CVS Caremark Corporation (CVS)

3. Cash versus Non-Cash Compensation

The Committee recognizes the competitive need to ensure an appropriate amount of current cash, in the form of base salary, annual incentive and the cash portion of the LTIP, for the executive officers, and has structured the total direct compensation program accordingly. In years in which performance exceeds target, the annual incentive, delivered entirely in cash, and the cash portion of the LTIP may increase substantially. As part of its annual review of the competitiveness and efficacy of the CVS Caremark compensation program, the Committee monitors the relative levels of cash and non-cash compensation to ensure that it places maximum focus on the non-cash components while still paying cash compensation that is within the market practice spectrum of its peer group.

3. Cash versus Non-Cash Compensation

The Committee recognizes the competitive need to ensure an appropriate amount of current cash, in the form of base salary, annual incentive and the cash portion of the LTIP, for the executive officers, and has structured the total direct compensation program accordingly. In years in which performance exceeds target, the annual incentive, delivered entirely in cash, and the cash portion of the LTIP may increase substantially. As part of its annual review of the competitiveness and efficacy of the CVS Caremark compensation program, the Committee monitors the relative levels of cash and non-cash compensation to ensure that it places maximum focus on the non-cash components while still paying cash compensation that is within the market practice spectrum of its peer group.

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3. Cash versus Non-Cash Compensation

The Committee recognizes the competitive need to ensure an appropriate amount of current cash in the form of base salary plus the annual incentive for the executive officers, and has structured the total direct compensation program accordingly. The 2006 executive compensation program, by design, sets average target total cash compensation at 50% of target total direct compensation for the named executive officers; for the CEO, target total cash is set at 39% of target total direct compensation. In years in which annual profitability exceeds target, the annual incentive, which is delivered entirely in cash, may increase substantially. In the past three years, the level of actual cash compensation as a percentage of total direct compensation has averaged 54% for the named executive officer group as a whole; for the CEO, it has averaged 43%, and for the CFO, 60%. As part of its annual review of the competitiveness and efficacy of the CVS compensation program, the Committee monitors the relative levels of cash and non-cash compensation to ensure that it places maximum focus on the non-cash components while still paying cash compensation that is within the market practice spectrum of its peer group.