superior financial and operational performance in FY 2014
•
Revenues of $137.6B (13% increase from FY 2013)
•
Operating cash flow of $3.1B (24% increase from FY 2013)
•
Adjusted EPS of $8.35 (31% increase from FY 2013)
65%
total
shareholder
return
for
the
fiscal
year
ended
March
31,
2014
Successfully executed on strategic and operational initiatives, including the $8B
international acquisition of Celesio AG
Robust Governance
Structure is Informed
by Shareholder
Feedback
We value shareholder feedback in the refinement of our compensation and
governance practices
We implemented and expanded our Lead Independent Director role
We have committed to submit a proxy access by-law amendment to our
shareholders in 2015
Continued
Improvements to the
Compensation Program
After our 2013 Annual Meeting, we engaged with over 50% of our shareholder
base to understand their concerns
We made meaningful changes to our CEO’s pension benefit, our executive pay
magnitude and incentive plan design
Independent and
Experienced Board
8 of 9 director nominees are independent
Our directors bring a balance of industry-specific and functional
expertise We
are
refreshing
our
Board
–
we
added
1
new
director
in
April
2014
and
expect
4 of our existing directors to retire over the next 3 years (including 1 at the
2014 Annual Meeting) |
 3
3
A History of Strong, Sustained Performance
Key Operational,
Financial and
Strategic
Achievements
Delivered significant, profitable growth on a top-line, bottom-line, and
cash flow basis Undertook strategic and operational actions focusing on
areas where we have a leading position in order to improve our efficiency
and enhance our ability to continually innovate for our customers
Continued execution of disciplined strategic transactions, most recently the $8B
acquisition of Celesio AG that expands McKesson’s global
platform Balanced capital allocation policy with significant capital return
to shareholders through both stock repurchases and dividends
Our Executive Team and experienced Board
have driven tremendous long-term value for our shareholders
1-Year TSR
3-Year TSR
TSR Since Mr.
Hammergren
Named CEO in
FY 2002
127%
88%
29%
195%
80%
25%
628%
129%
65%
0%
100%
200%
300%
400%
500%
600%
700%
McKesson
FY 2014 Compensation Peer Group
(Market Cap Weighted Average)
S&P 500 Health Care Index |
 Responsive
to 2013 Vote and Subsequent Shareholder Feedback
4
Ongoing Board
Committee
Refreshment
Clawback Policy
Enhanced Based
On Shareholder
Proposal
Compensation Committee implemented changes to address concerns regarding the scale
of the CEO’s pension and the quantum of his pay
o
Reduced pension by $45M and set a fixed value for pension benefit
o
Eliminated volatility in pension due to changes in actuarial assumptions
Alton Irby, former Chair of the Compensation Committee, has stepped off that
Committee Jane
Shaw
joined
the
Compensation
Committee
and
assumed
the
role
of
Committee
Chair
New Director N. Anthony Coles joined the Compensation Committee in April
2014 Wayne Budd was appointed Chair of the Governance Committee
Policy previously required intentional misconduct or a material negative revision
of financial or operating measures to trigger a clawback
o
“Intent”
and “Materiality”
restrictions were eliminated, providing the Compensation
Committee greater flexibility in determining when to trigger a clawback
Policy now requires public disclosure of the results of any deliberations
regarding whether to recoup compensation, except where prevented by legal
or privacy concerns We
engaged
with
over
50%
of
our
shareholders
to
understand
areas
of
concern
and made meaningful changes in response to shareholder feedback
Substantive
Compensation
Program Changes
Made to CEO Pay |
 What’s New: Executive Compensation
Evaluation of Our CEO’s Pension
Benefit 5
Some shareholders had concerns
regarding the scale of our CEO’s
pension benefit
The CEO’s pension benefit is provided
under a legacy pension benefit plan and an
employment agreement from 1999
The annual increase in pension
accumulation is reflected in the Summary
Compensation Table and can cause spikes
in total disclosed compensation
Change reported in 2013 resulted from
adjustments to actuarial / interest rate
assumptions, which were required in light
of a long period of historically low interest
rates
Representatives of the Board and
management reached out to shareholders
to understand their perspectives following
the 2013 say on pay vote
The Compensation Committee evaluated
possible changes to the CEO’s pension
in the context of important goals
Drive the right business outcomes for
McKesson
Be in the best interests of all shareholders, and
responsive to their concerns
Retain and motivate our CEO |
 6
What’s New: Executive Compensation
Changes to the CEO’s
Pension Eliminated growth in CEO’s pension cost
Eliminated volatility in CEO’s pension benefit due to changes in actuarial
assumptions Eliminated CEO’s incentive to leave based on a changing
interest rate environment Due to this change, there will be no future change
to the value of the pension, which will simplify Summary Compensation Table
disclosure “Fixed” the CEO’s pension benefit with $45M reduction (~30%) from the
termination benefit disclosed in 2013
|
 7
What’s New: Executive Compensation
FY 2014 Current NEO Compensation Decisions
Base
Salaries
Maintained
CEO base salary since May 2010 and other Current NEO
base salaries since May 2011
Performance
RSUs
Reduced
target
awards
by
an
average
of
6%
from
FY
2013
Option
Awards
Reduced
grant date values by an average of 24% from FY 2013
Long-Term
Incentive
Plan
Reduced
maximum payout opportunity for executive officers by 33%
for
FY
2012
–
FY
2014
performance
period
Reduced
target
awards
by
an
average
3%
from
FY
2013
–
FY
2015
performance period
We
heard
our
shareholders’
views
about
the
level
of
total
compensation
and responded by reducing nearly every element of our FY 2014 pay program
|
 FY 2010
– FY 2014 CEO Direct Pay Down 26%
With Total Shareholder Return of 427%
8
(1)
(2)
Total shareholder return assumes $100 invested at the close of trading
on March 31, 2009 and the reinvestment of dividends when paid.
Total direct compensation (“TDC”) refers to total
compensation disclosed in the Summary Compensation Table minus the amount displayed under
the “Change in Pension Value and Nonqualified Deferred
Compensation Earnings” column. We exclude this amount because it does not reflect
Compensation Committee decisions based on Company or individual
performance. |
 Executive
Compensation Financial Targets Tied to Operating and Strategic Plans
9
Key Considerations in Development of Financial Targets
for Annual and Long-Term Incentive Plans
Business Environment
Competitive Factors
McKesson Objectives
Public Policy
Analyst Expectations
Market Outlook
Tax Policy
Industry Trends
Competitor Performance
Competitor Plans
Competitive Landscape
Market Growth
Historical Trends
Historical Performance
Long Range Planning
Capital Deployment Opportunities
Recent Capital Deployment Decisions
Long Range Corporate Strategy
Financial
targets
for
annual
and
long-term
incentive
plans
tied
to
1-
year
operating
plan
and
rolling
3-
year strategic plan
This approach has been effective
o
From FY
2012 to FY
2014, McKesson’s forward earnings guidance grew by more than 30%,
representing a compound annual growth rate of approximately 15%
o
For FY
2015, forward earnings guidance published on May 12, 2014 was 27% greater than the
actual
earnings
result
for
FY
2014 |
 What’s New: Executive Compensation
Incentive Plan Changes for FY 2015
10
Shareholder Concerns
Impact on FY 2015 Incentive Plan
Redundant use of
earnings metrics
Replaced Adjusted EBITDA with Adjusted OCF as secondary
financial metric in Management Incentive Plan (annual cash
incentive)
Replaced Cumulative Adjusted OCF with Adjusted ROIC as
secondary metric in Long-Term Incentive Plan (long-term cash
incentive)
Lack of shareholder return
or relative measure
and
Short performance period
(1-
year) in PeRSU program
Replaced
Performance
Restricted
Stock
Unit
(“PeRSU,”
former long-
term equity incentive) program with new Total Shareholder
Return
Unit
(“TSRU,”
new
long-term
equity
incentive)
program
for
executive officers
Adopted TSR relative to S&P 500 Health Care Index as sole
performance metric in new TSR program
o
Target
payout
at
55
th
percentile
relative
to
index
(above
median performance)
o
Payout capped at target if McKesson TSR is negative
All long-term incentive plans for executive officers, including new
TSRU
program,
now
have
performance
or
vesting
periods
of
at
least
3
years |
 11
Governance Attributes
Our Board actively seeks input from shareholders and is committed to
continuously monitoring and maintaining effective governance practices
*
Reflects governance changes adopted or enhanced in last year
Key
Governance
Attributes
Shareholder Right
to Call Special
Meeting *
No Supermajority
Vote Provisions
Majority Voting for
Uncontested Director
Elections
Annual Election
of Directors
8 of 9 Director
Nominees are
Independent
Robust Lead
Independent
Director *
Significant
Director Equity
Ownership
Annual CEO
Succession Review
Regular Executive
Sessions of the Board
No Poison Pill
Related Party
Transactions Policy |
 12
Independent, Experienced Board with
Diverse Skills & Perspectives
McKesson’s Board, with its diverse perspectives, provides valuable guidance,
consultation and oversight for management
Nominees Bring a Balance of Industry-Specific and Functional Expertise
All 9 have served on other public company
boards
2 former leaders of pharmaceutical or medical
device companies
4 nominees with healthcare experience
3 with financial expertise
3 technology industry experts
2 former CFOs
8
Independent
Directors
7
Current or
Former CEOs
2
Females
2
African
Americans
2
Physicians
89%
78%
22%
22%
22% |
 What’s New: Corporate Governance
Ongoing Board Refreshment
13
The Governance Committee continues to identify candidates to join the Board and
provide fresh perspectives as new independent Directors
Expected Composition at 2017 AGM**
Current Board Tenure*
N. Anthony Coles, M.D.,
appointed to the Board in
April 2014
o
Former CEO and
Chairman of Onyx
Pharmaceuticals
(NASDAQ:ONXX)
o
Extensive experience in
biopharmaceuticals and
pharmaceuticals
o
Independent under SEC,
New York Stock
Exchange and McKesson
criteria
*Includes
Dr.
Shaw
who
will
be
leaving
the
Board
at
the
upcoming
Annual
Meeting
**Assumes no expansion in Board size
16+ Years
2
1
4
4
1
0-5 Years
6-10 Years
11-15 Years
16+ Years
4
1
2
0-5 Years
6-10 Years
11-15 Years |
 What’s New: Corporate Governance
Expansion of Lead Director Role
14
Preside at all meetings of the Board at
which the Chairman is not present,
including executive sessions of the
independent directors
Serve as liaison between the
Chairman and the independent
directors
Approve information sent to the
Board
Approve Board meeting agendas and
assure that there is sufficient time for
discussion of all items
Call meetings of the independent
directors, as appropriate
If requested by major shareholders,
ensure that he or she is available for
direct communication
Lead the annual evaluation of directors
and the CEO
Assume role of Chairman of the Board
on an interim basis in the event of a
temporary or permanent absence of
the Chairman
Provide recommendations to the
Governance Committee regarding
Board committee memberships
selection of committee chairs
Retain independent legal, accounting
and other advisors
Assist in assuring compliance with,
and implementation of, the Corporate
Governance Guidelines
Core Roles and Responsibilities
of Lead Independent Director
Expansion of Lead Independent
Director’s Powers
Created
role in
January
2013,
effective
July 2013
Expanded
role in
October
2013 |
 What’s New: Governance
Proxy Access By-Law in 2015
15
We recently announced plan to submit a proposal at the 2015
Annual Meeting to adopt a proxy access by-law amendment
Discussed proxy access with shareholders in reaching decision
3% ownership with a 3-year holding period
Shareholders may nominate directors for up to 20% of the
available seats
McKesson’s
plan
to
seek
shareholder
approval
of
proxy
access
demonstrates
our
commitment to best practices in corporate governance |
 Board
Perspectives on Shareholder Proposals Action by Written Consent of
Shareholders 16
The Board believes that implementation of this proposal is unnecessary given the
ability of shareholders to call special meetings
o
Currently, any matter that either McKesson or its shareholders wish to present for
a vote must be presented at an annual or special meeting; this allows all
shareholders to consider, discuss and vote on pending shareholder
actions Written consent would permit a small group of shareholders (including
those who accumulate a short-term voting position through the borrowing
of shares) to initiate action with no prior notice either to the other
shareholders or to the Company
o
Such shareholders may not act in the interests of longer-term holders of our
common stock o
Action by written consent is not subject to notice periods that are vital to
informed decision making o
This could prevent all shareholders from having an opportunity to deliberate in an
open and transparent manner, and to consider arguments for and against any
action o
Further, the Board does not have the opportunity to analyze and provide a
recommendation, and proponents
need
not
provide
any
information
regarding
themselves
or
their
interests
in
the
proposed
action to other shareholders or the Company
A proposal on this topic in 2013 was opposed by 55% of votes cast, while the
special meeting right proposed by the Company was overwhelmingly approved,
reflecting shareholder preferences Given the potential for abuse and
disenfranchisement of minority shareholders and other
adverse consequences associated with the right to act by less than unanimous written
consent, the Board recommends a vote “AGAINST”
this proposal |
 Board
Perspectives on Shareholder Proposals Disclosure of Political
Contributions 17
McKesson understands that the decisions made by policymakers have a profound impact
on our industry, business and customers
McKesson primarily engages in the political process through the McKesson
Corporation Employees Political Fund (“PAC”)
o
Contributions
are
funded
entirely
by
eligible
McKesson
employees
on
a
voluntary
basis;
such
contributions are not made with corporate assets
The
Company
does
not
make
“independent
expenditures”
or
“super
PAC”
contributions
The Company does make a limited number of corporate political contributions at the
state level o
This includes corporate contributions to state candidates and political action
committees in areas where the Company has a significant employee or
facility presence o
Political contributions are subject to Board oversight, and all contributions must
be approved by the Senior Vice President of Public Affairs, with
contributions greater than $1,000 subject to approval by the Chairman of
the Board and Chief Executive Officer We agree that transparency and
accountability with respect to political expenditures are important o
All corporate political contributions are subject to both internal procedures and
strict laws regarding transparency
We support transparency in reporting; a link to a database of PAC contributions is
made available on our website
at
www.mckesson.com
under
the
caption
“About
McKesson-Public
Affairs,”
as
well
as
the
aggregate
amount of political contributions and a statement about the Company’s
political contribution policies Given the limited nature of McKesson’s
corporate political contributions, together with recently enhanced
transparency and Board oversight of our political engagement, the Board
believes this proposal is unnecessary and recommends a vote “AGAINST” |
 Board
Perspectives on Shareholder Proposals Accelerated Vesting of Equity
Awards 18
The Board opposes this proposal because providing for accelerated vesting of equity
awards in the event of a named executive officer’s termination
following a change in control is in the best interests of shareholders o
This
“double
trigger”
for
accelerated
vesting
is
consistent
with
feedback
from
our
shareholders
o
Executives have employee benefits, including severance and change in control
benefits, that the Compensation Committee believes are competitively
necessary o
Adopting this proposal would limit our ability to provide competitive compensation
programs and could disadvantage our ability to attract and retain highly
qualified employees Accelerated
vesting
can
help
to
mitigate
some
of
the
uncertainty
that
will
likely
arise
for
executives
from
a
change in control transaction, and reduce the risk of executive turnover during a
pending transaction where the risk of job loss is relatively high for senior
executives The Board believes that the current structure of the
Company’s executive compensation program, including the provisions
related to accelerated vesting of equity incentive awards, are appropriate and effective, and align the
interests of our executives with those of the Company’s shareholders
o
These compensation programs are consistent with market practice and provide us
with the ability to compete for, attract and retain talented
executives The Board believes that the current executive compensation
structure, including accelerated vesting of equity incentive awards, is
appropriate and effective at aligning the interests of
executives and shareholders –
a vote “AGAINST”
is recommended |
 19
2014 Annual Meeting of Stockholders
This information is being provided to shareholders in addition to the proxy
statement filed by McKesson Corporation (the “Company”) with the
Securities and Exchange Commission (the “SEC”) on June 19, 2014.
Please read the complete proxy statement and accompanying materials
carefully before you make a voting decision. Even if voting instructions for
your proxy have already been given, you can change your vote at any time
before the annual meeting by giving new voting instructions as described in
more detail in the proxy statement. The proxy
statement,
and
any
other
documents
filed
by
the
Company
with
the
SEC,
may
be
obtained free of charge at www.sec.gov
and from the Company’s website at
www.mckesson.com. |