This excerpt taken from the CVS DEF 14A filed Mar 25, 2005.
Statement of CVS Board Recommending a Vote AGAINST the Central Laborers Proposal
CVS Board of Directors unanimously recommends that you vote against the Central Laborers Proposal because it is unnecessary and it is not in the best interests of CVS or its stockholders.
CVS has already adopted and implemented the Long-Term Performance Share Plan (the LTP Share Plan), a share grant program for senior executives that includes the features described in the Central Laborers Proposal. The LTP Share Plan is intended to encourage executives to balance short-term goals with long-term profit financial progress, while simultaneously promoting executive retention. Awards under the LTP Share Plan are granted by the Management Planning and Development Committee (the Committee), which is comprised entirely of independent directors.
The first feature of the Central Laborers Proposal is that the restricted share plan utilize justifiable performance criteria combined with challenging benchmarks for each criteria utilized. As described on page 14 of this proxy statement, grants of awards under the LTP Share Plan have been based on CVS performance relative to annual return on invested capital (ROIC) over a three-year performance cycle, although the Committee may use any of the other performance criteria set forth in the 1997 Incentive Compensation Plan approved by CVS stockholders. At the beginning of each cycle, senior executives are given the opportunity to earn a target dollar value, payable in cash and CVS common stock. At the end of each cycle, the actual dollar value awarded may be higher or lower than the target number, depending on CVS performance relative to ROIC.
The Central Laborers Proposal further states that clear disclosure should be provided on the performance benchmarks associated with each performance criteria to the extent this information can be provided without revealing proprietary information. As permitted by SEC rules, CVS does not disclose performance benchmarks, as CVS considers such benchmarks to be confidential commercial or business information, the disclosure of which would adversely affect its competitive position. As such, performance benchmarks would not be required to be disclosed under the Central Laborers Proposal.
The second feature of the Central Laborers Proposal is that the restricted share plan include a time-based vesting requirement of at least three years. The LTP Share Plan consists of three-year performance cycles, with a new cycle commencing each year. Awards under the LTP Share Plan are essentially subject to a vesting period, substantively the same as the three-year restriction suggested by the Central Laborers Proposal, given that the performance targets are based on a three-year cycle. Accordingly, a senior executive is restricted from full enjoyment of any awards until the three-year performance cycle has ended.
In any event, it is critical that the Committee have full flexibility in designing the overall compensation program, including equity incentive compensation, for our officers and employees. The Committee reviews the composition of executive officer equity compensation on an ongoing basis and utilizes an independent compensation consulting firm, as necessary, to assist in formulating fair and competitive equity compensation programs that closely align the interests of executive officers with stockholders interests and enhance CVS high-growth strategy. This includes comparing compensation programs to a core peer group of companies, as well as general industry standards. By seeking to limit the Committees flexibility in regard to designing and implementing compensation programs in ways it deems appropriate, the Central Laborers Proposal would put us at a competitive disadvantage and would hinder CVS ability to attract, retain and motivate the highest caliber executive officers in a competitive environment.
The Board of Directors recommends a vote AGAINST the Central Laborers Proposal.