UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERSNotice of Annual Meeting of Shareholders
TO BE HELD NOVEMBER 5, 2014To Be Held November 8, 2017 |
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| Date and time: | Wednesday, November 5, 2014,8, 2017, at 8:00 a.m., local time |
| Location: | Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017 |
| Purpose: | (1) | To elect the 11 director nominees named in the proxy statement; |
| | (2) | To ratify the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending June 30, 2015;2018; |
| | (3) | To approve, on a non-binding advisory basis, the compensation of our named executive officers; |
| | (4) | To vote, on a non-binding advisory basis, on the frequency of future advisory votes to approve the material terms of the performance goal under the Cardinal Health, Inc. Management Incentive Plan;executive compensation; |
| | (5) | To vote on atwo shareholder proposalproposals described in the accompanying proxy statement, if properly presented at the meeting; and |
| | (6) | To transact such other business as may properly come before the meeting or any adjournment or postponement. |
| Who may vote: | Shareholders of record at the close of business on September 10, 201411, 2017 are entitled to notice of, and to vote at, the meeting or any adjournment or postponement. |
By Order of the Board of Directors.
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September 16, 2014 21, 2017 | |
| | STEPHEN T. FALKJESSICA L. MAYER |
| | Executive Vice President, Deputy General Counsel and Corporate Secretary |
Important notice regarding the availability of proxy materials for the Annual Meeting of Shareholders to be held on November 5, 2014:8, 2017:
This Notice of Annual Meeting of Shareholders, the accompanying proxy statement and our 20142017 Annual Report to Shareholders all are available at www.edocumentview.com/cah.
PROXY SUMMARYProxy Summary
This summary highlights information contained elsewhere in our proxy statement. This summary does not contain all of the information that you should consider, and you should carefully read the entire proxy statement and our 2017 Annual Report carefullyto Shareholders before voting.
Fiscal 2017 Performance
In fiscal 2017, we took important actions to strengthen our market position, increase our scale, add new, long-term drivers of growth and improve the overall balance of our integrated portfolio.
In July 2017, we acquired the Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses (the "Patient Recovery Business") from Medtronic plc for $6.1 billion. These well-established, industry-leading product lines are complementary to our medical product business, fit naturally into our customer offering and expand our global reach. The new portfolio will help us further expand our scope in the operating room, in long-term care facilities and in home healthcare, reaching customers across the entire continuum of care.
In our Pharmaceutical segment, our Specialty Solutions business had outstanding growth, expanding its therapeutic reach and growing its hospital and physician customer base, and we saw excellent performance from our Red Oak Sourcing generic sourcing venture with CVS Health Corporation.
In our Medical segment, our medical products distribution business had its strongest growth in recent years, and we continued to expand our Cardinal Health branded product portfolio with nearly 12,000 product SKUs in 850 categories, more than double from five years ago. We also saw excellent growth from our naviHealth business.
On the financial side:
Revenue increased 7% to a record $130.0 billion.
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Select Performance and Compensation Highlights• | GAAP diluted earnings per share ("EPS") decreased 7% to $4.03, while non-GAAP diluted EPS* increased 3% to $5.40, reflecting a challenging generic pharmaceutical pricing environment. |
Our Pharmaceutical segment grew revenue 7%, while segment profit decreased 12% largely driven by the generic pharmaceutical pricing environment, partially offset by the benefits from Red Oak Sourcing.
Fiscal 2014 was an outstanding year for us as strong pharmaceutical salesOur Medical segment grew revenue 9% and generic program performance overcamesegment profit 25%, with profit growth being driven by contributions from the August 2013 expiration of the Walgreen Co. ("Walgreens") pharmaceuticalnaviHealth business, Cardinal Health branded products and distribution contract, which reduced our revenue by $17 billion.services.
We increased non-GAAP operating earnings by 4% to $2.1 billion* for the fiscal year, compared to the flat earnings growth expected when we set our annual performance goals. We also increased Pharmaceutical segment profit by 1% (rather than an expected decrease due to the Walgreens contract expiration).
We increased our dividend 13% and returned $1.1$1.2 billion to shareholders, throughincluding $1.80 per share in dividends and $600 million in share repurchases.
Our total market shareholder return was 47%.
We partnered with CVS Health Corporation to launch Red Oak Sourcing, LLC, the largest generic pharmaceutical purchasing entity in the United States.
Our Chief Executive Officer, George Barrett, received 152% of his target annual incentive based on our consolidated performance — specifically earnings growth that exceeded our goals despite the Walgreens contract expiration — and our significant progress advancing our strategic priorities during fiscal 2014 under his leadership, including the successful launch of Red Oak Sourcing, LLC.
The performance share units for the fiscal 2012 through fiscal 2014 performance period vested at 120%, reflecting a combined 13% non-GAAP earnings per share annual growth rate and dividend yield over the three-year period.
As shown below, a $100 investment made when Mr. Barrett was appointed Chairman and Chief Executive Officer in August 2009 would have grown to $308 at the end of fiscal 2014, assuming dividend reinvestment.
We are committedOur Chairman and Chief Executive Officer, Mr. Barrett, declined to strong corporate governance. Below arebe considered for an annual incentive payout due to our performance. While we achieved 89% of the adjusted non-GAAP operating earnings goal under our annual incentive plan, we did not meet the threshold for a fewpayout, largely as a result of our key governance practices and highlights.
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ü | 10 of our 11 director nominees are independent | ü | Long-standing shareholder engagement program |
ü | Annual election of directors and majority voting | ü | Annual board, committee and individual director evaluations |
ü | Independent Lead Director with robust duties | ü | Compensation recovery ("clawback") policies |
ü | Seven new directors since 2009, five of whom have significant healthcare experience | ü | Stock ownership guidelines for directors and executive officers |
the challenging generic pharmaceutical pricing environment. Mr. Barrett's cash compensation (salary plus annual incentive payout) was down 64% compared to the prior fiscal year.___________
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* | On a GAAP basis, operating earnings increased 89% to $1.9 billion in fiscal 2014. We provide a reconciliation of the differences between thereasons we use non-GAAP and GAAP financial measures in Appendix Aand the reconciliations to this proxy statement.
their most directly comparable U.S. Generally Accepted Accounting Principles ("GAAP") financial measures on pages 18 through 20 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (the "Fiscal 2017 Form 10-K"). |
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Nominees for Director | Cardinal Health | 2017 Proxy Statement | i |
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| Name | Age | Director Since | Occupation | Independent | Committee Memberships |
| Audit | Human Resources and Compensation | Nominating and Governance |
| David J. Anderson | 65 | 2014 | Retired Senior Vice President and Chief Financial Officer, Honeywell International | ü
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| Colleen F. Arnold | 57 | 2007 | SVP, Sales and Distribution, IBM | ü | | | ü |
| George S. Barrett | 59 | 2009 | Chairman and CEO, Cardinal Health | | | | |
| Carrie S. Cox | 57 | 2009 | Chairman and CEO, Humacyte, Inc. and former EVP and President, Global Pharmaceuticals, Schering-Plough | ü | | ü | |
| Calvin Darden | 64 | 2005 | Retired SVP of U.S. Operations, UPS | ü | | ü | |
| Bruce L. Downey | 66 | 2009 | Partner, NewSpring Health Capital II, L.P. and retired Chairman and CEO, Barr Pharmaceuticals | ü | ü | | |
| Patricia A. Hemingway Hall | 61 | 2013 | President and CEO, Health Care Service Corporation | ü | ü | | |
| Clayton M. Jones | 65 | 2012 | Retired Chairman, President and CEO, Rockwell Collins | ü | Chair | | |
| Gregory B. Kenny | 61 | 2007 | President and CEO, General Cable | ü | | Chair † | ü |
| David P. King | 58 | 2011 | Chairman, President and CEO, Laboratory Corporation of America Holdings | ü | | ü † | |
| Richard C. Notebaert | 67 | 1999 | Retired Chairman and CEO, Qwest Communications International | ü | | ü | ü |
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| John F. Finn, a director since 1994 and currently Lead Director and Chairman of the Nominating and Governance Committee, has decided not to stand for re-election at the 2014 Annual Meeting. On November 1, 2014, Mr. Kenny will become Lead Director and Chairman of the Nominating and Governance Committee and cease to be Chairman of the Human Resources and Compensation Committee, and Mr. King will become Chairman of the Human Resources and Compensation Committee. |
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Additional Information About Our NomineesProxy Summary | | |
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| Cardinal Health | 2017 Proxy Statement | |
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TABLE OF CONTENTSProxy Summary | | |
Additional Information About Our Board of Directors
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| Cardinal Health | 2017 Proxy Statement | iii |
Table of Contents
2014 PROXY STATEMENT
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GENERAL INFORMATIONiv
| Cardinal Health | 2017 Proxy Statement | |
2017 Proxy Statement
General Information
These proxy materials are being furnished to solicit proxies on behalf of the Board of Directors of Cardinal Health, Inc. for use at our Annual Meeting of Shareholders to be held on Wednesday, November 5, 2014,8, 2017, and at any adjournment or postponement (the “Annual Meeting”). The meetingAnnual Meeting will take place at our principal executive office located at 7000 Cardinal Place, Dublin, Ohio 43017, at 8:00 a.m., local time.
These proxy materials include our Notice of Annual Meeting and Proxy Statement and our 2017 Annual Report to Shareholders, for the fiscal year ended June 30, 2014.which includes our Fiscal 2017 Form 10-K. In addition, these proxy materials may include a proxy card for the Annual Meeting. A copy of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the U.S. Securities and Exchange Commission (the “SEC”), will be provided, free of charge, to any shareholder upon written request addressed to our Investor Relations department at Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017.These proxy materials are first being sent or made available to our shareholders commencing on or about September 1621, 2014.2017.
References to our fiscal years in this proxy statement mean the fiscal year ended or ending on June 30 of such year. For example, “fiscal 2014”2017” refers to the fiscal year ended June 30, 2014.2017.
Notice of Internet Availability of Proxy Materials
As permitted by the SEC,Securities and Exchange Commission ("SEC"), we are providing proxy materials to some of our shareholders via the Internet. On or aboutCommencing on September 16, 2014,21, 2017, we mailed a Notice of Internet Availability of Proxy Materials (“Notice”(the “Notice”) explaining how to access our proxy materials online. If you received the Notice, you will not receive a printed copy of our proxy materials by mail unless you request one by following the directions included on the Notice.
Voting Information
Record date.Date
We have fixed the close of business on September 10, 201411, 2017 as the record date for determining our shareholders entitled to notice of and to vote at the Annual Meeting. On that date, we had 336,150,446315,215,877 common shares outstanding. Shareholders as of the record date will have one vote per share for the election of each of our 11 director nominees,nominee and one vote per share on each other voting matter.
Quorum
Quorum. We will have a quorum to conduct business at the Annual Meeting if the holders of a majority of our common shares are present, either in person or by proxy.
Board recommendation.Recommendation
The Board recommends that you vote FOR the election of the 11 director nominees, FOR Proposals 2 and 3, andONE YEAR for Proposal 4, and AGAINST Proposal 5.Proposals 5 and 6.
How to vote.Vote
Shareholders of record. We encourage you to vote promptly. If you are a “registered holder”“shareholder of record” (meaning your shares are registered in your name with our transfer agent, Computershare Trust Company, N.A.), you may vote either in person at the Annual Meeting or by proxy. If you are a “registered holder” or hold shares in an employee plan and decide to vote by proxy, you may do so in any one of the following three ways:
By telephone. You may vote your shares 24 hours a day by calling the toll free number 1-800-652-VOTE (8683) within the United States, U.S. territories or Canada, and following instructions provided by the recorded message. You will need to enter identifying information that appears on your proxy card or the Notice. The telephone voting system allows you to confirm that your votes were properly recorded.
By Internet. You may vote your shares 24 hours a day by logging on to a secure website, www.envisionreports.com/CAH, and following the instructions provided. You will need to enter identifying information that appears on your proxy card or the Notice. As with the telephone voting system, you will be able to confirm that your votes were properly recorded.
By mail. If you received a proxy card, you may mark, sign and date your proxy card and return it by mail in the enclosed postage-paid envelope.
Telephone and Internet voting is available through 2:00 a.m. Eastern time on Wednesday, November 5, 2014.8, 2017. If you vote by mail, your proxy card must be received before the Annual Meeting to assure that your vote is counted. We encourage you to vote promptly.
Beneficial owners.If, like most shareholders, you are a beneficial owner of shares held in “street name” (meaning a broker, trustee, bank or other nominee holds shares on your behalf), you may vote in person at the Annual Meeting only if you obtain a legal proxy from the nominee that holds your shares. Alternatively, you may
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| Cardinal Health | 2017 Proxy Statement | 1 |
vote by completing, signing and returning the voting instruction form that the nominee provides to you or by following any telephone or Internet voting instructions
described on the voting instruction form, the Notice or other materials that the nominee provides to you. We encourage you to vote promptly.
Changing or revoking your proxy.Revoking Your Proxy
Your presenceattendance at the Annual Meeting will not automatically revoke your proxy. If you are a registered holder,shareholder of record, you may change or revoke your proxy at any time before a vote is taken at the meeting by giving notice to us in writing or duringat the Annual Meeting, by executing and forwarding to us a later-dated proxy or by voting a later proxy over the telephone or the Internet. If you are a beneficial shareholder,owner of shares, you should check with the broker, trustee, bank or other nominee that holds your shares to determine how to change or revoke your vote.
Shares held though plans.Held Though Our Employee Plans
If you hold shares through our 401(k) Savings Plans or Deferred Compensation Plan ("DCP"), you will receive voting instructions from Computershare Trust Company, N.A. and can vote through one of the three methods described above under "How to Vote." Please note that employee plan shares have an earlier voting deadline of 2:00 a.m. Eastern time on Monday, November 3, 2014.6, 2017.
Broker non-votes. Non-Votes
If you are a beneficial owner whose shares are held by a broker, as stated above you must instruct the broker how to vote your shares. If you do not provide voting instructions, your broker is not permitted to vote your shares on the election of directors, the advisory vote to approve the compensation of our named executive officers, the advisory vote on the frequency of future advisory votes to approve the Management Incentive Plan performance goalexecutive compensation or the shareholder proposal.proposals. The inability of the broker to vote your shares on these proposals results in this situation is called a “broker non-vote.” In these cases,the absence of voting instructions, the broker can only register your shares as being present at the Annual Meeting for purposes of determining a quorum and may vote your shares on ratification of the appointment of our auditor.
Voting. Voting
You may either vote FOR, AGAINST or ABSTAIN on each of the proposals.proposals with the exception of Proposal 4 where you may vote for ONE YEAR, TWO YEARS, THREE YEARS or ABSTAIN. Votes will be tabulated by or under the direction of inspectors of election, who will certify the results following the Annual Meeting.
To elect directors under Proposal 1, our governing documents require that in an uncontested election, a director nominee be elected by a majority of votes cast in an uncontested election.cast. Abstentions and broker non-votes are not considered as votes cast and are not counted in determining the outcome of the voting results. If a director nominee who is a sitting Board member is not re-elected by a majority vote,of votes cast, that individual is required to tender a resignation for the Board’s consideration. See “Corporate Governance —
“Resignation Policy for Incumbent Directors Not Receiving Majority Votes” on page 15.13. Proxies may not be voted for more than 11 director nominees, and shareholders may not cumulate their voting power.
Each of Proposals 2 through 5 will be approved6 requires approval by a majority of votes cast.cast, with the exception of Proposal 4 which requires the majority of the votes cast for one of the options (i.e., one year, two years or three years). Abstentions and broker non-votes are not considered as votes cast and will not be counted in determining the outcome of the voting results.
How shares will be voted.Shares Will Be Voted
The shares represented by all valid proxies received by telephone, by Internet or by mail will be voted in the manner specified. Where specific choicesFor shareholders of record who do not specify a choice for a proposal, proxies that are not indicated, the shares represented by all valid proxies receivedsigned and returned will be voted FOR the election of all 11 director nominees, FOR the ratification of the appointment of Ernst & Young LLP as independent auditor, FOR approval of the compensation of our named executive officers, FORapproval of the Management Incentive Plan performance goal and AGAINST conducting future advisory votes to approve executive compensation every ONE YEAR, and AGAINST the shareholder proposal.proposals. If any other matters properly come before the Annual Meeting, the individuals named in your proxy, or their substitutes, will determine how to vote on those matters in their discretion. The Board of Directors does not know of any other matters that will be presented for action at the Annual Meeting.
Transfer Agent
Registered shareholders should direct communications regarding change of address, transfer of share ownership, lost share certificates and other matters regarding their share ownership to Computershare Trust Company, N.A., P.O. Box 30170, College Station, TX 77842. Our transfer agent may also be contacted via the Internet at www.computershare.com/investor or by telephone at (877) 498-8861 or (781) 575-2879.
Attending the Annual Meeting
You will not be admitted toTo attend the Annual Meeting, unless you must be a shareholder as of September 11, 2017, the record date, and have an admission ticket or satisfactory proof of share ownership and photo identification. If you are a registered shareholder yourof record, you must present an admission ticket (which is attached to your proxy cardcard) or you maymust present the Notice.Notice of Internet Availability. If you are a beneficial owner, in order to be admitted to the meeting, you must present either a valid legal proxy from your proof of share ownership can bebank, broker or other nominee as to your shares, the Notice orof Internet Availability, a photocopy of the voting instruction form that the nominee provided to you if your shares are held byor a bank or brokerage firm. account statement. Anyone holding an admission ticket or other documentation not issued in his or her name will not be admitted to the meeting. Our annual meeting rules prohibit cameras, videotaping equipment and other recording devices, large packages, banners or placards in the meeting and prohibit use of a phone or other device.
You can call our Investor Relations department at (614) 757-4757 if you need directions to the Annual Meeting.
Even if you expect to attend the Annual Meeting in person, we urge you to vote your shares in advance.
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PROPOSAL 1—ELECTION OF DIRECTORS2
| Cardinal Health | 2017 Proxy Statement | |
Proposal 1—Election of Directors
Our Board has nominated 11 directors for election at this Annual Meeting to serve until the next annual meetingAnnual Meeting of shareholdersShareholders and until his or her successor is duly elected and qualified. All of the nominees are currently are directors of Cardinal Health.
The Board seeks members that possess the experience, skills and diverse backgrounds to perform effectively in overseeing the company's current and evolving business and strategic direction and to properly perform its oversight responsibilities. All of our director nominees bring to the Board a wealth of executive leadership experience derived from their diverse professional backgrounds and areas of expertise. As a group, they have
extensive healthcare and global business experience, financial expertise and business acumen , as well as public company board experience. Each of our director nominees has sound judgment and integrity and is able to commit sufficient time and attention to the activities of the Board. All director nominees other than the Chairman and Chief Executive Officer are independent.
Each director nominee agreed to be named in this proxy statement and to serve if elected. If, due to death or other unexpected occurrence, one or more of the director nominees is not available for election, proxies will be voted for the election of all remaining nominees and any substitute nominee(s) the Board selects.
John F. Finn, a director since 1994, has decided not to stand for re-election at the Annual Meeting. The size of the Board will be reduced to 11 at that time. Glenn A. Britt was a director of the company from 2009 until his death in June 2014.
Set forth below is background information regarding each individual nominated for election as a director. We believe that eachBiographies of our nominees has sound judgment and integrity and is able to commit sufficient time and attention to the activities of the Board.
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| | David J. Anderson, 65, Director since April 2014
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| • | Senior Vice President and Chief Financial Officer of Honeywell International Inc., a global diversified technology and manufacturing company, from 2003 until his retirement in April 2014 |
| • | Held a number of other executive positions with ITT Corporation, Newport News Shipbuilding, RJR Nabisco and Quaker Oats Company prior to joining Honeywell |
| • | Other public company directorships: |
| | • | American Electric Power, Inc., a public utility holding company, since 2011 |
| | • | B/E Aerospace, Inc., a manufacturer of aircraft cabin interior products and provider of aerospace fasteners, consumables and logistics services, since June 2014 |
| Director qualifications:Through his prior finance leadership positions, including as Chief Financial Officer, at Honeywell and other leading companies, Mr. Anderson brings to the Board relevant experience in the areas of finance, operations, management, executive leadership, strategic planning, information technology and international markets. His extensive finance experience provides valuable insight in the areas of financial reporting and accounting and controls. He also brings to the Board valuable perspective and insights from his service on the boards of directors of American Electric Power, including its Audit and Finance Committees, and B/E Aerospace.
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| | Colleen F. Arnold, 57, Director since 2007
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| • | Senior Vice President, Sales and Distribution, International Business Machines Corporation, a provider of systems, financing, software and services, since January 2014 |
| • | Held a number of senior positions with IBM from 1998 to January 2014, including Senior Vice President, Application Management Services, IBM Global Business Services, and General Manager of GBS Strategy, Global Consulting Services and SOA Solutions, Global Industries and Global Application Services |
| Director qualifications:Ms. Arnold has served as a senior executive of IBM for over 16 years. Her significant experience in the areas of business operations and information technology contributes to the Board's understanding of the impact of information technology on our business. She also brings to the Board more than 30 years of relevant experience in the areas of operations, management, executive leadership, strategic planning and international markets.
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| | George S. Barrett, 59, Director since 2009
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| • | Chairman of the Board and Chief Executive Officer of Cardinal Health since 2009 |
| • | Vice Chairman of Cardinal Health and Chief Executive Officer — Healthcare Supply Chain Services from 2008 to 2009 |
| • | Held a number of executive positions with Teva Pharmaceuticals Industries Limited, a generic and branded pharmaceutical manufacturer, from 1999 to 2007, including President and Chief Executive Officer of Teva North America |
| • | Other public company directorship: Eaton Corporation plc, a diversified power management company, since 2011 |
| Director qualifications: Having worked for over 30 years in the pharmaceutical industry, Mr. Barrett has experience in the areas of healthcare, operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and international markets. As a result, he provides the Board with unique perspective and insights regarding our businesses, industry, challenges and opportunities, and he communicates management’s perspective on important matters to the Board. He also brings to the Board valuable perspective and insights from his service on Eaton’s board of directors.
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| | Carrie S. Cox, 57, Director since 2009
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| • | Chief Executive Officer of Humacyte, Inc., a privately held, development stage company focused on regenerative medicine, since 2010 and Chairman of Humacyte since 2013 |
| • | Executive Vice President and President, Global Pharmaceuticals, of Schering-Plough Corporation, a branded pharmaceutical manufacturer, from 2003 through 2009 |
| • | Other public company directorships: |
| | • | Texas Instruments Incorporated, a developer, manufacturer and marketer of semiconductors, since 2004 |
| | • | Celgene Corporation, a biopharmaceutical company, since 2009 |
| Director qualifications: As a former executive officer of Schering-Plough and a licensed pharmacist, Ms. Cox brings to the Board substantial experience in the pharmaceutical aspects of our business. She has worked in the pharmaceutical industry for over 30 years, giving her relevant experience in the areas of healthcare, operations, management, regulatory compliance, executive leadership, strategic planning and international markets. She also brings to the Board valuable perspective and insights from her service on the boards of directors of Texas Instruments, including its Compensation Committee, and Celgene.
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Director Nominees |
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| David J. Anderson | Calvin DardenAge, 64, 68
| Director since 20052014 |
| • | Senior Vice President and Chief Financial Officer of U.S. OperationsHoneywell International Inc. (retired); Former Executive Vice President and Chief Financial Officer of United Parcel Service,Alexion Pharmaceuticals, Inc. |
| Independent Director | Director Qualification Highlights |
Other Public Boards: American Electric Power Company, Inc., a package deliverypublic utility holding company and provider of specialized transportation and logistics services, from 2000 until his retirement in 2005 |
| • | Other public company directorships: |
| | • | Target Corporation, an operator of large-format general merchandise discount stores, since 2003 |
| | • | Coca-Cola Enterprises,(since 2011); B/E Aerospace, Inc., a marketer, manufacturer and distributor of nonalcoholic beverages in select international markets, since 2004 |
| aircraft interior products (2014 -2017); Fifth Street Asset Management Inc., an alternative asset manager (2014 - 2015) | Director qualifications: ü A former executive officer of UPS, Mr. Darden has valuable experience in supply chain networks and logistics that contributes to the Board’s understanding of this important aspect of our business. He has over 30 years of relevant experience in the areas of operations, management, executive leadership, efficiency and quality control, strategic planning and labor relations. He also brings to the Board valuable perspective and insights from his service on Target’s board of directors, including its Compensation Committee, and on Coca-Cola Enterprises’ board of directors, including its Human Resources and Compensation Committee.Financial Literacy / Expertise - Former CFO roles
ü Healthcare ü International ü Executive Leadership ü Strategic Planning / Acquisitions ü Technology ü Operations ü Regulatory / Public Policy |
Mr. Anderson served as Chief Financial Officer of Honeywell International Inc., a global diversified technology and manufacturing company, from 2003 to 2014 and as Chief Financial Officer of Alexion Pharmaceuticals, Inc. ("Alexion"), a biotechnology company, from December 2016 to August 2017. While at Honeywell, Mr. Anderson was responsible for the company’s corporate finance activities including domestic and international tax, accounting, treasury, audit, investments, financial planning, acquisitions and real estate. Prior to his roles at Honeywell and Alexion, Mr. Anderson held a number of other finance-related executive positions with ITT Corporation, Newport News Shipbuilding, RJR Nabisco and Quaker Oats Company.
Skills and Qualifications of Particular Relevance to Cardinal Health
Through his prior finance leadership positions as Chief Financial Officer at Honeywell and Alexion, as well as other leading companies, Mr. Anderson brings to the Board relevant experience in the areas of global finance and accounting, healthcare, management, executive leadership, strategic planning, acquisitions, information technology, manufacturing operations and international markets. Given his extensive financial expertise, Mr. Anderson provides valuable insight in the areas of financial reporting, accounting and internal controls, as well as international tax and finance. In addition, his recent experience as Chief Financial Officer of Alexion brings to the Board relevant experience in the areas of healthcare and pharmaceutical manufacturing. Mr. Anderson also brings to the Board valuable perspectives and insights from his service on the board of directors of American Electric Power, including service on its Audit and Finance Committees, as well as his prior service on B/E Aerospace's board of directors.
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| | Bruce L. Downey, 66, Director since 2009
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| • | Partner of NewSpring Health Capital II, L.P., a venture capital firm, since 2009 |
| • | Chairman and Chief Executive Officer of Barr Pharmaceuticals, Inc., a generic pharmaceutical manufacturer, from 1994 through 2008 |
| • | Other public company directorship: Momenta Pharmaceuticals, Inc., a biotechnology company, since 2009 |
| | Director qualifications:Cardinal Health Having spent 14 years as Chairman and Chief Executive Officer of Barr Pharmaceuticals, Mr. Downey brings to the Board substantial experience in the areas of healthcare, operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources and corporate governance. He also offers valuable experience in the pharmaceutical aspects of our business and perspective and insights from having served as Chairman of Barr Pharmaceuticals' board of directors and from his service on Momenta Pharmaceuticals’ board of directors, including its Audit Committee. Before his career at Barr Pharmaceuticals, Mr. Downey was a practicing attorney for 20 years, having worked in both private practice and with the U.S. Department of Justice.| 2017 Proxy Statement
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| Proposal 1—Election of Directors | | Patricia A. Hemingway Hall, 61, Director since 2013
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| • | President and Chief Executive Officer of Health Care Service Corporation, a mutual health insurer ("HCSC"), since 2008 |
| • | Other public company directorship: ManpowerGroup Inc., a staffing services company, since 2011 |
| Director qualifications: As President and Chief Executive Officer of HCSC, the largest customer-owned health insurer in the United States and fourth largest overall, operating through Blue Cross and Blue Shield Plans in Illinois, Montana, New Mexico, Oklahoma and Texas, Ms. Hemingway Hall brings to the Board valuable experience managing a large healthcare payor organization. She has worked in the healthcare industry for over 30 years, first as a registered nurse and then later in health insurance, and has relevant experience in the areas of healthcare, operations, management, regulatory compliance, finance, executive leadership, strategic planning and human resources. She also brings to the Board valuable perspective and insights from her service on ManpowerGroup's board of directors, including its Audit Committee.
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| Colleen F. Arnold | Clayton M. JonesAge , 65, 60
| Director since 20122007 |
| • | Chairman,Senior Vice President, Sales and Chief Executive Officer of Rockwell Collins, Inc., an aviation electronics and communications equipment company, from 2002 until his retirement in 2013Distribution, International Business Machines Corporation (retired) |
| Independent Director | • | Other public company directorship: Deere & Company, an agricultural and construction machinery manufacturer, since 2007Director Qualification Highlights |
| • | Prior public company directorships: |
| | • | Rockwell Collins, from 2001 through 2014 (Non-Executive Chairman from 2013 to 2014) |
| | • | Unisys Corporation, an information technology company, from 2004 to 2010 |
Other Public Boards: None | Director qualifications: ü As retired Chairman, PresidentTechnology
ü International and ChiefGlobal Leadership ü Operations ü Executive Officer of Rockwell Collins, Mr. Jones brings to the Board relevant experience in highly regulated industries as well as in the areas of operations, management, finance, executive leadership, strategic planning, human resources, corporate governance and international markets. He also brings to the Board valuable perspective and insights from his service on Deere & Company's board of directors and from his previous service as Chairman of Rockwell Collins' board of directors and on Unisys Corporation's board of directors, including its Finance Committee.Leadership ü Strategic Planning
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Ms. Arnold was Senior Vice President, Sales and Distribution of International Business Machines Corporation ("IBM"), a provider of systems, financing, software and services, from 2014 until March 2016. Prior to that, she held a number of senior positions with IBM from 1998 to 2014, including Senior Vice President, Application Management Services, IBM Global Business Services; General Manager of GBS Strategy, Global Consulting Services, Global Industries and Global Application Services; General Manager, Europe; General Manager, Australia and New Zealand Global Services; and CEO, Global Services Australia, an IBM joint venture.
Skills and Qualifications of Particular Relevance to Cardinal Health
A former senior executive of IBM for over 17 years, Ms. Arnold's significant experience in the areas of global business operations and information technology contributes to the Board's discussions regarding information technology in our business and global strategies. Given her extensive international business experience, including leadership of international commercial operations at IBM, Ms. Arnold provides valuable insight for our growing presence in international markets. She also brings to the Board more than 30 years of relevant experience in the areas of operations, management, executive leadership and strategic planning.
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| George S. Barrett | Gregory B. KennyAge , 61, 62
| Director since 20072009 |
| • | PresidentChairman and Chief Executive Officer, of General Cable Corporation, a manufacturer of aluminum, copper and fiber-optic wire and cable products, since 2001Cardinal Health, Inc. |
Other Public Boards: Eaton Corporation plc, a diversified power management company (2011 - 2015) | • | Other current public company directorships:Director Qualification Highlights |
| | • | General Cable since 1997 |
| | • | Ingredion Incorporated, a corn refining and ingredient company, since 2005 |
| Director qualifications: ü As ChiefHealthcare
ü Operations ü Strategic Planning ü Executive Officer of General Cable, Mr. Kenny brings to the Board substantial experience in the areas of operations, management, finance, executive leadership, strategic planning, human resources, corporate governance and international markets. He also brings to the Board valuable perspective and insights from his service on General Cable's and Ingredion's boards of directors, including Ingredion's Corporate Governance and Nominating Committee. He is a member of the board of directors of the Federal Reserve Bank of Cleveland (Cincinnati branch).Leadership ü International ü Regulatory / Public Policy ü Financial Expertise
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Mr. Barrett has served as Chairman and Chief Executive Officer of Cardinal Health, Inc. since 2009. He joined Cardinal Health in 2008 as Vice Chairman and Chief Executive Officer of the company's Healthcare Supply Chain Services segment. From 1997 to 2008, Mr. Barrett held a number of executive positions with Teva Pharmaceutical Industries Ltd., a multinational generic and branded pharmaceutical manufacturer, including President and Chief Executive Officer of Teva North America.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having served in leadership positions with companies in the pharmaceutical industry for over 30 years, Mr. Barrett has extensive healthcare experience in the areas of distribution and manufacturing operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and global markets. As a result, he provides the Board with unique perspectives and insights regarding our businesses and our growing international presence, industry, challenges and opportunities. He also brings to the Board valuable perspectives and insights from his service as Chairman of the Healthcare Leadership Council, an alliance of leading companies and organizations representing all sectors of U.S. healthcare. In addition, Mr. Barrett brings relevant experience and perspectives to the Board from his service on public and not-for-profit boards of directors, including his prior service on Eaton’s board of directors.
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| Cardinal Health | 2017 Proxy Statement | |
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| Proposal 1—Election of Directors | | David P. King, 58, Director since 2011
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| • | President and Chief Executive Officer of Laboratory Corporation of America Holdings, an independent clinical laboratory company (“LabCorp”), since 2007 and Chairman of LabCorp since 2009 |
| • | Held other senior positions with LabCorp prior to 2005, including Executive Vice President and Chief Operating Officer, Executive Vice President, Strategic Planning and Corporate Development and Senior Vice President, General Counsel and Chief Compliance Officer |
| • | Other current public company directorship: LabCorp since 2007 |
| Director qualifications: Having spent 13 years in senior executive roles with LabCorp, including the past seven years as its Chief Executive Officer, Mr. King brings to the Board substantial experience in the areas of healthcare, operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and international markets. He also brings to the Board valuable perspective and insights from his position as Chairman of LabCorp’s board of directors. Before his career at LabCorp, Mr. King was a practicing attorney for 17 years, having worked in both private practice and with the U.S. Department of Justice.
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| Carrie S. Cox | Richard C. NotebaertAge, 67, 60
| Director since 19992009 |
| • | Chairman and Chief Executive Officer of Qwest CommunicationsHumacyte, Inc.; Executive Vice President and President of Global Pharmaceuticals, Schering-Plough Corporation (retired) |
| Independent Director | Director Qualification Highlights |
Other Public Boards:Texas Instruments Incorporated, a developer, manufacturer and marketer of semiconductors (since 2004); Celgene Corporation, a biopharmaceutical company (since 2009) | ü Healthcare ü International ü Operations ü Executive Leadership ü Strategic Planning ü Regulatory / Public Policy |
Ms. Cox has served as Chief Executive Officer of Humacyte, Inc., a privately held, development stage company focused on regenerative medicine, since 2010 and as Chairman of Humacyte since 2013. She previously served as Executive Vice President and President of Global Pharmaceuticals at Schering-Plough Corporation, a multinational branded pharmaceutical manufacturer, from 2003 until its merger with Merck & Co. in 2009. Ms. Cox previously was Executive Vice President and President of Global Prescription Business of Pharmacia Corporation from 1997 to 2003.
Skills and Qualifications of Particular Relevance to Cardinal Health
Through her roles as a former executive officer of Schering-Plough, President of Pharmacia's Global Prescription business and a licensed pharmacist, and now with Humacyte, Ms. Cox brings to the Board substantial expertise in healthcare, particularly the pharmaceutical and international aspects of our business. She has worked in the global pharmaceutical industry for over 30 years, giving her relevant experience with large, multinational healthcare companies in the areas of manufacturing operations, management, regulatory compliance, executive leadership, strategic planning and global markets. She also brings to the Board valuable perspectives and insights from her service on the boards of directors of Celgene and Texas Instruments, including on Texas Instruments' Compensation Committee and her former service as its Lead Director.
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| Calvin Darden | Age 67 | Director since 2005 |
| Senior Vice President of U.S. Operations of United Parcel Service, Inc. (retired) |
| Independent Director | Director Qualification Highlights |
Other Public Boards: Target Corporation, an operator of large-format general merchandise discount stores (since 2003); Coca-Cola Enterprises, Inc., a telecommunications systems company, from 2002 until his retirementmarketer, manufacturer and distributor of nonalcoholic beverages in 2007selected international markets (2004 - 2016) | ü Operations ü Distribution / Supply Chain ü Executive Leadership ü Strategic Planning ü Labor Relations ü International
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Mr. Darden was Senior Vice President of U.S. Operations of United Parcel Service, Inc. ("UPS"), an express carrier and package delivery company, from January 2000 until 2005. During his 33-year career with UPS, he served in a number of senior leadership positions, including developing the corporate quality strategy for UPS and leading the business and logistics operations for its Pacific Region, the largest region of UPS at that time.
Skills and Qualifications of Particular Relevance to Cardinal Health
A former executive officer of UPS, Mr. Darden has expertise in supply chain networks and logistics that contributes to the Board’s understanding of this important aspect of our business. He has over 30 years of relevant experience in the areas of operations, distribution and supply chain, executive leadership, efficiency and quality control, strategic planning, human resources and labor relations. Drawing upon his past experience as a member of Coca-Cola Enterprises' board of directors, Mr. Darden provides the Board with a valuable understanding of distribution operations in international markets. He also brings to the Board valuable perspectives and insights from his service on Target’s board of directors, including its Compensation Committee, and his prior service on Coca-Cola Enterprises’ Human Resources and Compensation Committee.
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| • | Other current public company directorships: |
| | • | Aon plc, a provider of risk management services, insurance and reinsurance brokerage and human capital consulting, since 1998 |
| | • | American Electric Power Company, Inc. since 2011 |
| | Cardinal Health | 2017 Proxy Statement | 5 |
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| Proposal 1—Election of Directors | | |
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| Bruce L. Downey | Age69 | Director qualifications:since Having spent more than 11 years as 2009 |
Chairman and Chief Executive Officer of publicly traded companies QwestBarr Pharmaceuticals, Inc. (retired); Partner of NewSpring Health Capital II, L.P. |
| Independent Director | Director Qualification Highlights |
Other Public Boards: Momenta Pharmaceuticals, Inc., a biotechnology company (since 2009) | ü Healthcare ü Regulatory / Public Policy ü Operations ü International ü Financial Expertise ü Executive Leadership ü Strategic Planning |
Mr. Downey was Chairman and Chief Executive Officer of Barr Pharmaceuticals, Inc., a global generic pharmaceutical manufacturer, from 1994 to 2008. Mr. Downey has served on a part-time basis as a Partner of NewSpring Health Capital II, L.P., a venture capital firm, since 2009.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having spent 14 years as Chairman and Chief Executive Officer of Barr Pharmaceuticals, Mr. Downey brings to the Board substantial global healthcare experience in the areas of manufacturing operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources and corporate governance. He also offers valuable experience in the pharmaceutical and international aspects of our businesses. Mr. Downey brings to the Board valuable perspectives and insights from his service on Momenta Pharmaceuticals’ board of directors, including its Audit Committee, and from his prior service as Chairman of Barr Pharmaceutical's board of directors. Before his career at Barr Pharmaceuticals, Mr. Downey was a practicing attorney for 20 years, having worked in both private practice and with the U.S. Department of Justice.
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| Patricia A. Hemingway Hall | Age64 | Director since 2013 |
President and AmeritechChief Executive Officer of Health Care Service Corporation Mr. Notebaert(retired) |
| Independent Director | Director Qualification Highlights |
Other Public Boards: ManpowerGroup, Inc., a workforce solutions company (since 2011) | ü Healthcare ü Regulatory / Public Policy / Government ü Operations ü Financial Expertise ü Executive Leadership ü Strategic Planning ü Technology
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Ms. Hemingway Hall served as President and Chief Executive Officer of Health Care Service Corporation, a mutual health insurer ("HCSC"), from 2008 until 2015. Previously, she held several leadership positions at HCSC, including President and Chief Operating Officer from 2007 to 2008 and Executive Vice President of Internal Operations from 2006 to 2007.
Skills and Qualifications of Particular Relevance to Cardinal Health
As retired President and Chief Executive Officer of HCSC, the largest customer-owned health insurer in the United States and fourth largest overall operating through Blue Cross and Blue Shield Plans in Texas, Illinois, Montana, New Mexico and Oklahoma, Ms. Hemingway Hall brings to the Board valuable experience regarding evolving healthcare payment models at a time of change and reform in the healthcare industry. She has worked in the healthcare industry for over 30 years, first as a registered nurse and most recently in health insurance, and has relevant experience in the areas of healthcare reform, operations, management, regulatory compliance, government relations, finance, executive leadership, strategic planning, technology and human resources. In addition, Ms. Hemingway Hall provides the Board with a deep understanding of operations, management and technology from her experience in previous roles at HCSC. She also brings to the Board valuable perspectives and insights from her service on ManpowerGroup's board of directors, including its Audit Committee.
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| Cardinal Health | 2017 Proxy Statement | |
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| Proposal 1—Election of Directors | | |
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| Clayton M. Jones | Age68 | Director since 2012 |
| Chairman, President and Chief Executive Officer of Rockwell Collins, Inc. (retired) |
| Independent Director | Director Qualification Highlights |
Other Public Boards:Deere & Company, an agricultural and construction machinery manufacturer (since 2007); Motorola Solutions, Inc., a data communications and telecommunications equipment provider (since 2015); Rockwell Collins, Inc. (2001 - 2014) | üOperations ü Executive Leadership ü Strategic Planning ü Technology ü Financial Expertise ü International ü Regulatory / Public Policy / Government
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Mr. Jones served as Chairman of the Board of Rockwell Collins, Inc., a multinational aviation electronics and communications equipment company, from 2002 through 2014, and as Chief Executive Officer from 2001 until his retirement in 2013. He previously served as president of Rockwell Collins and corporate officer and senior vice president of Rockwell International, which he joined in 1979.
Skills and Qualifications of Particular Relevance to Cardinal Health
As retired Chairman, President and Chief Executive Officer of Rockwell Collins, Mr. Jones brings to the Board relevant experience in highly regulated industries as well as in the areas of manufacturing operations, management, finance, executive leadership, strategic planning, information technology, human resources, corporate governance, international markets and government contracting. He provides the Board with a valuable understanding of commercial operations in international markets. As a former member of the President's National Security Telecommunications Advisory Committee and a current member of The Business Council, Mr. Jones provides insights in regulatory affairs, government and public policy matters. He also brings to the Board valuable perspectives and insights from his service on Motorola Solutions' board of directors, including its Audit Committee, and Deere & Company's board of directors, as well as from his previous service as Chairman of Rockwell Collins' board of directors.
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| Gregory B. Kenny | Age64 | Director since 2007 |
| President and Chief Executive Officer of General Cable Corporation (retired) |
| Independent Lead Director | Director Qualification Highlights |
Other Public Boards: Ingredion Incorporated, a corn refining and ingredient company (since 2005); AK Steel Holding Corporation, an integrated producer of flat-rolled, carbon and electrical stainless steels and tubular products (since January 2016); General Cable Corporation (1997 - 2015) | ü Executive Leadership ü Operations ü Strategic Planning ü International ü Financial Expertise
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Mr. Kenny served as President and Chief Executive Officer of General Cable Corporation, a global manufacturer of aluminum, copper and fiber-optic wire and cable products, from 2001 until 2015. Prior to that, he was President and Chief Operating Officer of General Cable from 1999 to 2001 and Executive Vice President and Chief Operating Officer from 1997 to 1999. Mr. Kenny previously also served in executive level positions at Penn Central Corporation, where he was responsible for corporate business strategy, and in diplomatic service as a Foreign Service Officer with the United States Department of State.
Skills and Qualifications of Particular Relevance to Cardinal Health
Mr. Kenny brings to the Board significant experience in the areas of Board and executive leadership, manufacturing operations, strategic planning, management, finance, human resources, corporate governance and international markets. He provides the Board with a deep understanding of strategic and financial implications impacting a global business with manufacturing and distribution operations. He also draws upon his Board governance and leadership experience as previous Chair of our Human Resources and Compensation Committee and current Chair of our Nominating and Governance Committee, and as Ingredion's Lead Director and Corporate Governance and Nominating Committee Chair. As our independent Lead Director, Mr. Kenny has promoted strong independent leadership on our Board and a robust, deliberative decision making process among independent directors. In addition, Mr. Kenny brings to the Board valuable perspectives and insights from his service on AK Steel's Board of Directors and his prior service on General Cable's and IDEX's board of directors.
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| Cardinal Health | 2017 Proxy Statement | 7 |
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| Proposal 1—Election of Directors | | |
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| Nancy Killefer | Age 63 | Director since2015 |
| Senior Partner, Public Sector Practice, McKinsey & Company, Inc. (retired) |
| Independent Director | Director Qualification Highlights |
Other Public Boards: The Advisory Board Company, a provider of software and solutions to the Board relevant experience in the areashealthcare and education industries (since 2013); Avon Products, Inc., a global manufacturer and marketer of operations, management, finance, executive leadership, strategic planning, human resources, corporate governance and international markets. He has healthcare knowledge and historical perspective gained from service on our Board, including formerly serving as our Presiding Director. Mr. Notebaert also bringsbeauty products (since 2013); CSRA, Inc., a provider of information technology services to the Board valuable perspective and insights from his position as ChairmanU.S. federal government (since 2015); Computer Sciences Corporation, a global provider of the boards of directors of Qwest and Ameritech, from his service on Aon’s board of directors, including chairing its Organization and Compensation Committee and serving on its Governance/Nominating Committee, and from his service on American Electric Power's board of directors, including serving on its Human Resources and Directors and Corporate Governance Committees.information technology services (2013 - 2015) | ü Strategic Planning ü Healthcare ü Regulatory / Public Policy / Government ü Technology ü Executive Leadership ü Financial Expertise |
Ms. Killefer served as Senior Partner of McKinsey & Company, Inc., a global management consulting firm, from 1992 until 2013. She joined McKinsey in 1979 and held a number of key leadership roles, including serving as a member of the firm's governing board. Ms. Killefer founded McKinsey's Public Sector Practice in 2007 and served as its managing partner until her retirement. She also served as Assistant Secretary for Management, Chief Financial Officer and Chief Operating Officer for the United States Department of Treasury from 1997 to 2000.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having served in key leadership positions in both the public and private sectors and provided strategic counsel to healthcare and consumer-based companies during her 30 years with McKinsey, Ms. Killefer brings to the Board substantial experience in the areas of strategic planning, including healthcare strategy, marketing and brand building, executive leadership and information technology. Her extensive experience as a partner of a global consulting firm and as a chief financial officer of a government agency provides valuable insight in these areas as well as in government relations and public policy. Ms. Killefer also brings to the Board valuable perspectives and insights from her service on the boards of directors of The Advisory Board, Avon Products (including its Compensation and Management Development Committee), and CSRA, Inc. (including her role as independent Chairman since August 2016).
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| David P. King | Age61 | Director since 2011 |
| Chairman, President and Chief Executive Officer of Laboratory Corporation of America Holdings |
| Independent Director | Director Qualification Highlights |
Other Public Boards: Laboratory Corporation of America Holdings (since 2007) | ü Healthcare ü Regulatory / Public Policy ü Strategic Planning ü Operations ü Executive Leadership ü Financial Expertise ü International |
Mr. King has served as President and Chief Executive Officer of Laboratory Corporation of America Holdings, a global healthcare diagnostics company ("LabCorp"), since 2007, and as Chairman of LabCorp since 2009. Previously he held other senior positions with LabCorp, including Executive Vice President and Chief Operating Officer, Executive Vice President, Strategic Planning and Corporate Development, and Senior Vice President, General Counsel and Chief Compliance Officer.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having spent 16 years in senior executive roles with LabCorp, including the past ten years as its Chief Executive Officer, Mr. King brings to the Board substantial experience in the areas of healthcare, operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and global healthcare markets. He also brings to the Board valuable perspectives and insights from his position as Chairman of LabCorp’s board of directors. Prior to LabCorp, Mr. King was a practicing attorney for 17 years, having worked in both private practice focusing on healthcare and with the U.S. Department of Justice.
The Board recommends that you vote FOR the election of these director nominees.
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| Cardinal Health | 2017 Proxy Statement | |
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PROPOSAL 2—RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORProposal 1—Election of Directors | | |
The Audit Committee of theOur director nominees possess relevant experience, skills and qualifications that contribute to a well-functioning Board of Directors is directly responsible for the appointment, compensation, retention and oversight of our independent auditor and approves the audit engagement letter with Ernst & Young LLP and its audit fees. The Audit Committee has appointed Ernst & Young LLP as our independent auditor for fiscal 2015 and believes that the continued retention of Ernst & Young LLP to serve as our independent auditor is in the best interest of Cardinal Health and its shareholders. Ernst & Young LLP has served as our independent auditor since 2002. In addition, in accordance with SEC rules, lead audit partners are subject to rotation requirements, which limit the number of consecutive years an individual partner may serve us. The Audit Committeeeffectively oversees the rotationcompany's strategy and management. A chart of the audit partners, including the Audit Committee Chairman interviewing candidates for audit partnerdirector skills and the Audit Committee discussing them.expertise is provided below:
While not required by law, we are asking our shareholders to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2015 at the Annual Meeting as a matter of good corporate
governance. If shareholders do not ratify this appointment, the Audit Committee will consider whether it is appropriate to appoint another audit firm. Even if the appointment is ratified, the Audit Committee in its discretion may appoint a different audit firm at any time during the fiscal year if it determines that such a change would be in the best interest of the company and its shareholders. Our Audit Committee approved, and our shareholders ratified, the appointment of Ernst & Young LLP as our independent auditor for fiscal 2014.
We expect representatives of Ernst & Young LLP to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.
The Board recommends that you vote FOR the proposal to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2015.
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PROPOSAL 3—ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS | Cardinal Health | 2017 Proxy Statement | 9 |
In accordance with Section 14A of the Securities Exchange Act of 1934 (the "Exchange Act"), we are asking our shareholders to approve, on a non-binding advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.
We urge shareholders to read the Compensation Discussion and Analysis beginning on page 21 of this proxy statement, which describes in more detail how our executive compensation program operates and is designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables, notes and narrative appearing on pages 28 through 39, which provide detailed information on the compensation of our named executive officers. The Human Resources and Compensation Committee (the "Compensation Committee") and the Board believe that the executive compensation program described in the Compensation Discussion and Analysis is effective in achieving our goals and that the compensation of our named executive officers reported in this proxy statement has supported and contributed to our success.
Although this advisory vote is not binding on the Board, the Board and the Compensation Committee will review and consider the voting results when evaluating our executive compensation program.
The Board has adopted a policy providing for annual say-on-pay advisory votes. Unless the Board modifies this policy, the next say-on-pay advisory vote will be held at our 2015 Annual Meeting of Shareholders.
The Board recommends that you vote FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.
Corporate Governance
Board of Directors
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PROPOSAL 4—APPROVAL OF MANAGEMENT INCENTIVE PLAN PERFORMANCE GOAL |
General
Our Board of Directors adopted the Cardinal Health, Inc. Performance-Based Incentive Compensation Plan in August 1996, which was later renamed the “Cardinal Health, Inc. Management Incentive Plan” (the “MIP”). The Compensation Committee approved an amendment and restatement of the MIP on August 5, 2014, which revised the performance criteria for awards, provided for greater administrative flexibility and made other administrative changes.
The MIP is designed to permit the grant of cash-settled awards that are intended to qualify for an exception to the tax deduction limits of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). Section 162(m) generally limits a company’s federal income tax deduction for compensation paid to its named executive officers other than its chief financial officer to $1 million each, except for amounts in excess of $1 million that qualify for an exception to the limit. One of the available exceptions is for compensation that is paid under a performance-based compensation plan subject to performance criteria where the material terms of the performance goal under which the compensation may be paid have been disclosed to and approved by shareholders. We are asking that shareholders approve for purposes of Section 162(m), the material terms of the performance goal under which compensation may be paid under the MIP. There can be no guarantee, however, that amounts actually paid under the MIP will qualify as “performance-based compensation” under Section 162(m).
The purpose of the MIP is to:
advance our interests and the interests of our shareholders by providing employees in leadership positions with an annual bonus incentive to achieve our strategic objectives;
focus management on key measures that drive superior financial and management performance and that result in enhanced value of the company;
provide compensation opportunities that are externally competitive and internally consistent with our strategic objectives and total reward strategies;
provide bonus opportunities that reward executives who are in positions to make significant contributions to our overall success; and
permit us to grant awards that may qualify as performance-based compensation not subject to the tax deduction limits of Section 162(m), as well as awards that are not intended to so qualify.
For additional information regarding the MIP, see "Executive Compensation — Compensation Plans — Management Incentive Plan" on page 31.
Section 162(m) requires shareholder approval of the material terms of the performance goal under a plan providing qualified performance-based compensation. Under Section 162(m), the
material terms that must be approved include (a) the employees eligible to receive compensation; (b) a description of the business criteria on which the performance goal is based; and (c) the maximum amount of compensation that may be paid to an employee during a specified performance period upon achievement of the performance criteria. For a plan to continue to qualify under Section 162(m), the material terms must be re-approved by shareholders at least once every five years when, as is the case under the MIP, the Compensation Committee has the authority to change the targets under a performance goal after shareholder approval of the goal.
The Compensation Committee retains the authority to make performance-based awards to our executives outside of the MIP (including under our 2011 Long-Term Incentive Plan (the "2011 LTIP")), in such amounts and at such times as it determines in its sole discretion, which will not be affected by this proposal.
The following is a summary of the material terms of the MIP, including the performance goal under which compensation may be paid under the MIP that shareholders are being asked to approve. The MIP is set forth as Appendix B to this proxy statement. The following discussion is qualified by reference to Appendix B.
Description of Material Terms under the MIP
Administration. The MIP is currently administered by the Compensation Committee and may be administered by another committee of directors appointed by the Board and comprised of two or more individuals who are “outside directors” (as that term is defined in Section 162(m)) or by our authorized officers who have been delegated such authority (the administrator is generally referred to as the “Compensation Committee” in this summary description of the material plan terms). Among other things, the Compensation Committee has the authority to designate employees who are granted awards under the MIP and to establish the performance criteria, level of achievement versus such criteria, target award amount and other terms and conditions of awards under the MIP. The Compensation Committee also has the authority to interpret the MIP and the terms of awards, to establish, amend and rescind rules and regulations relating to the MIP, to determine the terms and provisions for making or modifying awards, to correct administrative errors and to make all other determinations necessary and advisable for the administration of the MIP. The Compensation Committee may also modify awards granted to participants who are foreign nationals or employed outside the United States to the extent necessary to recognize differences in local law, tax policy or custom. The Compensation Committee may delegate the day-to-day administration of the Plan and any of its functions, including the power to approve awards that are not “qualified performance-based awards,” to one or more individuals. All decisions made by the Compensation Committee or its delegate pursuant to the MIP are made in such entity’s sole discretion and are final, binding and conclusive.
Eligibility. All of our approximately 34,000 regular employees, including employees of our subsidiaries, may be designated by the Compensation Committee as eligible to be granted awards under the MIP. Although the MIP contains broad eligibility standards, the Company has historically limited the pool of employees to whom awards are granted under the MIP to our executive officers. Currently, we have eight executive officers.
Terms of awards. For each performance period, the Committee establishes a target award for each participant and performance criteria and level of achievement versus such criteria that determine the amount that may be earned under the award, subject to adjustment as described in the MIP. Performance criteria may be based on "qualifying performance criteria," other standards of financial performance or personal performance evaluations. The Compensation Committee may specify that an award or a portion of an award is intended to be a "qualified performance-based award" if the performance criteria for such award or portion of an award is a measure based on one or more "qualifying performance criteria" specified by the Compensation Committee. Awards under the MIP consist of lump sum cash amounts payable upon the achievement of specified performance criteria. Unless otherwise determined by the Compensation Committee in compliance with Section 409A of the Code, awards must be paid on or before the 15th day of the third month after the end of the applicable performance period.
A performance period is the 12-month period beginning on each July 1st and ending on the next succeeding June 30th during the term of the MIP, or such other time period established by the Compensation Committee from time to time with respect to which the attainment of performance criteria will be determined. Employees who are selected to participate in the MIP after the beginning of a performance period may participate for that performance period on a ratable basis on such terms and conditions as determined by the Compensation Committee. At the end of each performance period, the Compensation Committee will certify in writing the extent to which the applicable performance criteria were met during the performance period.
With respect to awards that are intended to be "qualified performance-based awards," the Compensation Committee will determine the actual bonus earned based on the performance criteria, subject to the Compensation Committee’s exercise of negative discretion to reduce any bonus based on such other business objectives or factors as determined by the Compensation Committee in its sole discretion. With respect to awards that are not intended to be "qualified performance-based awards," the Compensation Committee will determine the actual bonus earned based on the performance criteria and such other business objectives or factors that it determines appropriate. In the case of such awards, the Compensation Committee may adjust (up or down) any bonus on the basis of such further considerations as the Compensation Committee determines in its sole discretion. As discussed below under "Executive Compensation — Compensation Plans — Management Incentive Plan" on page 31, in practice the Compensation Committee approves performance goals in addition to the performance criteria established under the MIP to satisfy Section 162(m) that factor into the Compensation Committee’s exercise of discretion in determining final award amounts.
Performance criteria. For purposes of the MIP, the term “qualifying performance criteria” means any one or more of the following performance criteria, or derivations of such performance criteria, either individually or in any combination, applied to either the company as a whole or to a business unit, subsidiary or product or product category, either individually or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group and either calculated in accordance with U.S. Generally Accepted Accounting Principles or as adjusted, in each case as specified by the Compensation Committee: (i) cash flow; (ii) earnings (including gross margin, operating earnings, earnings before interest and taxes, segment profit, earnings before taxes and discontinued operations, earnings from continuing operations and net earnings); (iii) earnings per share; (iv) stock price; (v) shareholders’ equity; (vi) total shareholder return; (vii) invested capital; (viii) assets or net assets; (ix) return on investment; (x) revenue; (xi) tangible capital; (xii) market share; (xiii) contract awards or backlog; (xiv) distribution, selling, general and administrative expenses; (xv) credit rating or credit rating measures; (xvi) dividend payments; (xvii) improvement in workforce diversity; (xviii) customer satisfaction, retention or loyalty; (xix) employee satisfaction or retention; (xx) service levels; (xxi) net working capital or net working capital days; (xxii) days sales outstanding; (xxiii) days inventory on hand; (xxiv) days payable outstanding; (xxv) capital expenditures; (xxvi) generics penetration; and (xxvii) economic profit. The Compensation Committee is authorized to determine the manner in which any performance criteria will be calculated or measured to take into account such factors as the Compensation Committee considers appropriate, including market-related changes in inventory value, changes in accounting principles and extraordinary charges to income, provided that with respect to "qualified performance-based awards," the Compensation Committee will specify and apply such calculations or adjustments in a manner it determines to be consistent with Section 162(m).
Maximum award payable and not subject to deduction limitation rules of Section 162(m). Under the MIP, the maximum award that can be paid to any single participant for any performance period is $7.5 million, with such maximum award amount to be prorated if the performance period is less than a full fiscal year.
Termination of employment. A participant whose employment terminates at any time during the applicable performance period because of retirement, death or disability will receive a prorated portion of the applicable award, based upon the length of time that the participant was employed by us during the performance period. A participant whose employment is terminated by us (other than for cause (as defined in the MIP)) during the fourth quarter of the applicable performance period will receive a prorated portion of the applicable award, based upon the length of time that the participant was employed by us during the performance period. Unless the Compensation Committee determines otherwise, a participant whose employment is terminated prior to the fourth quarter of the applicable performance period or for any other reason will not be entitled to any payment with respect to the award. A participant who terminates employment for any other reason, or who is terminated by us for cause, before the date a bonus is paid will not be entitled to any payment with respect to the award.
Forfeiture events. The MIP will be administered in compliance with the clawback provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), once rules implementing those provisions are adopted by the SEC and become effective. The Compensation Committee may also, in its discretion, require that awards be subject to repayment upon any violation of a non-competition and confidentiality covenant applicable to a participant or in the event that an award is based upon the achievement of certain financial results that are subsequently restated, the participant engaged in misconduct that caused or contributed to the need for the restatement and the amount of the bonus amount paid would have been lower had the financial results been properly reported. These forfeiture provisions will no longer apply after a “change of control” of the company, as defined in our 2011 LTIP or any successor thereto.
Amendment and discontinuance. The MIP may be amended, modified, suspended or terminated by the Compensation
Committee at any time and without notice, but no such amendment, modification, suspension or termination will, without the consent of the participant, materially reduce the right of such participant to a payment or distribution to which he or she has already become entitled. The approval of our shareholders of any amendment of the MIP will be required only to the extent the Compensation Committee determines appropriate to satisfy the applicable provisions of Section 162(m).
Plan Benefits. The benefits that will be awarded or paid under the MIP are not currently determinable. Awards granted under the MIP are within the discretion of the Compensation Committee, and the Compensation Committee has not determined future awards or who might receive them.
The Board of Directors recommends a vote FOR this proposal to approve the material terms of the performance goal under the Cardinal Health, Inc. Management Incentive Plan.
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PROPOSAL 5—SHAREHOLDER PROPOSAL REGARDING POLITICAL CONTRIBUTION DISCLOSURES |
We received notice that a shareholder intends to present the following proposal at the Annual Meeting. The proposed resolution and its supporting statement, for which neither we nor the Board accepts responsibility, are set forth below. The International Brotherhood of Teamsters General Fund, 25 Louisiana Avenue, NW, Washington, DC 20001, a shareholder owning 75 of our common shares as of May 12, 2014, submitted this proposal.
The shareholder proposal and supporting statement read as follows:
Resolved, that shareholders of Cardinal Health ("Company") hereby request that the Company provide a report, updated semiannually, disclosing its:
1. Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to-- (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum.
2. Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including:
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a. | The identity of the recipient as well as the amount paid to each; and |
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b. | The title(s) of the person(s) in the Company responsible for decision-making. |
The report shall be presented to the board of directors or relevant board committee and posted on the Company's website.
Supporting Statement:
As long-term shareholders of Cardinal Health, we support transparency and accountability in corporate spending on political activities. These include activities considered intervention in any political campaign under the Internal Revenue Code (IRC), such as direct and indirect contributions to political candidates, parties, or organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates.
Disclosure is in the best interest of the company and its shareholders; and gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value.
We acknowledge that our Company recently disclosed a policy on its political spending program, including how it engages in the political process and board oversight. While we applaud this important step, we believe this is deficient because our Company will not disclose:
an itemized list of contributions to political candidates and committees; and
an itemized list of payments to trade associations and the so-called "social welfare" groups organized under the IRC section 501(c)(4) used for political purposes.
Meanwhile, Cardinal Health contributed at least $761,043 in corporate funds since the 2004 election cycle. (CQ: http://moneyline.cq.com and National Institute on Money in State Politics: http://www.followthemoney.org) In addition, it scored just 49 out of 100 points in the 2013 CPA-Zicklin Index of Corporate Political Accountability and Disclosure, placing it in the third tier of the 196 largest U.S. companies. This is in comparison with our Company's peers, United Parcel Service, Baxter International and Becton, Dickinson &
Company, which are all ranked at or near the top of the Index.
Relying on publicly available data does not provide a complete picture of the Company's political spending. For example, the Company's payments to trade associations and 501(c)(4) organizations used for political activities are undisclosed and unknown. The proposal asks the Company to disclose all of its political spending, including payments to trade associations and other tax exempt organizations used for political purposes.
The Company's Board and its shareholders need comprehensive disclosure to be able to fully evaluate the political use of corporate assets.
We urge your support FOR this critical governance reform.
The Board of Directors' Statement in Opposition to Proposal 5
Your Board recommends a vote AGAINST Proposal 5 because (1) we already publicly disclose on our website our policies and procedures for making political contributions and expenditures, (2) our robust Corporate Political Contributions Policy imposes significant restrictions, provides meaningful accountability and establishes Board oversight with respect to our corporate political contributions, (3) our corporate political contributions are very small and (4) information regarding our corporate contributions is already publicly available.
Our Corporate Political Contributions Policy both restricts and provides for Board oversight of our limited corporate political contribution activity. Under our Corporate Political Contributions Policy, the Nominating and Governance Committee of the Board oversees our political expenditures, including an annual review of the policy and the Company’s corporate political expenditures. That policy is posted on our website, at www.cardinalhealth.com, under “About Us — Corporate Governance — Policies and Other.” As a company that operates in the highly regulated healthcare industry, the actions of elected officials at the local, state and national levels can significantly impact our operations in ways that are not always understood or appreciated. As a result, our policy reflects the Board’s determination that it is important that we participate in the electoral and legislative processes to protect your interests as shareholders.
Under our policy, we may make corporate political contributions only in limited situations and subject to strict governance controls. We may not contribute corporate funds to political parties, judicial campaigns, presidential campaigns, SuperPACs or any federal candidates. We also may not make any independent expenditures in connection with any federal or state election. Under our policy, in very limited circumstances we may make corporate contributions to state political candidates, subject to limits under state law. But those contributions must be approved by our Chief Legal and Compliance Officer and Senior Vice President, Professional and Government Relations. Likewise, our Standards of Business Conduct, which are also posted on our website, reinforce these restrictions on our employees by, among other things, prohibiting employees from using company resources to support political parties, causes, political action committees or candidates and requiring employees to report any request for contributions by a U.S. federal representative, senator or member of his or her staff.
Our corporate political contributions are very small. The vast majority of our political contributions are made through the Cardinal Health Companies-Political Action Committee (our “PAC”), which is funded entirely by voluntary contributions from employees. Our policy specifies the conditions that must be satisfied for our PAC’s contributions to support political candidates and the PAC’s board of directors approves these contributions. Our direct corporate political contributions are limited, subject to strict controls and very small (less than 1/100th of 1% of our annual operating expenses).
Information is readily available through other sources. Federal and state governments require public disclosure of political contributions, either by the donor or the recipient. We comply with these laws. Our PAC files regularly scheduled reports of receipts and disbursements with the Federal Election Commission, which are publicly available. Any information regarding the corporate contributions made by us to state candidates also is publicly available. As a result, this proposal is duplicative and unwarranted and would cause us to expend time and resources without any appreciable benefit to shareholders.
In summary, we maintain and disclose our policies and procedures for accountability and oversight, including a robust Corporate Political Contributions Policy, to ensure that our assets are used for political objectives that are in the best long-term interests of the company and its shareholders and believe that this proposal is unnecessary in light of our insignificant political contributions and existing public disclosures.
The Board recommends a vote AGAINST the adoption of this shareholder proposal.
Board of Directors
Our Board of Directors currently consists of 12 members. The Board will be decreased to 11 members, when Mr. Finn completes his term at10 of whom are independent. Our Board is led by Chairman and Chief Executive Officer George S. Barrett, independent Lead Director Gregory B. Kenny (who also chairs the Annual Meeting. Glenn A. Britt was a director from 2009 until his death in June 2014.Nominating and Governance Committee), Audit Committee Chair Clayton M. Jones, and Human Resources and Compensation Committee Chair David P. King.
The Board held nineeight meetings during fiscal 2014.2017. During fiscal 20142017, each director attended 75% or more of the meetings of the Board and Board committees on which he or she served. All of our directors atattended the time of the 20132016 Annual Meeting of Shareholders attended the meeting.Shareholders. Absent unusual circumstances, each director is expected to attend the Annual Meeting.Meeting of Shareholders.
Board Leadership Structure
For a number of years, our CorporateBoard has been led by a Chairman of the Board (who is also the Chief Executive Officer), a strong independent Lead Director, and active, independent chairs of the Audit, Nominating and Governance Guidelines, theand Human Resources and Compensation Committees.
Our Board is responsible for selecting the Chairman of the Board and the Chief Executive Officer. The Board currently combines these rolesOfficer and appoints an independent Lead Director (formerly referred to as Presiding Director) with robust responsibilities. The independent directors annually elect an independent director to serve as Lead Director.
The Board periodically reviews and assesseshas determined that its leadership structure to ensure it is appropriate for the circumstances. The Board believes that the current leadership structure best serves shareholders at this time because it has allowed theeffectively promotes strong Board to function effectively in fulfilling its responsibility for overseeinggovernance and providing appropriate input to management while maintaining the Board's independence from management. By serving as both theoversight. The combined Chairman and Chief Executive Officer Mr. Barrettstructure has allowed us to focus on long-term shareholder value and respond effectively to rapidly evolving industry changes and market dynamics, as well as to acquisition opportunities and competitive market pressures. Under this leadership structure, our Board has continued to provide effective, independent oversight of strategic decisions, management and regulatory compliance. The effectiveness of this structure has been abledemonstrated by strong performance over the past several years, including compound annual non-GAAP diluted EPS growth rate of 13.4% and total shareholder return (TSR) of 272%† since August 31, 2009.
The Board believes that our Chief Executive Officer is best suited to draw onserve as Chairman because of his unique knowledge of our daily operations, his knowledge ofbusinesses, the healthcare industry and the developments within it and his knowledge of our customers, vendors, employees, shareholders and other business partners to provide our Board with leadership in setting its agenda and focusing its discussions. In addition, thisshareholders. This structure fosters clear accountability, effective decision makingdecision-making and alignment between the Board and management. It also allowsmanagement, enables a single person to speak on behalf of the Board and the company to our customers, vendors, employees, shareholders and regulators.regulators, and provides strong leadership and a powerful "tone from the top" to focus on our compliance and reputation, growth and long-term success.
The Board hasensures rigorous independent leadership through itsan active, engaged independent Lead Director. It also convenes regularDirector with clearly defined responsibilities, who is elected annually by the independent directors. In selecting a Lead Director, the independent directors look for robust leadership skills, including fostering open dialogue among independent directors, candid input to management, an understanding of our strategy and businesses, and substantial governance experience and understanding. The independent Lead Director:
works closely with the Chairman in developing the agenda, materials and schedule for Board meetings and approves the agenda and information sent to the Board;
consults with and advises the Chairman on matters arising between Board meetings relating to our business, strategy, operations or governance;
leads the Board's annual self-evaluation in coordination with the Nominating and Governance Committee;
reviews the results of the evaluation of individual directors with those directors;
contributes to the annual performance assessment of the Chief Executive Officer;
participates in engagement with major shareholders;
sets the agenda for and leads all executive sessions of independent directors and appoints only independent directors to its key committees. Finally, all of its directors (other than Mr. Barrett) are independent. The Lead Director:
presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors;
has the authority to call additional executive sessions of the independent directors;
serves as a liaison between the Chairman and the independent directors;
approves the information sent to the Board and the agenda and schedule for Board meetings; and
coordinateshas the Board's annual self-evaluation and reviews the resultsauthority to call additional executive sessions of the evaluationindependent directors.
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† | Total shareholder return over the period from August 31, 2009, when Mr. Barrett became Chairman and Chief Executive Officer, through June 30, 2017 expressed as a percentage, calculated based on changes in stock price assuming reinvestment of dividends. |
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The Lead Director also is available, as deemed appropriate by the Board, to consult and communicate directly with major shareholders.
Mr. FinnKenny, who has been theserved as Lead Director since 2009. During his service in this role heNovember 2014, has been actively engaged in Board leadership. He has chaired executive sessions ofleadership and shareholder engagement. Over the independent directors, which were held at each of the five in-person Board meetings during fiscal 2014. Hepast year, Mr. Kenny has met frequentlyregularly with Mr. Barrett and worked closely with him in developing Board agendas, schedules and topics, including discussions regarding long-term strategies and schedules.capital deployment. He has been Chairchaired regular executive sessions of the Nominatingindependent directors and Governance Committeemet with Mr. Barrett regarding matters arising from these meetings. He has frequently gathered feedback and coordinatedinput from independent directors and provided it to Mr. Barrett and other members of management. Mr. Kenny has devoted significant time
to understanding our businesses and strategy, and has access to members of senior management. Mr. Kenny also leads the annual evaluation of the Board and the individual evaluation of each director, including discussing with each Board member the results of his or her individual evaluation. Hedirector. In addition, Mr. Kenny participated in the Human Resources and Compensation Committee discussions relatingCommittee's meeting to thereview Mr. Barrett's annual performance evaluation of, and compensation decisions regarding, Mr. Barrett.compensation. Finally, during the year, Mr. Finn hasKenny held governance discussions with several large investors and attended a major healthcare investor conference with management.management, where he also met with many of our investors.
Mr. Kenny will become Lead Director on November 1, 2014.
Committees of the Board of Directors
The Board has established four committees: thean Audit Committee, thea Nominating and Governance Committee theand a Human Resources and Compensation Committee (the "Compensation Committee"). Each member of these Committees is independent under our Corporate Governance Guidelines and the Executive Committee. under applicable Committee independence rules.
The charter for each committee is available on our website at www.cardinalhealth.com, under “About Us — Us—Corporate—Investor Relations—Corporate Governance — Governance—Board Committees and Charters.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
For fiscal 2014, each member of the Audit, Nominating and Governance and Compensation Committees was determined by the Board to be independent as defined by the rules of the New York Stock Exchange ("NYSE") and in accordance with our Corporate Governance Guidelines. The table below identifies the current committee members.
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| Audit Committee |
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| Members: | | The Audit Committee’s primary duties are to: |
| Clayton M. Jones (Chair) | | • oversee the integrity of our financial statements, including reviewing annual and quarterly financial statements and earnings releases and the effectiveness of our internal and disclosure controls;• appoint the independent auditor and oversee its qualifications, independence and performance, including pre-approving all services by the independent auditor;• review our internal audit plan and oversee our internal audit department;• approve the appointment of our Chief Legal and Compliance Officer and oversee our ethics and compliance program and our compliance with applicable legal and regulatory requirements; and• oversee our major financial and information technology risk exposures and our process for assessing and managing risk through our enterprise risk management program.
The Board has determined that each member of the Audit Committee is an “audit committee financial expert” for purposes of the SEC rules. |
| David J. Anderson* | |
| Bruce L. Downey | |
| Patricia A. Hemingway Hall | |
Meetings in fiscal 2017: 8
*Mr. Anderson served on the Audit Committee until December 2016 and was re-appointed to the Committee on September 14, 2017 after his employment with Alexion ended. | |
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| Nominating and Governance Committee |
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| Members: | | The Nominating and Governance Committee’s primary duties are to: |
| Gregory B. Kenny (Chair) | | • identify, review and recommend candidates for the Board, including recommending criteria to the Board for potential Board candidates and assessing the qualifications, attributes, skills, contributions and independence of individual directors and director candidates;• make recommendations to the Board concerning the structure, composition and functions of the Board and its committees;• advise the Board on Board leadership and leadership structure;• review our corporate governance guidelines and practices and recommend changes;• conduct the annual Board evaluation and oversee the process for the evaluation of each director; and• oversee our policies and practices regarding political expenditures. |
| Colleen F. Arnold | |
| Patricia A. Hemingway Hall | |
Meetings in fiscal 2017: 4 | |
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| Cardinal Health | 2017 Proxy Statement | 11 |
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| Name | Audit (1) | Nominating and Governance | Human Resources and Compensation | Executive (1) |
| David J. Anderson (2) | ü | | | |
| Colleen F. Arnold | | ü | | |
| George S. Barrett | | | | Chair |
| Carrie S. Cox (3) | | | ü | |
| Calvin Darden | | | ü | |
| Bruce L. Downey | ü | | | |
| John F. Finn (Lead Director) (4) | ü | Chair | | ü |
| Patricia A. Hemingway Hall (5) | ü | | | |
| Clayton M. Jones (6) | Chair | | | ü |
| Gregory B. Kenny (7) | | ü | Chair | ü |
| David P. King (8) | | | ü | |
| Richard C. Notebaert | | ü | ü | ü |
| Number of Fiscal 2014 Committee Meetings | 9 | 4 | 7 | 0 |
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(1)Corporate Governance | Mr. Britt served as Chairman of the Audit Committee and on the Executive Committee until his death in June 2014. | |
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(2)Human Resources and Compensation Committee |
| Mr. Anderson was elected | |
| Members: | | The Compensation Committee’s primary duties are to: • approve compensation for the Chief Executive Officer, establish relevant performance goals, and evaluate his performance;• approve compensation for our other executive officers and oversee their evaluations;• make recommendations to the Board and appointedwith respect to the Audit Committeeadoption of, and administer, equity and incentive compensation plans;• review our non-management directors’ compensation program and recommend changes to the Board;• oversee the management succession process for the Chief Executive Officer and senior executives;• oversee workplace diversity initiatives and progress;• oversee and assess material risks related to compensation arrangements; and• assess the independence of Compensation Committee’s consultant and evaluate its performance.
The Compensation Discussion and Analysis, which begins on April 25, 2014. |
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(3) | The Board appointed Ms. Cox to serve onpage 22, discusses how the Compensation Committee on February 5, 2014. Priormakes compensation-related decisions regarding our named executive officers.The Compensation Committee acts as the administrator of our incentive plans and delegates to that, she served onour officers authority to administer the Audit Committee. |
| plans with respect to participants who are not officers subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"). |
(4)David P. King (Chair) | Mr. Finn has decided not to stand for re-election at the Annual Meeting and his term will expire at that time; he will cease to be Lead Director and Chairman of the Nominating and Governance Committee on November 1, 2014. |
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(5)Carrie S. Cox | The Board appointed Ms. Hemingway Hall to serve on the Audit Committee on November 6, 2013. |
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(6)Calvin Darden | The Board appointed Mr. Jones to serve on the Audit Committee on February 5, 2014 and as Chairman of the Audit Committee on June 27, 2014. Prior to that, he served on the Compensation Committee. |
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(7)Nancy Killefer | On November 1, 2014, Mr. Kenny will cease to be Chairman of the Compensation Committee and become Lead Director and Chairman of the Nominating and Governance Committee. |
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(8)
Meetings in fiscal 2017: 6 | The Board appointed Mr. King to serve on the Compensation Committee on November 6, 2013. Prior to that, he served on the Audit Committee. He will become Chairman of the Compensation Committee on November 1, 2014. |
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The Audit Committee. The Audit Committee’s primary duties are to assist the Board in monitoring:
the integrity of our financial statements;
the independent auditor’s qualifications, independence and performance;
the performance of our internal audit function;
the ethics and compliance program and our compliance with legal and regulatory requirements; and
our process for assessing and managing risk.
The Audit Committee reviews quarterly and annual financial statements before they are filed or announced. It also reviews matters such as the significant financial reporting issues and judgments made in connection with the preparation of our financial statements, the effect of regulatory and accounting initiatives and the adequacy and effectiveness of our internal controls and disclosure controls and procedures.
The Audit Committee reviews quarterly reports from our Chief Legal and Compliance Officer regarding our ethics and compliance program, including compliance by Cardinal Health with applicable legal requirements and the Standards of Business Conduct described below. The Audit Committee discusses with
management our major financial risk exposures and the steps management has taken to monitor and control such exposures, including our financial risk assessment and financial risk management policies. It also oversees our process for assessing and managing risk through our enterprise risk management process.
The Audit Committee pre-approves all services provided by the independent auditor. The Audit Committee also appoints, compensates and oversees the independent auditor, including resolution of any disagreements with management regarding financial reporting and overseeing the rotation of the lead audit partner as required by law. The Audit Committee also reviews our internal audit plan and the functions and structure of our internal audit department.
The Board has determined that each of Messrs. Anderson, Downey, Finn and Jones and Ms. Hemingway Hall is an “audit committee financial expert” for purposes of the SEC rules and each member of the Audit Committee is independent, as independence for audit committee members is defined by the NYSE.
The Nominating and Governance Committee. The Nominating and Governance Committee’s primary duties are to:
identify and recommend to the Board individuals qualified to become Board members (consistent with criteria approved by the Board);
annually review our Corporate Governance Guidelines;
make recommendations to the Board concerning the structure, composition and functions of the Board and its committees;
perform a leadership role in shaping and overseeing our corporate governance practices;
conduct the annual evaluation of the Board’s effectiveness and performance; and
oversee our policies and practices regarding political expenditures and review political expenditures.
The Nominating and Governance Committee considers and recommends criteria to the Board for identifying and evaluating potential Board candidates; reviews and considers any Board candidates recommended by shareholders; assesses the qualifications, attributes, skills, contributions and independence of individual directors; and considers and makes recommendations to the Board regarding any resignations tendered by a director.
Human Resources and Compensation Committee. The Compensation Committee’s primary duties are to:
develop an executive compensation program to support overall business strategies and objectives, attract and retain executives, link compensation with business objectives and organizational performance and provide competitive compensation opportunities;
approve compensation for the Chief Executive Officer, including relevant performance goals, and evaluate his performance;
approve compensation for our other executive officers and oversee their evaluations;
make recommendations to the Board with respect to the adoption of equity-based compensation plans and incentive compensation plans;
review the outside directors’ compensation program and recommend changes to the Board;
oversee the management succession process for the Chief Executive Officer and senior executives;
oversee workplace diversity initiatives and progress;
oversee and assess the appropriateness of any material risks related to compensation arrangements; and
assess the independence of compensation consultants or other outside advisors who provide advice to the Compensation Committee.
The Compensation Discussion and Analysis, which begins on page 21, discusses how the Compensation Committee makes compensation-related decisions regarding our executive officers. The Compensation Committee acts as the administrator of our equity and non-equity incentive plans covering executive officers and other senior management. Generally, the Compensation
Committee delegates to our officers authority to administer the plans, including selecting participants and determining award levels within plan parameters, but may not delegate any such responsibility with respect to our officers subject to Section 16 of the Exchange Act.
The Executive Committee. The Executive Committee is comprised of the Chairman and Chief Executive Officer, the chairpersons of each of the Audit, Nominating and Governance and Compensation Committees, the Lead Director and Mr. Notebaert. The Committee acts from time to time on behalf of the Board when specific authority is delegated to it by the Board or to consider or act upon a matter promptly.
Director Independence
The Board has established director independence standards to assist it in determining director independence.based on the NYSE Rules. These standards can be found within our Corporate Governance Guidelines on our website at www.cardinalhealth.com, under “About Us — Us—Corporate—Investor Relations—Corporate Governance—Corporate Governance — Corporate Governance Guidelines.Documents." TheyThese standards address, among other things, employment and compensation relationships, relationships with our auditor and customer and business relationships.
The Board assesses at leastdirector independence annually, the independence of directors and as needed, based on the recommendationrecommendations of the Nominating and Governance Committee, determines which members are independent. Committee.
The Board has determined that each of Messrs. Anderson, Darden, Downey, Finn, Jones, Kenny King and Notebaert,King, and each of Mmes. Arnold, Cox, and Hemingway Hall and Killefer, is independent. Mr. Anderson ceased to be independent under the listing standardsin December 2016 when he became Chief Financial Officer of the NYSE and our Corporate Governance Guidelines. The Board also previously determined that Dr. Spaulding, a director who served during fiscal 2014 through the date of our 2013 Annual Meeting of Shareholders, and Mr. Britt, who passed away in June 2014, were independent.
In determining that Ms. Arnold, an executive officer of IBM, is independent, the Nominating and Governance Committee considered our relationship with IBM, fromAlexion, which we purchase equipment and servicessupplies pharmaceuticals to us in the ordinary course of its business. Our payments to IBM were less than 1% of our and of IBM’s revenue for each of the last three fiscal years.
In determining that Ms. Hemingway Hall isMr. Anderson again became independent the Nominating and Governance Committee considered that she is President and Chief Executive Officer of HCSC. Our Cardinal Health at Home division (formerly known as AssuraMed) receives payments from HCSC for products and services ordered by HCSC customers in the ordinary course of business, which were less than 1% of our and of HCSC's revenue for each of the last three fiscal years; we do not do other businessafter his employment with HCSC. HCSC also utilizes and is a minority investor in a pharmacy benefits company with which we hold a competitively-bid supply contract.Alexion ended.
In determining that Mr. King is independent, the Nominating and Governance Committee considered that he is Chairman, President and Chief Executive Officer of LabCorp. We receive payments from LabCorp forsell medical and laboratory products that it purchases from usto LabCorp in the ordinary course of business. LabCorp's payments to us
were less than 1% of our, and less than 2% of LabCorp's, revenue for each of the last three fiscal years.
Director Qualification Standards
The Nominating and Governance Committee considers and reviews with the Board the appropriate skills and characteristics required offor Board members and develops criteria for identifying and evaluating qualified Board candidates.members. These criteria, as described in our Corporate Governance Guidelines, include business experience, qualifications, attributes and skills, including relevanthealthcare industry experience;and knowledge, as well as financial, international, operations, and technology experience, independence (including independence from the interests of a particular group of shareholders); judgment; integrity;, judgment, integrity, ability to commit sufficient time and attention to the activities of the Board;Board and the absence of potential conflicts with our interests.
The Nominating and Governance Committee considers the foregoing criteriathese skills and qualifications when assessing the operation and goalscomposition of the Board as a whole, and seeks to achieve diversity of occupationalskills, experience and personal backgrounds on the Board, including race and gender diversity.Board. The Nominating and Governance Committee assesses the effectiveness of this process by gathering data and discussing the diversitybased on its review of the Boardqualifications in the Director skills matrix on page 9. This assessment is ongoing and occurs both during the Committee's regular meetings as well as during the Board's annual self-assessmentsself-assessment process.
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The Nominating and Governance Committee is responsible for identifying, reviewing and the Board.
If the Nominating and Governance Committee believes that a potential candidate may be appropriaterecommending candidates for the Board the committee takes timeand is working with a firm that was retained to learn more about the candidateassist in identifying and gives the candidate an opportunity to learn more about Cardinal Health, theselecting independent director candidates.The Board and its governance practices. Ultimately, the Board is
responsible for selecting candidates for election as directors based on the recommendation of the Nominating and Governance Committee.
TheBoard Diversity
Our Corporate Governance Guidelines provide that the Board should be diverse, engaged and independent. In developing and recommending criteria for identifying and evaluating candidates for the Board, the Nominating and Governance Committee considers the diversity of the Board, including ethnic and gender
diversity. We believe the composition of our Board appropriately reflects a diversity of skills, professional and personal backgrounds and experiences and 45% of our Board members are ethnically or gender diverse.
Board Performance Assessment
For several years, our Board has engagedhad a search firm to assist with identifying and evaluating potential Board candidates. The search firm identified Mr. Anderson as a potential candidate for considerationrigorous self-evaluation process, which has included individual director evaluations. This process is overseen by the Nominating and Governance Committee.Committee and led by our independent Lead Director.
Our Board Performance Assessmentuses an outside facilitator with corporate governance experience who interviews each director to obtain his or her feedback regarding the Board's performance as well as feedback on each director. Based on the feedback, which is compiled anonymously, the Board identifies follow-up items and provides feedback to management.
The Board through evaluation process includes an assessment of both Board process and substance, including:
the NominatingBoard's effectiveness, structure, composition and Governance Committee, assesses itsculture;
quality of Board discussions, including time devoted to discussion and presentations;
the Board's performance by conducting an annual self-evaluation. Eachin oversight of the Audit, Nominatingstrategy, succession planning, business performance, regulatory compliance, risk management and Governanceother key areas; and Compensation Committees conducts an annual self-evaluation. In addition,
agenda topics for future meetings.
The outside facilitator also compiles feedback regarding each individual director, which the Nominating and Governance Committee annually conducts an individual evaluation of each director. The Lead Director shares the results ofprovides to each director's evaluation with him or her.director in individual discussion. The Board believes this annual process supports its effectiveness and continuous improvement.
Resignation Policy for Incumbent Directors Not Receiving Majority Votes
Our Corporate Governance Guidelines require any incumbent director who is not re-elected by shareholders in an uncontested election to promptly tender a resignation to the Chairman of the Board. Within 90 days following the certification of the shareholder
vote, the Nominating and Governance Committee will recommend to the Board whether to accept the resignation. Thereafter, the
Board will promptly act and publicly disclose its decision and the rationale behind the decision.
CommunicatingShareholder EngagementWe actively engage with our shareholders throughout the year so that management and the Board
Shareholders can better understand shareholder perspectives on governance, executive compensation and other interested parties may communicate with the Board, any committee of the Board, any individual director or the independent directors as a group, by writing to the Office of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017 or sending an e-mail to bod@cardinalhealth.com. Communications from shareholders will be distributed to the entire Board unless addressed to a particular committee or director. The Corporate Secretary will not distribute communicationstopics that are unrelatedimportant to them, and to assess emerging issues that may help shape our practices and enhance our corporate disclosures. We strive for a collaborative approach to shareholder engagement and value the dutiesvariety of shareholders' perspectives received.
During the Board, suchpast three years, our independent Lead Director has participated in outreach discussions with our large shareholders. In addition, as spam, junk mail, mass mailings, business solicitationsin past years, we held regular discussions with our largest shareholders and advertisements.
Shareholder Recommendations for Director Nominees
The Nominating and Governance Committee will consider candidates recommended bysolicited feedback from our top 50 investors on corporate governance matters. During fiscal 2017 we contacted governance professionals from our largest shareholders for election as director. Shareholder recommendations will be evaluated against the same criteria used to evaluate other nominees, which criteria are discussed above under “Director Qualification Standards.” Shareholders who wish to recommend a candidate may do so by writing to the Nominating and Governance Committee in carecollectively representing more than 50% of the Officeour outstanding shares during fiscal 2017. An overview of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017. To be considered by the committee for consideration at the 2015 Annual Meeting of Shareholders, a shareholder recommendation must be received no later than April 1, 2015. Recommendations must include, at a minimum, the following information:
the name and address of the shareholder making the recommendation;
the name and address of the person recommended for nomination;
if the shareholderour engagement process is not a shareholder of record, a representation and satisfactory proof of share ownership;
a statement in support of the shareholder’s recommendation, including sufficient information to permit the Nominating and Governance Committee to evaluate the candidate’s qualifications, skills and experience;
a description of all direct or indirect arrangements or understandings between the shareholder and the candidate recommended by the shareholder;
information regarding the candidate as would be required to be included in a proxy statement filed in accordance with SEC rules; and
the candidate’s written, signed consent to serve if elected.
Shareholders who wish to nominate directors directly for election at an annual meeting of shareholders in accordance with the procedures in our Code of Regulations should follow the instructions under “Other Matters — Shareholder Proposals for Next Year's Proxy Statement” on page 43.below.
15
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| Cardinal Health | 2017 Proxy Statement | 13 |
After considering feedback from shareholders in recent years, we have:
adopted a proxy access right for shareholders;
enhanced our disclosures regarding the Board's role in strategy and risk oversight;
formalized additional responsibilities for the independent Lead Director and enhanced our disclosure about the Lead Director’s role and activities;
formalized our annual individual director evaluation process and expanded our disclosure about the annual Board evaluation process;
enhanced our executive compensation clawback provision;
provided more detailed disclosure in the Proxy Summary and the Compensation Discussion and Analysis Executive Summary; and
added a chart of director qualifications and experience in the proxy statement.
Strategy and Risk Oversight
Board’s Oversight of Strategy and Capital Deployment
The Board’s roleBoard regularly discusses our strategy in light of company performance, developments in the rapidly changing healthcare industry and the general business and global economic environment, and reviews and approves our capital deployment, including dividends, share repurchase plans and significant acquisitions. At two of its in-person meetings each year, the Board conducts dedicated strategy sessions with in-depth discussions with senior management on the healthcare industry and environmental factors and reviews specific businesses and new business opportunities. These strategy sessions have included external speakers such as business partners and advisors, as well as off-site visits to company facilities and customer locations. The Board also discusses risks related to our strategies, including those resulting from possible competitor, customer and supplier actions, the changing healthcare environment and new technologies. The collective backgrounds, skills and experiences of our directors, including broad healthcare experience, contribute
to robust discussions regarding strategic planning and risk oversight.
As an example, our Board discussed the possible acquisition of the Patient Recovery Business from Medtronic plc over a number of meetings beginning in the fall of 2016, when we learned that these assets might be for sale. We devoted significant portions of two in-person Board meetings to a detailed review and discussion of the possible acquisition and related capital deployment, and had several Board updates between these meetings. The Board approved the acquisition at a special meeting in April 2017.
Board’s Role in Risk Oversight
Management has day-to-day responsibility for assessing and managing risks, and the Board is responsible for overseeing our policies and procedures for assessing and managing risk. Management is responsible for assessing and managing our exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and procedures. Management also is responsible for informing the Board of our most significant risks and our plans for managing those risks.
To assist the Board and management in exercising their respective responsibilities, weoversight. We have developed an enterprise risk management process, thatwhich our Audit Committee oversees and our Chief Legal and Compliance Officer administers. Under this process, management identifies and prioritizes enterprise risks and develops systems to assess, monitor and mitigate those risks. Management reviews and discusses with the Board significant risks identified through the process. The Audit Committee also is responsible for
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14
| Cardinal Health | 2017 Proxy Statement | |
discussing with management our major financial risk exposures, our ethics and compliance programs, and compliance with legal and regulatory requirements. The Board and Audit Committee receive regular updates on the effectiveness of our compliance programs, including our healthcare regulatory compliance, anti-corruption and controlled substance anti-diversion program, as well as updates on potential information system and cyber security
exposures and mitigation strategies. In connection with its risk oversight role, the Audit Committee meets regularly with representatives from our independent registered public accounting firm and our Chief Financial Officer, Chief Legal and Compliance Officer and the steps management has taken to monitor and control such exposures, including our financial risk assessment and financial risk management policies.
Risk assessment of compensation programs. Management has assessed our compensation programs and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on Cardinal Health. This risk assessment, which was presented to and discussed with the Compensation Committee, included reviewing the design and operationhead of our compensation programs, identifying and evaluating situations or compensation elements that could raise more significant risks and evaluating other controls and processes designed to identify and manage risk. The Committee's independent compensation consultant also reviewed the risk assessment and concurred with management's conclusion.internal audit function.
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| The Opioid Epidemic and Risk Management As a pharmaceutical distributor, we provide a safe and secure channel for transporting prescription medications of all types, including opioid pain medications, from manufacturers approved by the Food and Drug Administration to licensed pharmacies. Our role is to ensure medications of all kinds—oncology, blood pressure, antibiotic, pain and other medications—are available to pharmacies that are licensed by their state and regulated by the Drug Enforcement Administration to dispense these medications to patients with valid medical prescriptions. As a pharmaceutical distributor, we do not manufacture, market, promote or dispense these medications, and we do not interact with patients, diagnose medical conditions, write prescriptions or otherwise practice medicine. As part of our safe and secure distribution channel, we maintain a rigorous anti-diversion program to prevent opioid pain medications from being diverted for improper uses. Our Board is highly engaged in oversight of our anti-diversion program and is committed to helping with the complex national opioid abuse public health crisis. Our anti-diversion program includes state-of-the-art controls designed to prevent diversion of pain medication from legitimate uses. The Board regularly reviews and discusses with management the effectiveness of our anti-diversion program, which focuses on our regulatory obligation to detect and report suspicious orders. The Board also monitors and discusses the causes of, and our role in helping to address, this national epidemic. In 2014, in response to a shareholder demand, the Board appointed a committee of independent directors to conduct a review of our anti-diversion program utilizing independent counsel. The committee found, among other things, that we had implemented and maintained a robust system of controls to detect and report suspicious orders and that our Board was well informed of those controls. Since that review, the Board has continued to actively focus on the effectiveness of our anti-diversion program and to support its continued enhancements through regular reviews with management. | |
Ethics and Compliance Program
The Board has adopted written Standards of Business Conduct that outline our corporate values and standards of integrity and behavior andbehavior. The Standards of Business Conduct are designed to foster a culture of integrity, drive compliance with legal and regulatory requirements and protect and promote the reputation of our company. The full text of the Standards of Business Conduct is posted on our website at www.cardinalhealth.com, under “About Us — Corporate Governance — Policies and Other — Us—Our Business—Ethics and Compliance.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
Our Chief Legal and Compliance Officer has responsibility to implement and maintain an effective ethics and compliance program. He also has responsibility to provideprovides quarterly updates on our ethics and compliance program to the Audit Committee and an update to the full Board at least once a year. He reports to the Chair of the Audit Committee and to the Chief Executive Officer and meets in separate executive sessions quarterly with the Audit Committee.
Management Succession Planning
The Board is actively engaged in our talent management program. The Compensation Committee oversees the process for succession planning for the Chief Executive Officer and senior executives, and management provides an organizational update at each quarterly Compensation Committee meeting. The Board
maintains an emergency succession plan as well as a long-term succession plan for the position of Chief Executive Officer.
The Board also reviewsholds a formal succession planning and talent review session annually, which includes succession planning for other senior management positions. In addition to ongoing discussions throughout the year, the Board held a succession planning andThese talent review session during fiscal 2014.
Shareholder Engagement
In order for management and the Board to better understand and consider shareholders' views and perspectives, for a number of years, we have regularly communicated with our shareholders to solicit and discuss their views and perspectives on governance, executive compensation and other matters. During fiscal 2014 we had discussions with a number of shareholders, including our largest shareholders. Feedback received during these meetings is presented to and discussed by the Nominating and Governance Committee, and as appropriate, other Board committees.
After considering feedback received from shareholders in recent years, we have:
formalized additional responsibilities for the independent Lead Director and added disclosure about the Lead Director's activities;
formalized the annual individual director evaluation process in our Corporate Governance Guidelines;
provided additional disclosure about the Audit Committee's oversight and engagement of the independent auditor and expanded the Audit Committee Report (see pages 7 and 17); and
expanded and enhanced the Proxy Summary and the Compensation Discussion and Analysis Executive Summary.
In addition, our Chief Executive Officer, Chief Financial Officer and management team receive regular feedback from the investment community regarding our strategy, financial results and other topics of interest, and briefs the Board on these engagements.
Finally, as noted above, our Lead Director has attended a major healthcare investor conference with management.
Corporate Governance Guidelines
You can find the full text of our Corporate Governance Guidelines on our website, at www.cardinalhealth.com, under “About Us — Corporate Governance — Corporate Governance Guidelines.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
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| Cardinal Health | 2017 Proxy Statement | 15 |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSCorporate Governance | | |
succession planning discussions take into account desired leadership skills, key capabilities and experience in light of our current and evolving business and strategic direction, and include identification and development of internal candidates. Directors also have exposure to leaders through Board presentations and
discussions, as well as through informal events and interactions with key talent throughout the year, both in small group and one-on-one settings. In addition, the Board regularly discusses management talent and succession in its executive sessions.
Certain Relationships and Related Transactions
Related PartyPerson Transactions Policy
The Board follows a written policy that the Audit Committee must approve or ratify any "related partyperson transactions" (transactions exceeding $120,000 in which we are a participant and any related partyperson has a direct or indirect material interest). "Related parties"persons" include our directors, nominees for election as a director, persons controlling over 5% of our common shares, executive officers and the immediate family members of each of these individuals.
Once a related partyperson transaction is identified, the Audit Committee will review all of the relevant facts and circumstances and determine whether to approve the transaction. The Audit Committee will take into account such factors as it considers appropriate, including the material terms of the transaction, the nature of the related party’sperson’s interest in the transaction, the significance of the transaction to the related partyperson and us, the nature of the related party’sperson’s relationship
with us and whether the transaction would be likely to impair the judgment of a director or executive officer to act in our best interest.
If advance approval of a transaction is not feasible, the Audit Committee will consider the transaction for ratification at its next regularly scheduled meeting. The Audit Committee Chairman may
pre-approve or ratify any related partyperson transactions in which the aggregate amount is expected to be less than $1 million.
Related PartyPerson Transactions
Since July 1, 2013,2016, there have been no transactions, and there are no currently proposed transactions, involving an amount exceeding $120,000 in which we were or are to be a participant and in which any related person had or will have a direct or indirect material interest.interest, except as described below.
Mr. Anderson served as Chief Financial Officer of Alexion, a biotechnology company, from December 11, 2016 until July 31, 2017, and as an employee of Alexion until August 31, 2017. When Mr. Anderson joined Alexion, we had a pre-existing commercial relationship with Alexion which was negotiated at arm's length and in the ordinary course of business, and has continued since Mr. Anderson ended his employment with Alexion. From July 1, 2016 through July 31, 2017, we purchased for distribution to our customers approximately $394 million of Alexion product. Mr. Anderson has not been involved in any decisions or activities directly associated with the transactions between Alexion and us. These transactions were approved by our Audit Committee in accordance with the Related Person Transactions Policy.
Corporate Governance Guidelines
You can find the full text of our Corporate Governance Guidelines on our website at www.cardinalhealth.com under “About Us—Corporate—Investor Relations—Corporate Governance—Corporate Governance Documents.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
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AUDIT COMMITTEE REPORT AND AUDIT MATTERS16
| Cardinal Health | 2017 Proxy Statement | |
Proposal 2—Ratification of Ernst & Young LLP as Independent Auditor
The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation, retention and oversight of our independent auditor and approves the audit engagement letter with Ernst & Young LLP and its audit fees. The Audit Committee has appointed Ernst & Young LLP as our independent auditor for fiscal 2018 and believes that the continued retention of Ernst & Young LLP as our independent auditor is in the best interest of Cardinal Health and its shareholders. Ernst & Young LLP has served as our independent auditor since 2002. In accordance with SEC rules, lead audit partners are subject to rotation requirements, which limit the number of consecutive years an individual partner may serve us. The Audit Committee oversees the rotation of the audit partners. The Audit Committee Chairman interviews candidates for audit partner and the Audit Committee discusses them.
While not required by law, we are asking our shareholders to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2018 at the Annual Meeting as a matter of good corporate
governance. If shareholders do not ratify this appointment, the Audit Committee will consider whether it is appropriate to appoint another audit firm. Even if the appointment is ratified, the Audit Committee in its discretion may appoint a different audit firm at any time during the fiscal year if it determines that such a change would be in the best interest of the company and its shareholders. Our Audit Committee approved, and our shareholders ratified, the appointment of Ernst & Young LLP as our independent auditor for fiscal 2017.
We expect representatives of Ernst & Young LLP to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.
The Board recommends that you vote FOR the proposal to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2018.
Audit Committee Report and Audit Matters
Audit Committee Report
The Audit Committee assists the Board of Directors inis responsible for monitoring the integrity of Cardinal Health’s financial statements; the independent auditor’s qualifications, independence and performance; the performance of Cardinal Health’s internal audit function; Cardinal Health’s ethics and compliance program and the company’sits compliance with legal and regulatory requirements; and Cardinal Health’s processes for assessing and managing risk. TheAs of the date of the report, the Audit Committee currently consistsconsisted of fivethree members of the Board of Directors. Mr. Anderson was subsequently re-appointed to the Audit Committee on September 14, 2017. The Board of Directors has determined that each current Committee member is an “audit committee financial expert” for purposes of the SEC rules and is independent. The Audit Committee’s activities are governed by a written charter, most recently revised by the Board of Directors in November 2012, which specifies the scope of the Audit Committee’s responsibilities.2016. The charter is available on Cardinal Health’s website at www.cardinalhealth.com, under “About Us — Us—Corporate—Investor Relations—Corporate Governance — Governance—Board Committees and Charters."
Management has primary responsibility for the financial statements and for establishing and maintaining the system of internal control over financial reporting. Management also is responsible for reporting on the effectiveness of Cardinal Health’s internal control over financial reporting. Cardinal Health’s independent auditor, Ernst & Young LLP, is responsible for performing an independent audit of Cardinal Health’s consolidated financial statements and for issuing a report on the financial statements and a report on the effectiveness of Cardinal Health’s internal control over financial reporting based on its audit.
The Audit Committee reviewed and discussed the audited financial statements for the fiscal year ended June 30, 20142017 with management and with Ernst & Young LLP. The Audit Committee also reviewed and discussed with management and Ernst & Young LLP the effectiveness of Cardinal Health’s internal control over financial reporting as well as management's report and Ernst &
Young LLP's report on the subject. The Audit Committee discussed with Ernst & Young LLP the matters related to the conduct of its audit that are required to be communicated by auditors to audit committees under applicable requirements of the Public Company
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| Cardinal Health | 2017 Proxy Statement | 17 |
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| Audit Committee Report and Audit Matters | | |
Accounting Oversight Board (the "PCAOB") and matters related to Cardinal Health’s financial statements, including critical accounting estimates and judgments. The Audit Committee received from Ernst & Young LLP the written disclosures and letter regarding Ernst & Young LLP’s independence from Cardinal Health required by applicable PCAOB requirements and discussed Ernst & Young LLP’s independence.
The Audit Committee meets regularly with Ernst & Young LLP, with and without management present, to review the overall scope and plans for Ernst & Young LLP’s audit work and to discuss the results of its examinations, the evaluation of Cardinal Health’s internal control over financial reporting and the overall quality of Cardinal Health’s accounting and financial reporting. In addition, the Audit Committee annually considers the performance of Ernst & Young LLP.
In reliance on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended June 30, 20142017 be included in Cardinal Health’s Annual Report on Form 10-K for filing with the SEC.
Submitted by the Audit Committee of the Board of Directors.Directors on August 8, 2017.
Clayton M. Jones, Chairman
David J. Anderson
Bruce L. Downey
John F. Finn
Patricia A. Hemingway Hall
Fees Paid to Independent Accountants
The following table sets forth the fees billed to us by Ernst & Young LLP for services in fiscal 20142017 and 2013.2016.
| | | | Fiscal Year Ended June 30, 2014 ($) | Fiscal Year Ended June 30, 2013 ($) | Fiscal Year Ended June 30, 2017 ($) | Fiscal Year Ended June 30, 2016 ($) |
| Audit fees (1) | 5,460,361 |
| 5,293,183 |
| 9,546,537 |
| | 9,722,883 |
| |
| Audit-related fees (2) | 2,276,604 |
| 1,840,055 |
| 2,722,451 |
| | 3,780,485 |
| |
| Tax fees (3) | 1,216,360 |
| 1,395,874 |
| 841,082 |
| | 980,523 |
| |
| All other fees | — |
| — |
| — |
| | — |
| |
| Total fees | 8,953,325 |
| 8,529,112 |
| 13,110,070 |
| | 14,483,891 |
| |
| |
| (1) | Audit fees include fees paid to Ernst & Young LLP related to the annual audit of our consolidated financial statements, the annual audit of the effectiveness of our internal control over financial reporting, the review of financial statements included in our Quarterly Reports on Form 10-Q and statutory audits of various international subsidiaries. Audit fees also include fees for services performed by Ernst & Young LLP that are closely related to the audit and in many cases could only be provided by our independent accountant, such as comfort letters and consents related to SEC registration statements. |
of our internal control over financial reporting, the review of financial statements included in our Quarterly Reports on Form 10-Q and statutory audits of various international subsidiaries. Audit fees also include fees for services performed by Ernst & Young LLP that are closely related to the audit and in many cases could only be provided by our independent accountant, such as comfort letters and consents related to SEC registration statements.
| |
| (2) | Audit-related fees include fees for services related to acquisitions and divestitures, audit-related research and assistance, internal control reviews, service auditor’s examination reports and employee benefit plan audits. |
| |
| (3) | Tax fees include fees for tax compliance and other tax-related services. The aggregate fees billed to us by Ernst & Young LLP for tax compliance and other tax-related services for fiscal 20142017 were $186,039$797,514 and $1,030,321,$43,568, respectively, and for fiscal 20132016 were $329,200$546,722 and $1,066,674,$433,801, respectively. |
Audit Committee Audit and Non-Audit Services Pre-Approval Policy
The Audit Committee must pre-approve the audit and permissible non-audit services performed by our independent accountants in order to help ensure that the accountants remain independent from Cardinal Health. The Audit Committee has adopted a policy governing this pre-approval process.
Under the policy, the Audit Committee annually pre-approves certain services within establishedand assigns specific dollar thresholds.thresholds for these types of services. If a proposed service is not included in the annual pre-approval, the Audit Committee must separately pre-approve the service before the engagement begins.
The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for proposed services up to $500,000. Proposed services exceeding $500,000 require full Audit Committee approval.
All audit and non-audit services provided for us by Ernst & Young LLP for fiscal 20142017 and 20132016 were pre-approved by the Audit Committee.
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18
| Cardinal Health | 2017 Proxy Statement | |
Proposal 3—Advisory Vote to Approve the Compensation of Our Named Executive Officers
In accordance with Section 14A of the Exchange Act, we are asking our shareholders to approve, on a non-binding advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.
We urge shareholders to read the Compensation Discussion and Analysis beginning on page 22 of this proxy statement, which describes in more detail how our executive compensation program operates and is designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables, notes and narrative appearing on pages 30 through 41, which provide detailed information on the compensation of our named executive officers.
The Compensation Committee and the Board believe that the executive compensation program described in the Compensation Discussion and Analysis is designed to support our long-term growth, with accountability for key annual results. We tie most of executive pay to performance based on financial, operational and individual performance, and we believe that our compensation programs are competitive in the marketplace.
While we took important actions to strengthen our market position, increase our scale, add new, long-term drivers of growth and improve the overall balance of our integrated portfolio in fiscal 2017, we did not achieve the earnings goal under our annual
incentive plan, largely as a result of a challenging generic pharmaceutical pricing environment. Our named executives other than Mr. Barrett received payouts at 25% of their respective targets. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout. The payouts demonstrate strong alignment between our pay and our performance.
Although this advisory vote is not binding on the Board, the Board and the Compensation Committee will review and consider the voting results when evaluating our executive compensation program.
The Board has adopted a policy providing for annual say-on-pay advisory votes. Accordingly, subject to the outcome of Proposal 4 and the decision of the Board, the next say-on-pay advisory vote will be held at our 2018 Annual Meeting of Shareholders.
The Board recommends that you vote FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.
Proposal 4—Advisory Vote on Frequency of Future Advisory Votes to Approve Executive Compensation
In accordance with Section 14A of the Exchange Act, we are asking shareholders to vote on whether future advisory votes on executive compensation (like Proposal 3 above) should occur once every one, two or three years. This vote is not binding on the Board. Based on input from shareholders, the Board has determined that holding an advisory vote on executive compensation every year is most appropriate for us at this time, and recommends that shareholders vote to hold such votes every year. Holding an annual advisory vote provides us with more direct and immediate insight into our shareholders’ views on our executive compensation program.
Although this advisory vote is not binding on the Board, we will carefully review the voting results on this proposal. Notwithstanding the Board’s recommendation and the outcome of
the shareholder vote, the Board may in the future decide to vary its practice on the frequency of advisory votes on executive compensation based on factors such as discussions with shareholders.
You may specify one of four choices for this proposal on the proxy card: one year, two years, three years or abstain. You are not voting to approve or disapprove the Board’s recommendation.
The Board recommends that you vote to conduct future advisory votes to approve executive compensation every ONE YEAR.
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SHARE OWNERSHIP INFORMATION | Cardinal Health | 2017 Proxy Statement | 19 |
Share Ownership Information
Beneficial Ownership
The table below sets forth certain information regarding the beneficial ownership of our common shares by and the percentage of our outstanding common shares represented by such ownership for:
each person known by us to own beneficially more than 5% of our outstanding common shares;
our directors;
our Chairman and Chief Executive Officer and the other executive officers named in the Summary Compensation Table;Table on page 30; and
ourall executive officers and directors as a group.
A person has beneficial ownership of shares if the person has voting or investment power over the shares or the right to acquire such power in 60 days. Investment power means the power to direct the sale or other disposition of the shares. Except as otherwise described in the notes below, information on the number of shares beneficially owned is as of September 10, 2014,11, 2017, and the listed beneficial owners have sole voting and investment power.
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| Name of Beneficial Owner | Common Shares | Additional Restricted and Performance Share Units (11) |
Number Beneficially Owned | Percent of Class |
| Wellington Management Company, LLP (1) | 34,735,113 |
| 10.3 |
| — |
|
| BlackRock, Inc. (2) | 26,284,542 |
| 7.8 |
| — |
|
| The Vanguard Group (3) | 18,951,702 |
| 5.6 |
| — |
|
| State Street Corporation (4) | 18,228,324 |
| 5.4 |
| — |
|
| David J. Anderson (5) | — |
| * |
| — |
|
| Colleen F. Arnold (6)(8) | 10,924 |
| * |
| 19,569 |
|
| George S. Barrett (7) | 2,529,082 |
| * |
| 106,700 |
|
| Donald M. Casey Jr. (7) | 123,168 |
| * |
| 64,314 |
|
| Carrie S. Cox | 435 |
| * |
| 16,306 |
|
| Calvin Darden (6)(8) | 15,536 |
| * |
| 19,608 |
|
| Bruce L. Downey | 10,652 |
| * |
| 18,387 |
|
| John F. Finn (6)(8)(9) | 46,460 |
| * |
| 22,131 |
|
| Patricia A. Hemingway Hall | — |
| * |
| 2,612 |
|
| Jeffrey W. Henderson | 21,998 |
| * |
| 45,192 |
|
| Clayton M. Jones | — |
| * |
| 6,018 |
|
| Michael C. Kaufmann (7) | 212,109 |
| * |
| 70,342 |
|
| Gregory B. Kenny (8) | 5,084 |
| * |
| 19,584 |
|
| David P. King (6) | 2,652 |
| * |
| 9,446 |
|
| Craig S. Morford (7) | 51,238 |
| * |
| 67,066 |
|
| Richard C. Notebaert (6)(8) | 38,547 |
| * |
| 16,413 |
|
| All Executive Officers and Directors as a Group (19 Persons)(10) | 3,418,412 |
| 1.0 |
| 548,978 |
|
|
| | | | | | | | | |
| Name of Beneficial Owner | Common Shares | Additional Restricted and Performance Share Units (11) |
Number Beneficially Owned | Percent of Class |
| Wellington Management Group LLP (1) | 40,120,566 |
| | 12.7 |
| | — |
| |
| BlackRock, Inc. (2) | 23,919,543 |
| | 7.6 |
| | — |
| |
| The Vanguard Group (3) | 22,358,098 |
| | 7.1 |
| | — |
| |
| Barrow, Hanley, Mewhinney & Strauss, LLC (4) | 21,364,753 |
| | 6.8 |
| | — |
| |
| State Street Corporation (5) | 16,617,021 |
| | 5.3 |
| | — |
| |
| David J. Anderson (6)(7) | 7,785 |
| | * |
| | — |
| |
| Colleen F. Arnold (7) | 7,511 |
| | * |
| | 19,569 |
| |
| George S. Barrett (8) | 1,752,605 |
| | * |
| | 86,199 |
| |
| Donald M. Casey Jr. (8) | 313,002 |
| | * |
| | 99,090 |
| |
| Carrie S. Cox (7) | 6,758 |
| | * |
| | 16,306 |
| |
| Calvin Darden (7) | 12,972 |
| | * |
| | 19,608 |
| |
| Bruce L. Downey (7) | 16,975 |
| | * |
| | 18,387 |
| |
| Jon L. Giacomin (8) | 148,271 |
| | * |
| | 24,684 |
| |
| Patricia A. Hemingway Hall (7) | 6,323 |
| | * |
| | 2,612 |
| |
| Clayton M. Jones (7) | 6,323 |
| | * |
| | 6,018 |
| |
| Michael C. Kaufmann (8)(9) | 486,626 |
| | * |
| | 47,990 |
| |
| Gregory B. Kenny (7) | 12,492 |
| | * |
| | 19,584 |
| |
| Nancy Killefer (7) | 4,295 |
| | * |
| | — |
| |
| David P. King (7) | 8,975 |
| | * |
| | 9,446 |
| |
| Craig S. Morford (8) | 142,510 |
| | * |
| | 108,768 |
| |
| All Executive Officers and Directors as a Group (18 Persons)(10) | 3,071,048 |
| | * |
| | 521,343 |
| |
* Indicates beneficial ownership of less than 1% of the outstanding shares.
| |
| * | Indicates beneficial ownership of less than 1% of the outstanding shares. |
| |
| (1) | Based on information obtained from a Schedule 13G/A filed with the SEC on July 10, 2014February 9, 2017 by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP ("Wellington").LLP. The address of Wellingtonthese entities is 280 Congress Street, Boston, Massachusetts 02210. WellingtonThese entities reported that, as of JuneDecember 30, 2014, it2016, Wellington Management Group LLP had shared voting power with respect to 9,343,2869,616,602 shares and shared dispositive power with respect to all shares shown in the table. Wellington, in its capacity as investment adviser, may be deemed to beneficially own such shares, which are held of record by clients of Wellington. The number and percentage of shares held by Wellington may have changed since the filing of the Schedule 13G/A. |
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20
| Cardinal Health | 2017 Proxy Statement | |
|
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| Share Ownership Information | | |
dispositive power with respect to all shares shown in the table, Wellington Group Holdings LLP had shared voting power with respect to 9,616,602 shares and shared dispositive power with respect to all shares shown in the table, Wellington Investment Advisors Holdings LLP had shared voting power with respect to 9,616,602 shares and shared dispositive power with respect to all shares shown in the table and Wellington Management Company LLP had shared voting power with respect to 9,301,550 shares and shared dispositive power with respect to 39,350,365 shares. The number and percentage of shares held by these entities may have changed since the filing of the Schedule 13G/A.
| |
| (2) | Based on information obtained from a Schedule 13G/A filed with the SEC on February 6, 2014January 23, 2017 by BlackRock, Inc. ("BlackRock"). The address of BlackRock is 4055 East 52nd Street, New York, New York 10022.10055. BlackRock reported that, as of December 31, 2013,2016, it had sole voting power with respect to 22,420,30819,458,612 shares and sole dispositive power with respect to 26,269,281all shares and shared dispositive power with respect to 15,261 shares.shown in the table. The number and percentage of shares held by BlackRock may have changed since the filing of the Schedule 13G/A. |
| |
| (3) | Based on information obtained from a Schedule 13G13G/A filed with the SEC on February 6, 201410, 2017 by The Vanguard Group ("Vanguard"). The address of Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. Vanguard reported that, as of December 31, 2013,2016, it had sole voting power with respect to 558,634500,349 shares, shared voting power with respect to 62,268 shares, sole dispositive power with respect to 18,434,45521,797,227 shares and shared dispositive power with respect to 517,247560,871 shares. The number and percentage of shares held by Vanguard may have changed since the filing of the Schedule 13G.13G/A. |
| |
| (4) | Based on information obtained from a Schedule 13G filed with the SEC on February 3, 201410, 2017 by Barrow, Hanley, Mewhinney & Strauss, LLC ("Barrow Hanley"). The address of Barrow Hanley is 2200 Ross Avenue, 31st Floor, Dallas, TX 75201-2761. Barrow Hanley reported that, as of December 31, 2016, it had sole voting power with respect to 5,459,797 shares, shared voting power with respect to 15,904,956 shares, and sole dispositive power with respect to all shares shown in the table. The number and percentage of shares held by Barrow Hanley may have changed since the filing of the Schedule 13G. |
| |
| (5) | Based on information obtained from a Schedule 13G filed with the SEC on February 10, 2017 by State Street Corporation ("State Street"). The address of State Street is State Street Financial Center, One Lincoln Street, Boston, MassachusettsMA 02111. State Street reported that, as of December 31, 2013,2016, it had sole voting power with respect to 90,515 shares, shared voting power with respect to 16,526,506 shares, and shared dispositive power with respect to all shares shown in the table. The number and percentage of shares held by State Street may have changed since the filing of the Schedule 13G. |
| |
(5) | Mr. Anderson joined the Board in April 2014 and has not yet received his first annual director restricted share unit ("RSU") grant, which is typically made each November. |
| |
| (6) | Common shares listed as being beneficially owned by our non-management directors include (a) outstanding stock options that are currently exercisable, as follows: Ms. Arnold — 9,801 shares; Mr. Darden — 9,801 shares; Mr. Finn — 9,801 shares; and Mr. Notebaert — 9,801 shares; and (b) outstanding RSUs that will be settled inIncludes 400 common shares within 60 days, as follows:held by Mr. King — 2,612 shares.Anderson's spouse. |
| |
| (7) | Common shares listed as being beneficially owned by our named executivesnon-management directors include (a) outstanding stock optionsrestricted share units ("RSUs") that are currently exercisable,may be settled within 60 days, as follows: Mr. Barrett — 2,262,697Anderson—6,323 shares; Ms. Arnold—6,323 shares; Ms. Cox—6,323 shares; Mr. Casey — 120,322Darden—6,323 shares; Mr. Kaufmann — 163,875Downey—6,323 shares; Ms. Hemingway Hall—4,475 shares; Mr. Jones—6,323 shares; Mr. Kenny—7,113 shares; Ms. Killefer—4,295 shares; and Mr. Morford — 46,504King—6,323 shares; and (b) phantom stock over which the participants have sole voting rights under our DCP, as follows: Mr. Anderson—62 shares; Ms. Arnold—1,188 shares; Mr. Darden—5,514 shares; and Mr. Kenny—5,379 shares. |
| |
| (8) | Common shares listed as being beneficially owned by our non-management directorsnamed executives include phantom(a) outstanding stock over which the participants have sole voting rights under our Deferred Compensation Plan,options that are currently exercisable or will be exercisable within 60 days, as follows: Ms. Arnold — 1,123Mr. Barrett—1,320,419 shares; Mr. Darden — 4,600Casey—260,841 shares; Mr. Finn — 14,808Giacomin—123,751 shares; Mr. Kenny — 5,084Kaufmann—346,477 shares; and Mr. Notebaert — 11,409Morford—141,120 shares; and (b) outstanding RSUs that will be settled within 60 days, as follows: Mr. Casey—10,006 shares; Mr. Giacomin—1,779 shares; and Mr. Kaufmann —13,341 shares. |
| |
| (9) | Includes 21,07410 common shares held by Mr. Finn’sKaufmann's spouse. |
| |
| (10) | Common shares listed as being beneficially owned by all executive officers and directors as a group include (a) outstanding stock options for an aggregate of 2,944,8702,281,968 shares that are currently exercisable andor will be exercisable within 60 days; (b) an aggregate of 2,612 outstanding85,270 RSUs that may or will be settled in common shares within 60 days.days; and (c) an aggregate of 12,143 shares of phantom stock over which the participants have sole voting rights under our DCP. |
| |
| (11) | "Additional Restricted and Performance Share Units" include vested and unvested RSUs and vested performance share units ("PSUs") that will not be settled in common shares within 60 days. RSUs and PSUs do not confer voting rights and generally are not considered “beneficially owned”"beneficially owned" shares under the SEC rules. |
Compliance with Section 16(a) of the Exchange Act
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE |
Based solely upon a review of Forms 3, 4 and 5 furnished to us and written representations from our officers and directors, we believe that all of our officers and directors and all beneficial owners of 10% or more of any class of our registered equity securities timely filed all reports required under Section 16(a) of the Exchange Act during fiscal 2014.
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COMPENSATION DISCUSSION AND ANALYSIS |
Executive Summary
Fiscal 2014 was an outstanding year for us as strong pharmaceutical sales and generic program performance overcame the August 2013 expiration of the Walgreens pharmaceutical distribution contract, which reduced our revenue by $17 billion. We increased non-GAAP operating earnings by 4% to $2.1 billion* for the fiscal year, compared to the flat earnings growth expected when we set our annual performance goals. We also increased Pharmaceutical segment profit by 1% (rather than an expected decrease due to the Walgreens contract expiration).
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| Cardinal Health | 2017 Proxy Statement | 21 |
Compensation Discussion and Analysis
Executive Summary
This Compensation Discussion and Analysis focuses on the compensation of the following executive officers (the "named executives") for fiscal 2017 and describes the executive compensation program and the decisions of the Compensation Committee under the program.
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| |
Strong results in a year of major transitionName | Title |
| George S. Barrett | Chairman and Chief Executive Officer |
| Michael C. Kaufmann | Chief Financial Officer |
| Donald M. Casey Jr. | Chief Executive Officer—Medical Segment |
| Jon L. Giacomin | Chief Executive Officer—Pharmaceutical Segment |
| Craig S. Morford | Chief Legal and Compliance Officer |
Fiscal 20142017 Performance Highlights
3%In fiscal 2017, we took important actions to strengthen our market position, increase our scale, add new, long-term drivers of growth and improve the overall balance of our integrated portfolio.
In July 2017, we acquired the Patient Recovery Business from Medtronic plc for $6.1 billion. These well-established, industry-leading product lines are complementary to our medical product business, fit naturally into our customer offering and expand our global reach. The new portfolio will help us further expand our scope in non-GAAP earnings per sharethe operating room, in long-term care facilities and in home healthcare, reaching customers across the entire continuum of care.
In our Pharmaceutical segment, our Specialty Solutions business had outstanding growth, expanding its therapeutic reach and growing its hospital and physician customer base, and we saw excellent performance from our Red Oak Sourcing generic sourcing venture with CVS Health Corporation.
In our Medical segment, our medical products distribution business had its strongest growth in recent years, and we continued to $3.84.*expand our Cardinal Health branded product portfolio with nearly 12,000 product SKUs in 850 categories, more than double from five years ago. We also saw excellent growth from our naviHealth business.
Increased our dividend 13%On the financial side:
Revenue increased 7% to a record $130.0 billion.
| |
| • | GAAP diluted EPS decreased 7% to $4.03, while non-GAAP diluted EPS‡ increased 3% to $5.40, reflecting a challenging generic pharmaceutical pricing environment. |
Our Pharmaceutical segment grew revenue 7%, while segment profit decreased 12% largely driven by the generic pharmaceutical pricing environment, partially offset by the benefits from Red Oak Sourcing.
Our Medical segment grew revenue 9% and segment profit 25%, with profit growth being driven by contributions from the naviHealth business, Cardinal Health branded products and distribution services.
We returned $1.1$1.2 billion to shareholders, throughincluding $1.80 per share in dividends and share repurchases.
Total market shareholder return of 47%.
Partnered with CVS Health Corporation to launch Red Oak Sourcing, LLC, the largest generic pharmaceutical purchasing entity$600 million in the United States.
Longer-term performance. Our longer-term performance since George Barrett was appointed Chairman and Chief Executive Officer in August 2009 also has been outstanding. A $100 investment made then would have grown to $308 at the end of fiscal 2014, assuming dividend reinvestment.
Since the beginning of fiscal 2010, we grew non-GAAP earnings per share at a compounded annual growth rate of 14%*, increased our dividend 73% and returned $3.7 billion to shareholders through dividends and share repurchases.
Fiscal 2014 Executive Pay2017 Key Compensation Decisions
Annual incentive. The corporate funding percentage for annual incentives was 145% of target, reflecting ourFor fiscal 2017, the Compensation Committee set the adjusted non-GAAP operating earnings growth despitegoal for a 100% payout under our annual incentive plan higher than the challengeprior fiscal year goal, and set the threshold for a 40% payout at 92% of that goal. While we achieved 89% of the Walgreens contract expiration. Mr. Barrett received 152%goal, we did not achieve the threshold, largely as a result of his target annual incentive based on our consolidated performance and our significant progress advancingthe challenging generic pharmaceutical pricing environment. In recognition of our strategic prioritiesand operational accomplishments during fiscal 2014 under his leadership, including the successful launch of Red Oak Sourcing, LLC. Our other executive officers in the tables beginning on page 28 (together with Mr. Barrett, the “named executives”) received annual incentive awards that ranged from 84% to 190% of their target award based on consolidated, segment and individual performance.
Long-term incentive. The PSUs for the fiscal 2012 through fiscal 2014 performance period vested at 120%, reflecting combined non-GAAP earnings per share annual growth rate and dividend yield over the three-year period of 13%, which exceeded the 11% target that2017, however, the Compensation Committee had establishedawarded payouts to our named executives other than Mr. Barrett at grant.25% of their respective targets under our annual incentive plan. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout. Cash compensation (salary plus annual incentive payout) for each of our named executives was down between 38% to 64% compared to the prior fiscal year.
___________
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‡ | We provide the reasons we use non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures on pages 18 through 20 of the Fiscal 2017 Form 10-K. |
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Strong pay-for-performance alignment22
| Cardinal Health | 2017 Proxy Statement | |
Executive Compensation Governance Practices
|
| |
WHAT WE HAVE |
ü | Stock ownership guidelines for directors and executive officers |
ü | Compensation recovery ("clawback") policies |
ü | CEO is only executive officer with employment agreement |
ü | Double trigger vesting of equity awards upon change of control |
ü | Different measures for annual incentive awards and PSUs |
ü | Independent adviser to Compensation Committee |
WHAT WE DON'T HAVE |
ü | No executive pensions or SERPs |
ü | No hedging or pledging of company stock |
ü | No excise tax gross-ups upon change of control |
ü | No option grants below 100% fair market value |
ü | No dividend equivalents on unearned PSUs |
____________
| |
*
Compensation Discussion and Analysis | On a GAAP basis, operating earnings increased 89% to $1.9 billion in fiscal 2014, diluted earnings per share from continuing operations increased 247% to $3.37 in fiscal 2014 and, since the beginning of fiscal 2010, diluted earnings per share from continuing operations increased at a compounded annual growth rate of 20%. We provide a reconciliation of the differences between the non-GAAP and GAAP financial measures in Appendix A to this proxy statement.
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OurResults of 2016 Advisory Vote to Approve Executive Compensation Programand Shareholder Engagement
At the 2016 Annual Meeting of Shareholders, our say-on-pay advisory vote received 93% support. The Compensation Committee considered this vote—as well as shareholder feedback from our engagement efforts discussed below—as demonstrating strong support for our executive compensation program and determined to maintain the current structure of our executive
compensation program when making compensation decisions for fiscal 2017.
We hold regular discussions with our largest shareholders and solicit feedback from our top 50 investors on corporate governance topics, including executive compensation. During fiscal 2017, we contacted governance professionals from our shareholders representing more than 50% of our outstanding shares. (See pages 13 and 14 for further detail about shareholder engagement.)
Compensation Philosophy and Practices
Our compensation program is designed to support our long-term growth, while holding executives accountable to achievewith accountability for key annual results year over year.results. It has the following key objectives:
Pay forReward performance. We tie the majoritymost of executive pay to performance (annual incentive, PSUs and stock options); therefore it is at-risk. We design pay programs that incorporate both corporatebased on financial, operational and individual performance.
Drive stock ownership. Long-term incentive grants combined with stock ownership guidelines provide executives with meaningful ownership stakes and align their interests with shareholders.
Emphasize long-term incentive compensation. We emphasize performance and retention through the use of PSUs, stock options and RSUs, which align our executives' interests with our shareholders' interests. We provide opportunity for individual value accumulation through long-term incentive and deferred compensation, rather than through pensions.
Drive stock ownership. Equity grants combined with stock ownership guidelines provide executives a meaningful ownership stake in the company.which supports sustainable long-term shareholder return.
Attract, retain and reward the best talent to achieve superior shareholder results.results for shareholders. To be consistently better than our competitors, weWe need to recruit, developattract and retain superiortop talent who are able to drive superior results.results for our shareholders. We have structured our compensation programs to be competitive in the marketplace, with a focus on pay and motivate and reward these results.performance alignment.
The charts below demonstrate how executive compensation design emphasized performance-based and long-term incentive compensation during fiscal 2014 (based on target total direct compensation).
Our Comparator Group and Benchmarking
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| | | |
| WHAT WE HAVE | WHAT WE DON'T HAVE |
| ü | Significant portion of executive pay "at risk" | û | No dividend equivalents on unvested PSUs or RSUs |
| ü | Different metrics for annual incentives and PSUs | û | No repricing of underwater options without shareholder approval |
| ü | Caps on annual cash incentive and PSU payouts | û | No hedging or pledging of company stock |
| ü | Minimum vesting period for long-term incentive awards | û | No executive pensions or supplemental retirement plans |
| ü | Stock ownership guidelines for directors and executive officers | û | No "single trigger" change of control arrangements |
| ü | Compensation recoupment ("clawback") provisions | û | No excise tax gross-ups upon change of control |
| ü | Long-standing, proactive shareholder engagement program | | |
| | | |
The following "Comparator Group" of companies was used to evaluate pay actions for the named executives during fiscal 2014:
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Aetna Inc. | Express Scripts, Inc.Cardinal Health | 2017 Proxy Statement | Quest Diagnostics Incorporated |
Allergan, Inc. | FedEx Corporation | Sysco Corporation |
AmerisourceBergen Corporation | Forest Laboratories, Inc.* | Thermo Fisher Scientific Inc. |
Baxter International Inc. | Henry Schein Inc. | United Parcel Service, Inc. |
Becton, Dickinson and Company | Humana Inc. | UnitedHealth Group Incorporated |
Boston Scientific Corporation | Kimberly-Clark Corporation | Walgreen Co. |
CIGNA Corporation | Laboratory Corporation of America Holdings | WellPoint, Inc. |
Covidien Ltd. | McKesson Corporation | |
CVS Health Corporation | Owens & Minor Inc. | 23 |
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* | Forest Laboratories, Inc. will not be in our Comparator Group for fiscal 2015 due to its recent acquisition. |
The Compensation Committee developed the Comparator Group with the assistance of its independent compensation consultant to inform itself about the compensation practices of similarly situated public companies. Our Comparator Group reflects the industry in which we primarily compete for executive talent, and includes direct competitors and companies in the healthcare field, including customers and vendors. It also includes air/freight and logistics companies because of the similarity to our business model.
The Committee periodically reviews the group's composition to ensure that the companies remain relevant for comparison purposes. Following a thorough review in May 2013, the Committee determined not to change the Comparator Group for fiscal 2014. The Committee used the following screening criteria when it reviewed the Comparator Group's composition:
revenue ranging from approximately one-quarter to two times our annual revenue;
market capitalization ranging from approximately one-half to five times our market capitalization;
whether included in the peer group of five or more of the companies in our Comparator Group; and
whether included in our Global Industry Classification Standard (GICS) sub-industry group, Health Care Equipment and Services.
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| Compensation Discussion and Analysis | | |
Based on current data, our revenue is in the top quartile of the Comparator Group, while our market capitalization is in the third quartile.
Our Compensation Committee generally seeks to establish target total direct compensation at approximately the 50th percentile of the Comparator Group. Each of the named executives' target total direct compensation was competitive with the 50th percentile for fiscal 2014.
Elements of Fiscal 20142017 Compensation for Executive Officers
We have three elements of total direct compensation: base salary, annual incentives and long-term incentives. Long-term incentives consist of an equally-weighted mix of PSUs, stock options and RSUs. A significant portion of executive compensation is performance-based and at-risk (annual incentives, PSUs and stock options). At the beginning of the fiscal year, the Compensation Committee reviews targets for the named executives’ incentives and sets the performance goals under our annual incentive plan and PSUs. Following the end of the performance period, the Compensation Committee evaluates actual performance against the performance goals and determines payouts.
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| Pay Element | SalaryDescription and Purpose | Annual Incentive | PSUs | Options | RSUsLinks to Business and Talent Strategies |
Who Receives | All named executives |
When Granted | Reviewed annually | Annually in September for prior fiscal year | Annually in August |
Form of Delivery | Cash | Equity |
Type of Performance | Short-term emphasis | Long-term emphasis |
Performance Period | N/A | 1 year | 3 years | Vest ratably over 3 years |
How Salary or Incentive Grant is DeterminedBase salary | Market• Fixed cash compensation; reviewed annually and adjusted when appropriate• Set based on historic salary levels, market data, individual performance, experience and skills, and internal pay equity
| • Competitive base salaries support our ability to attract and retain executive talent |
| Annual incentives | • Variable cash compensation based on achieving annual financial goals and operational and individual performance• Target setas a percentage of base salary based on market data and internal pay equity | • Primary financial measure reflects our focus on operating earnings, with tangible capital modifier promoting efficient use of capital |
| Long-term incentives | • Equally weighted between PSUs, stock options and RSUs• PSUs vest based on achieving the performance goal over a three-year period; stock options and RSUs vest ratably over three years• Target setannual grant value based on market data and internal pay equity; grant size may be adjusted to reflect individual performance, retention or succession planning |
How Payout Determinedequity | N/A | Performance against financial, non-financial• Supports sustainable long-term shareholder return and individual goals | Formulaic; depends on performance against financial goals | Formulaic; dependsclosely aligns management's interests with shareholders'• PSU measures (non-GAAP diluted EPS growth and dividend yield) influence shareholder returns over the long term• Stock options and RSUs retain executive talent and promote focus on stock price performance on exercise date | Number of shares fixed at grant |
Performance Focus | N/A | EBIT with tangible capital modifier | Non-GAAP earnings per share growth and dividend yield; stock price appreciation | Stock price appreciation
|
Base Salary
The Compensation Committee setsdid not change Mr. Barrett's base salary during fiscal 2017. At the beginning of fiscal 2017, the Compensation Committee increased base salaries taking into account historic salary levelsfor Messrs. Kaufmann, Casey, Giacomin and Morford between 3% and 5% based on individual performance, an assessment of market data (50th percentile of the Comparator Group) for the executive's position and level of responsibility; individual performance, experience and skills;their roles and internal pay equity. Based on these factors, the Compensation Committee increased named executives' base salaries during fiscal 2014 between 2% and 3%. The named executives did not receive base salary increases during fiscal 2013.
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24
| Cardinal Health | 2017 Proxy Statement | |
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| Compensation Discussion and Analysis | | |
Annual Incentive Compensation
Key executive employees, includingWhile we achieved 89% of our earnings goal, we did not achieve the threshold for a 40% payout under our annual incentive plan, largely as a result of the challenging generic pharmaceutical pricing environment. In recognition of our strategic and operational accomplishments during fiscal 2017, however, the Compensation Committee awarded payouts to our named executives receive annual cash incentivesother than Mr. Barrett at 25% of their respective targets under our MIP. Theannual incentive plan, and approved a 33% enterprise funding percentage for the remainder of the organization. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee sets target annual incentives asdid not award him a percentage of base salary based on the 50th percentile of the Comparator Group and internal pay equity. Mr. Barrett's employment agreement sets his targetpayout. Cash compensation (salary plus annual incentive at not less than 130%payout) for each of his annual base salary, which remains competitive withour named executives was down between 38% to 64% compared to the 50th percentile of the Comparator Group.prior fiscal year.
Fiscal 2014 targets. We review target annual incentives annually, and increasedAt the beginning of fiscal 2014 targets for each of Messrs. Henderson, Kaufmann and Casey from 90% to 100% of base salary to align with comparative targets for officers with similar responsibilities in our Comparator Group and for internal pay equity. Messrs. Barrett and Morford's fiscal 2014 target as a percentage of base salary remained unchanged from fiscal 2013.
Fiscal 2014 performance goals. Early in fiscal 2014, the Compensation Committee approved a fiscal 2014 EBIT goal based on the Board-approved budget that was about flat compared to fiscal 2013 actual performance, reflecting the anticipated adverse impact of the Walgreens contract expiration. Accordingly, the Compensation Committee lowered the funding to 80% (rather than 100%) for achieving target EBIT under the fiscal 2014 payout matrix.
As in past years,2017, the Compensation Committee set the fiscal 2014 annual incentive goal based on EBIT (adjustedof $3,089 million of adjusted non-GAAP operating earnings) because it is oneearnings, which, if achieved, would fund a 100% payout. This goal represented 5% growth compared to the prior fiscal year. In order to fund a 40% payout, we had to achieve a threshold of our primary measures$2,853 million (or 92% of operating performance. The table below shows our fiscal 2014 EBIT goals (dollars in millions)the goal).
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| Performance Level | EBIT ($) | Funding Percentage |
| Threshold | 1,866 | 40 |
| Target | 2,034 | 80 |
| Above-target | 2,102 | 100 |
| Maximum | 2,491 | 200 |
Once we achieve threshold EBIT performance, tangible capital performance is a modifier. Tangible capital between $1,904$2,734 million and $2,720 million increases(or 89% of the funding percentage by up to 15 percentage points, but not above 200%. Tangible capital between $2,720 million and $3,264 million reduces the funding percentage by up to 10 percentage points, but not below 40%. Tangible capital was selected as a modifier because it focuses on the efficient usegoal) fell short of capital.
Wethat threshold. (We describe how we calculate both EBIT and tangible capitaladjusted non-GAAP operating earnings under “Executive Compensation — Compensation Plans — Annual“Annual Cash Incentive and PSU Performance GoalMeasure Calculations” on page 31.34.)
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| (in millions) | Actual | Threshold | Goal | Maximum | Comments |
| Adjusted non-GAAP operating earnings | $2,734 | $2,853 | $3,089 | $3,749 | Achieved 89% of the goal |
| Enterprise funding percentage (1) | 33% | 40% | 100% | 200% | |
| |
| (1) | Had we achieved threshold performance, the enterprise funding percentage would have been subject to adjustment up or down by up to 10 percentage points based on tangible capital performance. |
In exercising its discretion to award annual incentive payouts, the Compensation Committee considered the following strategic and operational accomplishments during fiscal 2017:
strategy, deal execution and financing efforts for the Patient Recovery Business acquisition;
outstanding growth in our Specialty Solutions and Nuclear Pharmacy Services businesses and excellent performance from Red Oak Sourcing;
Fiscal 2014 actual resultssignificant and funding percentage. The table below shows actual fiscal 2014 EBITtimely progress on the Pharmaceutical segment's project to replace certain finance and tangible capital performance (dollars in millions)operating information systems and the corporate funding percentage approved bypharmaceutical distribution business's SG&A expense control; and
strong performance of the naviHealth business and the Medical segment's distribution services.
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| Name | Target (Percent of Base Salary) | Target Amount ($) | Actual Amount ($) | Actual (Percent of Target) |
| Barrett | 150 | | 1,980,000 |
| | 0 |
| | 0 | |
| Kaufmann | 100 | | 746,438 |
| | 186,609 |
| | 25 | |
| Casey | 100 | | 705,014 |
| | 176,253 |
| | 25 | |
| Giacomin | 100 | | 567,151 |
| | 141,788 |
| | 25 | |
| Morford | 85 | | 469,328 |
| | 117,332 |
| | 25 | |
Long-Term Incentive Compensation
At the beginning of fiscal 2017, the Compensation Committee.Committee awarded Mr. Barrett long-term incentive compensation with a total value of $9.5 million, consistent with the target value in his employment agreement. The Compensation Committee increased Mr. Kaufmann's, Casey's and Giacomin's targets to
$2.85 million, in each case based on market data and internal pay equity considerations. The Committee increased Mr. Morford's target to $1.55 million based on the additional responsibilities he assumed following the Cordis acquisition, leadership transitions within the Legal and Compliance organization and market data.
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| | Actual Results ($) |
EBITCardinal Health | 2017 Proxy Statement | 2,243 |
Tangible capital | 2,037 |
Fiscal 2014 corporate funding percentage approved by Compensation Committee | 145%25 |
Fiscal 2014 EBIT exceeded target by 10% and exceeded fiscal 2013 EBIT ($2,062 million) by 9%. Fiscal 2014 tangible capital performance increased the corporate funding percentage by 12.7 percentage points.
Fiscal 2014 Annual Incentive Payouts
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| Name | Title | Fiscal 2014 Target Annual Incentive (Percentage of Base Salary) | Fiscal 2014 Target Annual Incentive Amount ($) | Fiscal 2014 Actual Annual Incentive Amount ($) |
| George S. Barrett | Chairman and Chief Executive Officer | 130 | 1,709,020 |
| 2,601,983 |
|
| Jeffrey W. Henderson | Chief Financial Officer | 100 | 756,932 |
| 1,152,429 |
|
| Michael C. Kaufmann | Chief Executive Officer — Pharmaceutical Segment | 100 | 647,699 |
| 1,229,008 |
|
| Donald M. Casey Jr. | Chief Executive Officer — Medical Segment | 100 | 647,699 |
| 544,067 |
|
| Craig S. Morford | Chief Legal and Compliance Officer | 75 | 381,349 |
| 552,957 |
|
The Compensation Committee considered consolidated, segment and individual performance in determining fiscal 2014 annual incentive awards for the named executives.
Mr. Barrett received 152% of his target based on our consolidated performance — specifically earnings growth that exceeded our goals despite the Walgreens contract expiration — and our significant progress advancing our strategic priorities during fiscal 2014 under his leadership, including the successful launch of Red Oak Sourcing, LLC.
Mr. Henderson received 152% of his target based on our consolidated performance, our exceptional tangible capital and operating cash flow performance, his leadership of corporate cost containment efforts and his leadership of Cardinal Health China, which showed continued strong growth during fiscal 2014.
Mr. Kaufmann received 190% of his target based on the exceptional overall performance of the Pharmaceutical segment growing segment profit despite the Walgreens contract expiration, his significant leadership role in the successful launch of Red Oak Sourcing, LLC and his contribution to expanding our position and capabilities in specialty pharmaceuticals.
Mr. Casey received 84% of his target primarily based on Medical segment financial performance below our expectations due to soft U.S. procedural volume and challenges in the segment's Canadian and physician office businesses, balanced against his strong leadership in accelerating the segment's physician preference items strategy, broadening its portfolio of consumable medical products and solidifying its presence in the home.
Mr. Morford received 145% of his target at the overall corporate funding percentage. The Committee noted his significant leadership role in continuing to develop our regulatory and compliance programs in a rapidly evolving regulatory landscape.
Long-Term Incentive Compensation
The Compensation Committee determined the size of fiscal 2014 long-term incentive grants by setting a target dollar value for each named executive based on both internal pay equity and the 50th percentile of the Comparator Group. Mr. Barrett's employment agreement sets his target dollar value at $8,000,000, which remains competitive with the 50th percentile of the Comparator Group.
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| Compensation Discussion and Analysis | | |
We equally weightedweight our fiscal 2014 long-term incentive grants between PSUs, stock options and RSUs. The Compensation CommitteeRSUs and may adjust the size of an executive's grantannual grants from target to reflect past or expected future individual performance, to provide a retention incentive or for succession planning, and it adjusted Messrs. Barrett's and Casey'splanning.
Fiscal 2017 Long-Term Incentive Grants
|
| | | | | | | | | | | | | |
| Name | Annual Grant Target ($) | Actual Grants |
Stock Options ($) | RSUs ($) | Target
PSUs ($) | Total ($) |
| Barrett | 9,500,000 | 3,166,667 |
| | 3,166,667 |
| | 3,166,667 |
| | 9,500,001 |
| Kaufmann | 2,850,000 | 997,500 |
| | 997,500 |
| | 950,000 |
| | 2,945,000 |
| Casey | 2,850,000 | 997,500 |
| | 997,500 |
| | 950,000 |
| | 2,945,000 |
| Giacomin | 2,850,000 | 950,000 |
| | 950,000 |
| | 950,000 |
| | 2,850,000 |
| Morford | 1,550,000 | 516,667 |
| | 516,667 |
| | 516,667 |
| | 1,550,001 |
Fiscal 2017-2019 PSU Grants
For the PSUs granted at the beginning of fiscal 2014 stock option and RSU grants based on those considerations.
Fiscal 2014-2016 PSU grants. The2017 (the "Fiscal 17-19 PSUs"), the Compensation Committee set athe three-year performance goal for the PSUs granted during fiscal 2014 (the "fiscal 14-16 PSUs") using varying levels ofbased on the sum of non-GAAP earnings per sharediluted EPS compound annual growth rate ("CAGR") and average annual dividend yield. We selected these two measures,yield, which are the same performance measures we used for our PSU grants made in prior years, because we believe that they are key factors thatyears. These measures influence total shareholder return and are integral to our strategy of delivering sustainable total shareholder return over the long term. term and align management's interests with shareholders'. These measures reflect operating performance as well as capital deployment through acquisitions, dividends and share repurchases. We describe how we calculate these measures under “Annual Cash Incentive and PSU Performance Measure Calculations” on page 34.
While we selected absolute measures forstated the PSU performance goal in absolute terms, as in years past, we set target performance based onestablished the goal factoring in relative market data. We considered historical
data for earnings per sharediluted EPS growth rate and dividend yield of the Standard & Poor's ("S&P") 500 Index, the S&P 500 Healthcare Index and our Comparator Group.Group, which is discussed on page 28. We also took into account our company-specific long-term outlook, as well as analysts' estimates of future performance of Comparator Group companies and our internal projections. We believe that this approach helps us align with the stated preference of some of our investors for measures that reflect relative market performance. We describe how we calculate these measures under “Executive Compensation — Compensation Plans — Annual Cash Incentive and PSU Performance Goal Calculations” on page 31.companies.
A named executive can receive 50% of his target fiscal 14-16 PSUs if we attain threshold performance and can receive up to 200% of his target fiscal 14-16 PSUs for above-target performance. A named executive will receive no shares under the PSUs if we do not attain threshold performance. The Compensation Committee set threshold, target and maximum performance goals of 6%, 11% and 17%, respectively, for the fiscal 14-16 PSUs.
Fiscal 2014 Long-Term Incentive Grants
|
| | | | | | | | | | |
| Name | Target Long- Term Incentive Compensation ($) | Fiscal 2014 Actual Annual
Long-Term Incentive Grants (1) |
Stock Options ($) | RSUs ($) | Target
PSUs ($) | Total ($) |
| Barrett | 8,000,000 |
| 2,866,667 |
| 2,866,667 |
| 2,666,666 |
| 8,400,000 |
|
| Henderson | 2,450,000 |
| 816,667 |
| 816,667 |
| 816,666 |
| 2,450,000 |
|
| Kaufmann | 2,100,000 |
| 700,000 |
| 700,000 |
| 700,000 |
| 2,100,000 |
|
| Casey | 2,100,000 |
| 770,000 |
| 770,000 |
| 700,000 |
| 2,240,000 |
|
| Morford | 1,200,000 |
| 400,000 |
| 400,000 |
| 400,000 |
| 1,200,000 |
|
| |
(1) | All grants reported in the table were made under our 2011 LTIP. |
Payouts under fiscal 2012-2014 PSUs. In August 2014, the Compensation Committee determined the performance of the PSUs over the fiscal 2012 through fiscal 2014 performance period (the "fiscal 12-14 PSUs"). The table below shows our fiscal 12-14the funding percentages set for the three-year period for varying levels of performance.
|
| | | | |
| | Performance (%) | Funding Percentage |
| Threshold | 7.0 | | 50 | |
| Goal | 12.0 | | 100 | |
| Maximum | 17.0 | | 200 | |
Fiscal 2015-2017 PSU goal, which was establishedPayouts
In August 2017, the Compensation Committee certified the payout of the PSUs granted at the beginning of fiscal 2012,2015 (the "Fiscal 15-17 PSUs") based on performance against the non-GAAP diluted EPS CAGR and ouraverage annual dividend yield goal. The table below shows the funding percentages at varying levels of performance over the three-year period and the actual performance.funding percentage.
|
| | | | |
| Performance Level | Goal | Funding Percentage |
| Threshold | 6.0 |
| | 50 |
| Target performance | 11.0 |
| | 100 |
| Maximum performance | 17.0 |
| | 200 |
| Actual performance | 13.3 |
| (1) | 120 |
|
| | | | | | |
| | Performance (%) | Funding Percentage |
| Threshold | 7.0 |
| | 50 |
| |
| Goal | 12.0 |
| | 100 |
| |
| Maximum | 17.0 |
| | 200 |
| |
| Actual | 14.1 |
| (1) | 133 |
| |
| |
| (1) | Non-GAAP earnings per sharediluted EPS CAGR was 11.9% and average annual growth rate was 10.9% and dividend yield was 2.5%2.2% over the performance period. The sumAs permitted by the terms of the components do not equal due to rounding. Non-GAAP earnings per share annual growth rate excludesPSU agreements, the Compensation Committee excluded the respective $0.02 and $0.04 per share net positive effect of two large, offsettingcertain discrete tax adjustments that occurred duringitems from fiscal 2014.2014 and 2017 non-GAAP diluted EPS. |
The fiscal 12-14 PSU target goal was consistent with the three-year, 11% goal for combined non-GAAP earnings per share annual growth rate and dividend yield that we announced to investors in
December 2010. In addition, in setting the target, we considered historical data for earnings per share growth rates and dividend yields of the Standard & Poor's 500 and Comparator Group and also took into account analysts' estimates of future performance of Comparator Group companies and our internal projections.
The following table includes information aboutshows the target and earned Fiscal 12-1415-17 PSUs for our named executives.
|
| | | | | | | |
| | Name | Target Number of Shares (#) | Number of Shares Earned (#) |
| |
| | Barrett | 37,333 |
| | 49,653 |
| |
| | Kaufmann | 9,800 |
| | 13,034 |
| |
| | Casey | 9,800 |
| | 13,034 |
| |
| | Giacomin | 8,253 |
| | 10,976 |
| |
| | Morford | 5,600 |
| | 7,448 |
| |
|
| | | | | |
| | Name | Target Number of Shares (#)(1) | Number of Shares Earned (#)(1) |
| |
| | Barrett | 35,654 |
| 42,785 |
|
| | Henderson | 11,423 |
| 13,708 |
|
| | Kaufmann | 9,519 |
| 11,423 |
|
| | Casey | 12,321 |
| 14,785 |
|
| | Morford | 5,139 |
| 6,167 |
|
|
| | |
(1)26
| Represents 60% of inaugural grant of PSUs made during fiscal 2012, except for Mr. Casey's grant, which represents the entire grant he received when he was hired in April 2012.Cardinal Health | 2017 Proxy Statement | |
|
| | |
| Compensation Discussion and Analysis | | |
Other Elements of Compensation
Deferred Compensation and 401(k) Savings Plans. Plans
We maintain a Deferred Compensation Plan (“DCP”)DCP and 401(k) Savings Plan to allow executivesthe vast majority of our employees based in the United States and Puerto Rico to accumulate value on a tax-deferred basis and to be competitive in recruiting and retaining executive talent. Our DCP permits certain management employees, including the named executives, to defer payment and taxation of a portion of their salary and bonusannual incentive compensation into anya variety of severaldifferent investment alternatives. We may make matching and discretionary contributions to the deferred balances of participating executives,participants, subject to limits discussed under “Executive Compensation — Deferred“Deferred Compensation” on page 34.36. We also may make non-matching contributions to the 401(k) Savings Plan and DCP based on pre-established performance goals on the same basis for all plan participants based onemployees. We did not exceed the pre-established performance goals. Contributions made with respect to our named executives are included in the “All Other Compensation” table on page 29.goal for fiscal 2017 and accordingly did not make any non-matching contributions for fiscal 2017. Named executives also may elect to defer payment and taxation of PSUs and RSUs.
Other benefitsBenefits and perquisites. Perquisites
Mr. Barrett's employment agreement provides that he and his family may use our corporate aircraft for personal travel. He does not receive tax reimbursement for any imputed income associated with such personal travel. The Board has encouragedCompensation Committee encourages Mr. Barrett to use corporate aircraft for personal travel becauseas it increases his time available for business purposes and enhances his safety and security. During fiscal 2017, the Board believes it provides greater availability forCompensation Committee set Mr. Barrett to attend to business matters and increasedBarrett's personal travel efficiencies. Anyallowance at $150,000. Consistent with Mr. Barrett's employment agreement, any personal usetravel that
would cause the amount reported in our annual proxy statement to exceed $100,000$150,000 requires advance approval from the Compensation Committee. We also haveUnder an aircraft time sharing agreement with Mr. Barrett, that permits him tohe may reimburse us for incremental costs when he uses the aircraft for personal travel; thatreimbursed travel does not count against the $100,000 cap.$150,000 allowance.
Severance and changeChange of control benefits. Control Benefits
Mr. Barrett's employment agreement provides for benefits payable upon specified employment termination events. Mr. Barrett will receive cash severance equal to two times the sum of his annual base salary and his target bonus payable in 24 equal monthly installments if we terminate his employment without “cause,"cause,” or if he terminates employment for “good reason.” He also will receive a prorated bonus for the year of termination based on actual achievement of performance goals and his vested stock options will remain exercisable for two years. UnvestedMr. Barrett's employment agreement does not provide for special treatment of any unvested equity awards are forfeited.awards.
We discuss our limited severance payments and benefits in detail under “Executive Compensation — Potential“Potential Payments on Termination of Employment or Change of Control” beginning on page 36. We believe that the severance benefits we provide to our named executives support our recruiting and retention efforts.38. We do not have any agreements to provide change-of-control excise tax gross-ups.
Our Board has a policy requiring us to obtain shareholder approval of severance agreements with our executives that provide cash severance benefits that exceed 2.99 times the sum of base salary and bonus.
Our Policies, Guidelines and Practices Related to Executive Compensation
Role of the Compensation Committee’s compensation consultant. Compensation Consultant
The Compensation Committee has retained Frederic W. Cook & Co., Inc. ("Cook") has served as the Compensation Committee'sits independent executive compensation consultant since 2011.
The nature and scope of the compensation consultant'sCook's engagement consistsconsist primarily of:
participating in meetings of the Compensation Committee;
providing compensation data on the Comparator Group; and
consultingproviding support, advice and recommendations related to compensation for our Chief Executive Officer and other executive officers, the design of our executive compensation program (including the plan design for annual and long-term incentives), the composition of our Comparator Group and director compensation.
Cook did not provide any additional services to the Compensation Committee or to Cardinal Health during fiscal 2014.
The Compensation Committee has made an assessment under factors set forth in NYSE rules and concluded that Cook is independent and that the firm's work for the Compensation Committee did not raise any conflicts of interest.
Role of our executive officers. Executive Officers
Our Chief Executive Officer and Chief Human Resources Officer participate in Compensation Committee meetings to make recommendations as to design and compensation amounts, to present performance assessments of the named executives (other than our Chief Executive Officer) and, together with our Chief Financial Officer, to discuss our financial and operational performance.
Our Chief Executive Officer reviewed fiscal 20142017 performance objectives with the Compensation Committee at the beginning of the fiscal year, including financial objectives and non-financial objectives for customer, strategic and employeetalent priorities. The
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| Cardinal Health | 2017 Proxy Statement | 27 |
|
| | |
| Compensation Discussion and Analysis | | |
Compensation Committee meets in executive session with its compensation consultantreviews and the Lead Director to review and discussdiscusses the performance and compensation of our Chief Executive Officer.Officer in executive session and with the Lead Director. The Chief Executive Officer does not participate in determinations or recommendationsdecisions regarding his own compensation.
Results of 2013 advisory vote to approve compensation of named executives. At the 2013 Annual Meeting of Shareholders, our say-on-pay advisory vote approving the compensation of our named executive officers received 95% favorable support. We hold regular discussions with our largest shareholders regarding executive compensation, among other topics. Comparator Group
The Compensation Committee consideredestablishes target compensation levels based on a variety of factors, including data from a "Comparator Group" of similarly situated public companies, which helps the most recent say-on-pay voteCommittee to assess whether our executive pay remains reasonable and competitive in the marketplace. Developed with the assistance of Cook, our Comparator Group reflects the industry in which we primarily compete for executive talent and includes direct competitors and other companies in the healthcare field. Our Comparator Group also includes air/freight and logistics companies because of those companies' similar business models. The following companies comprised the Comparator Group for fiscal 2017 executive pay decisions:
|
| | |
| Aetna | Express Scripts | Quest Diagnostics |
| AmerisourceBergen | FedEx | Sysco |
| Anthem | Henry Schein | Thermo Fisher Scientific |
| Baxter International | Humana | United Parcel Service |
| Becton, Dickinson | Kimberly-Clark* | UnitedHealth Group |
| Boston Scientific | LabCorp | Walgreens Boots Alliance |
| CIGNA | McKesson | |
| CVS Health | Owens & Minor | |
* Removed for fiscal 2018 executive pay decisions.
The Committee, working with its compensation consultant, periodically reviews the group's composition to ensure that the companies remain relevant for comparison purposes. The Committee used the following screening criteria when it last reviewed the Comparator Group's composition:
revenue ranging from 0.2 to 2 times our annual revenue;
market capitalization ranging from 0.2 to 5 times our market capitalization;
inclusion in the peer group of 5 or more of the other companies in our Comparator Group; and
inclusion in our Global Industry Classification Standard (GICS) sub-industry group, Health Care Equipment and Services.
Our revenue has been in the top quintile of the Comparator Group, while our market capitalization has been in the third quintile.
Our Compensation Committee compares total direct compensation (base salary plus annual and long-term incentives) against the 50th percentile of the Comparator Group as a reference point in setting target compensation levels. In addition to feedback through
competitive market data, the Committee also considers internal pay equity and an executive’s experience and scope of responsibility, individual performance, potential and unique or hard-to-replace skills, as well as retention concerns.
Risk Assessment of Compensation Programs
Management has assessed our shareholder engagement efforts, market considerations and company and individual performancecompensation programs and concluded that no changes to our executive compensation policies and practices were warranted in responsedo not create risks that are reasonably likely to have a material adverse effect on Cardinal Health. This risk assessment included reviewing the say-on-pay vote.
Employment arrangements. In September 2012, we entered into a three-year employment agreementour compensation programs, identifying and evaluating situations or compensation elements that could raise more significant risks and evaluating other controls and processes designed to identify and manage risk. The Compensation Committee reviewed and discussed the risk assessment and Cook reviewed the risk assessment and concurred with our Chairman and Chief Executive Officer, Mr. Barrett.management's conclusion.
In June 2014, we announced that Mr. Henderson is retiring from the company in August 2015. We entered into a letter agreement with Mr. Henderson in June 2014 to ensure an orderly transition of his responsibilities through August 2015 and to provide for a new two-year post-employment non-competition agreement. The letter agreement set his salary and annual and long-term incentive awards during the transition period (including an RSU grant in lieu of his normal annual long-term incentive grants). The letter agreement also provided for certain benefits if we terminate his employment without cause before the retirement date. In September 2014, we announced that Mr. Kaufmann will succeed Mr. Henderson as Chief Financial Officer effective in November 2014. Under the letter agreement, Mr. Henderson will cease to serve as Chief Financial Officer at that time, but will remain an employee through his August 2015 retirement date.Stock Ownership Guidelines
We further discuss the terms of these arrangements under “Executive Compensation — Employment Arrangements” on page 29.
Stock ownership guidelines. We have stock ownership guidelines to linkalign the interests of executive officers and directors with the interests of our shareholders. The guidelines specify a dollar value (expressed as a multiple of salary or cash retainer) of shares that executive officers and directors must accumulate and hold while serving in these positions. All named executives exceed the required ownership level.
|
| | |
| Multiple of Base Salary/ Annual Cash Retainer |
| Chairman and Chief Executive Officer | 6x |
| Chief Financial Officer and Segment CEOs | 4x |
| Other executive officers | 3x |
| Non-management directors | 5x |
We count common shares, RSUs and phantom shares held through the DCP for purposes of meetingunder the stock ownership guidelines.
|
| | |
| Multiple of Base Salary/Annual Cash Retainer |
Chairman and Chief Executive Officer | 6x | (1) |
Chief Financial Officer and Segment CEOs | 4x | |
Other executive officers | 3x | |
Non-management directors | 5x | (1) |
| |
(1) | In August 2013, our Board, on the recommendation of the Compensation Committee, increased the required ownership level for our Chairman and Chief Executive Officer from five times base salary to six times and for our non-management directors from four times annual cash retainer to five times annual cash retainer. |
Under the guidelines, executive officers and directors must retain 100% of the net after-tax shares received under any equity awards until they satisfy the required ownership levels. At June 30, 2014, all named executives exceeded the required ownership level.
Potential Impact on Compensation from Executive Misconduct ("Clawbacks")
Potential impact on compensation from executive misconduct. Our incentive plans and agreements provide that we may require repayment of cash incentives and gains realized under equity awards and cancel outstanding incentiveequity awards in specified instances of executive misconduct. In addition, in August 2017, we amended our incentive plan to provide that any cash award paid to an executive officer will be subject to repayment if the executive officer commits a material violation of law or of our Standards of Business Conduct that causes material financial harm to us.
|
| | |
28
| Cardinal Health | 2017 Proxy Statement | |
|
| | |
| Compensation Discussion and Analysis | | |
We will disclose publicly the incentive compensation forfeitures or repayments from our executive officers if required by law or if we have already disclosed publicly the underlying event triggering the forfeiture or repayment and the disclosure would not violate any individual’s privacy rights, is not likely to result in or exacerbate any existing or threatened employee, shareholder or other litigation, arbitration, investigation or proceeding against us and is not otherwise prohibited.
We discuss these policiesprovisions in more detail under “Executive Compensation — Potential“Potential Impact on Compensation from Executive Misconduct”Misconduct ("Clawbacks")” on page 32.34.
Hedging and pledging shares. Pledging Shares
Our Board has adopted a policy prohibiting all employees and directors from engaging in short sales, publicly traded options, puts and calls, forward sale contracts and other swap, hedging and derivative transactions relating to our securities. The Board also has adopted a policy prohibiting our executive officers and directors from holding our securities in margin accounts or pledging our securities as collateral for a loan.
Equity grant practices. Grant Practices
The Compensation Committee typically approves the annual equity grant in August of each year and sets August 15 as the grant date on August 15.date. The Compensation Committee expects the annual grant date to follow the release of earnings for the prior fiscal year in early August, without regard to whether we are aware of material nonpublic information.
Equity Dilution Practices
Our fiscal 2017 annual equity run rate was 0.8%. We calculate our equity run rate as the total number of shares subject to equity awards granted in the fiscal year divided by the weighted average number of our common shares outstanding during the fiscal year.
Minimum Vesting of Equity Grants
We recently added one-year minimum vesting provisions to our 2011 Long-Term Incentive Plan (the "2011 LTIP"). We discuss these provisions in more detail under “2011 Long-Term Incentive Plan” on page 33.
Tax matters. Matters
Section 162(m) of the Internal Revenue Code prevents("Code") precludes us from taking a tax deduction for non-performance-based compensation in excess of $1 million paid in any fiscal year to our Chief Executive Officer and three other most highly compensated executive officers (other than the Chief Financial Officer). While we intend annual cash incentive, awards under our MIP,PSU and stock options and PSUsoption awards to qualify as performance-based compensation within the meaning of Section 162(m) and, as such, to be fully deductible, due to the complexity of Section 162(m), amounts intended to qualify as "performance-based compensation" may not satisfy applicable requirements. In addition, we maintain flexibility to operate our compensation programs in a manner designed to promote varying company goals. For purposes of qualifying payments as performance-based compensation under Section 162(m), the Compensation Committee established the performance criteria of $900 million in non-GAAP operating earnings for fiscal 20142017 annual cash incentive awards underand $1.00 of non-GAAP diluted EPS in fiscal 2017 for the MIPFiscal 15-17 PSUs, both of which we exceeded.
Executive Compensation
Human Resources and 8% average annual return on shareholders' equity ("ROE") for our fiscal 12-14 PSUs. We describe how we calculate non-GAAP operating earnings under “Executive Compensation — Compensation Plans — Annual Cash Incentive and PSU Performance Goal Calculations” on page 31. We achieved $2,133 million in non-GAAP operating earnings during fiscal 2014, 11.8% average annual ROE for fiscal 2013 and 2014 with respect to Mr. Casey's fiscal 12-14 PSUs and 15.9% average annual ROE for fiscal 2012, 2013 and 2014 with respect to the other named executives' fiscal 12-14 PSUs.Committee Report
Human Resources and Compensation Committee Report
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014.2017.
Submitted by the Human Resources and Compensation Committee of the Board.
Gregory B. Kenny,David P. King, Chairman
Calvin Darden
David P. KingNancy Killefer
Richard C. Notebaert
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| Cardinal Health | 2017 Proxy Statement | 29 |
Executive Compensation Tables
The table below summarizes fiscal 2017 compensation for our Chief Executive Officer, our Chief Financial Officer and each of our three other most highly compensated executive officers at June 30, 2014,2017, the end of our fiscal 2014.2017.
Summary Compensation Table
|
| | | | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(3) | Total ($) |
George S. Barrett Chairman and Chief Executive Officer | 2014 | 1,314,630 |
| — |
| 5,533,321 |
| 2,866,244 |
| 2,601,983 |
| — |
| 132,440 |
| 12,448,618 |
|
| 2013 | 1,285,000 |
| — |
| 5,335,018 |
| 2,695,845 |
| 2,021,305 |
| — |
| 137,632 |
| 11,474,800 |
|
| 2012 | 1,277,101 |
| — |
| 5,138,682 |
| 2,861,043 |
| 1,809,652 |
| — |
| 123,246 |
| 11,209,724 |
|
Jeffrey W. Henderson (4) Chief Financial Officer | 2014 | 756,932 |
| — |
| 1,633,366 |
| 816,547 |
| 1,152,429 |
| — |
| 32,190 |
| 4,391,464 |
|
| 2013 | 740,000 |
| — |
| 1,674,169 |
| 836,056 |
| 846,153 |
| — |
| 29,108 |
| 4,125,486 |
|
| 2012 | 736,776 |
| — |
| 1,663,168 |
| 831,516 |
| 722,777 |
| — |
| 22,849 |
| 3,977,086 |
|
Michael C. Kaufmann (4) Chief Executive Officer — Pharmaceutical Segment | 2014 | 647,699 |
| — |
| 1,400,013 |
| 699,897 |
| 1,229,008 |
| — |
| 32,290 |
| 4,008,907 |
|
| 2013 | 635,000 |
| — |
| 1,505,017 |
| 784,868 |
| 714,375 |
| — |
| 28,908 |
| 3,668,168 |
|
| 2012 | 629,358 |
| — |
| 1,441,773 |
| 713,716 |
| 628,729 |
| — |
| 23,349 |
| 3,436,925 |
|
Donald M. Casey Jr. Chief Executive Officer — Medical Segment | 2014 | 647,699 |
| — |
| 1,469,988 |
| 769,891 |
| 544,067 |
| — |
| 28,190 |
| 3,459,835 |
|
| 2013 | 635,000 |
| — |
| 1,400,038 |
| 682,491 |
| 525,780 |
| — |
| 36,991 |
| 3,280,300 |
|
| 2012 | 131,858 |
| 500,000 |
| 999,972 |
| 500,071 |
| 118,671 |
| — |
| 506,091 |
| 2,756,663 |
|
Craig S. Morford Chief Legal and Compliance Officer | 2014 | 508,466 |
| — |
| 799,948 |
| 399,944 |
| 552,957 |
| — |
| 32,390 |
| 2,293,705 |
|
| 2013 | 500,000 |
| — |
| 820,007 |
| 409,498 |
| 453,750 |
| — |
| 29,108 |
| 2,212,363 |
|
| 2012 | 495,970 |
| — |
| 712,524 |
| 356,213 |
| 405,455 |
| — |
| 24,629 |
| 1,994,791 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(4) | Total ($) |
George S. Barrett Chairman and Chief Executive Officer | 2017 | 1,320,000 |
| | — |
| | 6,333,255 |
| | 3,166,434 |
| | — |
| | — | 165,488 |
| | 10,985,177 |
|
| 2016 | 1,320,000 |
| | — |
| | 6,491,739 |
| | 3,330,665 |
| | 2,386,755 |
| | — | 131,928 |
| | 13,661,087 |
|
| 2015 | 1,320,000 |
| | — |
| | 5,983,334 |
| | 3,320,657 |
| | 2,510,508 |
| | — | 135,232 |
| | 13,269,731 |
|
Michael C. Kaufmann Chief Financial Officer | 2017 | 746,438 |
| | 186,609 |
| | 1,947,561 |
| | 997,432 |
| | — |
| | — | 14,979 |
| | 3,893,019 |
|
| 2016 | 721,311 |
| | — |
| | 1,575,006 |
| | 826,402 |
| | 880,723 |
| | — | 27,251 |
| | 4,030,693 |
|
| 2015 | 688,630 |
| | — |
| | 4,540,005 |
| | 841,018 |
| | 1,053,260 |
| | — | 36,338 |
| | 7,159,251 |
|
Donald M. Casey Jr. Chief Executive Officer—Medical Segment | 2017 | 705,014 |
| | 176,253 |
| | 1,947,561 |
| | 997,432 |
| | — |
| | — | 10,800 |
| | 3,837,060 |
|
| 2016 | 671,311 |
| | — |
| | 1,505,062 |
| | 806,369 |
| | 894,188 |
| | — | 22,830 |
| | 3,899,760 |
|
| 2015 | 650,000 |
| | — |
| | 3,005,055 |
| | 805,967 |
| | 618,118 |
| | — | 31,653 |
| | 5,110,793 |
|
Jon L. Giacomin
Chief Executive Officer—Pharmaceutical Segment
| 2017 | 567,151 |
| | 141,788 |
| | 1,900,060 |
| | 949,930 |
| | — |
| | — | 14,966 |
| | 3,573,895 |
|
| 2016 | 542,623 |
| | — |
| | 1,400,062 |
| | 701,196 |
| | 602,314 |
| | — | 27,770 |
| | 3,273,965 |
|
| 2015 | 480,685 |
| | — |
| | 1,237,482 |
| | 629,304 |
| | 679,692 |
| | — | 37,170 |
| | 3,064,333 |
|
Craig S. Morford Chief Legal and Compliance Officer | 2017 | 552,151 |
| | 117,332 |
| | 1,033,386 |
| | 516,631 |
| | — |
| | — | 14,967 |
| | 2,234,467 |
|
| 2016 | 531,311 |
| | — |
| | 1,620,055 |
| | 420,707 |
| | 576,487 |
| | — | 37,579 |
| | 3,186,139 |
|
| 2015 | 510,000 |
| | — |
| | 800,016 |
| | 400,477 |
| | 559,598 |
| | — | 35,453 |
| | 2,305,544 |
|
| |
| (1) | As discussed in Compensation Discussion and Analysis above, while we did not achieve the performance threshold for a 40% payout under our annual incentive plan, the Compensation Committee, in its discretion, awarded payouts to our named executives other than Mr. Barrett at 25% of their respective targets under under the Management Incentive Plan (the "MIP"). Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout. |
| |
| (2) | The amounts reported represent the aggregate grant date fair value of PSUs at target(at target) and of RSUs granted during each fiscal year. The amounts reported in each fiscal year do not represent amounts paid to or realized by the named executives. See the Grants of Plan-Based Awards for Fiscal 20142017 table on page 3032 and the accompanying footnotes for information on the grant date fair value of each award granted in fiscal 2014.2017. The value of the Fiscal 17-19 PSUs granted induring fiscal 20142017 assuming achievement of the maximum performance level of 200% funding would be: Mr. Barrett — $5,333,334;Barrett—$6,333,255; Mr. Henderson — $1,633,366;Kaufmann—$1,900,060; Mr. Kaufmann — $1,400,013;Casey—$1,900,060; Mr. Casey — $1,400,013;Giacomin—$1,900,060; and Mr. Morford — $799,949.Morford—$1,033,386. The named executives may never realize any value from the PSUs. |
| |
(2)(3) | The amounts reported represent the grant date fair value of nonqualified stock options granted during each fiscal year and do not represent amounts paid to or realized by the named executives. See the Grants of Plan-Based Awards for Fiscal 20142017 table on page 3032 and the accompanying footnotes for information on the grant date fair value of stock options granted during fiscal 20142017 and the assumptions used in determining the grant date fair value. The named executives may never realize any value from these stock options, and to the extent they do, the amounts realized may be more or less than the amounts reported above. |
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(3)(4) | The elements of compensation included in the “All Other Compensation” column for fiscal 20142017 are set forth in the table below. |
|
| | |
(4)30
| As previously announced, Mr. Henderson is retiring from the company in August 2015. Mr. Kaufmann will succeed Mr. Henderson as Chief Financial Officer effective in November 2014.Cardinal Health | 2017 Proxy Statement | |
The amounts shown for “All Other Compensation” for fiscal 20142017 include (a) company matching and fiscal 2014 performance contributions to the named executive’s account under our 401(k) plan; (b) company matching and fiscal 2014 performance contributions to the named executive’s account under our DCP; and (c) perquisites, in the following amounts:
| | | Name | Company 401(k) Savings Plan Contributions ($) | Company Deferred Compensation Plan Contributions ($) | Perquisites ($)(a) | Total ($) | Company 401(k) Savings Plan Contributions ($) | Company Deferred Compensation Plan Contributions ($) | Perquisites ($)(a) | Total ($) |
| Barrett | 22,190 |
| 10,000 |
| 100,250 |
| 132,440 |
| 10,800 | 4,000 |
| | 150,688 |
| | 165,488 |
| |
| Henderson | 22,190 |
| 10,000 |
| — |
| 32,190 |
| |
| Kaufmann | 22,190 |
| 10,100 |
| — |
| 32,290 |
| 10,800 | 4,179 |
| | — |
| | 14,979 |
| |
| Casey | 22,190 |
| 6,000 |
| — |
| 28,190 |
| 10,800 | 0 |
| | — |
| | 10,800 |
| |
| Giacomin | | 10,800 | 4,166 |
| | — |
| | 14,966 |
| |
| Morford | 22,190 |
| 10,200 |
| — |
| 32,390 |
| 10,800 | 4,167 |
| | — |
| | 14,967 |
| |
| |
| (a) | The amounts shown include the value of perquisites and other personal benefits to a named executive only if the aggregate value exceeded $10,000. Where we do report perquisites and other personal benefits, for a named executive, we quantify each perquisite or personal benefit only if it exceeds the greater of $25,000 or 10% of the total amount of perquisites and personal benefits for that individual.$25,000. The amount reported for Mr. Barrett for fiscal 2014 comprised2017 included the incremental cost to us of his personal use of corporate aircraft ($99,357)149,731) and home security system monitoring fees. We own corporate aircraft and lease other aircraft. We calculate the incremental cost of personal use of corporate aircraft based on the average cost of fuel; average trip-related maintenance costs; crew travel expenses; per flight landing fees; hangar and parking costs; |
We own corporate aircraft and lease other aircraft. We calculate the incremental cost of personal use of corporate aircraft based on the average cost of fuel, average trip-related maintenance costs, crew travel expenses, per flight landing fees, hangar and parking costs and smaller variable costs, offset by any timeshare payments by the executive. Since we use our aircraft primarily for business travel, we do not include fixed costs, such as depreciation, pilot salaries and certain maintenance costs.
Mr. Barrett receives up to $150,000 in personal use of corporate aircraft without advance approval of the Compensation Committee. He does not receive tax reimbursement for any imputed income associated with personal travel. We have an aircraft time sharing
agreement with Mr. Barrett under which he is permitted to reimburse us for the incremental costs of his personal use of corporate aircraft consistent with FAA regulations.Employment Arrangements
Barrett employment agreement.We entered into an employment agreement with Mr. Barrett in September 2012 under which he servesis permitted to reimburse us for the incremental costs of his personal use of corporate aircraft consistent with Federal Aviation Administration regulations; reimbursed travel does not count against the $150,000 authorization.
CEO Employment Agreement
Mr. Barrett is the only executive officer with an employment agreement. In August 2015, we entered into an amendment with Mr. Barrett to his employment agreement to provide that he will continue to serve as Chairman and Chief Executive Officer until the earlier of the date of our annual meetingAnnual Meeting of shareholdersShareholders following June 30, 20152018 or December 31, 2015,2018, subject to earlier termination in accordance with its terms.
TheAs amended, the employment agreement provides, among other things, for Mr. Barrett:
to receive an annual base salary of at least $1,285,000;$1,320,000;
to participate in our annual cash incentive award program with a target annual award of at least 130%150% of his annual base salary, payable based on performance objectives that our Compensation Committee determines in consultation with him; and
to receive an annual long-term incentive award grant comprised of PSUs, stock options, RSUs and other incentives as determined by the Committee with a target value of $8,000,000,$9,500,000, with each annual award subject to the Board's discretion based on both company and individual performance in accordance with the terms of the 2011 LTIP.performance.
The agreement also provides that Mr. Barrett with $100,000 per fiscal year inreceives personal use of corporate aircraft, without advance approvalwhich currently is a maximum of the Compensation Committee.$150,000.
Henderson letter agreement. In connection with Mr. Henderson's retirement in August 2015, we entered into a letter agreement with him in June 2014 providing for:
an annual base salary of $800,000 (effective in August 2014);eligibility for a fiscal 2015 annual cash incentive award with a target of 100% of salary (the same as in fiscal 2014); and |
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| Cardinal Health | 2017 Proxy Statement | 31 |
a grant of RSUs in August 2014 with a grant value of $1,750,000 and a one-year vesting period in lieu of fiscal 2015 long-term incentive grants at a target dollar value of $2,450,000.
The letter agreement also provides that if we terminate Mr. Henderson's employment without cause before the retirement date in August 2015, (i) he will continue to receive his salary through August 2015, (ii) he will be eligible for fiscal 2014 and 2015 annual incentive awards and (iii) his long-term incentive awards that are scheduled to vest in August 2014 and 2015 will continue to vest in accordance with their terms. Mr. Henderson also has entered into a new confidentiality and business protection agreement with us that includes two-year post-retirement non-competition and non-solicitation restrictions.
Grants of Plan-Based Awards for Fiscal 20142017
The table below supplements our Summary Compensation Table by providing additional information about our plan-based compensation for fiscal 2014.2017.
| | | Name/ Award Type | Grant Date | Approval Date | Estimated Potential Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Potential Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/Sh)(5) | Grant Date Fair Value of Stock and Option Awards ($)(6) | Grant Date | Approval Date | Estimated Potential Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Potential Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/Sh)(5) | Grant Date Fair Value of Stock and Option Awards ($)(6) |
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
| Barrett | | | | |
| Annual Cash Incentive | | 683,608 |
| 1,709,020 |
| 3,418,040 |
| | |
| Annual Incentive | | | 8/4/2016 | 792,000 |
| 1,980,000 |
| 3,960,000 |
| |
| PSUs | 8/15/2013 | 8/6/2013 | | 25,895 |
| 51,790 |
| 103,580 |
| | 2,666,667 |
| 8/15/2016 | 8/4/2016 | | 19,033 |
| 38,065 |
| 76,130 |
| | 3,166,627 |
|
| Stock Options | 8/15/2013 | 8/6/2013 | | 279,770 |
| 51.49 |
| 2,866,244 |
| |
| RSUs | 8/15/2013 | 8/6/2013 | | 55,674 |
| | 2,866,654 |
| |
| Henderson | | | |
| Annual Cash Incentive | | 302,773 |
| 756,932 |
| 1,513,863 |
| | |
| PSUs | 8/15/2013 | 8/6/2013 | | 7,931 |
| 15,861 |
| 31,722 |
| | 816,683 |
| |
| Stock Options | 8/15/2013 | 8/6/2013 | | 79,702 |
| 51.49 |
| 816,547 |
| |
| Option | | 8/15/2016 | 8/4/2016 | | 189,380 |
| 83.19 |
| 3,166,434 |
|
| RSUs | 8/15/2013 | 8/6/2013 | | 15,861 |
| | 816,683 |
| 8/15/2016 | 8/4/2016 | | 38,065 |
| | 3,166,627 |
|
| Kaufmann | | | | |
| Annual Cash Incentive | | 259,079 |
| 647,699 |
| 1,295,397 |
| | |
| Annual Incentive | | | 8/4/2016 | 298,575 |
| 746,438 |
| 1,492,876 |
| |
| PSUs | 8/15/2013 | 8/6/2013 | | 6,798 |
| 13,595 |
| 27,190 |
| | 700,007 |
| 8/15/2016 | 8/4/2016 | | 5,710 |
| 11,420 |
| 22,840 |
| | 950,030 |
|
| Stock Options | 8/15/2013 | 8/6/2013 | | 68,316 |
| 51.49 |
| 699,897 |
| |
| Option | | 8/15/2016 | 8/4/2016 | | 59,655 |
| 83.19 |
| 997,432 |
|
| RSUs | 8/15/2013 | 8/6/2013 | | 13,595 |
| | 700,007 |
| 8/15/2016 | 8/4/2016 | | 11,991 |
| | 997,531 |
|
| Casey | | | | |
| Annual Cash Incentive | | 259,079 |
| 647,699 |
| 1,295,397 |
| | |
| Annual Incentive | | | 8/4/2016 | 282,005 |
| 705,014 |
| 1,410,028 |
| |
| PSUs | 8/15/2013 | 8/6/2013 | | 6,798 |
| 13,595 |
| 27,190 |
| | 700,007 |
| 8/15/2016 | 8/4/2016 | | 5,710 |
| 11,420 |
| 22,840 |
| | 950,030 |
|
| Stock Options | 8/15/2013 | 8/6/2013 | | 75,148 |
| 51.49 |
| 769,891 |
| |
| Option | | 8/15/2016 | 8/4/2016 | | 59,655 |
| 83.19 |
| 997,432 |
|
| RSUs | | 8/15/2016 | 8/4/2016 | | 11,991 |
| | 997,531 |
|
| Giacomin | | | | |
| Annual Incentive | | | 8/4/2016 | 226,860 |
| 567,151 |
| 1,134,302 |
| |
| PSUs | | 8/15/2016 | 8/4/2016 | | 5,710 |
| 11,420 |
| 22,840 |
| | 950,030 |
|
| Option | | 8/15/2016 | 8/4/2016 | | 56,814 |
| 83.19 |
| 949,930 |
|
| RSUs | 8/15/2013 | 8/6/2013 | | 14,954 |
| | 769,981 |
| 8/15/2016 | 8/4/2016 | | 11,420 |
| | 950,030 |
|
| Morford | | | | |
| Annual Cash Incentive | | 152,540 |
| 381,349 |
| 762,699 |
| | |
| Annual Incentive | | | 8/4/2016 | 187,731 |
| 469,328 |
| 938,656 |
| |
| PSUs | 8/15/2013 | 8/6/2013 | | 3,884 |
| 7,768 |
| 15,536 |
| | 399,974 |
| 8/15/2016 | 8/4/2016 | | 3,106 |
| 6,211 |
| 12,422 |
| | 516,693 |
|
| Stock Options | 8/15/2013 | 8/6/2013 | | 39,038 |
| 51.49 |
| 399,944 |
| |
| Option | | 8/15/2016 | 8/4/2016 | | 30,899 |
| 83.19 |
| 516,631 |
|
| RSUs | 8/15/2013 | 8/6/2013 | | 7,768 |
| | 399,974 |
| 8/15/2016 | 8/4/2016 | | 6,211 |
| | 516,693 |
|
| |
| (1) | This information relates to annual cash incentive award opportunities with respect to fiscal 20142017 performance. Amounts actually earned under the annual cash incentive awards are reported in the Summary Compensation Table under the "Non-Equity Incentive Plan Compensation" column. |
| |
| (2) | "Equity Incentive Plan Awards" are PSUs granted during the fiscal year under our 2011 LTIP that are eligible to vest after a three-year performance period based on the sum of (i) the annual growth rate in non-GAAP earnings per sharediluted EPS CAGR and (ii) average annual dividend yield. We accrue cash dividend equivalents that are payable when, and only to the extent that, the PSUs vest and settle.vest. |
| |
| (3) | "All Other Stock Awards" are RSUs granted during the fiscal year under our 2011 LTIP that vest ratably over three years and accrue cash dividend equivalents that are payable when, and only to the extent that, the RSUs vest. |
| |
| (4) | "All Other Option Awards" are nonqualified stock options granted during the fiscal year under our 2011 LTIP that vest ratably over three years and have a term of 10 years. |
| |
| (5) | The stock option awardsoptions have an exercise price equal to the closing price of our common shares on the NYSE on the date of grant.grant date. |
| |
| (6) | We valued the PSUs and RSUs by multiplying the closing price of our common shares on the NYSE on the grant date ($83.19) by the number of PSUs (at target) and RSUs awarded. We valued the stock options granted utilizing a lattice model that incorporateswith the following assumptions: expected stock option life: 6.327.05 years; dividend yield: 2.35%2.16%; risk-free interest rate: 1.91%1.42%; and expected volatility: 27.00%23.86%. The amounts reported represent the grant date fair value and do not represent amounts paid to or realized by the named executives. The named executives may never realize any value from the PSUs or stock options. To the extent they realize value from stock options, the amounts realized may be more or less than the amounts reported above. |
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32
| Cardinal Health | 2017 Proxy Statement | |
Compensation Plans
Management Incentive Plan.Plan
Our key executive employees, including our named executives, were eligible to receive fiscal 2017 annual cash incentivesincentive awards under theour MIP. The Compensation Committee establishes performance criteria"performance criteria" during the first three months of each fiscal year and may establish performance goals"performance goals" (which criteria and goals may vary from year to year). For fiscal 2014,2017, the Compensation Committee established the performance criterion of $900 million in non-GAAP operating earnings (as defined below).earnings. This performance criterion was intended to allow payments under the MIP to qualify as performance-based compensation under Section 162(m) of the Code and to be fully tax deductible by us. The named executives dowould not receive any payout under the MIP unless we achieveachieved this threshold.
As discussed in the Compensation Discussion and Analysis, beginning on page 23, the Compensation Committee also establishedset a performance goals embodied ingoal of adjusted non-GAAP operating earnings, and established a matrix of potential funding percentages based upon achievement of varying EBIT levels for fiscal 2014, with aof earnings, subject to adjustment based on tangible capital modifier.performance. The funding percentage from the matrix determines the total pool for annual incentive awards under the MIP. Although not relevant for fiscal 2014,
Adjusted non-GAAP operating earnings is based on the non-GAAP operating earnings measure that we use in our presentations with shareholders, which is one of our primary measures of operating performance, but is adjusted to exclude certain variable, performance-based compensation expenses. Tangible capital focuses on the efficient use of capital. We describe how we calculate these measures under "Annual Cash Incentive and PSU Performance Measure Calculations” on page 34.
The MIP allows the Compensation Committee, in its discretion, to make annual incentive awards to named executives if we do not achieve the minimumthreshold level for the performance goal, (e.g., EBIT), but we achieve the performance criterion (e.g.,criterion. As discussed in the Compensation Disclosure and Analysis, our actual fiscal 2017 adjusted non-GAAP operating earnings).earnings fell below the threshold level for the performance goal, but we exceeded the performance criterion of $900 million in non-GAAP operating earnings. For our named executives other than Mr. Barrett, the Committee recognized our fiscal 2017 strategic and operational accomplishments and, in its discretion, awarded payouts at 25% of their respective targets. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout.
Long-termAs we previously disclosed, beginning in fiscal 2018, we administer our annual cash incentive plans. In Novemberprogram under our 2011 LTIP in order to have a single plan for all of our shareholders approved the executive incentive compensation.
2011 LTIP. Long-Term Incentive Plan
Under theour 2011 LTIP, we may grant stock options, stock appreciation rights, stock awards, other stock-based awards and cash awards to employees. During fiscal 2014,2017, we granted PSUs, nonqualified stock options and RSUs to our named executives, as shown in the Grants of Plan-Based Awards for Fiscal 20142017 table on page 30,32, under the 2011 LTIP.
Our 2011 LTIP The plan provides for “double-trigger” accelerated vesting in connection with a change of control, under which the vesting of awards will accelerate in connection with
a change of control only if there is a qualifying termination within two years after the change of control or if the surviving entity does not provide qualifying replacement awards. Our 2005 Long-Term Incentive Plan ("2005 LTIP") provides for “single trigger” accelerated
We recently added one-year minimum vesting of equityprovisions to our 2011 LTIP. Under these provisions, stock options and stock awards are subject to a one-year vesting condition, except upon a change of control.control, upon the death or disability of the grantee or for up to an aggregate not to exceed 5% of the total number of shares provided for in the 2011 LTIP.
Beginning in fiscal 2012, key executive employees, including our named executives, began to receive PSUs. The PSUs willgranted under the 2011 LTIP settle following the end of a performance period by the issuance of a number of our common shares, which may be a fraction or multiple of the target number of PSUs subject to an award. Issuance of the shares under the PSUs is subject to both continued employment by us and the achievement of performance criteria orand goals established by the Compensation Committee (which may vary from award to award).
The Compensation Committee establishes PSU performance criteria and goals during the first three months of each performance period and may establish performance goals.period. For the PSUs granted during fiscal 2014,2017, the Compensation Committee established the performance criterion of non-GAAP diluted earnings per share from continuing operations (as defined below)EPS for our fiscal year ending June 30, 20162019 equal to or greater than $1.00 per share. This performance criterion is intended to allow the PSUs to be performance-based compensation under Section 162(m) of the Code and to be fully tax deductible by us.
As discussed in the Compensation Discussion and Analysis, on page 25, the Compensation Committee also established a three-year performance goal under the PSUs granted during fiscal 20142017 based upon the achievement of the sum of non-GAAP earnings per sharediluted EPS CAGR and average annual growth rate and dividend yield over the performance period. A named executiveparticipant can receive 50% of his target PSUs if we attain threshold performance and can receive up to 200% of his target PSUs for above-target performance. A named executiveparticipant will receive no shares under the PSUs if we do not attain threshold performance. We describe how we calculate these measures under "Annual Cash Incentive and PSU Performance Measure Calculations” on page 34.
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| Cardinal Health | 2017 Proxy Statement | 33 |
Annual Cash Incentive and PSU Performance GoalMeasure Calculations
|
| | | |
| Award | Performance GoalMeasure | | Calculation |
| Annual Cash Incentive | EBIT Adjusted non-GAAP operating earnings(1) | | Non-GAAP operating earnings(2) adjusted to exclude annual cash incentivesincentive expense to the extent below or above target performance;performance, contributions to the DCP and 401(k) Savings Plan when we exceed pre-established performance goals;goals and income or expense related to the performance of our DCP assets that is included within distribution, selling, general and administrative ("SG&A") expenses in our consolidated statement of earnings. |
| | Tangible capital(1) | | 12-month average of total assets, lessless total liabilities (other than interest-bearing long-term obligations);, goodwill and other intangibles, net;net, and cash and equivalents; and held-to-maturity investments.equivalents. |
| PSUs | Sum of non-GAAP earnings per sharediluted EPS CAGR and average annual growth rate and dividend yield | | Non-GAAP earnings per share annual growth ratediluted EPS CAGR is non-GAAP diluted earnings per share from continuing operationsEPS(3) for the last fiscal year of the performance period divided by non-GAAP diluted earnings per share from continuing operationsEPS for the last fiscal year preceding the performance period; the quotient is then raised to the power of one divided by the number of years in the performance period. |
| | | | DividendAverage annual dividend yield is the sum of all cash dividends paid per share during a performance period divided by the number of years in the performance period; the quotient is then divided by our closing share price on the grant date. |
| |
| (1) | We generally exclude the results of acquired or divested businesses from the EBITadjusted non-GAAP operating earnings and tangible capital calculations for the annual cash incentives if they are not included in our budget when the Compensation Committee sets the performance goals.Board-approved annual budget. Accordingly, we excluded Access Closure, Inc. and other smallera few small acquisitions from EBIT and tangible capital performance for fiscal 2014.2017. The Compensation Committee also may make other adjustments to EBITadjusted non-GAAP operating earnings and tangible capital for purposes of determining whether we achieved our performance goals, although none were made for fiscal 2014.2017. |
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| (2) | Non-GAAP operating earnings is consolidated operating earnings, adjusted to excludeexcluding LIFO inventory credits and charges, restructuring and employee severance costs;costs, amortization and other acquisition-related costs;costs, impairments and gains and losses on disposal of assets;assets and net litigation recoveries and charges. |
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| (3) | Non-GAAP diluted EPS is non-GAAP net earnings per share from continuing operations is non-GAAP earnings from continuing operationsattributable to Cardinal Health, Inc. divided by the diluted weighted average shares outstanding. Non-GAAP net earnings from continuing operations attributable to Cardinal Health, Inc. is netconsolidated earnings from continuing operations,attributable to Cardinal Health, Inc., adjusted to exclude earnings and losses from discontinued operations, LIFO inventory credits and charges, restructuring and employee severance costs;costs, amortization and other acquisition-related costs;costs, impairments and gains and losses on disposal of assets;assets, net litigation recoveries and charges; other costs included within SG&A expenses related to the spin-offcharges, loss on extinguishment of CareFusion Corporation ("CareFusion"); gains on the sale of CareFusion stock;debt and tax benefits and expenses associated with each of the items mentioned above. For purposes of the PSUs, the Compensation Committee may approve adjustments to how we calculate non-GAAP net earnings from continuing operationsattributable to Cardinal Health, Inc. to reflect a change by us to the definition of non-GAAP diluted earnings per sharethat measure as presented to investors, exceptional acquisitions or divestitures, changes in accounting principles or other exceptional items that are not reflective of our operating performance. |
In addition to determining incentive compensation, we use the non-GAAP financial measures referred to in the tablereferenced above internally to evaluate our performance, evaluate the balance sheet, and engage in financial and operational planning.planning because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We also presentprovide these non-GAAP financial measures to investors as supplemental metrics to helpassist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and to help in comparing our performance to that of our competitors.
Potential Impact on Compensation from Executive Misconduct ("Clawbacks")
Under our incentive plans and our employment agreement with Mr. Barrett, we have the authority to require repayment or subject outstanding awards to forfeiture in certain instances of executive misconduct. Specifically, theThe MIP and the 2011 LTIP both authorize us to seek repayment of cash incentive compensation paid to an executiveawards from a participant if that executiveparticipant engages in misconduct that causes or contributes to the need to restate previously filed financial statements and the payment was based on financial results that we subsequently restate. In addition, the MIP and the 2011 LTIP willincentive awards granted under these plans may be administered in compliance with the clawback provisions of the Dodd-Frank Act, once rules implementing those provisions are adopted by the SEC and become effective.
Mr. Barrett’s employment agreement gives Cardinal Health the rightsubject to repayment if a participant commits misconduct, including a breach of any bonusour Standards of Business Conduct or other compensation paid to him if he engaged in misconduct that causedviolation of an applicable non-competition or materially contributed to the need to restate financial statements following the CareFusion spin-off and, if based on the financial statements as restated, he otherwise would not have received such compensation. This right of repayment applies to compensation granted or vesting within three years of the date on which we originally filed the subject financial statements with the SEC. Under the employment agreement, Mr. Barrett also agreed to comply with any repayment policy that we are required to adopt, or to which we become subject, once rules implementing the clawback provisions of the Dodd-Frank Act are adopted by the SEC and become effective.confidentiality agreement.
Under our stock option, PSU and RSU agreements, unexercised stock options, unvested PSUs and RSUs and certain vested PSUs and RSUs are forfeited if the holder breaches our Standards of Business Conduct, discloses confidential information, commits fraud, gross negligence or willful misconduct, solicits business or our employees, disparages us or engages in specified conductcompetitive actions while employed by Cardinal Health or during a set time period after termination of employment. We also may require the holder to repay the gross gain realized from any stock option exercises or the value of the PSUs and RSUs settled within a set time period prior to such conduct. The specified conduct that triggers forfeiture or repayment includes disclosure of confidential information; fraud, gross negligence or willful misconduct; solicitation of business or our employees; disparagement; and competitive actions.
Finally, all or a portion of a MIP award may be subjectMr. Barrett’s employment agreement gives Cardinal Health the right to repayment of any bonus or other compensation paid to him if he engaged in misconduct that caused or materially contributed to the named executive violates an applicable non-competitionneed to restate financial statements and, if based on the financial statements as restated, he otherwise would not have received such compensation. This right of repayment applies to compensation granted or confidentiality agreement.vesting within three years of the date on which we originally filed the subject financial statements with the SEC.
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34
| Cardinal Health | 2017 Proxy Statement | |
Outstanding Equity Awards at Fiscal Year-End for Fiscal 20142017
The table below shows the number of shares underlying exercisable and unexercisable stock options and unvested PSUs and RSUs held by our named executives on June 30, 2014.2017.
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| Name | Option Awards | Stock Awards |
Option Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($/Sh) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1)(2) |
| Barrett | 9/15/2009 | 309,954 |
| — |
| | 27.29 |
| 9/15/2016 | | | | | | |
| 9/15/2009 | 644,704 |
| — |
| | 27.29 |
| 9/15/2016 | | | | | | |
| 8/16/2010 | 685,989 |
| — |
| | 30.94 |
| 8/16/2017 | | | | | | |
| 8/15/2011 | 205,534 |
| 102,768 |
| (3) | 41.60 |
| 8/15/2021 | | | | | | |
| 8/15/2012 | 110,246 |
| 220,492 |
| (3) | 39.81 |
| 8/15/2022 | | | | | | |
| 8/15/2013 | — |
| 279,770 |
| (3) | 51.49 |
| 8/15/2023 | | | | | | |
| | | | | | | 123,346 |
| (4) | 8,456,602 |
| 223,689 |
| (5) | 15,336,118 |
|
| Henderson | 8/15/2011 | 59,735 |
| 29,868 |
| (3) | 41.60 |
| 8/15/2021 | | | | | | |
| 8/15/2012 | 34,190 |
| 68,381 |
| (3) | 39.81 |
| 8/15/2022 | | | | | | |
| 8/15/2013 | — |
| 79,702 |
| (3) | 51.49 |
| 8/15/2023 | | | | | | |
| | | | | | | 37,202 |
| (6) | 2,550,569 |
| 70,597 |
| (7) | 4,840,130 |
|
| Kaufmann | 8/15/2008 | 50,216 |
| — |
| | 41.10 |
| 8/15/2015 | | | | | | |
| 8/15/2011 | 51,272 |
| 25,637 |
| (3) | 41.60 |
| 8/15/2021 | | | | | | |
| 8/15/2012 | 32,097 |
| 64,194 |
| (3) | 39.81 |
| 8/15/2022 | | | | | | |
| 8/15/2013 | — |
| 68,316 |
| (3) | 51.49 |
| 8/15/2023 | | | | | | |
| | | | | | | 33,341 |
| (8) | 2,285,859 |
| 60,186 |
| (9) | 4,126,352 |
|
| Casey | 4/16/2012 | 39,453 |
| 19,727 |
| (3) | 40.58 |
| 4/16/2022 | | | | | | |
| 8/15/2012 | 27,910 |
| 55,821 |
| (3) | 39.81 |
| 8/15/2022 | | | | | | |
| 8/15/2013 | — |
| 75,148 |
| (3) | 51.49 |
| 8/15/2023 | | | | �� | | |
| | | | | | | 30,784 |
| (10) | 2,110,551 |
| 63,548 |
| (11) | 4,356,851 |
|
| Morford | 8/15/2011 | 25,590 |
| 12,795 |
| (3) | 41.60 |
| 8/15/2021 | | | | | | |
| 8/15/2012 | 16,746 |
| 33,493 |
| (3) | 39.81 |
| 8/15/2022 | | | | | | |
| 8/15/2013 | — |
| 39,038 |
| (3) | 51.49 |
| 8/15/2023 | | | | | | |
| | | | | | | 17,657 |
| (12) | 1,210,564 |
| 34,031 |
| (13) | 2,333,165 |
|
|
| | | | | | | | | | | | | | | | | |
| Name | Option Awards | Stock Awards |
| Option Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable (1) | Option Exercise Price ($/Sh) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)(3) |
| Barrett | 8/15/2011 | 308,302 |
| | — |
| | 41.60 | 8/15/2021 | | | | | | |
| | 8/15/2012 | 330,738 |
| | — |
| | 39.81 | 8/15/2022 | | | | | | |
| | 8/15/2013 | 279,770 |
| | — |
| | 51.49 | 8/15/2023 | | | | | | |
| | 8/15/2014 | 141,346 |
| | 70,674 |
| | 71.43 | 8/15/2024 | | | | | | |
| | 8/15/2015 | 63,231 |
| | 126,464 |
| | 84.27 | 8/15/2025 | | | | | | |
| | 8/15/2016 | — |
| | 189,380 |
| | 83.19 | 8/15/2026 | | | | | | |
| | | | | | | | | 79,848 |
| (4) | 6,221,756 | 106,264 |
| (5) | 8,280,091 |
| Kaufmann | 8/15/2011 | 76,909 |
| | — |
| | 41.60 | 8/15/2021 | | | | | | |
| | 8/15/2012 | 96,291 |
| | — |
| | 39.81 | 8/15/2022 | | | | | | |
| | 8/15/2013 | 68,316 |
| | — |
| | 51.49 | 8/15/2023 | | | | | | |
| | 8/15/2014 | 35,798 |
| | 17,900 |
| | 71.43 | 8/15/2024 | | | | | | |
| | 8/15/2015 | 15,689 |
| | 31,378 |
| | 84.27 | 8/15/2025 | | | | | | |
| | 8/15/2016 | — |
| | 59,655 |
| | 83.19 | 8/15/2026 | | | | | | |
| | | | | | | | | 35,779 |
| (6) | 2,787,900 | 27,644 |
| (7) | 2,154,020 |
| Casey | 8/15/2012 | 83,731 |
| | — |
| | 39.81 | 8/15/2022 | | | | | | |
| | 8/15/2013 | 75,148 |
| | — |
| | 51.49 | 8/15/2023 | | | | | | |
| | 8/15/2014 | 34,306 |
| | 17,154 |
| | 71.43 | 8/15/2024 | | | | | | |
| | 8/15/2015 | 15,308 |
| | 30,618 |
| | 84.27 | 8/15/2025 | | | | | | |
| | 8/15/2016 | — |
| | 59,655 |
| | 83.19 | 8/15/2026 | | | | | | |
| | | | | | | | | 32,123 |
| (8) | 2,503,024 | 27,051 |
| (9) | 2,107,814 |
| Giacomin | 8/15/2012 | 26,166 |
| | — |
| | 39.81 | 8/15/2022 | | | | | | |
| | 8/15/2013 | 21,349 |
| | — |
| | 51.49 | 8/15/2023 | | | | | | |
| | 8/15/2014 | 9,766 |
| | 4,884 |
| | 71.43 | 8/15/2024 | | | | | | |
| | 9/15/2014 | 16,024 |
| | 8,013 |
| | 74.96 | 9/15/2024 | | | | | | |
| | 8/15/2015 | 13,312 |
| | 26,624 |
| | 84.27 | 8/15/2025 | | | | | | |
| | 8/15/2016 | — |
| | 56,814 |
| | 83.19 | 8/15/2026 | | | | | | |
| | | | | | | | | 19,807 |
| (10) | 1,543,361 | 24,993 |
| (11) | 1,947,455 |
| Morford | 8/15/2011 | 12,795 |
| | — |
| | 41.60 | 8/15/2021 | | | | | | |
| | 8/15/2012 | 37,444 |
| | — |
| | 39.81 | 8/15/2022 | | | | | | |
| | 8/15/2013 | 39,038 |
| | — |
| | 51.49 | 8/15/2023 | | | | | | |
| | 8/15/2014 | 17,046 |
| | 8,524 |
| | 71.43 | 8/15/2024 | | | | | | |
| | 8/15/2015 | 7,987 |
| | 15,974 |
| | 84.27 | 8/15/2025 | | | | | | |
| | 8/15/2016 | — |
| | 30,899 |
| | 83.19 | 8/15/2026 | | | | | | |
| | | | | | | | | 20,758 |
| (12) | 1,617,463 | 15,301 |
| (13) | 1,192,254 |
| |
| (1) | These stock options vest 33% on the first, second and third anniversaries of the grant date. |
| |
| (2) | The market value is the product of $68.56,$77.92, the closing price of our common shares on the NYSE on June 30, 2014,2017, and the number of unvested stock awards. |
| |
(2)(3) | Fiscal 12-1415-17 PSUs are actual amounts that vested upon our achieving the performance goal over the performance period. Based on current performance in accordance with the SEC rules, PSUs for the fiscal 2013-2015 performance period2016-2018 ("fiscal 13-15Fiscal 16-18 PSUs") assume a payout at the maximum leveltarget and fiscal 14-16Fiscal 17-19 PSUs assume a payout at the target level. |
| |
(3) | These stock options vest 33% on the first, second and third anniversaries of the grant date.threshold. |
| |
| (4) | Reflects RSUs that vest as follows: 63,07841,318 shares on August 15, 2014; 41,7102017; 25,841 shares on August 15, 2015;2018; and 18,55812,689 shares on August 15, 2016.2019. |
|
| | |
| Cardinal Health | 2017 Proxy Statement | 35 |
| |
| (5) | Reflects 42,785 fiscal 12-1449,653 Fiscal 15-17 PSUs, 129,114 fiscal 13-1537,578 Fiscal 16-18 PSUs and 51,790 fiscal 14-1619,033 Fiscal 17-19 PSUs. |
| |
| (6) | Reflects RSUs that vest as follows: 19,44811,180 shares on August 15, 2014; 12,4672017; 13,341 shares on September 15, 2017; 7,261 shares on August 15, 2015;2018; and 5,2873,997 shares on August 15, 2016.2019. |
| |
| (7) | Reflects 13,708 fiscal 12-1413,034 Fiscal 15-17 PSUs, 41,028 fiscal 13-158,900 Fiscal 16-18 PSUs and 15,861 fiscal 14-165,710 Fiscal 17-19 PSUs. |
| |
| (8) | Reflects RSUs that vest as follows: 17,53610,938 shares on August 15, 2014; 11,2732017; 10,006 shares on September 15, 2017; 7,182 shares on August 15, 2015;2018; and 4,5323,997 shares on August 15, 2016.2019. |
| |
| (9) | Reflects 11,423 fiscal 12-1413,034 Fiscal 15-17 PSUs, 35,168 fiscal 13-158,307 Fiscal 16-18 PSUs and 13,595 fiscal 14-165,710 Fiscal 17-19 PSUs. |
| |
| (10) | Reflects RSUs that vest as follows: 10,8457,645 shares on August 15, 2014; 4,1072017; 1,779 shares on April 16, 2015; 10,847September 15, 2017; 6,576 shares on August 15, 2015; and 4,9852018; 3,807 shares on August 15, 2016.2019. |
| |
| (11) | Reflects 14,785 fiscal 12-1410,976 Fiscal 15-17 PSUs, 35,168 fiscal 13-158,307 Fiscal 16-18 PSUs and 13,595 fiscal 14-165,710 Fiscal 17-19 PSUs. |
| |
| (12) | Reflects RSUs that vest as follows: 8,9615,598 shares on August 15, 2014; 6,1062017; 4,678 shares on November 15, 2017; 3,732 shares on August 15, 2015;2018; 4,679 shares on November 15, 2018; and 2,590 shares2,071 on August 15, 2016.2019. |
| |
| (13) | Reflects 6,167 fiscal 12-147,448 Fiscal 15-17 PSUs, 20,096 fiscal 13-154,747 Fiscal 16-18 PSUs and 7,768 fiscal 14-163,106 Fiscal 17-19 PSUs. |
Option Exercises and Stock Vested for Fiscal 20142017
The table below shows stock options that were exercised, and PSUs and RSUs that vested, during fiscal 20142017 for each of our named executives.
| | | Name | Option Awards | Stock Awards | Option Awards | | Stock Awards | |
Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($) |
| Barrett | 408,416 |
| 8,733,298 |
| 105,659 |
| 5,435,766 |
| 685,989 |
| (2) | 32,061,337 |
| (2) | 135,230 |
| | 11,305,228 |
| |
| Henderson | 556,170 |
| 12,886,527 |
| 33,761 |
| 1,736,873 |
| |
| Kaufmann | 388,995 |
| 14,962,166 |
| 29,297 |
| 1,507,275 |
| — |
| | — |
| | 48,167 |
| | 3,915,506 |
| |
| Casey | — |
| — |
| 9,968 |
| 581,141 |
| 59,180 |
| | 2,545,598 |
| | 45,043 |
| | 3,682,153 |
| |
| Giacomin | | 62,951 |
| | 2,892,986 |
| | 13,911 |
| | 1,148,123 |
| |
| Morford | 14,128 |
| 363,185 |
| 15,087 |
| 776,181 |
| — |
| | — |
| | 19,324 |
| | 1,615,486 |
| |
| |
| (1) | This column represents the vesting during fiscal 20142017 of PSUs granted during fiscal 20122014 for the fiscal 2012-20132014-2016 performance period (other than for Mr. Casey) and RSUs granted during the previous three fiscal years.2014, 2015 and 2016. The number of shares acquired on vesting includes the following PSUs and RSUs deferred at the election of the named executive, net of required withholdings: Mr. Kaufmann — 6,666 RSUs; Mr. Casey — 9,360Casey—2,939 RSUs; and Mr. Morford — 4,521Morford—12,401 PSUs and 6,1595,741 RSUs. See “Deferred Compensation” below for a discussion of deferral terms. |
Because of the adjustments to equity awards in the CareFusion spin-off, some of our named executives have equity awards from CareFusion. The table below shows the CareFusion stock options that were exercised during fiscal 2014 for each of our named executives. No unvested CareFusion stock awards were held by our named executives during fiscal 2014.
|
| | | | | | | | |
| Name | Option Awards | Stock Awards |
Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) |
| Barrett | — |
| — |
| — |
| — |
|
| Henderson | 70,271 |
| 131,930 |
| — |
| — |
|
| Kaufmann | — |
| — |
| — |
| — |
|
| Casey | — |
| — |
| — |
| — |
|
| Morford | — |
| — |
| — |
| — |
|
| |
| (2) | During fiscal 2017, Mr. Barrett exercised an option granted in August 2010, which had an expiration date of August 2017. |
Deferred Compensation
Deferred Compensation Plan.Our nonqualified DCP permits certain management employees, including the named executives, to defer between 1% and 50% of base salary and between 1% and 100%80% of incentive compensation. In addition, we may make additional matching and discretionarynon-matching contributions to the deferred balances of participating executives.participants. We make matching contributions on amounts deferred under the DCP from compensation in excess of $260,000$270,000 but not in excess of $360,000$370,000 at the same rate as contributions are matched under the 401(k) Savings Plan. We also may credit all plan participants’ accounts with additional, non-matching company contributions in the same amount as company contributions made to the 401(k) Savings Plan based on a percentage of fiscal year compensation in excess of $255,000$270,000 but not in excess of $355,000.$370,000. Company non-matching contributions are made only when we exceed pre-established performance goals. The Compensation Committee selected EBITadjusted non-GAAP operating earnings as the
performance measure for fiscal 20142017 for this company contribution,non-matching contributions. We did not exceed the pre-established adjusted non-GAAP operating earnings goal and we exceeded the predetermined EBIT goal. Contributions made with respect to our named executivesaccordingly did not make any performance-based, non-matching contributions for fiscal 2014 are set forth in the “All Other Compensation” table on page 29.2017.
Each participant may direct the investment of his or her DCP account by selecting notional investment options that generally track publicly available mutual funds and investments and by periodically reallocating assetschanging investment elections as the participant deems appropriate. We pay participating executives’participants’ deferred balances in cash upon retirement, termination from employment, death or total disability. The plan does not qualify under Section 401(a) of the Code and is exempt from many of the provisions of the Employee Retirement Income Security Act of 1974 as a “top hat” plan for a select group of management or highly compensated employees.
Deferred shares.A
|
| | |
36
| Cardinal Health | 2017 Proxy Statement | |
Apart from the DCP, a named executive also may defer receipt of shares that otherwise would be issued on the date that PSUs and RSUs vest until after the named executive is no longer employed by Cardinal Health or until a fixed future date.
Nonqualified Deferred Compensation in Fiscal 20142017
The table below provides information regarding the named executives’ accounts under our DCP and deferred share arrangements. References to deferred shares in the table below include both PSUs and both Cardinal Health and CareFusion RSUs.
| | | Name/Award Type | Executive Contributions in Last FY ($)(1)(2) | Cardinal Health Contributions in Last FY ($)(2)(3) | Aggregate Earnings in Last FY ($)(2)(4) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(5) | Executive Contributions in Last FY ($)(1)(2) | Cardinal Health Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(4) |
| Barrett | | | | | | | | | |
| DCP | 333,457 |
| 16,260 |
| 169,553 |
| — |
| 1,390,546 |
| |
| Deferred shares | — |
| — |
| — |
| — |
| — |
| |
| Henderson | | |
| DCP | 221,346 |
| 14,913 |
| 311,583 |
| — |
| 1,707,977 |
| 126,923 |
| | 8,000 |
| | 284,198 |
| | — | 2,388,404 |
| |
| Deferred shares | — |
| — |
| 73,773 |
| — |
| 266,579 |
| — |
| | — |
| | — |
| | — | — |
| |
| Kaufmann | | | | | | | | | |
| DCP | 175,231 |
| 13,537 |
| 316,104 |
| — |
| 2,277,548 |
| 130,128 |
| | 7,146 |
| | 351,567 |
| | — | 3,250,142 |
| |
| Deferred shares | 342,099 |
| — |
| 886,253 |
| — |
| 2,932,791 |
| — |
| | — |
| | (2,019 | ) | | — | 1,747,824 |
| |
| Casey | | | | | | | | | |
| DCP | — |
| 5,000 |
| 11,047 |
| — |
| 20,256 |
| 104,504 |
| | 4,000 |
| | 4,688 |
| | — | 434,240 |
| |
| Deferred shares | 545,686 |
| — |
| 178,442 |
| — |
| 906,226 |
| 244,495 |
| | — |
| | (21,242 | ) | | — | 5,210,355 |
| |
| Giacomin | | | | | | | | | |
| DCP | | 279,406 |
| | 7,600 |
| | 232,420 |
| | — | 1,782,876 |
| |
| Deferred shares | | — |
| | — |
| | — |
| | — | — |
| |
| Morford | | | | | | | | | |
| DCP | 25,404 |
| 12,988 |
| 101,171 |
| — |
| 363,044 |
| 489,941 |
| | 7,900 |
| | 206,622 |
| | — | 1,436,213 |
| |
| Deferred shares | 549,314 |
| — |
| 837,292 |
| — |
| 2,832,625 |
| 1,509,233 |
| | — |
| | (100,668 | ) | | — | 5,793,897 |
| |
| |
| (1) | The DCP amounts shown include salary and fiscal 20132016 cash incentive awards deferred during fiscal 2014.2017. DCP amounts do not include the following amounts deferred from the fiscal 20142017 cash incentive awards that were paid in fiscal 2015:2018: Mr. Barrett — $260,198;Kaufmann—$18,661; Mr. Henderson — $172,864; and Mr. Kaufmann — $122,901.Giacomin—$14,179. |
| |
| (2) | DCP amounts included as contributions and earnings in the table and also reported as fiscal 20142017 compensation in the Summary Compensation Table of this proxy statement are as follows: Mr. Barrett — $344,718;Barrett—$130,923; Mr. Henderson — $231,259;Kaufmann—$42,473; Mr. Kaufmann — $183,768;Casey—$0; Mr. Giacomin—$72,196; and Mr. Morford — $33,392.Morford—$17,621. |
| |
| (3) | Does not include Cardinal Health contributions for fiscal 2014 performance paid during fiscal 2015, in the following amounts: Mr. Barrett — $6,000; Mr. Henderson — $6,000; Mr. Kaufmann — $6,000; Mr. Casey — $6,000; and Mr. Morford — $6,000. |
| |
(4) | We calculate the aggregate DCP earnings based upon the change in value of the investment options selected by the named executive during the year. Aggregate deferred shares earnings are calculated based upon the change in their total value from the first day of the fiscal year (or the vesting date, if later) to the last day of the fiscal year. |
| |
(5)(4) | DCP amounts included in the aggregate balance at June 30, 20142017 in the table and also reported as fiscal 20132016 and 20122015 compensation in the Summary Compensation Table of this proxy statement are as follows: Mr. Barrett — $272,058;Barrett—$277,077; Mr. Henderson — $457,538;Kaufmann—$117,810; Mr. Kaufmann — $694,528;Casey—$0; Mr. Casey — $5,000;Giacomin—$253,706; and Mr. Morford — $104,246.Morford—$51,241. |
35
|
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| Cardinal Health | 2017 Proxy Statement | 37 |
Potential Payments on Termination of Employment or Change of Control
Post-employment and change of control compensation arrangements. In many cases, our named executives are eligible to receive benefits after a termination of employment or change of control under the MIP and the 2011 and 2005 LTIPs (collectively, the "LTIPs").LTIP. The various payments and benefits that would be provided to the named executives under the MIP and LTIPs2011 LTIP are discussed in the table below.
|
| | | | |
| | | Annual Incentives (MIP) | | Long-Term Incentive Plan Awards |
| Termination for Cause (1) | | None. | | We may cancel unexercised stock options and unvested stock awards and require repayment of proceeds realized from vested awards for a specified period of time. |
| Involuntary Termination without Cause | | If involuntarily terminated without cause duringafter the beginning of the fourth quarter, the executive receives a prorated incentive payment based upon the length of employment during that fiscal year; if terminated earlier, there is no right to an incentive payment. | | If involuntarily terminated without cause after the end of a performance period, the executive receives his PSUs as if he had remained employed through the settlement date; otherwise unvested equity awards are forfeited and the executive must exercise vested stock options within 90 days. |
| Termination Due to Retirement (2) | | Prorated incentive payment based upon the length of employment during that fiscal year. | | • Stock options and RSUs held for at least six months vest, pro rataprorated based upon the length of employment during the vesting period, on an accelerated basis and outstanding stock options remain exercisable until the expiration of option term. |
| • PSUs held for at least six months vest on the original vesting date, subject to achievement of the performance goals, but the amount is prorated based upon the length of employment during the performance period. |
| Termination Due to Death or Disability (3) | | Prorated incentive payment based upon the length of employment during that fiscal year. | | • Stock options and RSUs held for at least six months vest on an accelerated basis and stock options remain exercisable until expiration of option term. |
| • PSUs held for at least six months vest on the original vesting date, subject to achievement of the performance goals. |
| Change of Control (4) | | No effect on amount or timing of any payments. | | For award granted before November 2011, all awards vest on an accelerated basis. |
| | | | For awards granted after November 2011, "double trigger" provision applies and awards• Awards vest on an accelerated basis only if (a) a qualifying termination occurs within two years after a change of control (including a "good reason" termination by the executive or an involuntary termination without cause) or (b) the surviving entity does not provide qualifying replacement awards. |
| | | | • In general, if employment terminates within two years after change of control, stock options remain exercisable until the earlier of three years from termination or expiration of option term. |
| | | | • The number of PSUs received is based on the actual performance before the change of control and expected performance for the remainder of the performance period. |
| |
| (1) | A “termination for cause” under the LTIPsMIP and 2011 LTIP generally means termination of employment for fraud or intentional misrepresentation, embezzlement, misappropriation, conversion of assets or the intentional and repeated violation of our written policies or procedures. Mr. Barrett's employment agreement also defines “termination for cause," which is discussed below under “Tables for Named Executives." |
| |
| (2) | “Retirement” means termination of employment (other than by death or disability or a termination for cause) after attaining theeither age of 55 and having at least 10 years of continuous service or, for awards granted after July 1, 2017, age 60 and at least five years of continuous service. None of the named executives currently qualify for retirement.retirement |
36
|
| | |
38
| Cardinal Health | 2017 Proxy Statement | |
benefits, but Messrs. Barrett, Kaufmann and Morford will each qualify for retirement benefits later in fiscal 2018. We recently amended the 2011 LTIP to provide that for awards granted after July 1, 2017, plan participants will qualify for retirement after they (i) attain either age 53 and at least eight years of continuous service or age 59 and at least four years of continuous service, (ii) are terminated by us without cause and (iii) enter into a separate agreement with us.
| |
| (3) | “Disability” exists under the MIP and 2011 LTIP when an executive who is under the regular care of a physician is continuously unable to substantially perform his job or to be employed in any occupation for which the executive is qualified by education, training or experience. Mr. Barrett's employment agreement also defines “disability," which is discussed below under "Tables for Named Executives." |
| |
| (4) | Under the 20052011 LTIP, a “change of control” generally occurs when: |
a person or group acquires 25% or more of Cardinal Health’s outstanding common shares or voting securities, subject to limited exceptions; or
individuals who as of the effective date of the 2005 LTIP constituted the Board cease for any reason to constitute at least a majority of the Board, unless the replaced directors are approved as described in the 2005 LTIP.
Under the 2011 LTIP, a “change of control” generally occurs when:
a person or group acquires 30% or more of Cardinal Health’s outstanding common shares or voting securities, subject to limited exceptions; or
during any two-year period, individuals who as of the beginning of such two-year period constituted the Board cease for any reason to constitute at least a majority of the Board, unless the replacedreplacement directors are approved as described in the 2011 LTIP.
In addition, under the LTIPs, a change of control occurs when:LTIP;
there is a consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of Cardinal Health's assets or another business combination unless (i) after the transaction all or substantially all of the owners of Cardinal Health's outstanding common shares or voting securities prior to the transaction own more than 50% of such securities after the transaction in substantially the same proportions; (ii) no person, subject to certain exclusions, owns in the case of the 2005 LTIP, 25% or, in the case of the 2011 LTIP, 30% or more of the outstanding common shares or voting securities of the resulting entity (unless such ownership level existed before the transaction); and (iii) a majority of the directors of the resulting entity were members of Cardinal Health's Board (including applicable replacements as described above) when the transaction was approved or the transaction agreement was executed; or
our shareholders approve a complete liquidation or dissolution of Cardinal Health.
Under the 2011 LTIP,Generally, a termination is for “good reason” if: (a) we materially reduce the employee's total compensation; (b) we materially reduce the employee's annual or long-term incentive opportunities; (c) we materially reduce the employee's duties, responsibilities or authority; or (d) we require the employee to relocate more than 50 miles from his or her office or location.
Mr. Barrett’s employment agreement, and Messrs. Henderson, Kaufmann, Casey and Casey’sGiacomin’s confidentiality and business protection agreements, contain non-competition and non-solicitation provisions that, among other things, prohibit these executives from being employed by certain entities that compete with us for a period of two years after termination of employment (the “Restricted Period”). During the Restricted Period, these executives also are prohibited from soliciting on behalf of a competitor the business of any customer or any known potential customer of Cardinal Health. These agreements also prohibit disclosure of confidential information, disparagement and recruitment of our employees.
See also “Potential Impact on Compensation from Executive Misconduct” aboveMisconduct ("Clawbacks”)" at page 3234 for a discussion of restrictive covenants under the LTIPs2011 LTIP and MIP applicable to each of the named executives.
Tables for named executives. Named Executives
The tables below present, for each of the named executives, the potential payments and benefits that would be payable in the event of termination of employment or a change of control. Consistent with SEC requirements, theseThese potential amounts have been calculated as if the named executive’s employment had been terminated or a change of control had occurred as of June 30, 2014,2017, the last day of fiscal 2014,2017, and using the closing market price of our common shares on June 30, 20142017 ($68.56)77.92).
The tables below do not include benefits that are available to all of our salaried employees onupon retirement, death or disability, including 401(k) Savings Plan distributions, group and supplemental life insurance benefits and short-term and long-term disability benefits. The amounts reported in the tables below are hypothetical amounts. Actual payments will depend on the circumstances and timing of any termination of employment or change of control. In addition, in connection with any actual termination or change of control transaction, we may determine to enter into agreements or establish arrangements that provide additional benefits or amounts or alter the terms of benefits described below.
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| Cardinal Health | 2017 Proxy Statement | 39 |
The table below describes the potential payments and benefits upon termination of employment or a change of control as of June 30, 20142017 for Mr. Barrett.
| | Executive Benefits and Payments Upon
Termination of Employment or Change of Control (1) | Involuntary Termination Without Cause or Termination by the Executive for Good Reason ($)(2) | Termination Due to Death or Disability ($)(3) | Change of Control | |
Without Termination ($) | With Involuntary Termination Without Cause or Termination by the Executive for Good Reason ($)(2) | Involuntary Termination Without Cause or Termination by the Executive for Good Reason ($)(2) | Termination Due to Death or Disability ($)(3) | Involuntary Termination Without Cause or Termination by the Executive for Good Reason Within Two Years of Change of Control ($)(2) |
| Cash severance | 6,058,040 |
| — |
| — |
| 6,058,040 |
| 6,600,000 |
| | — |
| | 6,600,000 |
| |
| Annual cash incentive | 1,709,020 |
| 1,709,020 |
| — |
| 1,709,020 |
| 1,980,000 |
| | 1,980,000 |
| | 1,980,000 |
| |
| Long-term incentive awards (accelerated vesting) (4) | — |
| 32,763,235 |
| 6,680,053 |
| 32,763,235 |
| — |
| | 15,483,520 |
| | 15,483,520 |
| |
| Medical and dental benefits (5) | 23,688 |
| 23,688 |
| — |
| 23,688 |
| 25,771 |
| | 25,771 |
| | 25,771 |
| |
| Interest on deferred payments | 12,520 |
| 2,755 |
| — |
| 12,520 |
| 50,890 |
| | 11,744 |
| | 50,890 |
| |
| Total | 7,803,268 |
| 34,498,698 |
| 6,680,053 |
| 40,566,503 |
| 8,656,661 |
| | 17,501,035 |
| | 24,140,181 |
| |
| |
| (1) | Assumes Mr. Barrett’s compensation to be a base salary of $1,320,000 and that his fiscal 20142017 cash incentive payout was at target, or $1,709,020$1,980,000 (actual payout was $2,601,983)$0). |
| |
| (2) | The actual payments made under Mr. Barrett's employment agreement will be reduced to the extent necessary to eliminate any "golden parachute" excise tax under the Code provided that the value of the adjusted payments and benefits is not less than the amount Mr. Barrett otherwise would have received on an after-tax basis. |
For purposes of Mr. Barrett’s employment agreement, “cause” means: (a) he willfully fails to perform his duties (other than due to physical or mental illness) for a continuous period; (b) he willfully engages in illegal conduct or gross misconduct that materially harms Cardinal Health; (c) he is convicted of a felony or any crime involving dishonesty or moral turpitude, or makes a guilty or nolo contendere plea; or (d) he materially breaches the covenants in his employment agreement.
A termination by Mr. Barrett is for “good reason” in the following events: (a) the assignment to him of any duties materially inconsistent with his position or duties, or any other action by us that results in a material diminution in his position or duties; (b) any failure by us to comply with any of the compensation provisions contained in his employment agreement; (c) we require him to be based more than 35 miles from Dublin, Ohio and more than 35 miles further from his principal residence at the time than the residence is from Dublin, Ohio; (d) any purported termination by us of his employment other than as expressly permitted by his employment agreement; and (e) any failure by us to comply with our obligation to require any successor entity to assume our employment agreement with him.
Under Mr. Barrett’s employment agreement, if we terminate his employment without cause or he terminates his employment for good reason, then he will receive: (a) earned but unpaid salary and unpaid annual bonus from the prior fiscal year, if any (payable in a lump sum within 60 days); (b) a prorated portion of his annual bonus for the fiscal year of the termination (payable at the time annual bonuses are paid to other executives); (c) two times the sum of his annual base salary and target bonus for the fiscal year of the termination (payable in equal monthly installments over 24 months); (d) the ability to exercise all vested stock options for two years following termination (or, if shorter, the end of their stated term), or such longer period as provided in the award agreement; and (e) medical and dental benefits for him and his dependents for two years.
If Mr. Barrett terminates his employment without good reason or if we terminate his employment for cause, then he will receive earned but unpaid salary and unpaid annual bonus from the prior fiscal year, if any (payable within 30 days).
For purposes of Mr. Barrett’s employment agreement, “cause” means: (a) he willfully fails to perform his duties (other than due to physical or mental illness) for a continuous period; (b) he willfully engages in illegal conduct or gross misconduct that materially harms Cardinal Health; (c) he is convicted of a felony or any crime involving dishonesty or moral turpitude, or makes a guilty or nolo contendere plea; or (d) he materially breaches the covenants in his employment agreement.
| |
| (3) | Under Mr. Barrett’s employment agreement, “disability” means he is absent from his duties on a full-time basis for at least 120 consecutive days, or an aggregate period of at least 180 days, as a result of incapacity due to mental or physical illness that is determined by a physician to be total and permanent. |
If Mr. Barrett’s employment is terminated due to death or disability, he will receive under his employment agreement: (a) earned but unpaid salary and unpaid annual bonus from the prior fiscal year, if any (payable in a lump sum within 30 days); (b) a prorated portion of his annual bonus for the fiscal year of the termination (payable at the time annual bonuses are paid to our other executives); and (c) medical and dental benefits for him (in the event of disability) and his dependents for two years. For purposes of the table above, in the event of termination of employment due to death, the medical and dental benefits would be reduced to $14,879.$16,139.
| |
| (4) | Assumes the accelerated vesting of (a) 35,654112,976 PSUs at target, 102,768386,518 stock options and 21,36879,848 RSUs granted under the 2005 LTIP in the event of a change of control and (b) 116,347 PSUs at target, 500,262 stock options and 101,978 RSUs granted under the 2011 LTIP in the event of(a) a change of control with involuntary termination without cause or a termination by Mr. Barrett for "good reason" within two years after the change of control or if the surviving entity does not provide qualifying replacement awards. Assumes the accelerated vesting of long-term incentive awards granted under both LTIPs in the event ofor (b) a termination due to death or disability. We valued the accelerated vesting of stock awards by multiplying the closing price of our common shares on June 30, 20142017 by the number of stock awards. We valued the accelerated vesting of stock options as the difference between the closing price of our common shares on June 30, 20142017 and the exercise price for each stock option. |
| |
| (5) | Under Mr. Barrett’s employment agreement, we are required to continue to provide him and his eligible dependents with the same medical and dental benefits coverage he would have been entitled to receive if he had remained an active employee for two years. The amounts reported are based on estimates determined by independent consultants. |
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40
| Cardinal Health | 2017 Proxy Statement | |
The table below describes the potential payments and benefits upon termination of employment or a change of control as of June 30,201430, 2017 for Messrs. Henderson, Kaufmann, Casey, Giacomin and Morford.
| | Executive Benefits and Payments Upon Termination of Employment or Change of Control | Involuntary Termination Without Cause ($) | Termination Due to Death or Disability ($) | Change of Control | Involuntary Termination Without Cause ($) | Termination Due to Death or Disability ($) | Involuntary Termination Without Cause or Termination by the Executive for Good Reason Within Two Years of Change of Control ($) |
Without Termination ($) | With Involuntary Termination Without Cause or Termination by the Executive for Good Reason ($) | |
| Henderson (1) | | | |
| Cash severance | 905,753 |
| — |
| — |
| 905,753 |
| |
| Annual cash incentive (2) | 1,550,904 |
| 756,932 |
| — |
| 1,550,904 |
| |
| Long-term incentive awards (continued or accelerated vesting) (3)(4)(5) | 8,055,885 |
| 9,959,308 |
| 2,067,019 |
| 9,959,308 |
| |
| Total | 10,512,542 |
| 10,716,240 |
| 2,067,019 |
| 12,415,965 |
| |
| Kaufmann | | | | | | | |
| Cash severance | — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| |
| Annual cash incentive (2) | 647,699 |
| 647,699 |
| — |
| 647,699 |
| |
| Long-term incentive awards (accelerated vesting) (4)(5) | — |
| 8,779,019 |
| 1,773,325 |
| 8,779,019 |
| |
| Annual cash incentive (1) | | 746,438 |
| | 746,438 |
| | 746,438 |
| |
| Long-term incentive awards (accelerated vesting) (2) | | — |
| | 5,251,021 |
| | 5,251,021 |
| |
| Total | 647,699 |
| 9,426,718 |
| 1,773,325 |
| 9,426,718 |
| 746,438 |
| | 5,997,459 |
| | 5,997,459 |
| |
| Casey | | | | | | | |
| Cash severance | — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| |
| Annual cash incentive (2) | 647,699 |
| 647,699 |
| — |
| 647,699 |
| |
| Long-term incentive awards (accelerated vesting) (4)(5) | — |
| 8,532,503 |
| — |
| 8,532,503 |
| |
| Annual cash incentive (1) | | 705,014 |
| | 705,014 |
| | 705,014 |
| |
| Long-term incentive awards (accelerated vesting) (2) | | — |
| | 4,915,097 |
| | 4,915,097 |
| |
| Total | | 705,014 |
| | 5,620,111 |
| | 5,620,111 |
| |
| Giacomin | | | | | | | |
| Cash severance | | — |
| | — |
| | — |
| |
| Annual cash incentive (1) | | 567,151 |
| | 567,151 |
| | 567,151 |
| |
| Long-term incentive awards (accelerated vesting) (2) | | — |
| | 3,778,979 |
| | 3,778,979 |
| |
| Total | 647,699 |
| 9,180,202 |
| — |
| 9,180,202 |
| 567,151 |
| | 4,346,130 |
| | 4,346,130 |
| |
| Morford | | | | | | | |
| Cash severance | — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| |
| Annual cash incentive (2) | 381,349 |
| 381,349 |
| — |
| 381,349 |
| |
| Long-term incentive awards (accelerated vesting) (4)(5) | — |
| 4,758,615 |
| 893,022 |
| 4,758,615 |
| |
| Annual cash incentive (1) | | 469,328 |
| | 469,328 |
| | 469,328 |
| |
| Long-term incentive awards (accelerated vesting) (2) | | — |
| | 2,962,983 |
| | 2,962,983 |
| |
| Total | 381,349 |
| 5,139,964 |
| 893,022 |
| 5,139,964 |
| 469,328 |
| | 3,432,311 |
| | 3,432,311 |
| |
| |
| (1) | Under Mr. Henderson's retirement letter entered into in June 2014, if we terminate his employment without cause before the retirement date in August 2015, (a) he will continue to receive his salary through August 2015 (which increased to $800,000 in August 2014), (b) he will be eligible for fiscal 2014 and 2015 annual incentive awards and (c) his long-term incentive awards that are scheduled to vest in August 2014 and 2015 will continue to vest in accordance with their terms. |
| |
(2) | Assumes that the annual cash incentive payouts were at the following fiscal 20142017 target amounts: Mr. Kaufmann — $647,699Kaufmann—$746,438 (actual payout was $1,229,008)$186,609); Mr. Casey — $647,699Casey—$705,014 (actual payout was $544,067)$176,253); Mr. Giacomin—$567,151(actual payout was $141,788); and Mr. Morford — $381,349Morford—$469,328 (actual payout was $552,957)$117,332). For Mr. Henderson, we have assumed that his annual cash incentive payouts were at the fiscal 2014 and 2015 target amounts of $756,932 (actual fiscal 2014 payout was $1,152,429) and $793,972, respectively. |
| |
(3) | In the event of Mr. Henderson's involuntary termination without cause, assumes the continued vesting of 31,937 PSUs at target, 151,383 stock options and 31,915 RSUs. |
| |
(4)(2) | Assumes the accelerated vesting of long-term incentive awards granted under the 2005 LTIP in the event of a change of control as follows: Mr. Henderson — 11,423 PSUs at target, 29,868 stock options and 6,981 RSUs; Mr. Kaufmann — 9,519 PSUs at target, 25,637 stock options and 6,265 RSUs; and Mr. Morford — 5,139 PSUs at target, 12,795 stock options and 2,855 RSUs. Assumes the accelerated vesting of long-term incentive awards granted under the 2011 LTIP in the event of(a) a change of control with involuntary termination without cause or a termination by the executive for "good reason" within two years after the change of control or if the surviving entity does not provide qualifying replacement awards as follows: Mr. Henderson — 36,375 PSUs at target, 148,083 stock options and 30,221 RSUs; Mr. Kaufmann — 31,179 PSUs at target, 132,510 stock options and 27,076 RSUs; Mr. Casey — 43,500 PSUs at target, 150,696 stock options and 30,784 RSUs; and Mr. Morford — 17,816 PSUs at target, 72,531 stock options and 14,802 RSUs. Assumes the accelerated vesting of long-term incentive awards granted under both LTIPs in the event ofor (b) a termination due to death or disability. |
| |
(5) | disability, as follows: Mr. Kaufmann—30,120 PSUs at target, 108,933 stock options and 35,779 RSUs; Mr. Casey—29,527 PSUs at target, 107,427 stock options and 32,123 RSUs; Mr. Giacomin—27,980 PSUs at target, 96,335 stock options and 19,807 RSUs; and Mr. Morford—16,558 PSUs at target, 55,397 stock options and 20,758 RSUs. We valued the continued or accelerated vesting of stock awards by multiplying the closing price of our common shares on June 30, 20142016 by the number of stock awards. We valued the continued or accelerated vesting of stock options as the difference between the closing price of our common shares on June 30, 20142017 and the exercise price for each stock option. |
|
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| Cardinal Health | 2017 Proxy Statement | 41 |
Director Compensation
Overview
Overview
OurDecisions regarding our non-management director compensation program are approved by our Board of Directors based on recommendations of our Compensation Committee. The Compensation Committee receives comparative market data and recommendations from its compensation consultant with regard
to the structure and amounts of our non-management director compensation. Total non-management director compensation is targeted at the median of the Comparator Group total director compensation.
Compensation Arrangements
The table below shows the elements and amount of compensation that we paid to our non-management directors for fiscal 2014.2017. Our current director compensation arrangements have been in effect since November 2015.
|
| | | | |
| Compensation Element | Amount Until November 6, 2013 ($) | Amount On and After November 6, 2013 ($) |
| Annual retainer (1) | 90,000 |
| 90,000 |
|
| Annual RSUs (2) | 140,000 |
| 160,000 |
|
| Committee chair annual retainers (1): | | |
| Audit Committee | 20,000 |
| 20,000 |
|
| Compensation Committee | 15,000 |
| 15,000 |
|
| Nominating and Governance Committee | 10,000 |
| 10,000 |
|
| Lead Director: | | |
| Annual retainer (1) | 20,000 |
| 20,000 |
|
| Annual RSUs | 20,000 |
| 20,000 |
|
|
| | |
| Compensation Element | Amount ($) |
| Retainer (1) | 100,000 |
|
| RSUs (2) | 160,000 |
|
| Committee chair annual retainers (1): | |
| Audit Committee | 20,000 |
|
| Compensation Committee | 15,000 |
|
| Nominating and Governance Committee | 10,000 |
|
| Lead Director: | |
| Annual retainer (1) | 20,000 |
|
| Annual RSUs | 20,000 |
|
| |
| (1) | Retainer amounts are paid in cash in quarterly installments. |
| |
| (2) | Each non-management director receives an annual RSU grant on the date of our annual meetingAnnual Meeting of shareholders.Shareholders. We value the RSUs based on the closing share price on the grant date. RSUs vest one year from the grant date (or on the date of the next annual meetingAnnual Meeting of shareholders,Shareholders, if earlier) and settle in common shares. We accrue cash dividend equivalents that are payable upon vesting of the RSUs. |
Directors may receive additional compensation for performing duties assigned by the Board or its committees that are considered beyond the scope of the ordinary responsibilities of directors or committee members. In September 2014, the Board approved additional retainers of $10,000 for each of Messrs. Jones and King for their service on a special committee responsible for handling two additional shareholder demands received after the committee was formed.
We granted RSU awards to directors during fiscal 20142017 under ourthe 2007 Nonemployee Directors Equity Incentive Plan (the “Directors EIP”"Director EIP"). All unvested RSUs become fully vested upon a “change of control” (as defined under “Executive Compensation — Potential“Potential Payments on Termination of Employment and Change of Control” on page 37 for the 2011 LTIP)39) unless the director is asked to continue to serve on the board of directors of the surviving entity or its affiliate and receives a qualifying replacement award.
Following shareholder approval of amendments to the 2011 LTIP at the 2016 Annual Meeting of Shareholders, we will grant future RSU awards to directors under the 2011 LTIP. The 2011 LTIP includes a $600,000 limit on non-management director equity
awards and cash compensation for any fiscal year, with an exception for a non-executive chair of the Board.
Directors may elect to defer payment of their cash retainers into our DCP. For directors, deferred balances under the DCP are paid in cash upon termination from Board service, death or disability. A director also may defer receipt of common shares that otherwise would be issued on the date that RSUs vest until after termination from Board service.
Our directors may participate in our matching gift program. Under this program and subject to certain restrictions, the Cardinal Health Foundation (our philanthropic affiliate) will match contributions for eligible non-profit organizations.
40
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42
| Cardinal Health | 2017 Proxy Statement | |
Director Compensation for Fiscal 20142017
The non-management directors received the following compensation during fiscal 2014:2017:
| | | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($) | Total ($) |
David J. Anderson (2) | 16,566 |
| | — |
| — |
| | 16,566 |
| 100,000 | 160,000 | | | 260,000 |
| Colleen F. Arnold | 90,000 |
| | 159,985 |
| — |
| | 249,985 |
| 100,000 | 160,000 | | | 260,000 |
| Glenn A. Britt (3) | 110,000 |
| | 159,985 |
| 2,681 |
| (4) | 272,666 |
| |
| Carrie S. Cox | 90,000 |
| | 159,985 |
| — |
| | 249,985 |
| 100,000 | 160,000 | 3,500 |
| (2) | 263,500 |
| Calvin Darden | 90,000 |
| | 159,985 |
| 3,000 |
| (5) | 252,985 |
| 100,000 | 160,000 | | | 260,000 |
| Bruce L. Downey | 90,000 |
| | 159,985 |
| 3,000 |
| (5) | 252,985 |
| 100,000 | 160,000 | 3,000 |
| (2) | 263,000 |
| John F. Finn | 120,000 |
| | 180,014 |
| 3,000 |
| (5) | 303,014 |
| |
| Patricia A. Hemingway Hall | 72,147 |
| | 159,985 |
| — |
| | 232,132 |
| 100,000 | 160,000 | | | 260,000 |
| Clayton M. Jones | 90,220 |
| | 159,985 |
| — |
| | 250,205 |
| 120,000 | 160,000 | | | 280,000 |
| Gregory B. Kenny | 105,000 |
| | 159,985 |
| 6,500 |
| (5) | 271,485 |
| 130,000 | 180,000 | 6,500 |
| (2) | 316,500 |
| Nancy Killefer | | 100,000 | 160,000 | | | 260,000 |
| David P. King | 90,000 |
| | 159,985 |
| — |
| | 249,985 |
| 115,000 | 160,000 | | | 275,000 |
| Richard C. Notebaert | 90,000 |
| | 159,985 |
| 3,000 |
| (5) | 252,985 |
| |
| Jean G. Spaulding (6) | 31,548 |
| | — |
| — |
| | 31,548 |
| |
| |
| (1) | These awards are RSUs granted under the Directors EIP. We valued the RSUs by multiplying the closing price of theour common shares on the NYSE on the grant date ($65.38) by the number of RSUs awarded. BecauseAs of the adjustments to equity awards in the CareFusion spin-off, some of our directors have equity awards from both Cardinal Health and CareFusion. At June 30, 2014,2017, the aggregate number of shares underlying unexercised Cardinal Health and CareFusion stock options and unvested Cardinal Health RSU awards held by each director serving on that date was as follows: |
|
| | | | | | |
| Name | Number of Securities Underlying Unexercised Options | Number of Cardinal Health RSUs that Have Not Vested (#) |
Cardinal Health (#) | CareFusion (#) |
| Arnold | 9,801 |
| 1,494 |
| 2,612 |
|
| Britt | 11,391 |
| — |
| — |
|
| Cox | — |
| — |
| 2,612 |
|
| Darden | 9,801 |
| — |
| 2,612 |
|
| Downey | 10,652 |
| — |
| 2,612 |
|
| Finn | 9,801 |
| — |
| 2,939 |
|
| Hemingway Hall | — |
| — |
| 2,612 |
|
| Jones | — |
| — |
| 2,612 |
|
| Kenny | — |
| — |
| 2,612 |
|
| King | — |
| — |
| 2,612 |
|
| Notebaert | 9,801 |
| — |
| 2,612 |
|
| |
(2) | 2,447 shares, except for Mr. AndersonKenny which was elected to the Board on April 25, 2014.2,753 shares. |
| |
(3) | Mr. Britt passed away on June 11, 2014. |
| |
(4) | Represents tax reimbursement to Mr. Britt for use of his employer’s corporate aircraft for travel to our Board and committee meetings during fiscal 2014. |
| |
(5)(2) | Represents a company match attributable to a charitable contribution under our matching gift program. |
| |
(6) | Dr. Spaulding did not stand for re-election at the 2013 Annual Meeting of Shareholders. |
|
| | | | |
EQUITY COMPENSATION PLAN INFORMATION | Cardinal Health | 2017 Proxy Statement | 43 |
Certain of our equity compensation plans are subject to shareholder approval and other plans have been authorized solely by the Board. The following is a description of plans that have not been approved by shareholders.
The Cardinal Health, Inc. Broadly-based Equity Incentive Plan (the “BEIP”) was originally adopted by the Board in 1999. The term of the BEIP expired in 2005, and no new awards are being granted under it. The BEIP provided for grants in the form of nonqualified stock options, restricted shares and RSUs to employees except for those employees who were subject to Section 16 of the Exchange Act. The aggregate number of common shares authorized for issuance under the BEIP was 36 million.
The Cardinal Health, Inc. Amended and Restated Outside Directors Equity Incentive Plan (the “ODEIP”) was originally adopted by the Board in 2000. Our shareholders approved the Directors EIP to replace the ODEIP, and no new awards may be granted under the ODEIP. The ODEIP provided for grants in the form of nonqualified stock options, restricted shares and RSUs to members of the Board who were not employees. The aggregate number of common shares authorized for issuance under the ODEIP was 1.5 million.
The table below summarizes information relating to our equity compensation plans at June 30, 2014.
|
| | | | | | | | | | | |
| Equity Compensation Plan Information |
| Plan Category | | Common Shares to be Issued Upon Exercise of Outstanding Options and Rights | | Weighted Average Exercise Price of Outstanding Options | | Common Shares Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) | |
| | | (a) | | (b) | | (c) | |
| Equity compensation plans approved by shareholders | | 13,769,403 |
| (1) | $ | 39.50 |
| (1) | 25,349,249 |
| (2)(3) |
| Equity compensation plans not approved by shareholders (4) | | 340,962 |
| (5) | $ | 32.99 |
| (5) | — |
| |
| Total at June 30, 2014 | | 14,110,365 |
| | $ | 39.25 |
| | 25,349,249 |
| |
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(1) | In addition to stock options outstanding under the 2011 LTIP, the 2005 LTIP, the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan (the “EIP”) and the Directors EIP, also includes 1,204,708 PSUs and 2,335,758 RSUs outstanding under the 2011 LTIP, 500,308 PSUs and 465,454 RSUs outstanding under the 2005 LTIP, 8,605 RSUs outstanding under the EIP and 145,639 RSUs outstanding under the Directors EIP that are payable solely in common shares. PSUs and RSUs do not have an exercise price, and therefore were not included for purposes of computing the weighted-average exercise price. PSUs granted in fiscal 2012 are reported in this table at the actual amounts that vested. PSUs granted in fiscal 2013 and 2014 are reported in this table at the maximum payout level (200% of target) in accordance with SEC rules. |
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(2) | Includes 24,615,809 common shares available under the 2011 LTIP in the form of stock options and other stock-based awards. The number of shares authorized for issuance under the 2011 LTIP will increase by shares that are not issued under outstanding equity awards. Under the 2011 LTIP's fungible share counting provisions, stock options are counted against the plan as one share for every common share issued; awards other than stock options are counted against the plan as two and one-half shares for every common share issued. This means that only 9,846,323 shares could be issued under awards other than stock options while 24,615,809 shares could be issued under stock options. |
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(3) | In addition to common shares remaining available under the 2011 LTIP, this also includes 733,440 common shares remaining available for future issuance under the Directors EIP in the form of stock options and other stock-based awards. |
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(4) | Does not include stock options to purchase 14,916 common shares at a weighted-average exercise price of $28.44 that we assumed in connection with acquisition transactions. |
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(5) | In addition to stock options outstanding under the BEIP and ODEIP, also includes 7,047 RSUs outstanding under the ODEIP that are payable solely in common shares. RSUs do not have an exercise price, and therefore were not included for purposes of computing the weighted-average exercise price. |
Proposal 5—Shareholder Proposal to Urge the Board of Directors to Adopt a Policy that the Chairman of the Board be an Independent Director
We received notice that The International Brotherhood of Teamsters General Fund, 25 Louisiana Avenue, NW, Washington, DC 20001, a shareholder owning 75 of our common shares as of April 28, 2017, and Kenneth Steiner, 14 Stoner Ave., Apt 2m, Great Neck, NY 11021, a shareholder owning no less than 500 of our common shares as of April 28, 2017, intend to jointly present the following proposal at the Annual Meeting. The proposed resolution and its supporting statement, for which neither we nor the Board accepts responsibility, are set forth below.
The shareholder proposal and supporting statement read as follows:
Resolved, that shareholders of Cardinal Health Inc. (“the Company” or “Cardinal”), urge the Board of Directors (the “Board”) to take the steps necessary to adopt a policy, with amendments to governing documents as needed, so that, to the extent feasible, the Chairman of the Board shall be an independent director who has not previously served as an executive officer of the Company. The policy should be implemented so as not to violate any contractual obligations and should specify the process for selecting a new independent chairman if the chairman ceases to be independent between annual meetings of shareholders or if no independent director is available and willing to serve as chairman.
SUPPORTING STATEMENT:
The Board’s role, led by its chairman, is to provide rigorous oversight of management to protect the interests of the Company and shareholders. This oversight may be weakened if the chairman is also the chief executive officer--as at Cardinal--or is otherwise not independent from management. Even with robust responsibilities, the lead independent director’s position is inadequate to this task because ultimate responsibility for board leadership remains with the chairman/CEO.An independent chairman can best facilitate effective deliberation of strategy, risk oversight and management accountability.
These considerations are especially critical at Cardinal given the potential reputational, legal and regulatory risks Cardinal faces over its role in the nation’s opioid epidemic, including its history of compliance challenges concerning the distribution of controlled substances. According to the Centers for Disease Control, prescription opioids claim 62 lives a day in this country.
In December 2016, Cardinal agreed to pay $44 million to resolve allegations it violated the federal Controlled Substances Act regarding the distribution of opioids. This settlement with the Department of Justice follows a $34 million penalty in 2008 for similar violations.
In January 2017, Cardinal agreed to pay $20 million to settle a lawsuit from the State of West Virginia, alleging Cardinal violated the law in failing to investigate, report and cease fulfilling suspicious prescriptions in the state. As of April 2017, lawsuits had been filed by a number of West Virginia counties and municipalities alleging similar actions.
According to a Pulitzer-prize winning review of the Drug Enforcement Administration, drug shipping sales by The Charleston Gazette-Mail, Cardinal supplied over 182 million hydrocodone and oxycodone pills between 2007 and 2012 to West Virginian pharmacies, enough for approximately 100 pills for every adult and child in the state.
In April 2017, The Washington Post reported Cardinal was one of the pharmaceutical industry companies being sued by the Cherokee Nation in tribal court for failing to prevent the diversion of pain pills. The lawsuit states in 2015, enough prescription opioids were distributed in the Cherokee Nation for 955 5mg dose pills per adult and child.
In the midst of such scrutiny, an independent chairman is invaluable in providing robust oversight of management and ensuring good communications and credibility with stakeholders.
The Board of Directors' Statement in Opposition to Proposal 5
The Board recommends a vote AGAINST Proposal 5.
Our Board believes that this proposal takes two distinct topics—our Board leadership structure and the nation’s opioid epidemic—and seeks to meld them together to support an unwarranted one-size-fits-all board leadership structure. We believe that it is a crucial responsibility of the Board to thoughtfully consider its leadership structure based upon the circumstances, as opposed to adopting the mandated separation advocated by the proponent. Our current Board leadership structure, comprised of a unified Chairman and Chief Executive Officer and a highly-engaged independent Lead Director with robust responsibilities, has been effective as shown by our strong performance over the past several years and allows us to focus on creating long-term shareholder
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| Cardinal Health | 2017 Proxy Statement | |
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OTHER MATTERSProposal 5—Shareholder Proposal | | |
value in the constantly-evolving healthcare industry. Through this structure, our Board has also actively and appropriately engaged in overseeing our compliance and opioid anti-diversion programs.
Board oversight of opioid anti-diversion program. Our Board, our Chairman and Chief Executive Officer, and the entire Cardinal Health team care deeply about the devastation opioid abuse is inflicting on our families and communities and we are committed to helping solve this complex national public health crisis. We, like so many others across this nation, have family members, friends and colleagues who have been impacted by the devastating consequences of prescription drug overuse and abuse. We also have family members, friends and colleagues who rely on these medications to address suffering associated with terminal illnesses, painful neurological conditions, severe injuries and recovery from surgeries. We understand and take seriously our responsibility to ensure these medications are available for patients who need them, while maintaining rigorous control processes to prevent their diversion.
We are industry leaders in implementing state-of-the-art controls to combat the diversion of pain medications from legitimate uses. The opioid epidemic is a serious, multi-faceted problem that involves prescribing physicians, regulators, manufacturers, pharmacists and patients. We believe all participants must be active in combating this epidemic. Working together with our dedicated team of 85 anti-diversion specialists, our Board and management have been and remain actively engaged on this issue. We have had a leading role for nearly a decade in pioneering and supporting an impactful prevention and education program to combat opioid abuse and diversion under the umbrella of the Generation Rx program, which we developed in partnership with the Ohio State University School of Pharmacy. Moreover, our opioid anti-diversion program includes state-of-the-art, constantly adaptive, rigorous systems supported by our program specialists, including former Drug Enforcement Administration officials and state diversion regulators, who monitor and investigate suspicious orders using advanced analytics and other tools.
Our Board has been active in its oversight and review of the effectiveness of our opioid anti-diversion program, which includes regular briefings by management. In 2014, in response to a shareholder demand, an independent committee of the Board completed a review of our opioid anti-diversion program utilizing independent counsel. The committee found, among other things, that we had implemented and maintained a robust system of controls to detect and report suspicious orders and that the Board was well informed of those controls. Since that review, the Board has continued to actively focus on the effectiveness of our opioid anti-diversion program and support its continued enhancements through regular oversight reviews with management.
Board leadership structure. The Board, comprised of all independent directors other than Mr. Barrett, is responsible for the selection of the Chairman of the Board. The Board believes that Mr. Barrett is best suited to serve as Chairman because of his unique knowledge of our business, the healthcare industry and our shareholders. The Board ensures strong independent leadership through an active, empowered independent Lead Director and strong engagement from our independent directors. Our independent Lead Director is highly engaged and works closely with Mr. Barrett in developing Board meeting agendas, discussing our strategy and long-term capital deployment, and reviewing materials and other information prepared for the Board. In addition, he chairs regular executive sessions of the independent directors and provides feedback from these meetings to Mr. Barrett and other members of management. He also participates in outreach calls and in-person meetings with investors, and provides their feedback to the Board.
Under our current Board leadership structure and Mr. Barrett’s effective leadership, we have delivered strong performance and are executing a well-developed strategy focused on long-term shareholder value creation in the swiftly-changing healthcare environment. Mr. Barrett understands our long-term investment priorities and has led our company to strong performance since the August 2009 spin-off of CareFusion Corporation, when he became Chairman and Chief Executive Officer. In that time, our compound annual non-GAAP diluted earnings per share growth rate has been 13.4% and our total shareholder return (TSR) has been 272%§, as compared to 180% for the S&P 500 Index. Mr. Barrett possesses a sound customer- and investor-driven perspective and keen knowledge of our business, operations and the regulatory environment, allowing us to respond to rapid market and healthcare changes with a continued focus on our reputation, growth and long-term success. Moreover, as Chairman and Chief Executive Officer, Mr. Barrett sets a powerful “tone from the top” which cascades throughout the organization.
In light of our Board’s active, effective, independent oversight of management, our success navigating through a difficult and rapidly evolving industry environment, and our strong controls and ongoing commitment to work with others to address the opioid crisis, our Board believes the current leadership structure operates effectively. The Board should retain responsibility to select the leadership structure that will best fit our circumstances and serve the best interests of our company and shareholders.
The Board recommends a vote AGAINST this shareholder proposal.
___________
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§ | Total shareholder return over the period from August 31, 2009, when Mr. Barrett became Chairman and Chief Executive Officer, through June 30, 2017 expressed as a percentage, calculated based on changes in stock price assuming reinvestment of dividends. |
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| Cardinal Health | 2017 Proxy Statement | 45 |
Proposal 6—Shareholder Proposal to Request that the Board of Directors Adopt a Bylaw Provision Restricting Management's Access to Vote Tallies Prior to the Annual Meeting with respect to Certain Executive Pay Matters
We received notice that a shareholder intends to present the following proposal at the Annual Meeting. The proposed resolution and its supporting statement, for which neither we nor the Board accepts responsibility, are set forth below. John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, a shareholder owning no fewer than 100 shares of our common shares as of May 11, 2017, submitted this proposal.
The shareholder proposal and supporting statement read as follows:
PROPOSAL 6 – EXECUTIVE PAY CONFIDENTIAL VOTING
Shareholders request our Board of Directors to take the steps necessary to adopt a bylaw that prior to the Annual Meeting, the outcome of votes cast by proxy on certain executive pay matters, including a running tally of votes for and against, shall not be available to management or the Board and shall not be used to solicit votes. Certain maters [sic] include the topic of say on pay and management sponsored or board sponsored resolutions seeking approval of executive pay plans.
This proposal would not prohibit management access to shareholder comments submitted along with shareholder meeting ballots. This proposal is limited to executive pay items. Shareholders could still waive the confidentiality of their ballots on executive pay items – for instance by checking a box on the ballot.
Our management can now monitor incoming votes and then use shareholder money to blast shareholders with costly solicitations on matters where they have a direct self-interest such as such as [sic] the ratification of lucrative stock options and to obtain artificially high votes for their lucrative executive pay.
Our management can now do an end run on the effectiveness of say on pay votes. Instead of improving executive pay practices in response to disapproving shareholder votes, our management can efficiently manipulate the say on pay vote to a higher percentage. Without executive pay confidential voting our management can simply blast shareholders by using multiple professional proxy solicitor firms at shareholder expense (no timely disclosure of the cost) with one-way communication by mail and electronic mail (right up to the
deadline) to artificially boost the vote for their self-interested executive pay ballot items.
It is important for shareholders that the company get executive pay right in order to give management the best-focused incentive for long-term shareholder value. Executive pay is not ordinary business.
Please vote to enhance shareholder value:
Executive Pay Confidential Voting - Proposal 6
The Board of Directors' Statement in Opposition to Proposal 6
The Board recommends a vote AGAINST Proposal 6 because it would undermine our ability to engage in constructive outreach and dialogue with our shareholders, it restricts our management’s and Board’s access to routine information regarding our ordinary course processes relating to monitoring of voting results and the conduct of our annual meeting of shareholders, and it is vague as to which executive compensation matters it would cover.
We actively and regularly engage in ongoing, transparent dialogue with shareholders regarding executive compensation and governance matters to best understand shareholder views and concerns. The period leading up to the annual meeting of shareholders is an important time for shareholders to express their concerns and provide feedback to management and the Board on executive compensation. We and our shareholders mutually benefit from this feedback, and this proposal would impair our ability to understand shareholder views on our executive compensation. While our executive compensation has received shareholder support greater than 93% in each of the past five years, our Compensation Committee regularly considers shareholder feedback in its review and assessment of our executive compensation.
The proposal would prevent our management and Board from monitoring voting results and restrict access to routine information regarding our annual meeting processes. This is particularly worrisome during a period when passive investing is on the rise, and public companies are increasingly at a disadvantage in identifying their shareholder base. Preliminary voting information assists us in conducting an informed and productive meeting, including ascertaining which shareholders have not voted. This information would enable us to communicate with those
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| Proposal 5—Shareholder Proposal | | |
shareholders, encourage voting, and assist the Board in determining how to best respond to any concerns.
The proposal is vague and confusing to shareholders because it fails to explain when the requested bylaw would or would not apply. For example, it is unclear from the proposal whether the requested bylaw would apply to a shareholder proposal on an executive compensation matter or to an advisory vote on the frequency of
“say-on-pay” executive compensation votes. Shareholders voting on this proposal have no reasonable certainty as to the actions or measures upon which they are voting, and there would be no clarity as to how it would be implemented.
The Board recommends a vote AGAINST this shareholder proposal.
Other Matters
Communicating with the Board
Shareholders and other interested parties may communicate with the Board, any committee of the Board, any individual director or the independent directors as a group, by writing to the Office of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017 or sending an e-mail to bod@cardinalhealth.com. Communications from shareholders
will be distributed to the entire Board unless addressed to a particular committee, director or group of directors. The Corporate Secretary will not distribute communications that are unrelated to the duties of the Board, such as spam, junk mail, mass mailings, business solicitations and advertisements.
Shareholder Recommendations for Director Nominees
The Nominating and Governance Committee will consider candidates recommended by shareholders for election as director. Shareholder recommendations will be evaluated against the same criteria used to evaluate other director nominees, which criteria are discussed under “Director Qualification Standards” on pages 12 and 13. Shareholders who wish to recommend a candidate may do so by writing to the Nominating and Governance Committee in care of the Office of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017. To be considered by the Nominating and Governance Committee for consideration at the 2018 Annual Meeting of Shareholders, a shareholder recommendation must be received no later than April 1, 2018.
Recommendations must include, at a minimum, the following information:
the name and address of the shareholder making the recommendation;
the name and address of the person recommended for nomination;
if the shareholder is not a shareholder of record, a representation and satisfactory proof of share ownership;
a statement in support of the shareholder’s recommendation, including sufficient information to permit the Nominating and Governance Committee to evaluate the candidate’s qualifications, skills and experience;
a description of all direct or indirect arrangements or understandings between the shareholder and the candidate recommended by the shareholder;
information regarding the candidate as would be required to be included in a proxy statement filed in accordance with SEC rules; and
the candidate’s written, signed consent to serve if elected.
Shareholders who wish to nominate directors directly for election at an Annual Meeting of Shareholders in accordance with the procedures in our Code of Regulations, including under our proxy access provision, should follow the instructions under “Submitting Proxy Proposals and Director Nominations for the Next Year'sAnnual Meeting of Shareholders" on page 48 and the details contained in our Code of Regulations.
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| Cardinal Health | 2017 Proxy Statement | 47 |
Submitting Proxy StatementProposals and Director Nominations for the Next Annual Meeting of Shareholders
If you intend to present a proposal to be included in the proxy statement and form of proxy relating to our 20152018 Annual Meeting of Shareholders under Exchange Act Rule 14a-8, we must receive the proposal at our principal executive office not later than the close of business (5:00 p.m. Eastern Time) on May 19, 2015.24, 2018. The proposal should be addressed to our Corporate Secretary at Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017. We will not be required to include in our proxy statement or form of proxy a shareholder proposal that we receive after that date or that otherwise fails to meet the requirements for shareholder proposals established by SEC regulations.
If you intend to present a proposal for other business, or a nomination for election to the Board of Directors, at our 20152017 Annual Meeting of Shareholders (other than any such proposal included in our proxy statement and form of proxy under Exchange Act Rule 14a-8), you must comply with the notice requirements set forth in our Code of Regulations and such business must be a proper matter for shareholder action. Among other requirements, you must deliver proper written notice to our Corporate Secretary at our principal executive office no earlier than June 28, 2015July 11, 2018 and no later than the close of business on August 27, 2015.10, 2018. If the date of the 20152018 Annual Meeting of Shareholders is more than 30 days before, or more than 60 days after, November 5, 2015,8, 2018, written notice must be delivered after the close of business on the 130th120th day prior to the meeting, but before the close of business on the
later of the 70th90th day prior to the meeting or the 10th day after we first publicly announce the date of the meeting.
Our Code of Regulations includes a proxy access provision, under which a shareholder, or a group of up to 20 shareholders, owning at least three percent of our outstanding common shares continuously for at least three years, may nominate and include in our proxy materials director nominees constituting up to the greater of two nominees or 20% of the Board, if the shareholders and the nominees satisfy the requirements specified in our Code of Regulations.
If you intend to request that director nominees be included in our proxy materials under our new proxy access provision, you must comply with the notice and other requirements set forth in our Code of Regulations. Among other requirements, you must deliver proper written notice to our Corporate Secretary at our principal executive office no earlier than April 24, 2018 and not later than the close of business on May 24, 2018. If the date of the 2018 Annual Meeting of Shareholders is more than 30 days before, or more than 60 days after, November 8, 2018, written notice must be delivered after the close of business on the 150th day prior to the meeting, but before the close of business on the later of the 120th day prior to the meeting or the 10th day after we first publicly announce the date of the meeting.
Transfer Agent
Shareholders of record should direct communications regarding change of address, transfer of share ownership, lost share certificates and other matters regarding their share ownership to Computershare Trust Company, N.A., P.O. Box 505000, Louisville,
KY 40233. Our transfer agent may also be contacted via the Internet at www.computershare.com/investor or by telephone at (877) 498-8861 or (781) 575-2879.
Other Information
This solicitation of proxies is made by and on behalf of the Board of Directors. The cost of the solicitation will be borne by Cardinal Health. In addition to solicitation by mail, proxies may be solicited by our directors, officers and employees in person or by telephone or other means of communication. These individuals will receive no additional compensation for soliciting proxies but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. We have retained Alliance Advisors at an estimated cost of $15,000,$16,500, plus reimbursement of expenses, to assist in our solicitation of proxies from brokers, nominees, institutions and individuals. We also will make arrangements with
custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of shares held of record by such custodians, nominees and fiduciaries, and we will reimburse these persons for reasonable expenses they may incur.
If you and other residents at your mailing address own common shares in street name, your broker or bank may have sent you a notice that your household will receive only one set of proxy materials unless you instruct otherwise. This practice is known as “householding,” and is designed to reduce our printing and postage costs. However, if you wish to receive, now or in the future, a separate annual report and proxy statement, you may write to our
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| Cardinal Health | 2017 Proxy Statement | |
Investor Relations department at 7000 Cardinal Place, Dublin, Ohio 43017, or call the Investor Relations Line at (614) 757-4757. We will promptly deliver a separate copy (free of charge) upon request. If you and other residents at your mailing address are currently receiving multiple copies of annual reports and proxy statements and wish to receive only a single copy, you should contact your broker or bank directly.
By Order of the Board of Directors.
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STEPHEN T. FALKJESSICA L. MAYER |
| Executive Vice President, Deputy General Counsel and Corporate Secretary |
September 16, 201421, 2017
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| Cardinal Health | 2017 Proxy Statement | 49 |
Appendix A
Use of Non-GAAP Financial Measures
This proxy statement contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). In general, the measures exclude items and charges that (1) our management does not believe reflect our core business and relate more to strategic, multi-year corporate activities; or (2) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends. Our management uses these non-GAAP financial measures internally to evaluate our performance, evaluate our balance sheet, engage in financial and operational planning and determine incentive compensation.
Our management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results and
in comparing our performance to that of our competitors. However, the non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth above should be carefully evaluated.
The following is a reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures. The sum of the components may not equal due to rounding.
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| (in millions) | Fiscal 2014 ($) | Fiscal 2013 ($) | Fiscal 2013 to Fiscal 2014 Growth Rate (%) |
| GAAP operating earnings | 1,885 |
| 996 |
| 89 | % |
| Restructuring and employee severance (1) | 31 |
| 71 |
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| Amortization and other acquisition-related costs (2) | 223 |
| 158 |
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| Impairments and loss on disposal of assets (3) | 15 |
| 859 |
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| Litigation (recoveries)/charges, net (4) | (21 | ) | (38 | ) | |
| Non-GAAP operating earnings (5) | 2,133 |
| 2,046 |
| 4 | % |
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(1) | Programs by which we fundamentally change our operations such as closing and consolidating facilities, moving manufacturing of a product to another location, production or business process sourcing, employee severance (including rationalizing headcount or other significant changes in personnel) and realigning operations (including realignment of the management structure of a business unit in response to changing market conditions). |
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(2) | Costs that consist primarily of amortization of acquisition-related intangible assets, transaction costs, integration costs and changes in the fair value of contingent consideration obligations. |
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(3) | Asset impairments and losses from the disposal of assets not eligible to be classified as discontinued operations are classified within impairments and loss on disposal of assets within the consolidated statements of earnings. |
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(4) | Loss contingencies related to litigation and regulatory matters and income from favorable resolution of legal matters. |
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(5) | Operating earnings excluding restructuring and employee severance, amortization and other acquisition-related costs, impairments and losses on disposal of assets and litigation (recoveries)/charges, net. |
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| | Fiscal 2014 ($/Sh) | Fiscal 2013 ($/Sh) | Fiscal 2013 to Fiscal 2014 Growth Rate (%) | Fiscal 2012 ($/Sh) | Fiscal 2011 ($/Sh) | Fiscal 2010 ($/Sh) | Fiscal 2010 to Fiscal 2014 Compounded Annual Growth Rate (%) |
| GAAP diluted earnings per share from continuing operations | 3.37 |
| 0.97 |
| 247 |
| 3.06 |
| 2.74 |
| 1.62 |
| 20 |
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| Restructuring and employee severance | 0.06 |
| 0.13 |
| | 0.04 |
| 0.03 |
| 0.16 |
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| Amortization and other acquisition-related costs | 0.42 |
| 0.31 |
| | 0.07 |
| 0.19 |
| 0.03 |
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| Impairments and loss on disposal of assets | 0.03 |
| 2.39 |
| | 0.04 |
| 0.02 |
| 0.09 |
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| Litigation (recoveries)/charges, net | (0.04 | ) | (0.07 | ) | | (0.01 | ) | 0.02 |
| (0.11 | ) | |
| Other CareFusion spin-off costs (1) | — |
| — |
| | — |
| 0.02 |
| 0.56 |
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| Gain on sale of CareFusion stock | — |
| — |
| | — |
| (0.21 | ) | (0.12 | ) | |
| Non-GAAP diluted earnings per share from continuing operations (2) | 3.84 |
| 3.73 |
| 3 |
| 3.21 |
| 2.80 |
| 2.24 |
| 14 |
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(1) | Costs incurred in connection with the CareFusion spin-off that are included in SG&A expenses. |
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(2) | Non-GAAP earnings from continuing operations divided by diluted weighted average shares outstanding. Non-GAAP earnings from continuing operations is consolidated earnings from continuing operations excluding restructuring and employee severance, amortization and other acquisition-related costs, impairments and losses on disposal of assets, litigation (recoveries)/charges, net, other CareFusion spin-off costs and gains on the sale of CareFusion stock, each net of tax. |
Appendix B
Cardinal Health, Inc.
Management Incentive Plan
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Article 1. | Establishment and Purpose |
1.1Establishment of Plan. The Cardinal Health, Inc. Management Incentive Plan (the “Plan”) was originally established and approved by the Board of Directors of the Company on August 14, 1996, and the Company’s shareholders initially approved the material terms of the Plan on October 29, 1996. The Plan is hereby amended and restated effective as of August 5, 2014, and shall remain in effect until terminated by the Board or the Committee. The Plan is intended to permit the grant of awards that are intended to qualify as performance-based compensation which is not subject to the deduction limitation rules under Code Section 162(m), as well as awards that are not intended to so qualify.
1.2Purpose. The primary purposes of the Plan are to:
(a)Advance the interests of the Company and its shareholders by providing Employees in leadership positions with an annual bonus incentive to achieve the strategic objectives of the Company and its subsidiaries;
(b)Focus management on key measures that drive superior financial and management performance and that result in enhanced value of the Company;
(c)Provide compensation opportunities that are externally competitive and internally consistent with the Company’s strategic objectives and total reward strategies; and
(d)Provide bonus opportunities that reward executives who are in positions to make significant contributions to the overall success of the Company and its subsidiaries.
Whenever used in the Plan, the following capitalized terms shall have the meanings set forth below:
2.1 “Administrator” means the Committee or such other authorized officers of the Company to whom the power to administer the Plan has been properly delegated.
2.2 “Applicable Law” means the requirements of Code Section 162(m) applicable to performance-based compensation.
2.3 “Award” means the cash bonus opportunity granted to a Participant under the Plan.
2.4 “Board” or “Board of Directors” means the Board of Directors of the Company.
2.5 “Code” means the United States Internal Revenue Code of 1986, as amended, and the regulations and rulings of general applicability issued thereunder as in effect from time to time.
2.6 “Committee” means the Human Resources and Compensation Committee of the Board, or such other committee of Directors appointed by the Board and comprised of two (2) or more individuals who are “outside directors” (as that term is defined under Applicable Law).
2.7 “Company” means Cardinal Health, Inc., or any successor thereto.
2.8 “Disability” shall have the meaning ascribed to such term in the long term disability plan maintained by the Participant’s employer at the time that the determination regarding Disability is made hereunder. Notwithstanding the foregoing, if a payment under this Plan is deemed to be deferred compensation that is subject to Code Section 409A, “Disability” has the meaning ascribed to such term under that Code section.
2.9 “Effective Date” of the Plan was originally July 1, 1996. The Effective Date of the amended and restated Plan is August 5, 2014.
2.10 “Employee” means a regular employee of the Company or of any subsidiary of the Company. Directors who are not employed by the Company shall not be considered Employees under the Plan.
2.11 “Final Bonus” means the actual bonus earned during a Performance Period by a Participant, as determined by the Administrator.
2.12 “Participant” means an Employee who meets the eligibility requirements of Article 3 and has been granted an Award with respect to one or more Performance Periods.
2.13 “Performance Criteria” shall have the meaning set forth in Article 4.
2.14 “Performance Period” means the twelve month period beginning on each July 1st and ending on the next succeeding June 30th during the term of the Plan, or such other time period established by the Administrator from time to time with respect to which the attainment of Performance Criteria will be determined.
2.15 “Plan” means this Cardinal Health, Inc. Management Incentive Plan.
2.16 “Qualified Performance-Based Award” mean an Award that is intended to satisfy Applicable Law.
2.17 “Qualifying Performance Criteria” shall have the meaning set forth in Section 4.1.
2.18 “Retirement” means termination of employment by a Participant (other than by reason of death or Disability and other than in the event of Termination for Cause) from the Company and its subsidiaries after attaining age fifty-five (55) and having at least ten (10) years of continuous service with the Company and its subsidiaries, including service with a subsidiary of the Company prior to the time that such subsidiary became a subsidiary of the Company. For purposes of the age and/or service requirement, the Administrator may, in its discretion, credit a Participant with additional age and/or years of service.
2.19 “Target Award” means the amount of any Award as established by the Administrator that would be payable to a Participant for a Performance Period if the Performance Criteria for the Performance Period were fully (100%) achieved and no negative discretion was exercised by the Administrator in regard to that Award.
2.20 “Termination for Cause” means, unless otherwise determined by the Administrator, termination of employment from the Company and its subsidiaries on account of any act of fraud or intentional misrepresentation or embezzlement, misappropriation or conversion of assets of the Company or any subsidiary, or the intentional violation of the written policies or procedures of the Company, provided that for an Employee who is party to an individual agreement with the Company defining Cause, “Cause” shall have the meaning set forth in such agreement unless otherwise provided in such agreement. For purposes of this Plan, a Participant’s termination of employment shall be deemed to be a Termination for Cause if, after the Participant’s employment has terminated, facts and circumstances are discovered that would have justified, in the opinion of the Administrator, a Termination for Cause.
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Article 3. | Eligibility and Participation |
3.1 Eligibility and Participation. The Administrator shall designate, or determine the methodology and criteria for the designation of, the Employees who are granted Awards under the Plan, including any Employee who is an executive officer of the Company. Awards may be Qualified Performance-Based Awards or Awards that are not intended to be Qualified Performance-Based Awards. Only the Committee may grant Qualified Performance-Based Awards.
3.2 Partial Performance Period Participation. An Employee who is selected to participate in the Plan after the beginning of a Performance Period may be granted an Award under the Plan for that Performance Period on a ratable basis on such terms and conditions as determined by the Administrator.
3.3 No Right to Participate. No Employee shall at any time have a right to be selected for participation in the Plan for any Performance Period, whether or not he or she previously participated in the Plan.
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Article 4. | Award Determination |
4.1 Performance Criteria. As to each Performance Period, the Administrator will establish Performance Criteria and level of achievement versus such criteria that determine the amount that may be earned under an Award, subject to adjustment as described in the Plan, which Performance Criteria may be based on Qualifying Performance Criteria, other standards of financial performance or personal performance evaluations. Notwithstanding the preceding sentence, the Administrator may specify that an Award or a portion of an Award is intended to be a Qualified Performance-Based Award if the Performance Criteria for such Award or portion of an Award is a measure based on one or more Qualifying Performance Criteria specified by the Administrator. Any determinations made with respect to a Qualified Performance-Based Award shall be made, and the Plan shall be construed, applied and administered with respect to any such Awards, in a manner that the
Administrator determines to be consistent with Applicable Law. For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or more of the following Performance Criteria, or derivations of such Performance Criteria, either individually or in any combination, applied to either the Company as a whole or to a business unit, subsidiary or product or product category, either individually or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, and either calculated in accordance with U.S. Generally Accepted Accounting Principles or as adjusted, in each case as specified by the Administrator: (i) cash flow; (ii) earnings (including gross margin, operating earnings, earnings before interest and taxes, segment profit, earnings before taxes and discontinued operations, earnings from continuing operations and net earnings); (iii) earnings per share; (iv) stock price; (v) shareholders’ equity; (vi) total shareholder return; (vii) invested capital; (viii) assets or net assets; (ix) return on investment; (x) revenue; (xi) tangible capital; (xii) market share; (xiii) contract awards or backlog; (xiv) distribution, selling, general, and administrative expenses; (xv) credit rating or credit rating measures; (xvi) dividend payments; (xvii) improvement in workforce diversity; (xviii) customer satisfaction, retention or loyalty; (xix) employee satisfaction or retention; (xx) service levels; (xxi) net working capital or net working capital days; (xxii) days sales outstanding; (xxiii) days inventory on hand; (xxiv) days payable outstanding; (xxv) capital expenditures; (xxvi) generics penetration; and (xxvii) economic profit. The Performance Criteria may vary for different Performance Periods and need not be the same for each Participant eligible for an Award for a Performance Period.
4.2 Adjustment of Performance Criteria. The Administrator is authorized to determine the manner in which any Performance Criteria will be calculated or measured to take into account such factors as the Administrator determines appropriate, including market-related changes in inventory value, changes in accounting principles, and extraordinary charges to income, provided that with respect to Qualified Performance-Based Awards, the Administrator shall specify and apply such calculations or adjustments in a manner it determines to be consistent with Applicable Law.
4.3 Target Awards. For each Performance Period, the Administrator shall establish a Target Award for each Participant. Awards shall be earned based upon the financial performance of the Company or one or more operating groups of the Company and the attainment of established Performance Criteria during a Performance Period; provided, however, the maximum Award that may be paid to any single Participant for any Performance Period is $7,500,000, such maximum Award amount to be pro-rated if the Performance Period is less than a full fiscal year. In the cases of Qualified Performance-Based Awards, the Performance Criteria and Target Award shall be established no later than 90 days following the first day of the Performance Period or after 25% of the Performance Period has elapsed, if earlier, and the outcome relative to the attainment of the Performance Criteria shall not be substantially certain at the time the Performance Criteria and Target Award are established.
4.4 Final Bonus Determinations. At the end of each Performance Period, the Administrator shall certify in writing the extent to which the applicable Performance Criteria were met during the Performance Period. With respect to Awards that are intended to be Qualified Performance-Based Awards, the Committee will determine the Final Bonus based on the Performance Criteria, subject to the Committee’s exercise of negative discretion to reduce any Final Bonus based on such other business objectives or factors as determined by the Committee in its sole discretion. With respect to Awards that are not intended to be Qualified Performance-Based Awards, the Administrator will determine the Final Bonus based on the Performance Criteria and such other business objectives or factors as it determines appropriate. In the case of such Awards, the Administrator may adjust (up or down) any Final Bonus on the basis of such further considerations as the Administrator shall determine in its sole discretion.
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Article 5. | Payment of Final Bonuses |
5.1 Form and Timing of Payment. Each Participant’s Final Bonus shall be paid in cash, in one lump sum, subject to applicable tax and other authorized withholdings, on or before the 15th day of the third month after the end of the applicable Performance Period. The Administrator may permit or provide for deferred payment of any Final Bonus in accordance with such conditions and procedures as the Administrator may specify in compliance with the requirements of Code Section 409A.
5.2 Unsecured Interest. The Plan is intended to constitute an unfunded plan for incentive compensation. To the extent that any party acquires a right to receive a cash payment under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company.
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Article 6. | Termination of Employment |
6.1 Termination of Employment Due to Retirement, Death or Disability. In the event a Participant’s employment is terminated by reason of Retirement, death or Disability during the applicable Performance Period, the Final Bonus determined in accordance with Section 4.4 herein, if any, shall be prorated based upon the length of time that the Participant was employed by the Company during the Performance Period. In the case of a Participant’s Disability, the employment termination shall be deemed to have occurred as of the date that the Administrator determines was the date on which the definition of Disability was satisfied. Unless determined otherwise by the Administrator, the Final Bonus thus determined shall be paid at the same time payments are made to Participants who did not terminate employment during the applicable Performance Period. The right of the Participant to receive any payment under this Plan will pass to the Participant’s estate in the event of the Participant’s death.
6.2 Involuntary Termination of Employment (Not Retirement Eligible). If the employment of a Participant is terminated by the Company (other than as a Termination for Cause) during the fourth quarter of the applicable Performance Period, the Final Bonus determined in accordance with Section 4.4 herein, if any, shall be prorated based upon the length of time that the Participant was employed by the Company during the Performance Period.
6.3 Termination of Employment for Other Reasons. In the event a Participant’s employment is terminated before the fourth quarter of the Performance Period for a reason other than due to Retirement, death, or Disability, all of the Participant’s rights to any Final Bonus for that Performance Period shall be forfeited unless otherwise determined by the Administrator in its sole discretion. If a Participant terminates his or her employment for a reason other than due to Retirement, death, or Disability prior to the date the Final Bonus, if any, is paid, all of the Participant’s rights to any Final Bonus for that Performance Period shall be forfeited.
6.4 Other Forfeiture Events. Awards under the Plan shall be subject to any policies adopted by the Company pursuant to Section 10D of the Securities Exchange Act of 1934, as amended, and applicable rules or regulations promulgated by the Securities and Exchange Commission or any national securities exchange. The Administrator may, in its discretion, require that all or any portion of a Final Bonus is subject to an obligation of repayment to the Company upon the violation of a non-competition and confidentiality covenant applicable to the Participant. The Administrator may, in its discretion, also require repayment to the Company of all or any portion of a Final Bonus if the amount of the Final Bonus was calculated based upon the achievement of certain financial results that were subsequently the subject of a financial statement restatement, the Participant engaged in misconduct that caused or contributed to the need for the financial statement restatement, and the amount of the Final Bonus would have been lower than the amount actually awarded to the Participant had the financial results been properly reported. This Section 6.4 shall not be the Company’s exclusive remedy with respect to such matters. This Section 6.4 shall not apply after a “change of control” of the Company as defined in the 2011 Long-Term Incentive Plan or any successor plan thereto.
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Article 7. | Rights of Participants |
7.1 Employment. No person shall have any claim or right to be granted an Award under this Plan and the grant of an Award shall not confer upon any Participant any right to be retained as an employee of the Company or any of its subsidiaries, nor shall it limit or interfere in any way with the right of the Company or any subsidiary to terminate the employment of any Participant at any time or to increase or decrease the compensation of any Participant. There is no obligation for uniformity of treatment of Participants under this Plan or otherwise.
7.2 Nontransferability. No right or interest of any Participant in the Plan shall be assignable or transferable, other than by will or pursuant to the laws of descent and distribution, or subject to any lien, directly, by operation of law or otherwise, including, but not limited to, by execution, levy, garnishment, attachment, pledge, or bankruptcy, and any attempt to take any such action shall be null and void.
7.3 Foreign Participants. Subject to the provisions of Article 4, the Administrator may, in order to fulfill the Plan purposes and without amending the Plan, modify Awards granted to Participants who are foreign nationals or employed outside the United States to the extent necessary to recognize differences in local law, tax policy or custom.
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Article 8. | Authority of the Administrator |
8.1 General. The Plan shall be administered by the Administrator. Subject to the provisions of the Plan, the Administrator will have full authority to interpret the Plan and the terms of Awards made hereunder, to establish, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions for making or modifying Awards, to correct administrative errors, and to make all other determinations necessary or advisable for the administration of the Plan. All determinations and decisions made by the Administrator pursuant to the provisions hereof shall be made in the Administrator’s sole discretion and shall be final, binding and conclusive on all persons. Notwithstanding any other provision of the Plan, the Administrator shall not have any discretion or authority to make changes to any Qualified Performance-Based Award to the extent that the existence of such discretion or authority would cause such Award not to so qualify.
8.2 Delegation of Authority for the Day-to-Day Administration of the Plan.Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan, including the power to approve Awards that are not intended to be Qualified Performance-Based Awards. Such delegation may be revoked at any time. All determinations and decisions of any delegate as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, binding and conclusive on all persons, except to the extent that the Administrator provides otherwise.
The Committee, without notice, at any time and from time to time, may modify or amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely; provided, however, that no such modification, amendment, suspension, or termination may, without the consent of a Participant, materially reduce the right of a Participant to a payment or distribution hereunder to which he or she has
already become entitled, as determined under Articles 4 and 6 hereof. Shareholder approval of any amendment will be required only to the extent the Administrator determines appropriate to satisfy Applicable Law. No new Award may be granted during any period of suspension of the Plan or after termination of the Plan.
10.1 Choice of Law. The Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of Ohio, except as to matters pre-empted or governed by federal law.
10.2 Withholding Taxes. The Company shall have the right to deduct from all cash payments under the Plan any federal, state, or local taxes required by law to be withheld with respect to any Final Bonus.
10.3 Additional Arrangements. Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation arrangements for any Participant.
10.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.
10.5 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
10.6 Successors. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
10.7 Titles; Construction. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. Any reference to a section (other than to a section of the Plan) shall also include a successor to such section.
