McKes­son’s Ham­mer­gren: Big re­sults, big pay, big con­tro­versy

Modern Healthcare - - NEWS - —Jaimy Lee

John Ham­mer­gren over the course of his 13-year ten­ure as sole CEO of San Fran­cisco-based McKes­son Corp. helped triple sales and trans­formed the sprawl­ing $123 bil­lion sup­ply­chain be­he­moth into the 14thlargest cor­po­ra­tion in Amer­ica.

In the process, he also turned him­self into a poster child for stock­holder ac­tivists chal­leng­ing out-of-con­trol CEO pay, and his com­pany be­came a tar­get of federal and state prose­cu­tors.

Last sum­mer, Ham­mer­gren, 55, faced off with share­hold­ers crit­i­cal of his $159 mil­lion pen­sion plan. In ad­di­tion he earned an over­all $51.7 mil­lion com­pen­sa­tion pack­age in 2013, a 30% bump from the $39.7 mil­lion he re­ceived in 2012. That put him atop Mod­ern Health­care’s list of top-paid health­care of­fi­cials in 2013.

The huge pay­out, scaled back in Fe­bru­ary of this year af­ter the stock­holder protests, came a year af­ter the com­pany set­tled al­le­ga­tions it had over­charged for pre­scrip­tion drugs. McKes­son paid at least $900 mil­lion in le­gal costs, in­clud­ing a $483 mil­lion set­tle­ment in fis­cal 2013, to re­solve the al­le­ga­tions.

Prior to last year’s an­nual meet­ing, ac­tivist share­hold­ers—led by the CtW In­vest­ment Group, which works with pen­sion funds spon­sored by Change to Win-af­fil­i­ated unions— crit­i­cized Ham­mer­gren’s pay struc­ture and took is­sue with the board’s fail­ure to sep­a­rate the chair­man and CEO roles de­spite a share­holder vote in fa­vor. The group also cited the high costs of com­pli­ance and set­tle­ment fees.

In July, proxy ad­vi­sory firm In­sti­tu­tional Share­holder Ser­vices weighed in, agree­ing that “the CEO’s lump sum pen­sion bal­ance rep­re­sents sub­stan­tial life­time costs to share­hold­ers and at this point does not in­cen­tivize the CEO’s re­ten­tion.” How­ever, CtW In­vest­ment Group lost its bid to bump Ham­mer­gren and two oth­ers from the com­pany’s board.

McKes­son sub­se­quently tried to re­spond to the crit­i­cism. In Fe­bru­ary, Ham­mer­gren said the com­pany would re­duce his re­tire­ment pack­age by $45 mil­lion. The changes “bet­ter align the in­ter­ests of the cor­po­ra­tion and its in­vestors,” a McKes­son spokesman said.

CtW In­vest­ment Group ques­tions whether McKes­son’s changes will be enough to sat­isfy stock­hold­ers. De­tails on the amended gov­er­nance and com­pen­sa­tion poli­cies won’t be re­leased un­til June.

“It looks like a rea­son­able first step but we have con­cerns this could be a false step,” said Michael PryceJones, se­nior re­search an­a­lyst for the CtW In­vest­ment Group. He noted that Ham­mer­gren’s com­pen­sa­tion pack­age in­cludes one of the most lu­cra­tive cor­po­rate pen­sions in the U.S.

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