McKesson CEO’s $292 Million Golden Parachute Faces a Proxy Fight

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If McKesson Corp. were sold tomorrow and Chief Executive Officer John Hammergren were fired, he’d be eligible to walk away from the medical-products company with $292 million in severance pay -- almost half of it in restricted stock and option awards that were intended as incentives to keep him on the job.

His tenure has been good for McKesson shareholders, Bloomberg reports on its website. Since Hammergren took the CEO post in early 2001, the company’s shares have soared by 541 percent, compared with a 59 percent rise in the Standard & Poor’s 500 Index through last week.

McKesson’s board has rewarded him, in part, with a golden parachute that’s one of the largest among current CEOs, said Aaron Boyd, director of governance research at Equilar Inc., which tracks executive compensation. Corporate goodbye gifts for CEOs have drawn increasing scrutiny since former General Electric Co. CEO Jack Welch stirred outrage with a $417 million retirement payout more than a decade ago. Since the 2008 financial crisis, shareholders have more frequently taken action to challenge such packages, Boyd said.

McKesson is no exception; its so-called change-in-control plan is the subject of a proxy fight set to culminate at the San Francisco-based company’s annual meeting on July 30.

Hammergren’s potential payout under a change in control would include equity awards worth $140.6 million that were set up to vest only over time. They’d be his right away, though, if he were terminated after a sale.

"Unearned" Pay

The International Brotherhood of Teamsters, which calls that kind of pay "unearned compensation for top executives on their way out the door," has proposed a ballot measure urging McKesson’s board to reduce the accelerated vesting.

While it’s not unusual for unions to challenge CEO pay provisions, the Teamsters’ proposal is endorsed by proxy advisory firm Institutional Shareholder Services. It has also drawn support from CtW Investment Group, which represents investors with $250 billion in retirement assets under management, and the New York State Common Retirement Fund, which oversees $160.7 billion in retirement money, according to officials at both organizations.

Kris Fortney, a McKesson spokeswoman, declined to comment. In the company’s proxy filing of June 19, McKesson’s board opposed the Teamsters’ proposal, telling investors that accelerated vesting is "an important tool for motivating our executives in the face of a potential change in control transaction."

Teamsters’ Support

The Teamsters’ measure favors a plan that would pay executives only a prorated portion of their unvested awards. All told, Hammergren and other top executives stand to get $283 million or more in such awards if they’re fired after a change in control, according to the Teamsters.

The July 30 vote will echo McKesson’s 2012 annual meeting, at which the International Brotherhood of Electrical Workers offered a similar proposal. It lost, getting just 44 percent of the votes cast.

Hammergren’s pay has drawn attention in the past. Last year, 78 percent of the shareholders who cast ballots opposed the company’s executive compensation plan in a non-binding vote. Earlier this year, Hammergren agreed to reduce his own eventual pension payout, from $159 million to $114 million, amid investor complaints.

Still, his $292 million change-in-control severance package, combined with $289 million more in company stock and options he already owns, would bring his total kitty in the event of a termination to $581 million on paper -- a figure based on valuations as of March 31. Factor in an 8.8 percent increase in share price since then, and it would come to roughly $616.6 million, according to calculations by Equilar.