What is an 'excise tax gross-up' payment that McKesson is eliminating?

An excise tax gross-up payment is an additional amount paid by a company to an executive to cover the excise taxes the executive would otherwise have to pay on certain parachute payments received upon a change in control. McKesson is discontinuing the practice of providing these extra payments to its executives.

How does this change affect existing employment agreements?

This policy change applies to new employment agreements and material amendments to existing ones. If an executive officer's current agreement has a gross-up provision, it will remain in effect unless it is materially amended in a way that reintroduces such a provision, which the company has stated it will not do.

Why is this change significant for investors?

This is significant because it eliminates a potentially costly benefit for executives upon a change in control, which is often viewed as an unnecessary expense for shareholders. It signals a commitment by McKesson's board to more prudent and shareholder-aligned executive compensation practices.

Does this mean executives will not receive any severance if there is a change in control?

No, this change specifically relates to the Company covering excise taxes on certain severance payments. Executives may still be entitled to severance or other compensation as outlined in their employment agreements, but the Company will not pay the additional tax liability associated with those payments.

MCK 8-K SEC Disclosure — Jul 14, 2009

Summary

McKesson Corporation (MCK) has filed an 8-K report on July 14, 2009, to announce a significant change in its executive compensation policy. The Compensation Committee of the Board of Directors has determined that the Company will no longer enter into new employment agreements or materially amend existing ones for executive officers that include provisions for the Company to pay or reimburse excise taxes related to a change in control. This policy change is effective immediately and impacts potential change-in-control payments. This decision is investor-focused as it aims to align executive compensation more closely with shareholder interests by eliminating the practice of "gross-up" payments for excise taxes on change-in-control severance. Investors often scrutinize such provisions, viewing them as potentially excessive or a disincentive for management to act in the best long-term interest of the company. The absence of these provisions suggests a move towards more conservative and shareholder-friendly executive compensation structures.

Key Highlights

1McKesson Corporation will cease providing excise tax gross-up payments to executive officers in new or materially amended employment agreements.
2This policy applies specifically to excise taxes incurred under Section 4999 of the Internal Revenue Code.
3The decision impacts payments related to a 'change in control' of the Company.
4The Compensation Committee of the Board of Directors made this determination.
5The policy change is effective immediately as of July 13, 2009.
6This represents a shift away from a specific type of executive compensation provision often criticized by investors.

MCKESSON CORP 8-K Report, Corporate Update (Jul 14, 2009)

Summary

Key Highlights

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