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Corporate Governance

: The Race to the Bottom

Director Compensation Project: McKesson Corporation

By Mark Dunn

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This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $120,000 in direct compensation, other than director's fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from McKesson Corporation (MCK-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash	Stock Awards	Change in Pension Value and other Nonqualified Deferred Compensation	All Other Compensation	Total
Andy D. Bryant	$15,717	$75,006	—	—	$90,723
Wayne A. Budd	$112,000	$150,024	$7,057	$2,070	$271,151
Alton F. Irby III	$122,000	$150,024	$6,149	$2,034	$280,207
M. Christine Jacobs	$103,500	$150,024	$949	$2,674	$257,147
Marie L. Knowles	$126,000	$150,024	$6,948	$1,936	$284,908
David M. Lawrence, M.D.	$96,000	$150,024	$3,460	$2,155	$251,639
Robert W. Matschullat	$25,172	—	$7,369	$864	$33,405
Edward A. Mueller	—	—	—	—	—
James V. Napier	$103,795	$150,024	$2,557	$2,121	$258,497
Jane E. Shaw	$124,500	$150,024	$7,079	$5,089	$286,692

Director Compensation. McKesson's board met seven times in 2008. All directors attended at least 75% of the combined Board of Director and committee meetings held during the periods served by such nominee. Six of the board's ten directors received more than $100,000 in direct cash compensation. Non-management directors serving for the entire year earned $150,024 in stock awards.

Director Tenure. Five of McKesson's ten directors have served on the board since at least 2002. Jane E. Shaw has the longest tenure, serving on the board since 1992. Several directors serve on other boards. Mr. Napier serves on the board of Vulcan Materials Company, Intelligent Systems Corporation, and Westinghouse Air Brake Technologies Corporation.

CEO Compensation. Mr. John. H. Hammergren serves as Chairman, President and CEO of McKesson. In 2008, his total compensation was $39,942,625. His compensation included a $1,472,808 salary, stock awards worth $11,955,799, and $1,019,858 in 'other compensation.' The 'other compensation' included $48,844 for use of the company aircraft, $5,089 for a car and driver, and $514,528 for security. McKesson's second highest paid employee in 2008 was Paul C. Julian, Executive Vice President and Group President. His total compensation amounted to $14,419,968 .

Full post as published by The Race to the Bottom on May 08, 2009 (boomark / email).