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