8-KMaterial Agreements

MCKESSON CORP 8-K Report, Material Agreement (May 26, 2006)

Filed May 26, 2006For Securities:MCK

Summary

This Form 8-K filing from McKesson Corporation details significant executive compensation decisions made by the Compensation Committee on May 23, 2006. The committee approved cash awards under the 2005 Management Incentive Plan for Fiscal Year 2006, with the CEO, John Hammergren, receiving the largest award of $4,000,000. Additionally, the committee granted stock options and performance-based restricted stock units (PRSUs) to named executive officers, with vesting schedules and performance metrics outlined. These awards are tied to the company's performance and executive tenure. The filing also outlines the compensation committee's establishment of target awards for Fiscal Year 2007 under the Management Incentive Plan and for the 2007-2009 Long Term Incentive Plan, with earnings per share (EPS) serving as the key performance metric for both. Revisions to the terms and conditions for stock awards were made, particularly concerning the effects of a change in control, now requiring termination without cause or resignation for good reason for immediate vesting. The report also notes the accelerated vesting of RSUs for a retiring executive.

Key Highlights

  • 1McKesson Corporation's Compensation Committee approved cash incentives for FY2006, totaling $8,185,000 for the named executive officers, with CEO John Hammergren receiving $4,000,000.
  • 2The committee granted stock options to named executive officers, with CEO John Hammergren receiving 285,000 options.
  • 3Performance Restricted Stock Units (PRSUs) were awarded, with CEO John Hammergren receiving 266,000 units, based on FY2006 company performance.
  • 4Target incentive awards for FY2007 were established, with EPS as the performance metric for both Management Incentive Plan and PRSU awards.
  • 5Long-term incentive targets for FY2007-2009 were set, with cumulative EPS as the performance metric.
  • 6Changes were made to the terms of stock awards regarding 'change in control' provisions, now requiring specific termination conditions for immediate vesting.
  • 7Vesting of 18,200 Restricted Stock Units was accelerated for former EVP Ivan Meyerson upon his planned retirement.

Frequently Asked Questions

The filing details three main components of executive compensation: cash awards under the Management Incentive Plan, stock option awards, and Performance Restricted Stock Units (PRSUs). It also outlines target awards for future fiscal years and revisions to change-in-control provisions for existing awards.

The cash incentive awards for FY2006 are based on the company's performance during that fiscal year. For future awards (FY2007 and the 2007-2009 LTIP), earnings per share (EPS) is specified as the primary performance metric for determining the actual payout or vesting of PRSUs and MIP awards.

Previously, stock awards vested immediately upon a change in control. Under the revised terms, awards granted on or after May 23, 2006, will only vest immediately following a change in control if the executive is terminated without 'cause' or resigns for 'good reason,' as defined in the terms and conditions. The revisions also include provisions for economic protection in the event of a change in control.

Yes, the filing notes that Ivan Meyerson, former Executive Vice President, General Counsel and Secretary, resigned his officer position on March 31, 2006, in anticipation of his retirement after 28 years of service. His FY2006 cash incentive award was $690,000, and the vesting of 18,200 Restricted Stock Units granted in 2004 was accelerated to June 1, 2006.