CVS Caremark Corporation (CVS)

ITEM 5:  STOCKHOLDER PROPOSAL REGARDING NON-DEDUCTIBLE EXECUTIVE COMPENSATION

On or about October 7, 2004, the Company received the following proposal from William Steiner, 112 Abbottsford Gate, Piermont, New York 10968 (“Steiner”), beneficial owner of approximately 5,300 shares of the Company’s stock. In accordance with SEC rules, we are reprinting the proposal and supporting statement (collectively, the “Steiner Proposal”) in this proxy statement as they were submitted to us (modified as directed by the SEC):

“Non-Deductible Executive Compensation to Shareholder Vote

RESOLVED, shareholders recommend that our Corporation’s by-laws be amended by adding the following new Section:

‘Section A.1 Executive Compensation. From the date of adoption of this section no executive officer of the Corporation shall receive annual compensation in excess of the limits established by the U.S. Internal Revenue Code for deductibility of remuneration for such executive officer, without approval by a vote of the majority of the stockholders within one year preceding the payment of such compensation. The only exception would be interference with un-removable contractual obligations prior to this proposal.

For purposes of the limit on executive compensation established by this Section, the Corporation may exclude compensation that qualifies either as “performance-based compensation” or as an “incentive stock option” within the meaning of the Internal Revenue Code only if:

(a) in the case of performance-based compensation, the Corporation shall have first disclosed to stockholders the specific performance goals and standards adopted for any performance-based compensation plan, including any schedule of earned values under any long-term or annual incentive plan; and

(b) in the case of incentive stock options, the Corporation shall record as an expense on its financial statements the fair value of any stock options granted.’

This proposal was submitted by William Steiner, 112 Abbottsford Gate, Piermont, NY 10968.

This proposal would require that our company not pay any executive compensation in excess of the amount the Internal Revenue Code permits to be deducted as an expense for federal income tax purposes, without first securing shareholder approval.

Currently, the Code provides that publicly held corporations generally may not deduct more than $1 million in annual compensation for any of the company’s five highest-paid executives. The Code provides an exception for certain kinds of “performance-based compensation.”

Under this proposal our company would be able to pay “performance-based compensation” in excess of the deductibility limit, so long as the company has disclosed to shareholders the performance goals and standards the Board has adopted under these plans. This proposal also provides an exception for incentive stock options, if the Board has recorded the expense of such options in its financial statements.

A proposal similar to this was submitted by Amanda Kahn-Kirby to MONY Group and received a 38% yes-vote as a more challenging binding proposal at the MONY 2003 annual meeting. The 38% yes-vote was more impressive because:

1) This was the first time this proposal was ever voted.

2) The proponent did not even solicit shareholder votes.

I think it is reasonable to require our company to fully disclosure to shareholders both the costs and the terms of its executive compensation plans, if the Board wishes to pay executives more than the amounts that are generally deductible under federal income taxes.

Subject Non-Deductible Executive Compensation to Shareholder Vote

Yes on 5”

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Statement of CVS Board Recommending a Vote AGAINST the Steiner Proposal

CVS’ Board of Directors unanimously recommends that you vote against the Steiner Proposal because it is unnecessary and it is not in the best interests of CVS or its stockholders.

CVS’ executive compensation policies are administered by the Management Planning and Development Committee of the Board of Directors (the “Committee”), which is comprised entirely of independent directors. It is the policy of the Committee to generally preserve corporate tax deductions by qualifying compensation paid over $1 million to named executive officers as performance-based compensation. To this end, in 1997 the Board of Directors adopted and the stockholders approved the 1997 Incentive Compensation Plan, which permits annual incentive awards and stock options (and certain other awards) to qualify as performance-based compensation not subject to the limitation on deductibility. However, maintaining tax deductibility should be but one consideration among many in the design and administration of a fair and competitive executive compensation program.

The Committee takes steps to ensure that the CVS compensation program is not excessive. The Committee engages an independent compensation consulting firm that compares executive officer salaries and other compensation awards to a core peer group of companies, as well as general industry standards, in order to recommend compensation programs and policies that reflect and enhance CVS’ high-growth strategy. The compensation program as a whole is competitive with other companies in our peer group, which is necessary in order for CVS to attract and retain executives.

The Steiner Proposal would put CVS at a competitive disadvantage in attracting and retaining executives. The proposal would tie the Committee’s hands in that it seeks to establish an arbitrary constraint that does not take into account the compensation being paid to executives within CVS’ peer group. In seeking to attract and retain the highest caliber executives, the Committee must take into account the market for such talent. Thus, the exercise of setting the composition and level of executive compensation necessarily includes consideration of general marketplace trends.

Furthermore, the Steiner Proposal introduces operational complexity and potential limitations and delays that could disadvantage CVS relative to its competitors. For example, the Committee would either have to wait until the next annual stockholders’ meeting or convene a special meeting to seek stockholder approval to pay an executive above the proposed arbitrary limit. Under CVS’ current policy, the Committee is empowered to react quickly to changes in the executive compensation programs of its peer group.

The Steiner Proposal asks for the Company to “fully disclose to shareholders both the costs and the terms of its executive compensation plans, if the Board wishes to pay executives more than the amounts generally deductible under federal income taxes”. And, for performance-based compensation outside the limits, the Steiner Proposal asks the Company to first disclose the performance based goals and standards adopted for any performance-based compensation plan. However, these requests for disclosure are duplicative of that already required by applicable SEC rules to be included in CVS’ proxy statement. See the “Executive Compensation and Related Matters” section of this proxy statement, which provides extensive detail in relation to executive compensation matters. In addition, the full terms of the 1997 Incentive Compensation Plan was attached to CVS’ 2004 proxy statement. With respect to expensing stock options, pursuant to Financial Accounting Standards Board rules, CVS will be required to expense options effective the third quarter of this year.

The Board of Directors recommends a vote AGAINST the Steiner Proposal.

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