This excerpt taken from the CVS DEF 14A filed Mar 24, 2006.
On or about November 23, 2005, the Company received the following proposal from the Massachusetts Laborers Pension Fund (the Massachusetts Laborers), 14 New England Executive Park, Suite 200, Burlington, MA 01803, beneficial owners of approximately 3,700 shares of the Companys stock. In accordance with SEC rules, we are reprinting the proposal and supporting statement (collectively, the Massachusetts Laborers Proposal) in this proxy statement as they were submitted to us:
Resolved: That the shareholders of CVS Corporation (CVS or the Company) urge the Board of Directors (the Board) to seek shareholder approval of any future extraordinary retirement benefits for senior executives. The Board shall implement this policy in a manner that does not violate any existing employment agreement or vested pension benefit.
For the purposes of this resolution, extraordinary retirement benefits means receipt of additional years of service credit not actually worked, preferential benefit formulas not provided under the Companys tax-qualified retirement plans, accelerated vesting of retirement benefits, and retirement perquisites and fringe benefits that are not generally offered to other Company employees.
Supporting Statement: Supplemental executive retirement plans (SERPs) provide deferred compensation for a select group of management or highly compensated employees whose compensation exceeds limits set by Federal tax law. Because SERPs are unfunded plans and payable out of the Companys general assets, the associated pension liabilities can be significant.
CVSs proxy statement discloses that Chairman of the Board, President and Chief Executive Officer Thomas M. Ryan is entitled to payments under the Companys Supplemental Executive Retirement Plan for Select Senior Management. The proxy statement states:
CVS maintains a Supplemental Executive Retirement Plan for Select Senior Management of the Company (the Plan). The Plan is designed to increase the retirement benefits of selected executive employees. Under the Plans benefit formula, executives selected for participation (including each of the named executive officers and certain other executives) will receive an annual benefit commencing on the later of age 55 or retirement or a maximum benefit of 48% of final compensation, with no offset for any amounts provided by CVS qualified plans, Social Security or other retirement benefits.
As of January 1, 2005, Mr. Ryan had accrued an annual benefit of $1,557,055, and the lump sum value of such benefit was $26,415,438 based on assumptions specified in the Plan
In our opinion CVS already provides Mr. Ryan very generous compensation. According to the proxy statement, in 2004 he received a salary of $1,000,000; a bonus of $3,800,000; a restricted stock award valued at $2,650,125; and all other compensation of $5,675,267. He also received 200,000 stock options with a present value on the grant date of $2,446,000. During Fiscal Year 2004 Mr. Ryan exercised stock options for 323,230 shares with a value realized of $7,644,513. At the end of Fiscal Year 2004 Mr. Ryan held exercisable in-the-money options with an estimated value of $25,443,234 and held unexercisable options with an estimated value of $14,501,194.
To help ensure that the use of extraordinary pension benefits for senior executives is in the best interests of shareholders, we believe such benefits should be submitted for shareholder approval. Because it may not always be practical to obtain prior shareholder approval, the Company would have the option of seeking approval after the material terms were agreed upon.
We urge you support for this important reform.
Statement of CVS Board Recommending a Vote AGAINST the Massachusetts Laborers Proposal
CVS Board of Directors unanimously recommends that you vote against the Massachusetts Laborers Proposal because it is unnecessary and it is not in the best interests of CVS or its stockholders.
Our executive compensation program is designed to help CVS to recruit and maintain the outstanding management talent required to achieve our corporate objectives and increase shareholder value. The Management Planning and Development Committee (the Committee), comprised entirely of directors meeting the independence requirements of the New York Stock Exchange, oversees our executive compensation program and reviews and approves all compensation arrangements with our senior executive officers (including employment agreements and retirement benefits); with respect to the compensation of our Chief Executive Officer, the Committee consults with the other independent directors.
The Committee believes all of CVS compensation programs are consistent with general industry practice for companies of comparable size and are necessary to attract, motivate, reward and retain talented executives. The shareholder proposal requests that our Board of Directors seek shareholder approval of certain types of retirement benefits provided under employment agreements and non-qualified retirement programs. Retirement benefits are a critical component of the compensation program for all employees, including senior executives, and removing the flexibility of the Committee to oversee this important aspect of executive compensation would place CVS at a significant competitive disadvantage.
The Committee annually engages an executive compensation consulting firm to analyze market data and best practices for similar companies. This study demonstrated that the overall compensation of our senior executives is consistent with compensation levels at our peer group of companies. In order to attract high quality senior management, CVS must have the flexibility to continue to offer salary, bonus opportunities and retirement benefits competitive with those offered by other major companies. The Board of Directors believes that requiring shareholder approval for certain retirement benefits would impair CVS ability to act promptly to fill key management positions, thereby placing CVS at a significant competitive disadvantage compared to other major companies.
Although the supporting statement for this proposal focuses on retirement benefits in effect for Chairman of the Board, President and CEO Thomas M. Ryan and other senior executives in 2004, the proposal states that the new policy should be implemented in a manner that does not violate any existing employment agreement or vested pension benefit. We note that the specific retirement benefits objected to in the supporting statement for the Massachusetts Laborers Proposal are provided for under the vested Supplemental Executive Retirement Plan for Select Senior Management of the Company. As a result, the shareholder proposal, by its own terms, would not apply to the retirement benefits cited in the supporting statement.
The Board of Directors recommends a vote AGAINST the Massachusetts Laborers Proposal.