UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 27, 2014

 

 

McKesson Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   1-13252   94-3207296

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(I.R.S. Employer

Identification No.)

One Post Street, San Francisco, California   94104
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (415) 983-8300

Not Applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Letter from Mr. Hammergren Significantly Reducing his Pension Benefit

On February 27, 2014, Jane E. Shaw, Ph.D., Chairman of the Compensation Committee of the Board of Directors of McKesson Corporation (“McKesson” or the “Company”), received a letter from John H. Hammergren, the Company’s Chairman, President and Chief Executive Officer, pursuant to which Mr. Hammergren acted to voluntarily reduce his benefit under the Company’s legacy executive pension program, the Executive Benefit Retirement Plan (the “EBRP”). The change addresses feedback received from some of the Company’s stockholders about the volatility of pension benefit calculations.

Effective immediately, Mr. Hammergren’s EBRP benefit was reduced by approximately $45 million from the amount disclosed in the Company’s definitive proxy statement for its 2013 Annual Meeting of Stockholders as being payable to Mr. Hammergren had he voluntarily resigned effective March 31, 2013. The letter resulted from conversations between Mr. Hammergren and the Board of Directors following their consideration of stockholder feedback. The letter constitutes a modification to Mr. Hammergren’s employment agreement, as amended and restated November 1, 2008, and as further modified March 27, 2012 (the “Employment Agreement”). His right to the pension benefit will continue to be subject to all other terms of the EBRP and his Employment Agreement. Except as expressly modified by the letter, the Employment Agreement continues in full force and effect.

A copy of the letter delivered to Dr. Shaw by Mr. Hammergren is attached hereto as Exhibit 10.1 and incorporated herein by reference.

Incentive Program Changes

Further, on January 28, 2014, the Compensation Committee of the Company’s Board of Directors (the “Committee”) modified the design of the Company’s primary long-term equity program. Beginning with fiscal year 2015, payouts to executive officers under McKesson’s restricted stock unit program will be determined solely by comparing McKesson’s total stockholder return (“TSR”) over a three-year period against TSR for the S&P 500 Health Care Index for the same period. The Committee also changed the performance period from one to three years; the first payout under this new program will occur in May 2017. The Compensation Committee also made adjustments to the financial metrics being used in the Company’s annual and long-term cash incentive programs.

These changes address feedback received from some of the Company’s stockholders and are part of the Committee’s continuing process of evaluating and refining the Company’s incentive programs.

New Compensation Peer Group

In addition, on January 28, 2014, following a comprehensive review of the Company’s current compensation peer group by the Committee’s new independent compensation consultant and review by the Committee, the Committee adopted a new peer group which it will use beginning in fiscal year 2015 as a reference point when making decisions about overall compensation, the elements of compensation, the amount of each element of compensation and the relative competitive landscape of the Company’s executive compensation program. Approximately one-half of the companies in the previous compensation peer group were eliminated, and approximately six new companies were added to the new peer group. The new compensation peer group focuses on companies that may compete with McKesson for executive talent, including: (i) healthcare companies that may compete or interact with the Company

within its supply chain, (ii) other traditional healthcare companies and (iii) non-healthcare companies that are operationally similar to McKesson or other companies within its supply chain. Details on the composition of the new compensation peer group will be included in the Company’s definitive proxy statement for its 2014 Annual Meeting of Stockholders.

 

Item 7.01 Regulation FD Disclosure.

On February 27, 2014, the Company issued a press release announcing (i) the acceptance by Dr. Shaw and the Company of Mr. Hammergren’s letter significantly reducing his EBRP benefit, (ii) changes to the Company’s executive compensation program and (iii) changes to the compensation peer group. A copy of the Company’s press release is attached hereto as Exhibit 99.1.

The information contained in this item, including Exhibit 99.1, is furnished to the Securities and Exchange Commission (the “Commission”), but shall not be deemed “filed” with the Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01 Financial Statements and Exhibits.

 

  (d) Exhibits.

 

Exhibit
No.

  

Description

10.1    Letter dated February 27, 2014 relinquishing certain rights provided in the Employment Agreement.
99.1    Press release issued by the Company dated February 28, 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: February 28, 2014      
    McKesson Corporation
    By:  

/s/ Laureen E. Seeger

      Laureen E. Seeger
     

Executive Vice President, General Counsel

and Chief Compliance Officer

EXHIBIT INDEX

 

Exhibit
No.

  

Description

10.1    Letter dated February 27, 2014 relinquishing certain rights provided in the Employment Agreement.
99.1    Press release issued by the Company dated February 28, 2014.

Exhibit 10.1

 

LOGO

February 27, 2014

Jane E. Shaw, Ph.D.

Chairman, Compensation Committee of the Board of Directors

McKesson Corporation

One Post Street

San Francisco, California 94104

Dear Jane,

Further to my conversations with you, the Compensation Committee and the Board of Directors, I am voluntarily relinquishing the right to receive approximately $45 million from the amount payable to me under the McKesson Corporation Executive Benefit Retirement Plan (“EBRP”) had I resigned as of the end of fiscal year 2013. As you know, my benefit under EBRP began as a result of a contractual obligation McKesson made to me in my original 1996 employment agreement. Nevertheless, the value of my pension benefit has become a source of distraction for McKesson in its relationships with certain stakeholders, which has led me to make this decision.

Where capitalized terms are used in this letter, they have the meanings ascribed to them in my employment agreement, as amended through November 1, 2008 (my “Employment Agreement”). Effective immediately, I agree that my benefit under EBRP will be fixed at a cash lump sum in the amount of $114,000,000, net of applicable withholdings (this cash lump sum amount is referred to herein as the “EBRP Benefit”). I understand and agree that the EBRP Benefit is a fixed amount that is not subject to adjustment under any circumstances, and that it will become payable in lieu of any amount that may result from formulas set forth in my Employment Agreement or EBRP, under all of the relevant employment termination scenarios provided for under my Employment Agreement, including by reason of my death or disability. I understand and agree that my estate, representatives, heirs and beneficiaries will be bound by the terms this letter. I further acknowledge that all other provisions of EBRP and my Employment Agreement regarding my benefit under EBRP continue to apply.

I understand and agree that this letter will be publicly disclosed and filed, as required by law. I acknowledge the receipt of good and valuable consideration for my relinquishment of the rights set forth above. I further acknowledge that said consideration does not include any collateral agreements, promises, or representations by McKesson regarding my relinquishment of these rights under my Employment Agreement, the effect of my doing so, or any aspect of my continuing employment with McKesson.

I waive for all time the right, if any, to (i) claim that McKesson has breached my Employment Agreement or (ii) claim Good Reason for the termination of my employment under my Employment Agreement, in any case, based solely on my having executed and delivered this letter or the terms that are

 

McKesson Corporation

One Post Street

San Francisco, CA 94104

www.mckesson.com

contained in it, or based on McKesson’s having accepted and agreed to the terms of this letter. I also agree that nothing in this letter is to be construed as an admission by McKesson that McKesson’s acceptance of this letter constitutes a breach of my Employment Agreement or Good Reason for the termination of my employment under my Employment Agreement.

I fully understand the terms of this letter and I have consulted with my own attorney and financial advisor during the preparation of this letter.

 

Sincerely,
/s/ John H. Hammergren
John H. Hammergren
Chairman, President and Chief Executive Officer

 

ACCEPTED AND AGREED:  

/s/ Jane E. Shaw

  Date: February 27, 2014  
Jane E. Shaw, Ph.D.  
Chairman, Compensation Committee  
ACKNOWLEDGED:        

/s/ Jorge L. Figueredo

  Date: February 27, 2014      
Jorge L. Figueredo        
Executive Vice President,        
Human Resources        

 

2

Exhibit 99.1

McKesson Announces Further Changes to Corporate

Governance and Compensation Practices

Chairman Voluntarily Reduces Pension by $45 million, Compensation Committee Implements Changes to Long-Term Equity and Cash Compensation Programs

SAN FRANCISCO, Calif., February 28, 2014 – McKesson Corporation (NYSE: MCK) today announced that its Board of Directors has implemented further changes to the Company’s governance and compensation practices. These changes build on the modifications announced on January 21, 2014.

John H. Hammergren, the Company’s Chairman, President, and Chief Executive Officer, acted to voluntarily reduce his pension benefit in a letter he submitted to Jane E. Shaw, Ph.D, Chair of the Compensation Committee of the Board of Directors. The letter resulted from conversations between Mr. Hammergren and the Board of Directors following their consideration of shareholder feedback. Effective immediately, the benefit Mr. Hammergren would have been contractually entitled to under the Executive Benefit Retirement Plan (EBRP) as of March 31, 2013 was decreased by approximately $45 million. This change significantly reduces the benefit amount and eliminates the volatility of pension benefit calculations which result from fluctuations in interest rate or other actuarial assumptions.

In addition, the Compensation Committee redesigned its long-term equity and cash incentive programs, as well as its compensation peer group, based on investor feedback and a comprehensive review by its new independent compensation consultant under the direction of Dr. Shaw.

Beginning with fiscal year 2015, payouts to executive officers under McKesson’s restricted stock unit program will be determined solely by comparing McKesson’s total shareholder return (TSR) over a three-year period against TSR for the S&P 500 Health Care Index for the same period. The Committee also changed the performance period from one to three years; the first payout under this new program will occur in May 2017. The Compensation Committee also made adjustments to the financial metrics being used in the company’s annual and long-term cash incentive programs.

“We continue to address the input we hear from our shareholders and are committed to maintaining industry-leading governance and compensation practices,” said Dr. Shaw. “We commend John’s leadership in acting to voluntarily modify his employment agreement, yet even more importantly, we applaud him for his leadership of McKesson over the past 15 years. Under his guidance, McKesson has built one of the best management teams in healthcare, created tremendous value for its customers, and delivered outstanding financial performance, generating total shareholder return at a compound annual growth rate of more than 16% over the last decade. We thank him for his contributions and look forward to his continued stewardship as Chairman and CEO.”

About McKesson Corporation

McKesson Corporation, currently ranked 14th on the FORTUNE 500, is a healthcare services and information technology company dedicated to making the business of healthcare run better. McKesson partners with payers, hospitals, physician offices, pharmacies, pharmaceutical companies and others across the spectrum of care to build healthier organizations that deliver better care to patients in every setting. McKesson helps its customers improve their financial, operational, and clinical performance with solutions that include pharmaceutical and medical-surgical supply management, healthcare information technology, and business and clinical services. For more information, visit www.mckesson.com .

Contact:

Investors and Financial Media:

Erin Lampert, +1 415-983-8391

Erin.Lampert@McKesson.com

General and Business Media:

Kris Fortner, +1 415-983-8352

Kris.Fortner@McKesson.com