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McKesson Executive Compensation Under Fire, Again

Teamster Shareholder Proposal to Curb Unearned Executive Pay Has Strong Backing; Compensation Practices Highlight Extreme Pay Disparity at McKesson
Press Contact

Kara Deniz

Phone: (202) 624-6911

(WASHINGTON) –The country’s leading proxy voting advisor, Institutional Shareholder Services (ISS), recommends that McKesson [NYSE: MCK] shareholders vote FOR Item #7 on the company’s ballot—a  Teamster-sponsored shareholder proposal to address the automatic accelerated vesting of equity awards for top executives in the event of a change of control.

Last year, the same proposal secured 44 percent support. The company’s 2015 annual meeting will be held July 29 in Redwood City, Calif.

According to the company’s 2015 proxy statement, McKesson could have to pay more than $283 million in unearned compensation to five executives—$141.7 million of that just to CEO John Hammergren—in the event of a change of control and termination. These payments would be in addition to more than $245 million the executives would also receive in severance pay and benefits guaranteed to them, including more than $161 million for Hammergren.

McKesson, the country’s largest wholesale pharmaceutical distributor, has long come under fire for its executive compensation practices. In 2012, McKesson CEO John Hammergren was ranked #1 on the Forbes list of highest paid CEOs, after receiving $131 million in total compensation. The following year, his $159 million pension—reported to be the highest of any executive pension ever—grabbed headlines and sparked a 78 percent rejection of his compensation plan by voting shareholders. McKesson quickly announced a $45 million cut to Hammergren’s pension, but secured it at $114 million.

As shareholders rebuked Hammergren’s pay plan in 2013, Glenn Gray, a 10-year McKesson worker from Lakeland, Fla., also raised compensation concerns at the company’s annual meeting, stating that pay was so low in his distribution center that a majority of his co-workers could not afford to participate in the company’s health plan or 401(k) plan. Within months, Gray was fired in retaliation, according to the National Labor Relations Board. Though the company was ordered by an administrative law judge to reinstate Gray, McKesson has yet to rehire him or make him financially whole.

“McKesson should ensure that front-line employees can afford health care and a secure retirement before lavishing hundreds of millions in unearned compensation to a handful of highly paid executives,” said Ken Hall, General Secretary-Treasurer of the International Brotherhood of Teamsters, a long-term shareholder of McKesson. “Guaranteeing windfall payouts to top executives on their way out the door does not benefit shareholders over the long term.”

In its report to McKesson investors, ISS says accelerated vesting “is particularly problematic in the case of performance-based equity because accelerated vesting essentially removes the service and performance requirements that were put in place to retain the executive and align pay with performance.” ISS also notes “the emerging best practice is to provide pro-rata vesting on awards based on either the employee's actual termination date, or to the extent to which any performance conditions have actually been met.”

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