McKesson Corporation made headlines on June 21, 2013 upon the release of its annual proxy statement. According to the filing, CEO John Hammergren would have been due a pension of $159 million had he retired from the company on March 31, 2013. Mr. Hammergren’s pension, more than double the next largest pension amount in the S&P 500 and 20 times the average S&P 500 pension, has been enhanced through added years of company service and other favorable provisions.
In addition to a substantial pension increase, Mr. Hammergren received oversized awards for virtually every element of executive pay in fiscal year 2012; including base salary, perks, bonuses, equity grants, and deferred compensation. His Total Annual, Total Realized, and Total Summary Compensation payouts all fall into extreme range relative to company peers. McKesson’s “F” Rating on executive compensation continues to serve as the biggest driver of the company’s below average ESG Rating, along with concerns surrounding the composition of the board and social behavior.
In terms of the board, shareholders voted 52% in favor of splitting the roles of chair and CEO at McKesson Corporation and electing an independent chairman. The company instead chose to name Edward Mueller its first lead independent director and continue with Mr. Hammergren serving in the dual role of CEO and board chair. Furthermore, six of the board’s nine directors (67%) have served as a director at McKesson for at least a decade. These long tenured director’s chair all major committees; including compensation committee chair Alton F. Irby III at 14 years of board service and Jane E. Shaw, corporate governance & director committee chair who has served on the board for the past 21 years. McKesson’s key committees and board in general are in great need of fresh, qualified personnel.
Regarding social behavior, McKesson’s governance profile is negatively affected by recent fines for distributing drugs that were not safely packaged. In addition, the company has entered into recent settlements for price fixing lawsuits referred to as “Average Wholesale Price lawsuits” as well as large punitive damages over its anesthetic Propofol. In light of these most recent pay, board, and social behavior developments GMI Ratings continues to view McKesson Corporation as a long-term sustainability risk.