CVS Caremark Corporation (CVS)

2. Attract and retain the highest caliber executive officers by providing compensation opportunities comparable to those offered by other companies with which CVS Caremark competes for business and talent.

CVS Caremark establishes base salary, target total cash compensation and target total direct compensation levels for its executive officers relative to comparable statistics derived from the compensation information reported for proxy officers by its peer group companies (discussed below). For each executive officer, both proxy rank and functional responsibilities are considered. The external compensation consultant collects and arrays a variety of market data compiled from surveys and public filings. CVS Caremark’s ongoing business need for the acquisition, retention and motivation of world-class executive talent encompasses a highly competitive arena spanning various industry segments, and may on occasion require the incorporation of compensation data from similarly-sized companies in general industry.

2. Attract and retain the highest caliber executive officers by providing compensation opportunities comparable to those offered by other companies with which CVS competes for business and talent.

In consultation with the external compensation consultant, the Committee initiates an annual review, typically in November, of the peer group against which competitive positioning of compensation programs is assessed. The principal criteria used to determine membership in the peer group include industry segment and revenue size. The peer companies selected in November 2005 and used in 2006 were from three general retail industry groupings: (1) primary industry comparison groups, including drug retail, food retail and specialty stores; (2) secondary industry comparison groups, including department stores, general merchandise stores and hypermarkets/super centers; and (3) other industry comparison groups, including apparel retail, home improvement retail and computers/electronics retail. Companies within these industry groups were then screened to identify those with revenue ranging from approximately $15 and $80 billion, representing about 50% to 250% of CVS’ projected 2005 revenue. Market capitalization and net income were also reviewed. The 2006 peer group was comprised of fifteen companies: Albertson’s, Inc., Federated Department Stores, Inc. (“Federated”), GAP, Inc., Home Depot, Inc. (“Home Depot”), K-mart Holding Corporation (now Sears Holding Co., “Sears”), Kroger Co. (“Kroger”), Lowe’s Companies, Inc. (Lowe’s”), Office Depot, Inc., J.C. Penney Company, Inc. (“Penney”), Rite Aid Corporation (“Rite Aid”), Safeway Inc. (“Safeway”), Staples, Inc., Target Corporation (“Target”), TJX Companies, Inc., and Walgreen Co. (“Walgreen”). Wal-Mart Stores, Inc. (“Wal-Mart”) was used as a reference point, but its data were not incorporated into the quantitative compensation analyses.

In November 2006, the Committee reviewed the peer group for purposes of evaluating 2007 compensation levels, and made certain changes to reflect CVS’ increased size and scope of operations. Companies from the same industry groupings were selected, with revenue ranging from approximately $20 to $80 billion, representing about 50% to 200% of CVS’ projected 2006 revenues. The 2007 peer group consists of twelve companies: Best Buy Co., Inc., Costco Wholesale Corporation, Home Depot, Federated, Kroger, Lowe’s, Penney, Rite Aid, Safeway, Sears, Target and Walgreen. Wal-Mart continues to be viewed as a reference point but its data are excluded from the quantitative analysis of compensation levels.

CVS establishes base salary, target total cash compensation and target total direct compensation levels for its executive officers relative to comparable descriptive statistics derived from the compensation information reported for proxy officers by its peer group companies. For each executive officer, both proxy rank and functional responsibilities are considered. The external compensation consultant collects and arrays a variety of market data compiled from surveys and public filings. CVS’ ongoing business need for the acquisition, retention and motivation of world-class executive talent encompasses a highly competitive arena spanning various industry segments, and may on occasion require the incorporation of compensation data from similarly-sized companies in general industry.