CVS Caremark Corporation (CVS)

1. Total Direct Compensation and Performance Competitive Positioning

In consultation with Mercer, the Committee initiates an annual review of the peer group against which financial performance and competitive positioning of compensation programs are assessed. The principal

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criteria used to determine membership in the peer group include revenue size and industry segment, with consideration also given to geographic scope, diversification of operations and comparability of compensation practices. In 2008, the Committee reviewed the peer group for purposes of evaluating 2008 compensation levels. Retail companies with revenue of at least $45 billion and health care companies with revenues of at least $25 billion for the most recently completed fiscal year were considered as peer companies. CVS Caremark falls in the top quartile when this peer group is ranked by revenue.

The resulting peer group consists of fourteen companies:

Wal-Mart, Rite Aid and Express Scripts continue to be viewed as reference points, but their data are excluded from the quantitative analyses of compensation levels because they fall outside of the size criteria.

The Company recommends, and the Committee and Board approve, aggressive financial performance targets. Such targets, if achieved, can deliver superior value to stockholders. In recent years, CVS Caremark’s performance, as measured by total stockholder return, revenue and profit growth, and other financial indicators, has consistently ranked in the upper quartiles when compared to the financial results of its peer group. Consistent with the setting of “stretch” performance targets and the relative value of their achievement as measured by return to stockholders, CVS Caremark positions its target total direct compensation, which comprises base salary plus annual and long-term incentives, for its executive officers between the 50^th and 75^th percentiles of that of the organizations in its peer group. The Committee believes that it is appropriate to reward the executive management team with compensation above the competitive median if the financial targets associated with the variable pay programs are delivered or exceeded. Conversely, if the financial targets are missed, rewards are reduced.

1. Total Direct Compensation and Performance Competitive Positioning

In consultation with Mercer, the Committee initiates an annual review of the peer group against which financial performance and competitive positioning of compensation programs are assessed. The principal criteria used to determine membership in the peer group include revenue size and industry segment, with consideration also given to geographic scope, diversification of operations and comparability of compensation practices. In 2007, the Committee reviewed the peer group for purposes of evaluating 2007 compensation levels, and made certain changes to reflect CVS Caremark’s increased size and dual healthcare/retail focus. Retail companies with revenue of at least $45 billion and healthcare companies with revenues of at least $25 billion for the most recently completed fiscal year were considered as peer companies.

The resulting peer group consists of fourteen companies:

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Wal-Mart, Rite Aid and Express Scripts continue to be viewed as reference points, but their data are excluded from the quantitative analyses of compensation levels because they fall outside of the size criteria.

The Company recommends, and the Committee and Board approve, financial performance targets that are deemed to be aggressive in their reach, and as such, if achieved, can deliver superior value to stockholders. In recent years, CVS Caremark’s performance, as measured by total shareholder return, revenue and profit growth, and other financial indicators, has consistently ranked in the upper quartiles when compared to the financial results of its peer group. Consistent with the setting of “stretch” performance targets and the relative value of their achievement as measured by return to stockholders, CVS Caremark positions its target total direct compensation, which comprises base salary plus annual and long-term incentives, for its executive officers between the 50^th and 75^th percentiles of that of the organizations in its peer group. The Committee believes that it is appropriate to reward the executive management team with compensation above the competitive median if the financial targets associated with the variable pay programs are delivered or exceeded. Conversely, if the financial targets are missed, rewards are reduced. Based on the achievement of aggressive financial and operational performance targets, 2007 actual pay is above target, which is consistent with our stated goal of rewarding the executive management team with compensation above the competitive market median when performance warrants and shareholder value is delivered.