DEF 14A 1 d70696ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to §240.14a-12
Express Scripts Holding Company
(Name of registrant as specified in its charter)
(Name of person(s) filing proxy statement, if other than the registrant)
Payment of Filing Fee (Check the appropriate box):
x   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:

 

 

   

 

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Aggregate number of securities to which transaction applies:

 

 

   

 

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

   

 

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Total fee paid:

 

 

 

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Table of Contents

 

 

 

2016

  

Notice of

Annual Meeting

of Stockholders

and Proxy Statement

 

 

 

LOGO


Table of Contents

LOGO

EXPRESS SCRIPTS HOLDING COMPANY

One Express Way

Saint Louis, Missouri 63121

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 4, 2016

The 2016 Annual Meeting of Stockholders of EXPRESS SCRIPTS HOLDING COMPANY, a Delaware corporation (the “Company”), will be held at the principal executive offices of the Company, One Express Way, Saint Louis, Missouri 63121, on Wednesday, May 4, 2016, at 8:00 a.m. Central Time (the “meeting”), to consider and act upon the following matters:

 

  Items of Business

 

1. to elect twelve (12) directors to serve until the next Annual Meeting of Stockholders or until their respective successors are elected and qualified;

 

2. to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accountants for 2016;

 

3. to approve, by non-binding vote, the Company’s executive compensation;

 

4. to approve and ratify the Express Scripts Holding Company 2016 Long-Term Incentive Plan;

 

5. to consider two stockholder proposals, if properly presented at the meeting; and

 

6. to transact such other business as may properly come before the meeting.

 

  Voting

Only stockholders of record at the close of business on March 11, 2016 are entitled to notice of, and to vote at, the meeting. At least ten days prior to the meeting, a complete list of stockholders entitled to vote will be available for inspection by any stockholder for any purpose germane to the meeting, during ordinary business hours, at the office of the Secretary of the Company at One Express Way, Saint Louis, Missouri 63121. As a stockholder of record, you are cordially invited to attend the meeting in person. Regardless of whether you expect to be present at the meeting, please either complete, sign and date the enclosed proxy card and mail it promptly in the enclosed envelope, or vote electronically by telephone or the Internet as described in greater detail in the proxy statement. Returning the enclosed proxy card or voting electronically or telephonically will not affect your right to vote in person if you attend the meeting.

By Order of the Board of Directors

LOGO

Martin P. Akins

Senior Vice President, General Counsel and Corporate Secretary

One Express Way

Saint Louis, Missouri 63121

March 21, 2016

Even though you may plan to attend the meeting in person, please vote by telephone or the Internet, or execute the enclosed proxy card and mail it promptly. A return envelope (which requires no postage if mailed in the United States) is enclosed for your convenience. Telephone and Internet voting information is provided on your proxy card. Should you attend the meeting in person, you may revoke your proxy and vote in person.


Table of Contents

TABLE OF CONTENTS

 

       Page    
Proxy Statement      1   
2016 Proxy Summary      2   
About the Meeting      6   
Proxy Item No. 1: Election of Directors      9   
Corporate Governance      16   

The Board of Directors and its Committees

     16   

Leadership Structure of the Board of Directors

     18   

Governance Practices and Policies

     18   

Selection of Nominees for the Board of Directors

     19   

Directors’ Compensation

     20   

Stock Ownership Guidelines for Directors

     22   

The Board of Directors’ Role in Enterprise Risk Management

     23   

Communicating with the Board of Directors

     23   

Certain Relationships and Related Party Transactions

     23   
Executive Compensation      25   

Compensation Discussion and Analysis

     25   

Assessment of Risk

     41   

Compensation Committee Interlocks and Insider Participation

     42   

Compensation Committee Report

     42   

Summary Compensation Table

     43   

Grants of Plan-Based Awards in 2015

     45   

Outstanding Equity Awards at 2015 Fiscal Year-End

     48   

Option Exercises and Stock Vested Table

     50   

Nonqualified Deferred Compensation in 2015

     50   

Employment Agreements and Potential Payments upon Termination or Change in Control

     51   
Security Ownership of Certain Beneficial Owners and Management      65   

Stock Ownership of Directors and Executive Officers

     65   

Five Percent Owners of Company Stock

     66   
       Page    
Section 16(a) Beneficial Ownership Reporting Compliance      67   
Report of the Audit Committee      68   
Proxy Item No. 2: Ratification of Appointment of Independent Registered Public Accountants      69   

Principal Accountant Fees

     69   
Proxy Item No. 3: Non-Binding Vote on Executive Compensation      70   
Proxy Item No. 4: Approval and Ratification of the Express Scripts Holding Company 2016 Long-Term Incentive Plan      71   
Securities Authorized for Issuance Under Equity Compensation Plans      81   
Stockholder Proposals for 2016 Annual Meeting      83   

Proxy Item No. 5: Stockholder Proposal Regarding an Independent Board Chairman

     83   

Proxy Item No. 6: Stockholder Proposal Regarding Political Activities Disclosure

     87   
Other Matters      89   

Other Business at the Annual Meeting

     89   

Future Stockholder Proposals

     89   

Householding of Proxy Materials

     89   

Solicitation of Proxies

     90   
Appendix A      A-1   

Express Scripts Holding Company 2016 Long-Term Incentive Plan

     A-1   
Map to Annual Meeting of Stockholders    Back Cover
 


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PROXY STATEMENT

 

LOGO

EXPRESS SCRIPTS HOLDING COMPANY

One Express Way

Saint Louis, Missouri 63121

 

 

2016 ANNUAL MEETING OF STOCKHOLDERS

PROXY STATEMENT

 

 

This proxy statement is furnished in connection with the solicitation of proxies by the board of directors of Express Scripts Holding Company, a Delaware corporation, to be voted at the 2016 Annual Meeting of Stockholders, which we refer to as the “annual meeting” or the “meeting,” and any adjournment or postponement of the meeting. The meeting will be held at the principal executive offices of the Company, One Express Way, Saint Louis, Missouri 63121, on Wednesday, May 4, 2016, at 8:00 a.m. Central Time, for the purposes contained in the accompanying Notice of Annual Meeting of Stockholders and as set forth in this proxy statement. On March 21, 2016, we mailed to our stockholders a notice containing instructions on how to access this proxy statement and our annual report to stockholders online, and made this proxy statement and form of proxy available online.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on May 4, 2016: The Annual Report and Notice & Proxy Statement are available at www.proxyvote.com. (All website addresses given in this document are for informational purposes only and are not intended to be an active link or to incorporate any website information into this document).

 



 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    1


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2016 PROXY SUMMARY

This summary highlights information contained in this proxy statement. This summary does not contain all of the information that you should consider, and you should carefully read the entire proxy statement before voting.

ANNUAL MEETING OF STOCKHOLDERS

 

    Time and Date: 8:00 a.m., Central Time, Wednesday, May 4, 2016

 

    Place: Company Headquarters, One Express Way, Saint Louis, Missouri 63121

 

    Record Date: March 11, 2016

 

    Voting: Stockholders as of the record date are entitled to vote; each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

Matter    Board Recommendation
Election of twelve directors    FOR EACH NOMINEE
Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accountants for 2016    FOR
Approval, by non-binding vote, of the Company’s executive compensation    FOR
Approval and ratification of the Express Scripts Holding Company 2016 Long-Term Incentive Plan    FOR
Two stockholder proposals, if properly presented at the meeting    AGAINST

Item No. 1: Election of Directors

BOARD NOMINEES

 

Name   Age      Director
Since*
    

Committee

Memberships

   Other Current Public
Company Boards

Maura C. Breen

Independent

    60         2004       Compensation (Chair)   

William J. DeLaney

Independent

    60         2011       Audit
Compensation
   Sysco Corporation

Elder Granger, MD, MG, USA (Retired)

Independent

    62         2015       Compliance    DLH Holdings Corp.

Nicholas J. LaHowchic

Independent

    69         2001       Audit
Compensation
  

Thomas P. Mac Mahon

Independent

    69         2001       Corporate Governance
(Chair)
   PharMerica Corporation

Frank Mergenthaler

Independent

    55         2009       Audit (Chair)   

Woodrow A. Myers, Jr., MD

Independent

    62         2007       Compensation Compliance   

Roderick A. Palmore

Independent

    64         2014       Corporate Governance    Goodyear Tire &
Rubber Co.

CBOE Holdings, Inc.

George Paz     60         2004          Honeywell International,Inc.

Prudential Financial, Inc.

William L. Roper, MD, MPH

Independent

    67         2012       Compliance (Chair)    DaVita HealthCare
Partners Inc.

Seymour Sternberg

Independent

    72         1992       Audit Corporate Governance    CIT Group Inc.
Timothy Wentworth     55         2015             
* Includes services as a director of Express Scripts, Inc. prior to April 2, 2012.

 



 

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2016 PROXY SUMMARY

 

Item No. 2: Ratification of Appointment of Independent Registered Public Accountants

Independent Registered Public Accountants

Although not required, we are asking stockholders to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accountants for 2016.

Item No. 3: Advisory Vote on Executive Compensation

Named Executive Officers

 

  George Paz, Chair and Chief Executive Officer

 

  Timothy Wentworth, President

 

  Eric Slusser, Executive Vice President and Chief Financial Officer since September 2015

 

  Sara Wade, Senior Vice President and Chief Human Resources Officer

 

  Christine Houston, Senior Vice President, Operations

 

  James Havel, Executive Vice President and Interim Chief Financial Officer from January 2015 to September 2015

 

  Keith Ebling, Executive Vice President and General Counsel through July 2015

Advisory Vote

We are asking our stockholders to approve on an advisory basis the compensation of our named executive officers. Our board recommends a FOR vote because we believe our compensation program aligns the interests of our named executive officers with those of our stockholders and achieves our compensation objective of rewarding management based upon individual and Company performance and the creation of stockholder value over the long-term.

Key Elements of Our Compensation Program

 

Base Salary

Key Elements

 

 A fixed cash amount, determined annually.

 

Objective

 

 Provides a pay opportunity that is generally competitive with the companies with which we compete for management talent.

 

Executive Performance-Based Cash Bonus Awards
 

Key Elements

 

 An annual cash award approved by the Compensation Committee for senior executive officers (and ratified by the board with respect to our executive vice presidents and ratified by the independent members of the board with respect to our CEO and president).

 

 All of our named executive officers are eligible to receive annual performance-based cash bonus awards.

 

 In the first quarter of the performance year, the Compensation Committee approves, and the board ratifies, as applicable, a performance-based cash bonus award for each senior executive officer to be paid in the first quarter of the following year. The award is granted at 215% of each executive’s target bonus amount, which reflects the maximum potential award. For tax purposes, the Compensation Committee also approves, and the board ratifies, a minimum earnings per share (“EPS”) target that must be achieved during the performance year or the award is forfeited. If the minimum EPS target is met, the Compensation Committee retains the discretion to adjust the actual payout of the award downward from the maximum potential award.

 

 Performance-based cash bonus awards are awarded under the Express Scripts, Inc. 2011 Long-Term Incentive Plan, as amended and restated, or the “2011 LTIP.” The Compensation Committee may, in its discretion, use a variety of subjective performance factors when granting these awards and considers, among other factors, each executive’s individual performance as a key factor in determining the actual payout.

 



 

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2016 PROXY SUMMARY

Objective

 

  Rewards the achievement of certain operational and performance metrics that are established for each year.

 

  Motivates performance by delivering greater rewards for superior Company and individual performance, while
delivering reduced or no awards for Company or individual underperformance.

Long-Term Incentive Equity Awards

Key Elements

 

  Stock options comprise approximately 331/3% of annual long-term incentive equity awards for our named executives and have a three-year vesting and ten-year expiration period (seven-year expiration period for stock options granted prior to January 1, 2015). Prior to 2015, stock options comprised approximately 40% of annual long-term incentive equity awards for our CEO.

 

  Restricted stock units comprise approximately 331/3% of annual long-term incentive equity awards for our named executives and have a three-year vesting period. Prior to 2015, restricted stock units comprised approximately 25% of annual long-term incentive equity awards for our CEO.

 

  Performance shares comprise approximately 331/3% of annual long-term incentive equity awards for our named executives and vest based upon the Company’s performance over three years in two equally weighted performance categories:

 

  total stockholder return relative to the S&P 100 Index; and

 

  three-year average return on invested capital relative to a predetermined target.

 

  Performance shares granted in 2013 and 2014 vest based upon the Company’s performance over three years in three equally weighted performance categories:

 

  total stockholder return relative to a defined industry peer group;

 

  compound annual growth in EPS (as described further on page 37) relative to a defined industry peer group; and

 

  three-year average return on invested capital relative to a predetermined target, with respect to performance shares granted in 2013, and relative to a defined industry peer group with respect to performance shares granted in 2014.

 

  Prior to 2015, performance shares comprised approximately 35% of annual long-term incentive equity awards for our CEO.

 

Objective

 

  Stock options and restricted stock units align compensation to long-term stockholder value and stock price appreciation.

 

  Performance shares reward the achievement of our long-term financial goals and value creation to stockholders relative to a market index of large companies and predetermined targets.

 

  Overlapping vesting periods help to manage compensation-related risks associated with maximizing performance in any one period at the expense of another.

 

  Multi-year vesting period serves as a retention tool.

Executive Compensation Program Best Practices

Our compensation program is designed to drive performance towards achievement of both short-term and long-term goals and to increase stockholder value, while appropriately balancing risk and reward. We regularly review our compensation program to incorporate best practices, examples of which include:

 

    target total direct compensation (base salary, performance-based cash bonus awards and long-term incentive equity awards) that is generally competitive with a peer group of companies and other companies with which we compete for talent;

 

    a mix of short- and long-term performance incentives, with emphasis on long-term performance;

 

    the regular risk assessment of compensation programs;

 

    stock ownership guidelines;

 

    a prohibition on trading in derivatives with respect to our common stock and on pledging shares of our common stock;

 

    a clawback policy;

 



 

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2016 PROXY SUMMARY

 

 

    no reportable perquisites (except relocation allowance and miscellaneous expenses for a newly appointed executive); and

 

    no tax gross-ups for our executive officers.

2015 Performance Highlights

We continue to execute our successful business model, which emphasizes the alignment of our financial interests with those of our clients and patients through greater use of generics, and lower-cost brands, home delivery and specialty pharmacies, while at the same time, delivering strong financial performance.

2015 Financial Review:

 

    increased earnings per diluted share attributable to Express Scripts from $2.64 to $3.56, a 35% increase;

 

    increased net income attributable to Express Scripts from $2,007.6 million to $2,476.4 million, a 23% increase;

 

    increased generic fill rate from 82.9% to 84.4%; and

 

    cash flow provided by operating activities increased from $4.55 billion to $4.85 billion.

2015 Summary Compensation

(see page 43 for additional detail)

 

      Base Salary      Bonus     Restricted
Stock and
Performance
Share Awards
    Option
Awards
     Non-Equity
Incentive Plan
Compensation
     All Other      Total  
George Paz    $ 1,324,058       $      $ 6,833,333      $ 3,416,667       $ 3,005,635       $ 255,894       $ 14,835,587   
Timothy Wentworth      901,250                3,833,333        1,916,667         1,705,091         108,562         8,464,903   
Eric Slusser      220,289                1,000,000 (1)              358,627         32,493         1,611,409   
Sara Wade      583,031                1,433,333        716,667         705,941         79,762         3,518,734   
Christine Houston      586,000                1,266,666        633,334         780,699         76,576         3,343,275   
James Havel(2)      716,635         110,000(3     4,333,333 (4)      916,667         1,138,250                 7,214,885   
Keith Ebling(5)      719,519                1,833,333        916,667                 113,069         3,582,588   

 

(1) Amount reflects Mr. Slusser’s sign-on equity grant of restricted stock units.

 

(2) Mr. Havel left the role of interim chief financial officer effective September 9, 2015 and left the Company on March 11, 2016.

 

(3) Reflects a one-time payment of $110,000 in connection with Mr. Havel’s sign-on bonus.

 

(4) Includes a one-time $2,500,000 sign-on grant of restricted stock units.

 

(5) Mr. Ebling left the role of executive vice president and general counsel effective July 24, 2015, but is expected to remain employed with the Company through June 1, 2016 (unless employment is earlier terminated by either Mr. Ebling or the Company) in order to facilitate a smooth and orderly transition. The amounts set forth in the table above reflect compensation amounts for Mr. Ebling with respect to 2015. For a summary of Mr. Ebling’s expected termination benefits, see “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – Keith Ebling (Expected Payments)” on page 64.

Item No. 4: Approval and Ratification of the Express Scripts Holding Company 2016 Long-Term Incentive Plan

The board of directors has adopted the Express Scripts Holding Company 2016 Long-Term Incentive Plan (the “2016 LTIP”) for employees and non-employee directors of the Company and its affiliates, subject to stockholder approval. The 2016 LTIP provides for the grant of stock options, both incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other awards to eligible individuals. The board believes that the 2016 LTIP will promote the success and enhance the value of the Company by linking the personal interests of participants to those of the Company’s stockholders and by providing participants with an incentive for outstanding performance. Accordingly, our board of directors recommends a vote FOR the approval and ratification of the 2016 LTIP.

Item Nos. 5 and 6: Stockholder Proposals

Certain stockholders have submitted two proposals for consideration at the annual meeting. The proposals have been carefully considered by our board of directors, which has concluded that adoption of the proposals would not be in the best interests of the Company or its stockholders (see “Stockholder Proposals for 2016 Annual Meeting” on page 83).

Our board of directors recommends a vote AGAINST each of the stockholder proposals.

 



 

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ABOUT THE MEETING

 

 

ABOUT THE MEETING

1. Why Did I Receive this Proxy Statement?

 

 

Because you were a stockholder of our Company as of March 11, 2016, or the “record date,” and are entitled to vote at the annual meeting, our board of directors is soliciting

your proxy to vote at the meeting. This proxy statement summarizes the information you need to know in order to cast a vote at the meeting.

 

 

2. What Am I Voting On?

 

 

You are voting on six items:

 

    election of directors (see page 9);

 

    ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accountants for 2016 (see page 69);

 

    approval, by non-binding vote, of the Company’s executive compensation (see page 70);

 

    approval and ratification of a new equity incentive plan – the Express Scripts Holding Company 2016 long-term incentive plan (see page 71);
    if properly presented at the meeting, a stockholder proposal regarding an independent board chairman (see page 83); and

 

    if properly presented at the meeting, a stockholder proposal regarding political activities disclosure (see page 87).
 

 

3. How Do I Vote?

 

 

Stockholders of record

If you are a stockholder of record, there are four ways to vote:

 

    by toll-free telephone at 1-800-690-6903*

 

    by Internet at www.proxyvote.com*

 

    by completing and returning your proxy card

 

    by written ballot at the meeting

 

* The deadline to vote by telephone or Internet is 11:59 p.m. Eastern Time on May 3, 2016.

 

Street name holders

Shares of our common stock that are held in a brokerage account in the name of the broker are held in “street name.” If your shares are held in street name, you should follow the voting instructions provided by your broker. You may complete and return a voting instruction card to your broker or vote by telephone or the Internet. Check your voting instructions card for more information. If you hold your shares in street name and wish to vote at the meeting, you must obtain a legal proxy from your broker and bring that proxy to the meeting.

 

 

4. What Are the Voting Recommendations of the Board of Directors?

 

 

Matter    Board Recommendation
Election of twelve directors    FOR EACH NOMINEE
Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accountants for 2016
   FOR
Approval, by non-binding vote, of the Company’s executive compensation    FOR
Approval and ratification of the Express Scripts Holding Company 2016 Long-Term
Incentive Plan
   FOR
Two stockholder proposals, if properly presented at the meeting    AGAINST

 

If you return a properly executed proxy card without instructions, the persons named as proxy holders will vote

your shares in accordance with the recommendations of our board of directors.

 

 

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ABOUT THE MEETING

 

 

5. Will Any Other Matters Be Voted On?

 

 

We do not know of any other matters that will be brought before the stockholders for a vote at the annual meeting. If any other matter is properly brought before the meeting, your

 

signed or electronic proxy card gives authority to George Paz and Martin P. Akins, or either of them, to vote your shares at their discretion.

 

 

6. Who Is Entitled to Vote at the Meeting?

 

 

Only stockholders of record at the close of business on the record date are entitled to receive notice of and to participate in the annual meeting. If you were a stockholder

of record on that date, you will be entitled to vote all of the shares you held on that date at the meeting, or at any postponement or adjournment of the meeting.

 

 

7. How Many Votes Do I Have?

 

 

You will have one vote for each share of our common stock you owned at the close of business on the record date.

 

 

8. How Many Votes Can Be Cast By All Stockholders?

 

 

On the record date there were 632,803,206 outstanding shares of our common stock, each of which is entitled to one vote at the meeting. There is no cumulative voting. Unless

otherwise provided, all references to shares of our common stock in this proxy statement have been adjusted to reflect all of our previous stock splits.

 

 

9. How Many Votes Must Be Present to Hold the Meeting?

 

 

The holders of a majority of the aggregate voting power of our common stock outstanding and entitled to vote on the record date, or approximately 316,401,604 votes, must be present in person, or by proxy, at the meeting in order to constitute a quorum necessary to conduct the meeting.

If you vote, your shares will be part of the quorum. Abstentions will be counted in determining the quorum. If you hold your shares in street name and do not provide voting instructions to your broker, but your broker has, and exercises, its discretionary authority to vote on at least one matter to be voted on at the meeting, your shares will be counted in determining the quorum for all matters to be voted on at the meeting. Brokers have discretionary authority

with respect to the ratification of the appointment of independent registered public accountants, but do not have discretionary authority with respect to the other proposals. A “broker non-vote” occurs with respect to a matter to be voted on, when a broker holding shares in street name submits a proxy that states the broker has not received instructions from the beneficial owner on how to vote with respect to the matter and does not have discretionary authority to vote in the absence of instructions.

We urge you to vote by proxy even if you plan to attend the meeting so that we will know as soon as possible that a quorum has been achieved.

 

 

10. What Vote Is Required to Approve Each Proposal?

 

 

With respect to Item 1, the election of directors, the affirmative vote of a majority of the votes cast is required to elect a director when a quorum is present. A “majority of the votes cast” means the number of votes cast “for” a director exceeds the number of votes cast “against” that director. “Votes cast” excludes abstentions and any broker non-votes. Accordingly, abstentions and broker non-votes will have no effect on the election of directors. Brokers do not have discretionary authority with respect to the election of directors. Under Delaware law, if an incumbent director-nominee is not elected at the meeting, the director will continue to serve on the board as a “holdover director.” As required by our bylaws, each director-nominee has submitted an irrevocable conditional letter of resignation which becomes effective if he or she is not elected by a

majority of the votes cast by stockholders and the board of directors accepts the resignation. If a director-nominee is not elected by a majority of the votes cast, the Corporate Governance Committee will consider the director’s resignation and recommend to the board whether to accept or reject such resignation. The board of directors will decide whether to accept or reject the resignation and will publicly disclose its decision within 90 days after the date of the certification of the election results.

With respect to Items 2, 3, 4, 5 and 6 the affirmative vote of a majority of the shares represented in person or by proxy at the meeting and entitled to vote on the matter is required for approval. An abstention with respect to Items 2, 3, 4, 5 and 6 will not be voted, although it will be counted for the purpose

 

 

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ABOUT THE MEETING

 

 

of determining the number of shares represented at the meeting and entitled to vote on the matter. Accordingly, an abstention will have the effect of a negative vote. Broker non-votes, if any, are not counted or deemed present or represented for determining whether stockholders have approved the proposal and would have no effect on the

outcome of the vote. Brokers have discretionary authority with respect to the ratification of the appointment of independent registered public accountants. Brokers do not have discretionary authority with respect to the other proposals.

 

 

11. Can I Change My Vote or Revoke My Proxy?

 

 

Yes. You may change or revoke your proxy by sending in a new proxy card with a later date, or cast a new vote by telephone or Internet (not later than the deadline of 11:59 p.m. Eastern Time on May 3, 2016), or send a written

notice of revocation to our Corporate Secretary at the address on the cover of this proxy statement. Also, if you attend the meeting and wish to vote in person, you may request that your previously submitted proxy be revoked.

 

 

12. Why Haven’t I Received a Printed Copy of the Proxy Statement or Annual

       Report?

 

 

We are taking advantage of Securities and Exchange Commission (“SEC”) rules that allow companies to furnish proxy materials to stockholders via the Internet. This allows us to avoid printing and mailing proxy materials to stockholders who prefer to review the materials online. If you received a Notice of Internet Availability of Proxy Materials, or “Notice,” by mail, you will not receive a printed copy of the proxy materials, unless you submit a specific request. The

Notice instructs you on how to access and review all of the important information contained in the proxy statement and annual report as well as how to submit your proxy over the Internet. If you received the Notice and would still like to receive a printed copy of the proxy materials, you should follow the instructions for requesting these materials included in the Notice. We plan to mail the Notice to stockholders by March 21, 2016.

 

 

13. Who Can Attend the Annual Meeting?

 

 

Any Express Scripts stockholder as of the close of business on March 11, 2016 may attend the meeting. You will need an admission ticket or proof of ownership to enter the meeting. An admission ticket is attached to your proxy card if you hold shares directly in your name as a stockholder of record. If you plan to attend the meeting, please vote your shares by submitting a proxy, but keep the admission ticket and bring it with you to the meeting.

If your shares are held in street name (beneficially held in the name of a broker, bank or other holder of record), you must present proof of your ownership, such as a bank or brokerage account statement, to be admitted to the meeting.

You may also obtain an admission ticket in advance by writing to the Office of the Secretary, One Express Way, Saint Louis, Missouri 63121. You must provide evidence of your ownership of shares with your ticket request, which you can obtain from your broker or bank. Please note that if you are a beneficial holder and would like to vote at the meeting in person, you will need to bring a legal proxy from your broker, bank or other holder of record.

Stockholders must also present a valid form of photo identification, such as a driver’s license, in order to be admitted to the meeting. No cameras, recording equipment, large bags or packages will be permitted in the meeting.

 

 

14. How Will My Shares Be Voted if I Submit a Proxy Without Indicating My

       Vote?

 

 

If you submit a properly executed proxy without indicating your vote, your shares will be voted as follows:

 

    FOR each director nominee named in this proxy statement;

 

    FOR ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accountants for 2016;

 

    FOR the approval, by non-binding vote, of the Company’s executive compensation;
    FOR the approval and ratification of the 2016 Express Scripts Holding Company Long-Term Incentive Plan;

 

    AGAINST the stockholder proposal regarding an independent board chairman, if properly presented at the meeting; and

 

    AGAINST the stockholder proposal regarding political activities disclosure, if properly presented at the meeting.
 

 

8    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement


Table of Contents

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

 

 

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

The current term of office of all of our directors expires at the meeting or when their successors are duly elected and qualified. The Corporate Governance Committee of our board of directors has nominated twelve directors to be elected to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. All twelve nominees are currently directors of our Company and all nominees have agreed to serve if elected. Unless otherwise specified, all proxies will be voted in favor of each nominee listed below as a director of our Company. Gary G. Benanav is retiring from the board at the 2016 annual meeting and, accordingly, there will be a vacancy on the board following the election of directors. The Corporate Governance Committee of the board is currently in the process of identifying a candidate to fill this vacancy. Proxies cannot be voted for a greater number of persons than the number of nominees named below.

Our board of directors has no reason to expect that any of the nominees will be unable to stand for election on the date of the meeting or will otherwise not serve. If a vacancy occurs among the original nominees prior to the meeting, the proxies may be voted for a substitute nominee named by our board of directors as well as for the remaining nominees. Because this election is not a contested election, directors are elected by a majority of the votes cast when a quorum is present. A “majority of the votes cast” means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. “Votes cast” excludes abstentions and any broker non-votes. Our board of directors has determined that, in its judgment, with the exception of Mr. Paz, who is the chief executive officer of our Company, and Mr. Wentworth, who is the president of our Company, all of the members of, and nominees for, our board of directors are independent, as defined by the listing standards of The Nasdaq Global Select Market, as of the date of this proxy statement. Mr. Paz intends to retire as chief executive officer immediately following the meeting but is expected to remain in his role as chair of the board.

Our Corporate Governance Guidelines provide that the Corporate Governance Committee will nominate candidates for our board of directors who possess the highest personal and professional ethics, integrity and values, and who are committed to representing the long-term interests of stockholders. Although we have not adopted a formal policy on diversity, the Corporate Governance Committee considers the diversity, age, skills, and experience of the candidates in the context of the overall needs of the board. The Corporate Governance Committee evaluates diversity in a broad sense, recognizing the benefits of racial and gender diversity, but also considers the breadth of backgrounds, professional skills, and business experiences that directors and candidates may bring to our board. In addition to these qualities, the selection criteria for nomination include the skills and characteristics possessed by each candidate in the context of the perceived needs of the board of directors at that point in time in an effort to ensure there is a blend of skills and experience that will enhance the effectiveness of the board of directors. (For a full discussion on the criteria and process for the nomination of directors, see “Selection of Nominees for the Board of Directors” on page 19).

As described in more detail below, our board believes that the nominees, as a group, bring a diverse range of perspectives, and that each of our directors meets such criteria and has attributes and experience that make him or her well qualified to serve on our board of directors. For example, our board of directors includes several individuals with substantial healthcare or medical experience, including medical doctors, as well as individuals with experience serving as a chief executive officer or as a director of another publicly-traded company or significant financial services company. Most of our directors have financial or accounting experience, including several who have held the position of chief financial officer at a publicly-traded company. The Corporate Governance Committee considered, among other factors, the specific experience and qualifications in the biographical information detailed below as part of its decision to nominate each individual.

For purposes of this proxy statement, service as a director of Express Scripts, Inc. prior to April 2, 2012 is considered as service with the Company.

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    9


Table of Contents

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

 

 

MAURA C. BREEN

 

 

Age: 60

Director since: 2004

 

 

Committees:

Compensation (Chair)

 

Maura C. Breen was elected a director of Express Scripts in July 2004. Ms. Breen served as Senior Vice President and General Manager for the New York Region for Verizon Communications, Inc. or “Verizon,” a provider of communications services, from March 2006 until her retirement in September 2008. Previously, Ms. Breen was Senior Vice President/Support Services, Network Services Group for Verizon, from December 2003 through March 2006. Ms. Breen also served as Senior Vice President & Chief Marketing Officer, Retail Market Groups for Verizon from July 2001 through December 2003. Ms. Breen also serves on the Board of the Crohn’s & Colitis Foundation of America.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Ms. Breen brings experience to our board in the areas of marketing and branding, cost control and restructuring, technology and innovation, sales and business development, and operations. Ms. Breen has over 30 years of experience with a Fortune 100 company in the telecommunications industry, including over nine years as a corporate executive officer.

 

 

 

 

WILLIAM J.

DELANEY

 

 

Age: 60

Director since: 2011

 

 

Committees:

Audit

Compensation

 

William J. DeLaney was elected a director of Express Scripts in September 2011. Mr. DeLaney is currently Chief Executive Officer of Sysco Corporation or “Sysco,” a food marketing and distribution company, and has served in this capacity since March 2009. He assumed the additional title of President of Sysco in March 2010, which he held until January 2016. Mr. DeLaney began his Sysco career in 1987 and has held positions of increasing responsibility. In July 2007, Mr. DeLaney became Sysco’s Executive Vice President and Chief Financial Officer and continued to serve in such position following his promotion to CEO until October 2009. He has been a director of Sysco since January 2009.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. DeLaney brings experience to our board in the areas of accounting, finance, operations and management. Throughout his career, Mr. DeLaney has developed experience and knowledge in the areas of leadership and management development, corporate strategy and development, finance and accounting and distribution and supply chain management. Mr. DeLaney holds a Masters in Business Administration and has extensive experience as a corporate executive officer, including seven years as a chief executive officer.

 

 

 

 

10    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement


Table of Contents

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

 

 

ELDER GRANGER,

MD, MG, USA
(Retired)

 

 

Age: 62

Director since: 2015

 

 

Committees:

Compliance

 

Elder Granger was elected a director of Express Scripts in May 2015. Dr. Granger is a U.S. Army Major General (retired) and has served as the President and Chief Executive Officer of The 5Ps LLC, a healthcare, education, and leadership consulting firm, since August 2009. Dr. Granger served in the U.S. Army for over 35 years before retiring in June 2009, and was the Deputy Director and Program Executive Officer of the TRICARE Management Activity, Office of the Assistant Secretary of Defense (Health Affairs) in Washington, D.C. from December 2005 to June 2009. In this role he served as the principal advisor to the Assistant Secretary of Defense (Health Affairs) on DoD health plan, policy and performance and oversaw the acquisition, operation and integration of DoD’s managed care program within the Military Health System. Prior to joining TRICARE Management Activity, Dr. Granger led the largest U.S. and multi-national battlefield health system in recent history while serving as Commander, Task Force 44th Medical Command and Command Surgeon for the Multinational Corps Iraq. Dr. Granger received a B.S. Degree from Arkansas State University and earned his medical degree from University of Arkansas School of Medicine where he was awarded the Henry Kaiser Medical Fellowship for Medical Excellence and Leadership. Dr. Granger is board certified by the American College of Physician Executives, American Board of Medical Quality and American Board of Internal Medicine and holds numerous medical certifications. He is a director of DLH Holdings Corp., a provider of healthcare delivery solutions, logistics and technical services, and a current and former advisor or member of the board of directors of several privately-held companies.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Dr. Granger brings a wealth of knowledge with respect to healthcare management and operations and has broad experience covering the healthcare industry as well as the government sector. Dr. Granger also brings unique and extensive leadership experience and, through his deep understanding of the markets in which we compete, provides a strong independent voice on our board.

 

 

 

 

NICHOLAS J.

LAHOWCHIC

 

 

 

Age: 69

Director since: 2001

 

 

Committees:

Audit

Compensation

 

Nicholas J. LaHowchic was elected a director of Express Scripts in July 2001. Mr. LaHowchic is currently President and Chief Executive Officer of Diannic, LLC, a management consulting firm, and has served in this capacity since February 2007. Previously, he served as President and Chief Executive Officer of Limited Logistics Services, Inc. from October 1997 and as Executive Vice President of Lbrands, Inc. (previously Limited Brands, Inc.), a retail apparel, personal care and beauty products company from April 2004 until his retirement in February 2007. As Executive Vice President of Lbrands, Inc., Mr. LaHowchic had responsibility for companywide Information Technology Services and co-lead with Vice-Chairman enterprise ERP Transformation Initiative. Limited Logistics Services, Inc. provides supply chain, compliance and procurement services to retailers including Lbrands, Inc. Previously Mr. LaHowchic also served as President, BD Supply Chain Services through October 1997 for Becton, Dickinson and Company, which develops, manufactures and sells medical devices, instrument systems and reagents worldwide. Mr. LaHowchic currently serves as director of a privately held company and a charitable organization and previously served as a director of Advance Auto Parts, Inc.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. LaHowchic brings experience to our board in the areas of financial reporting, accounting and controls, corporate finance, mergers and acquisitions, public policy, and government regulation. Mr. LaHowchic has global experience in a variety of business sectors including retail apparel, transportation and logistics services, manufacturing and distribution, and information services. Mr. LaHowchic holds a Masters in Business Administration and has extensive experience as a chief executive officer.

 

 

 

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    11


Table of Contents

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

 

 

THOMAS P.

MAC MAHON

 

Age: 69

Director since: 2001

 

 

Committees:

Corporate Governance
(Chair)

 

Thomas P. Mac Mahon was elected a director of Express Scripts in March 2001 and has served as Presiding Director since May 2008. Mr. Mac Mahon served as Chairman of the Board, President and Chief Executive Officer and a member of the Executive and Management Committees of Laboratory Corporation of America Holdings or “LabCorp,” an independent clinical laboratory company, from January 1997 until his retirement in December 2006. Mr. Mac Mahon has also served or serves on the boards of several public and private companies. Mr. Mac Mahon served as a director of LabCorp from 1995 to 2013. Mr. Mac Mahon also serves as a director of two start-up diagnostic companies, SYNAP Diagnostics and Aushon Biosystems. He currently serves as a director of PharMerica Corporation, and the private diagnostic company Ortho-Clinical Diagnostics.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. Mac Mahon brings experience to our board in the areas of financial reporting, accounting and controls, mergers and acquisitions, corporate finance, cost control and restructuring, operations, public policy, law and compliance, government regulation, and information services. Mr. Mac Mahon has experience in a variety of business sectors including broad healthcare experience. Mr. Mac Mahon has extensive experience as a chief executive officer.

 

 

 

 

FRANK

MERGENTHALER

 

 

Age: 55

Director since: 2009

 

 

Committees:

Audit (Chair)

 

Frank Mergenthaler was elected a director of Express Scripts in January 2009. He is currently Executive Vice President and Chief Financial Officer of Interpublic Group of Companies, Inc., an advertising and marketing services company, and has served in this capacity since July 2005. From April 2002 to July 2005, Mr. Mergenthaler was Executive Vice President and Chief Financial Officer of Columbia House Company, a direct marketer of entertainment content.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. Mergenthaler brings experience to our board in the areas of financial reporting, accounting and controls, corporate finance, cost control and restructuring, insurance and risk management, marketing and branding, and information services. Mr. Mergenthaler has experience in a variety of business sectors including broad experience in the advertising and marketing industry. Mr. Mergenthaler is a Certified Public Accountant, has extensive experience as a Chief Financial Officer, and is a former partner of PricewaterhouseCoopers LLP.

 

 

 

 

12    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement

WOODROW A.

MYERS, Jr., MD

 

 

Age: 62

Director since: 2007

 

 

Committees:

Compensation

Compliance

 

Woodrow A. Myers, Jr. was elected a director of Express Scripts in May 2007. Dr. Myers has served as Managing Director of Myers Ventures LLC, a healthcare consulting company, since December 2015 and also from December 2005 to October 2013, and previously served as Chief Executive Officer of Corizon Health, Inc., a provider of health care solutions for correctional facilities from October 2013 to November 2015. Dr. Myers also served as Executive Vice President and Chief Medical Officer of Anthem, Inc. (formerly, WellPoint, Inc.), a health benefits company, from September 2000 through December 2005. Dr. Myers has also served or serves on the boards of numerous public and private companies, including Genomic Health Inc., from 2006 to 2013, LipoScience, Inc. from 2011 to 2013, Cardionet, Inc., Mozambique Healthcare Consortium and Stanford University Hospital & Clinics. Dr. Myers previously served as Commissioner of Health for New York City and for the State of Indiana.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Dr. Myers brings medical and management experience to our board, including broad experience in the healthcare industry. Dr. Myers is a Medical Doctor and holds a Masters in Business Administration. Dr. Myers has extensive experience as a corporate executive officer, including as chief executive officer.

 

 

 


Table of Contents

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

 

 

RODERICK A.

PALMORE

 

 

Age: 64

Director since: 2014

 

 

Committees:

Corporate Governance

 

Roderick A. Palmore was elected a director of Express Scripts in September 2014. Mr. Palmore is currently Senior Counsel at Dentons US LLP, a multinational law firm, and has served in this capacity since July 2015. Previously, Mr. Palmore served as Executive Vice President, General Counsel, Chief Compliance and Risk Management Officer and Secretary of General Mills, a global manufacturer and marketer of food products, from February 2008 until his retirement in February 2015. Mr. Palmore also served as Executive Vice President, General Counsel and Secretary at Sara Lee Corporation from 1999 through 2008. Mr. Palmore was a partner with Sonneschein Nath & Rosenthal in Chicago from 1993 to 1996, and a partner with Wildman, Harrold, Allen & Dixon from 1986 to 1993. Prior to joining Wildman, Harrold, Allen & Dixon as an associate in 1982, he served as an Assistant United States Attorney in the Northern District of Illinois. Mr. Palmore is currently a member of the board of directors of Goodyear Tire & Rubber Co. and CBOE Holdings, Inc.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. Palmore brings experience to our board in the areas of law and compliance, corporate governance, government regulation and mergers and acquisitions. Mr. Palmore has extensive experience managing legal and corporate governance aspects of a large public company, having served as General Counsel for both General Mills and Sara Lee Corporation. Mr. Palmore is also a licensed attorney, serves as Senior Counsel with a nationally recognized law firm, and served as an Assistant United States Attorney for the Northern District of Illinois.

 

 

 

 

GEORGE PAZ

 

 

Age: 60

Director since: 2004

 

 

Committees:

none

 

George Paz was elected a director of Express Scripts in January 2004 and has served as Chair of the board since May 2006. He assumed the role of Chief Executive Officer of Express Scripts on April 1, 2005 and served as President from October 2003 to February 2014. Mr. Paz joined Express Scripts and was appointed Senior Vice President and Chief Financial Officer in January 1998 and continued to serve as Chief Financial Officer following his appointment to the office of President until his successor joined the Company in April 2004. Mr. Paz is currently a member of the board of directors of Honeywell International, Inc. and Prudential Financial, Inc. and served on the board of directors of the Federal Reserve Bank of St. Louis from 2012 through 2015, serving as Chairman in 2015. Mr. Paz is expected to retire from the role of Chief Executive Officer effective immediately following the 2016 annual meeting of stockholders and to continue serving as Chair of the board.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. Paz has extensive knowledge about Express Scripts and the opportunities and challenges we face, and brings over 30 years of experience to our board of directors, including over ten years as our chief executive officer and over six years as our chief financial officer. Mr. Paz has experience in relevant areas such as tax, financial reporting, accounting and controls, corporate finance, insurance and risk management, mergers and acquisitions, capital markets, government regulation, and employee health benefits. Mr. Paz is a Certified Public Accountant.

 

 

 

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    13


Table of Contents

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

 

 

 

WILLIAM L.

ROPER, MD, MPH

 

 

Age: 67

Director since: 2012

 

 

Committees:

Compliance (Chair)

 

William L. Roper was elected a director of Express Scripts in April 2012. Dr. Roper served as a director of Medco Health Solutions, Inc. from December 2007 until the Company merged with Medco in April 2012. Dr. Roper has served as Dean of the School of Medicine and Vice Chancellor for Medical Affairs of the University of North Carolina (“UNC”) at Chapel Hill, and as Chief Executive Officer of the UNC Health Care System, in each case, since 2004. He has also served as a Professor of Pediatrics and Social Medicine at the UNC School of Medicine and as a Professor of Health Policy and Administration at the UNC School of Public Health. Before joining UNC in 1997, Dr. Roper served as Senior Vice President of Prudential Health Care and in other roles from 1993 to 1997. He also served as director of the Centers for Disease Control and Prevention from 1990 to 1993, on the senior White House staff in 1989 and 1990 and as the administrator of CMS from 1986 to 1989. Dr. Roper has been a director of DaVita HealthCare Partners Inc. since 2001. He is former Chairman of the Board of Directors of the National Quality Forum, a private, not-for-profit, public benefit corporation established to standardize healthcare quality measurement and reporting.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Dr. Roper brings medical and management experience to our board as well as experience and deep relationships in the healthcare industry. Dr. Roper is a Medical Doctor and has extensive executive experience in various capacities. Dr. Roper is a member of the American Academy of Pediatrics and the American Medical Association.

 

 

 

 

SEYMOUR

STERNBERG

 

 

Age: 72

Director since: 1992

 

 

Committees:

Audit

Corporate Governance

 

Seymour Sternberg was elected a director of Express Scripts in March 1992. Mr. Sternberg became Chief Executive Officer and Chairman of the Board of New York Life in April 1997, and served as Chief Executive Officer until his retirement in June 2008. Mr. Sternberg continued to serve as non-executive Chairman of the Board of New York Life until May 2009. Mr. Sternberg was appointed by former President Clinton as one of three U.S. representatives to the Business Advisory Council of the Asia-Pacific Economic Cooperation. Mr. Sternberg has also served or serves on the boards of several public or private companies and charitable organizations. Mr. Sternberg is currently a director of CIT Group Inc. and a director of Northeastern University.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. Sternberg brings experience to our board in the areas of strategic oversight, capital markets, mergers and acquisitions, corporate finance, financial reporting, accounting and controls, law and compliance, government regulation, public policy and governmental affairs, and insurance and risk management. Mr. Sternberg has extensive experience in the life insurance and financial services industry. Mr. Sternberg has over 30 years of experience as an executive corporate officer, including more than 11 years as a chief executive officer.

 

 

 

 

14    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement

TIMOTHY

WENTWORTH

 

 

Age: 55

Director since: 2015

 

Committees:

none

 

Timothy Wentworth was elected a director of Express Scripts in June 2015. Mr. Wentworth assumed the role of President of the Company in February 2014 and served as Senior Vice President and President, Sales and Account Management from April 2012 to February 2014. Mr. Wentworth joined Express Scripts when the Company merged with Medco in April 2012. At Medco, he served as Group President, National and Key Accounts from October 2008 to April 2012, as Chief Executive Officer of Medco’s Accredo Health Group subsidiary from March 2006 to October 2008 and as Group President—National Accounts from August 2003 to March 2006. Mr. Wentworth is expected to succeed Mr. Paz as the Company’s chief executive officer immediately following the 2016 annual meeting of stockholders.

Skills and Experience

 

Relevant Areas of Expertise, Experience and Qualifications: Mr. Wentworth brings a deep understanding of our Company and has significant executive and operational experience within our industry. Mr. Wentworth’s experience includes relevant areas such as operations, sales, marketing and branding, account management, innovation, business development, mergers and acquisitions, and management.

 

 

 


Table of Contents

PROXY ITEM NO. 1: ELECTION OF DIRECTORS

 

 

Directors’ Recommendation

 

The board of directors unanimously recommends a vote FOR
the election of each director nominee listed above.

Retiring Director

 

Gary G. Benanav will retire from our board as of the date of the 2016 annual meeting. As such, Mr. Benanav is not included in the slate of nominees for election to the board listed above. The Company is grateful for his contributions and service to Express Scripts during his more than 15 years on our board.

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    15


Table of Contents

CORPORATE GOVERNANCE

 

 

CORPORATE GOVERNANCE

The Board of Directors and its Committees

Our board of directors is responsible for establishing broad corporate policies and for overseeing the overall management of the Company. In addition to considering various matters which require its approval, our board of directors provides advice and counsel to, and ultimately monitors the performance of, our senior management.

Committees of the Board of Directors

 

     

Audit

Committee

     Compensation
Committee
     Compliance
Committee
     Corporate
Governance
Committee
 
Maura C. Breen         LOGO           
William J. DeLaney LOGO      LOGO           LOGO           
Elder Granger, MD, MG, USA (Retired)            LOGO        
Nicholas J. LaHowchic LOGO      LOGO           LOGO           
Thomas P. Mac Mahon               LOGO     
Frank Mergenthaler LOGO      LOGO              
Woodrow A. Myers Jr., MD         LOGO           LOGO        
Roderick A. Palmore               LOGO     
William L. Roper, MD, MPH            LOGO        
Seymour Sternberg LOGO      LOGO                             LOGO     

LOGO Chairperson                 LOGO Member                 LOGO Financial Expert

Our board of directors has four standing committees: the Audit Committee, the Compensation Committee, the Compliance Committee, and the Corporate Governance Committee. Each committee has a written charter which is reviewed at least annually to reflect the activities of each of the respective committees, changes in applicable law or other relevant considerations, with any changes approved by the full board of directors. Each committee is composed entirely of directors deemed to be, in the judgment of our board of directors, independent in accordance with listing standards of The Nasdaq Global Select Market. Our board of directors met seven times in 2015. Each director attended at least 75% of the total number of meetings of the board of directors and the board committees of which he or she was a member in 2015. While we do not have a formal policy requiring members of the board of directors to attend the annual meeting of stockholders, we encourage all directors to attend. All of our directors attended the annual meeting in 2015.

The following table lists the members, primary functions, and number of meetings held for each of the committees.

 

Members    Primary Functions    Meetings
in 2015

Audit Committee

 

Frank Mergenthaler (Chair)*

William J. DeLaney*

Nicholas J. LaHowchic*

Seymour Sternberg*

*   Each member of the Audit Committee has been determined by the board of directors, in its judgment, to be an audit committee financial expert, as defined under applicable SEC rules.

  

      Assist the board of directors in its oversight of (i) the integrity of our financial statements; (ii) our compliance with securities laws, including financial and disclosure requirements; (iii) our system of internal controls and the performance of our internal audit function; and (iv) the qualifications, independence and performance of our independent registered public accountants.

 

      Select, retain and oversee our independent registered public accountants.

 

      Review our annual and interim financial statements.

 

      Establish procedures for the receipt and handling of complaints regarding accounting, internal accounting controls or auditing matters.

   8

 

16    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

 

 

Members    Principal Functions    Meetings
in 2015

Compensation Committee

 

Maura C. Breen (Chair)

William J. DeLaney

Nicholas J. LaHowchic

Woodrow A. Myers, Jr.

  

      Review and approve our stated compensation strategy.

 

      Review annually the goals and objectives relating to the compensation, and the performance, of our chief executive officer.

 

      Review and approve compensation for our senior executives (approval of compensation for our executive vice presidents is ratified by the board, and approval of compensation for our CEO and president is ratified by the independent members of the board).

 

      Review and make recommendations to the Corporate Governance Committee regarding the compensation of directors.

   6
    

      Approve forms of employment agreements and equity award agreements for our senior executives.

 

      Approve and oversee the administration of our equity plans and executive incentive compensation, including the effect of our executive incentive compensation program on the risk-taking behavior of participants.

    

Compliance Committee

 

William L. Roper (Chair)

Elder Granger

Woodrow A. Myers, Jr.

  

      Review and make recommendations to the board of directors addressing our legal and regulatory compliance practices generally (excluding SEC and financial reporting matters).

 

      Review our Code of Conduct and Ethics at least annually and make recommendations to the board of directors with respect to any proposed changes.

 

      Oversee implementation by management of procedures intended to ensure compliance with our Code of Conduct and Ethics.

 

      Meet regularly with our management to assess our compliance policies and procedures.

   4

Corporate Governance Committee

 

Thomas P. Mac Mahon (Chair)

Roderick A. Palmore

Seymour Sternberg

  

      Recommend to the board of directors criteria for membership on our board.

 

      Select and recommend candidates for election or reelection as directors at our annual meeting of stockholders.

 

      Consider stockholder recommendations for and nominations of candidates for election as directors.

 

      Recommend candidates to fill any vacancies on our board of directors.

 

      Review and make recommendations to the board of directors regarding our Corporate Governance Guidelines and the nature and duties of the committees of the board.

 

      Approve and make adjustments to our policies regarding compensation of non-management directors.

 

      Review proposed related party transactions.

   4

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    17


Table of Contents

CORPORATE GOVERNANCE

 

 

Leadership Structure of the Board of Directors

Mr. Paz has served as both the chair of our board of directors and our chief executive officer since May 2006 and is uniquely positioned to lead our board through his exceptional depth of knowledge about Express Scripts and the opportunities and challenges we face. Mr. Paz intends to retire as chief executive officer immediately following the meeting but is expected to remain in his role as chair of the board. We believe continuing this board leadership structure is appropriate and in the best interests of our stockholders in order to facilitate a smooth transition and provide guidance and experience to our new executive leadership. Furthermore, as stated in the Company’s Corporate Governance Guidelines, the board prefers the role of CEO and chair of the board to be initially split following a transition of the CEO.

Our Corporate Governance Guidelines provide for the selection of a Presiding Director of the board at such times as the position of chair of the board is held by a non-independent director. Following Mr. Paz’s retirement as chief executive officer following the annual meeting, Mr. Mac Mahon will remain the lead independent director through the independent and empowered position of Presiding Director, a position he has held since May 2008. The duties of the Presiding Director include:

 

    presiding at all meetings of the board of directors at which the chair of the board is not present, including executive sessions of the independent directors;

 

    serving as liaison between the chair of the board and the independent directors;

 

    the authority to approve the nature and extent of information and data sent to the board of directors;

 

    the authority to approve meeting agendas for the board of directors;

 

    the authority to approve meeting schedules to assure there is sufficient time for discussion of all agenda items;

 

    the authority to call meetings of the independent directors; and

 

    if requested by major stockholders, ensuring availability for consultation and direct communication with such stockholders.

We believe that our governance structure provides effective oversight of the board of directors because:

 

    we have a strong, independent Presiding Director;

 

    the board of directors has established and follows robust Corporate Governance Guidelines, as discussed below;

 

    each member of the board of directors, other than Mr. Paz and Mr. Wentworth, is independent as defined by the listing standards of The Nasdaq Global Select Market;

 

    each standing committee of the board of directors is composed solely of independent directors; and

 

    our independent directors meet regularly in executive session.

Governance Practices and Policies

Our Company is committed to the values of effective corporate governance and high ethical standards. These values are conducive to long-term performance and the board reevaluates our policies on an ongoing basis to ensure they sufficiently meet the Company’s needs. Our corporate governance procedures include (i) a majority voting standard for the uncontested election of directors; (ii) a majority threshold for stockholders to amend our bylaws; (iii) a strong and empowered Presiding Director; (iv) the ability of stockholders to call a special meeting; (v) provisions allowing for proxy access by stockholders; and (vi) the stated preference that upon a transition of the chief executive officer, the roles of chair of the board and chief executive officer should be split until such time as the board determines otherwise based on the best interests of the Company. We also have not adopted a stockholder rights plan.

We describe below certain key corporate governance and ethics policies which we believe enable us to manage our business in accordance with the highest standards of business practices and in the best interests of our stockholders.

Corporate Governance Guidelines and Committee Charters

We have adopted Corporate Governance Guidelines to outline our corporate governance structure and address significant corporate governance issues, which are reviewed at least annually by the Corporate Governance Committee. Copies of these Guidelines as well as the Charter for each committee of our board of directors can be found at the “Investor Relations — Governance — Corporate Governance Documents” section of our website at www.express-scripts.com.

Code of Ethics

We have adopted a Code of Ethics which applies to all of our directors, officers, and employees, including our senior financial officers. A copy of the Code of Ethics is available at the “Investor Relations — Governance — Corporate Governance Documents” section of our website at www.express-scripts.com. We will post any amendments to the Code of Ethics or any waivers of the Code of Ethics for any of our directors, executive officers or senior financial officers, in the same section of our website.

 

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Selection of Nominees for the Board of Directors

The Corporate Governance Committee is responsible for evaluating potential candidates to serve on our board of directors, and for recommending nominees to be presented for election to the board of directors at our annual meeting of stockholders. In evaluating potential director candidates, including incumbent directors, the Corporate Governance Committee considers the skills and characteristics possessed by each candidate in the context of the perceived needs of the board of directors at that point in time in an effort to ensure there is a blend of skills and experience that will enhance the effectiveness of the board. Among the factors considered by the Corporate Governance Committee are the following:

 

    the nominee’s independence;

 

    the nominee’s relevant professional skills and depth of business experience;

 

    the nominee’s character, judgment, and personal and professional integrity;

 

    the nominee’s ability to read and understand corporate financial statements;

 

    the nominee’s willingness to commit sufficient time to attend to his or her duties and responsibilities as a member of the board of directors;

 

    the nominee’s qualifications for membership on certain committees of the board of directors;

 

    any potential conflicts of interest involving the nominee; and

 

    the composition and diversity of our existing board of directors.

Although the board has not adopted a formal policy on diversity, the Corporate Governance Committee considers the diversity, age, skills, and experience of candidates in the context of the overall needs of the board. The Corporate Governance Committee evaluates diversity in a broad sense, recognizing the benefits of racial and gender diversity, but also considering the breadth of backgrounds, professional skills, and business experiences that directors and candidates may bring to our board.

In identifying potential candidates for the board of directors, the Corporate Governance Committee relies on recommendations from a number of possible sources, including current directors and officers. The Corporate Governance Committee may also retain outside consultants or search firms to help identify potential candidates for membership on the board. The Corporate Governance Committee will also consider candidates recommended by stockholders on the same basis as other candidates.

Any stockholder wishing to recommend a candidate for consideration by the Corporate Governance Committee to become a nominee for election to the board of directors may do so by submitting a written recommendation to the Corporate Governance Committee in accordance with our procedures for the submission of future stockholder proposals, as set out in our bylaws (see “Future Stockholder Proposals” on page 89). For a nominee to be considered for election, the nominee must provide the questionnaire and the representation and agreement described in the “Future Stockholder Proposals” section, and must describe various matters regarding the nominee and the recommending stockholder (including their associates and affiliates or others acting in concert and the underlying beneficial owner, if any) including, among other things, the following information:

 

    the name, age, address and principal occupation or employment of both the nominee and the recommending stockholder;

 

    the nominee’s general biographical information, including the identification of any other boards on which the nominee serves;

 

    with respect to our common stock, the current ownership information for both the nominee and the recommending stockholder;

 

    a description of any transactions or relationships between the nominee and/or the recommending stockholder on the one hand, and our Company or our management on the other hand;

 

    a description of any material proceedings that are adverse to our Company and to which the nominee or the recommending stockholder is a party;

 

    a description of all agreements, arrangements and understandings between the recommending stockholder and the nominee pursuant to which the nomination is made;

 

    a description of any rights to vote or acquire shares of our common stock together with a description of any other derivative securities related to shares of our common stock held by the recommending stockholder;

 

    such other information as may reasonably be required by the Company to determine the eligibility of the nominee to serve as an independent director or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee; and

 

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    any other information relating to the nominee or the recommending stockholder that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

The request for nomination must also be accompanied by a written consent from the proposed nominee authorizing his or her nomination and agreeing to serve as a director if elected. Our Corporate Secretary will review all such stockholder recommendations, and will forward those that comply with the above-described requirements to the Corporate Governance Committee for evaluation and consideration.

Directors’ Compensation

The compensation of our directors is determined by the Corporate Governance Committee with input from the Compensation Committee. The objective of our non-employee director compensation program is to attract highly-qualified individuals to serve on the board of directors and to appropriately align the interests of our directors with those of our stockholders. The Corporate Governance Committee and the Compensation Committee review the director compensation program periodically to ensure that it continues to meet these objectives. In order to determine whether the director compensation program is competitive, the Corporate Governance Committee and the Compensation Committee consider general market information on program design as well as the significant amount of time that directors expend in fulfilling their duties to the Company and the skill level required by members of the board.

Directors who are employed by our Company or its subsidiaries do not receive compensation for serving as directors. Prior to compensation adjustments made in March 2016 described below, directors who were not employees of our Company or its subsidiaries were entitled to receive:

 

    an annual retainer as follows:

 

    $15,000 for the Audit Committee Chairperson;

 

    $10,000 for the Compensation Committee Chairperson;

 

    $5,000 for other committee Chairpersons;

 

    $40,000 for all non-employee directors;

 

    an additional $25,000 for the Presiding Director;

 

    an additional $10,000 for each committee on which a director serves after the first committee;

 

    a meeting fee of $2,000 for each meeting attended in person; and

 

    a meeting fee of $1,000 for each meeting attended telephonically.

We also reimburse non-employee directors for out-of-pocket expenses incurred in connection with attending board and committee meetings.

Our non-employee directors also receive equity awards. All awards are currently made under the 2011 LTIP and will be made under the 2016 Long-Term Incentive Plan if approved at the meeting (see “Proxy Item No. 4: Approval and Ratification of the Express Scripts Holding Company 2016 Long-Term Incentive Plan” on page 71). Prior to adjustments made in March 2016, we made the following equity awards to our non-employee directors:

 

    an initial equity grant with a notional value of $115,000 for the first board of directors meeting attended as a non-employee director; and

 

    an annual equity grant with a notional value of $200,000, with new directors who have taken office since the previous annual meeting receiving a pro-rated grant for the partial first year.

These equity awards are granted consistent with our Equity Award Granting Policy. The grant date with respect to annual equity grants is typically the date of our annual May board meeting and the grant date with respect to initial equity grants is the last to occur of the following: (i) the date of the final action necessary by the Committee or the board (as appropriate) to approve such award; (ii) such later date as may be specified in the terms of such award; or (iii) if the effective date under (i) or (ii) above would not fall within an “open window” trading period, then such award will be granted with an effective grant date as of the third trading date following the date of the next release of quarterly or annual financial results.

The equity awards are divided between non-qualified stock options and restricted stock units as follows:

 

   

one-half of the value of the equity award in time-vested, non-qualified stock options, valued using the method we utilize in valuing the grants for financial reporting purposes (currently the Black-Scholes valuation model), with the number of

 

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  stock options and the exercise price determined based on the fair market value of our common stock as of the grant date; and

 

    one-half of the value of the equity award in restricted stock units, valued based on the fair market value of our common stock as of the grant date. The restricted stock units entitle the non-employee director to receive an equivalent number of shares of our common stock upon vesting.

All of the stock options granted to the non-employee directors have an exercise price equal to 100% of the fair market value of our common stock on the grant date and have a ten year term with respect to stock options granted after January 1, 2015 and a seven year term with respect to stock options granted prior to January 1, 2015. The stock options and restricted stock units vest ratably over a period of approximately three years. In order to relieve administrative burdens inherent with multiple vestings within a short timeframe, we generally align the vesting date for annual grants of time-based equity awards to a date certain (as opposed to the anniversary of the actual grant date). For non-employee director annual awards, the vesting date is May 1 of each year.

Generally, upon termination of a director’s board membership, all unvested stock options and restricted stock units are forfeited. However, the vesting of unvested stock options and restricted stock units accelerates upon a director’s retirement as follows:

 

    upon attaining age 70, which we refer to as a “tenured retirement,” all unvested stock options and restricted stock units vest immediately, with the right to exercise each stock option throughout the length of its term; and

 

    upon attaining age 65 with at least 10 years of service on the board of directors, which we refer to as an “early retirement,” a pro-rated portion of all unvested stock options and restricted stock units vest in accordance with the original vesting schedule of the respective equity grant. The pro-rated portion that continues to vest is equal to (i) the number of months served past age 65, divided by (ii) 60, or at a rate of 20% per year between the ages 65 and 70. This vested portion of the stock option remains exercisable until the earlier of four years after the retirement date or the expiration of the award. The portion of any award that does not vest is forfeited.

The vesting of unvested stock options and restricted stock units accelerates upon a director’s death or “disability” (as defined in the 2011 LTIP) as follows:

 

    all unvested stock options vest and remain exercisable for one year;

 

    all unvested restricted stock units vest, pro-rated for the portion of the three-year vesting period from the grant date through the date of death or “disability;” and

 

    upon the death or “disability” of a director who would have been eligible for a tenured retirement or an early retirement, such director or his or her representative can elect to have the eligible equity grants treated accordingly.

The vesting of all unvested stock options and restricted stock units accelerates upon a “change in control” (as defined in the 2011 LTIP).

The following table provides information regarding our compensation of non-employee directors for 2015.

 

Name    Fees Earned or
Paid in Cash
(1)
     Stock Awards
(2)
     Option
Awards
(3)
     Total  
Gary G. Benanav(4)    $ 90,500       $ 100,000       $ 100,000       $ 290,500   
Maura C. Breen(5)      78,500         100,000         100,000         278,500   
William J. DeLaney(6)      95,500         100,000         100,000         295,500   
Elder Granger(7)      43,000         57,427         57,427         157,854   
Nicholas J. LaHowchic(8)      86,000         100,000         100,000         286,000   
Thomas P. Mac Mahon(9)      107,500         100,000         100,000         307,500   
Frank Mergenthaler(10)      93,750         100,000         100,000         293,750   
Woodrow A. Myers, Jr. (11)      92,500         100,000         100,000         292,500   
Roderick A. Palmore(12)      70,000         100,000         100,000         270,000   
John O. Parker(13)      14,500                         14,500   
William L. Roper (14)      71,750         100,000         100,000         271,750   
Seymour Sternberg(15)      88,500         100,000         100,000         288,500   

 

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(1) This column reports the amount of cash compensation earned for 2015 service on our board of directors and its committees.

 

(2) Each director, except for Messrs. Granger and Parker, received an award of 1,189 restricted stock units on May 6, 2015 which vest one-third per year on May 1, 2016, May 1, 2017, and May 1, 2018. Grant date fair value was $100,000 (each grant had a notional award value of $100,000 rounded down to the nearest whole share). Pursuant to the Company’s Director Compensation Policy, restricted stock unit awards have been valued in the same manner as described in footnote 2 to the Summary Compensation Table on page 43.

 

(3) Each director, except for Messrs. Granger and Parker received a grant of 5,604 non-qualified stock options on May 6, 2015, which vest one-third per year on May 1, 2016, May 1, 2017, and May 1, 2018. Grant date fair value was $100,000. Pursuant to the Company’s Director Compensation Policy, non-qualified stock options have been valued in the same manner as described in footnote 4 to the Summary Compensation Table on page 43.

 

(4) At year-end, Mr. Benanav held 28,426 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

 

(5) At year-end, Ms. Breen held 28,426 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

 

(6) At year-end, Mr. DeLaney held 16,092 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

 

(7) Mr. Granger was elected to the board of directors on May 6, 2015. He received an award of 3,222 stock options and 683 restricted stock units on May 6, 2015, each of which vest one-third per year on May 1, 2016, May 1, 2017, and May 1, 2018. At year-end, Mr. Granger held 3,222 unvested stock options and 683 unvested restricted stock units.

 

(8) At year-end, Mr. LaHowchic held 20,776 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

 

(9) At year-end, Mr. Mac Mahon held 41,554 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

 

(10) At year-end, Mr. Mergenthaler held 44,128 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

 

(11) At year-end, Dr. Myers held 14,084 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

 

(12) At year-end, Mr. Palmore held 1,127 vested stock options, 5,909 unvested stock options and 1,286 unvested restricted stock units.

 

(13) Mr. Parker retired from the board on February 18, 2015 and did not receive an equity award in 2015.

 

(14) At year-end, Dr. Roper held 12,918 vested stock options, 11,830 unvested stock options, 2,724 unvested restricted stock units and 6,872 restricted stock units fully vested but deferred until retirement.

 

(15) At year-end, Mr. Sternberg held 6,048 vested stock options, 11,830 unvested stock options and 2,724 unvested restricted stock units.

In March 2016, after considering input from the Compensation Committee’s compensation consultant, (Frederic W. Cook & Co., Inc.), and an analysis of current market practice, the board approved the following changes in directors’ compensation:

 

    the annual cash retainer was increased to $100,000, but directors will no longer receive meeting fees;

 

    the retainers for Chairpersons of the committees were increased to $25,000 (Audit Committee), $20,000 (Compensation Committee) and $15,000 (other committees);

 

    the non-executive Chair of the Board, if and when appointed, will receive an annual retainer of $275,000;

 

    the Presiding Director retainer was increased to $50,000; and

 

    new directors will no longer receive an initial equity grant (annual grants of restricted stock units and stock options will remain unchanged).

Stock Ownership Guidelines for Directors

Our Corporate Governance Guidelines establish a minimum level of stock ownership that is sufficient, in the judgment of the Corporate Governance Committee, to closely align the interests of our directors with those of our stockholders. Directors are expected to maintain stock ownership with a value of at least 1.5 times the notional value of our annual equity grant to non-

 

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employee directors. In March 2016, the stock ownership expectation was increased to 4 times the annual cash retainer, with an additional two-year period for directors to meet the higher threshold. Only stock owned “free and clear” is included in determining compliance with this threshold (i.e., unexercised stock options and unvested restricted stock units are not included). Directors are given five years to meet this threshold. In addition, once a director has met the threshold, if the value of the stock held by such director falls below the required ownership level due to a decrease in the trading price of our stock, such director has two years to remedy the shortfall. While these guidelines are not mandatory, each director’s status with respect to stock ownership is reviewed annually and communicated to the directors. Each of our directors is currently in compliance with these guidelines.

The Board of Directors’ Role in Enterprise Risk Management

The board of directors has general oversight responsibility for our affairs, including risk management, while senior management of the Company is responsible for our day-to-day operations. In order to assist the board of directors in overseeing risk management, we have implemented “enterprise risk management” or “ERM,” which is a company-wide initiative that involves the board of directors in an oversight capacity, as well as our senior management and other personnel acting in an integrated effort to identify, assess and manage risks that may affect our ability to execute on our corporate strategy and fulfill our business objectives. These activities involve the identification, prioritization and assessment of a broad range of risks (e.g., financial, operational, business, reputational, governance and managerial), and the formulation of plans to manage these risks or mitigate their effects.

Management provides periodic updates to our board of directors with respect to key risks which allows the board to oversee the formulation and implementation of plans to manage these risks or mitigate their effects. At least annually, the board of directors discusses with management the appropriate level of risk relative to our corporate strategy and business objectives and reviews with management the structure of our existing risk management processes. Further, at least annually, our Audit Committee discusses with our management and internal audit team our major financial risk exposures and the steps that have been taken to monitor and control such exposures, including a discussion of our risk assessment and risk management policies. In addition, our Compensation Committee regularly reviews risks related to our compensation policies and practices, and, at least annually, reviews and discusses the relationship between our risk management policies, corporate objectives, and compensation arrangements.

Communicating with the Board of Directors

Stockholders wishing to communicate with our board of directors or with an individual board member may do so by writing to the board of directors or the specific board member, and mailing the correspondence to: Express Scripts Holding Company, Attention: Corporate Secretary, One Express Way, Saint Louis, Missouri 63121. The outside of the envelope should clearly indicate that it contains a stockholder communication. Our board of directors has approved a process pursuant to which the office of the Corporate Secretary will review and forward the correspondence to the appropriate person or persons for response, with the exception of correspondence which is inappropriate or unrelated to the duties and responsibilities of the board of directors.

Certain Relationships and Related Party Transactions

The board of directors has adopted a Related Person Transaction Policy which requires all “Related Person Transactions” to be approved by the Corporate Governance Committee. The policy is reviewed periodically by the Corporate Governance Committee.

Under the policy, a “Related Person” is: (i) any person who has served as an executive officer, director or director nominee of the Company at any time since the beginning of the last fiscal year; (ii) any person beneficially owning in excess of 5% of any class of the Company’s voting securities; or (iii) an immediate family member of any person described in clause (i) or (ii).

Under the policy, a “Related Person Transaction” is any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships (i) involving an amount that exceeds or is expected to exceed $120,000 in the aggregate; (ii) in which the Company or its subsidiaries was, is, or will be a participant; and (iii) in which a Related Person had, has, or will have a direct or indirect material interest, other than:

 

    any compensation arrangement with one of our executive officers if the appropriate board committee approved such compensation arrangement;

 

    any compensation paid to one of our directors if the compensation is approved by the appropriate board committee;

 

    any transaction where the Related Person’s interest arises solely from the ownership of our securities and all holders of the same class of securities receive the same benefit on a pro rata basis (e.g. dividends);

 

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    any transaction with another company at which a Related Person’s only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved over any 12-month period does not exceed the greater of $200,000, or 2% of that company’s total annual revenues;

 

    any charitable contribution, grant, or endowment by the Company to a charitable organization, foundation or university at which a Related Person’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the greater of $200,000, or 2% of the charitable organization’s total annual receipts;

 

    transactions available to all employees generally and conducted on similar terms;

 

    any transaction involving a Related Person in which the rates or charges involved are determined by competitive bids;

 

    any transaction with a Related Person involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority;

 

    any transactions with a Related Person involving services as a bank depository of funds, transfer agent, registrar, trustee under a trust indenture or similar services; and

 

    any transaction, contract or arrangement approved by the board of directors.

Our executive officers and directors are expected to notify the General Counsel of any current or proposed transaction that may be a Related Person Transaction. The General Counsel will determine if such transaction is likely to be considered a Related Person Transaction, and, if so, will include it for consideration at the next meeting of the appropriate committee. Approval should be obtained in advance of a Related Person Transaction whenever practicable and is only granted where the appropriate committee determines that the transaction is in, or is not inconsistent with, the best interests of our stockholders. If it becomes necessary to approve a Related Person Transaction between meetings, the chair of the Corporate Governance Committee is authorized to act on behalf of the Corporate Governance Committee and will provide a report at its next meeting.

We expect our directors, officers and employees to act and make decisions that are in the best interests of our stockholders and encourage them to avoid situations which present a conflict between our interests and their own personal interests. In addition, we are strictly prohibited from extending personal loans to, or guaranteeing the personal loans of, any director or officer. A copy of our Code of Ethics is available at the “Investor Relations — Governance — Corporate Governance Documents” section of our website at www.express-scripts.com.

 

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EXECUTIVE COMPENSATION

 

 

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

Company Performance

We continue to execute our successful business model, which emphasizes the alignment of our financial interests with those of our clients and patients through greater use of generics, and lower-cost brands, home delivery and specialty pharmacies, while at the same time, delivering strong financial performance.

2015 Financial Review:

 

    increased earnings per diluted share attributable to Express Scripts from $2.64 to $3.56, a 35% increase;

 

    increased net income attributable to Express Scripts from $2,007.6 million to $2,476.4 million, a 23% increase;

 

    increased generic fill rate from 82.9% to 84.4%; and

 

    cash flow provided by operating activities increased from $4.55 billion to $4.85 billion.

Compensation Program Reflects Best Practices

We have designed our compensation program to drive performance toward the achievement of our short-term and long-term goals and to increase stockholder value, while appropriately balancing risk and reward. In May 2015, the Compensation Committee (for purposes of this “Executive Compensation” section of the proxy statement, the “Committee”) conducted its annual review and risk assessment of the Company’s compensation policies and practices to ensure our compensation program remains competitive and continues to align individual and group performance with the operational and financial performance of the Company. Following this review, the Committee concluded that our compensation program was appropriately designed for the size and complexity of the Company, was not reasonably likely to encourage excessive risk taking and that no significant changes were required. We intend to continue to regularly review our compensation program and incorporate best practices, examples of which include:

 

    target total direct compensation (base salary, performance-based cash bonus awards and long-term incentive equity awards) that is generally competitive with a peer group of companies and other companies with which we compete for talent;

 

    a mix of short- and long-term performance incentives, with an emphasis on long-term performance;

 

    the regular risk assessment of compensation programs;

 

    stock ownership guidelines;

 

    a prohibition on trading in derivatives with respect to our common stock and on pledging shares of our common stock;

 

    a clawback policy;

 

    no reportable perquisites (except relocation allowance for a newly appointed executive); and

 

    no tax gross-ups for our executive officers.

Pay-for-Performance

As discussed in more detail below, our compensation program is focused on aligning the interests of our senior executive officers with those of our stockholders. Because the majority of total direct compensation is in the form of performance-based variable pay awards (cash bonus awards and long-term incentive equity awards), the aggregate total direct compensation of our senior executive officers is designed to increase when the Company’s performance exceeds, and to decrease when the Company’s performance falls short of, our operational and financial goals. Total direct compensation for each of our senior executive officers can also increase or decrease based on individual performance (as determined by the Committee in consultation with the CEO or, with respect to the CEO, by the Committee and the independent members of the board). We also measure our compensation program relative to a peer group of companies. See “Implementing Our Compensation Objectives – Competitive Market Assessment of Executive Compensation Programs” on page 32.

 

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Stockholder Say-on-Pay

In May 2015, we held our annual stockholder advisory vote on executive compensation, commonly referred to as a say-on-pay vote. Of all votes cast, 94% were in favor of the compensation of our named executive officers as disclosed in our 2015 proxy statement. The Committee considered the results of the say-on-pay vote together with the trends in the say-on-pay votes of other companies and concluded that the vote affirms stockholder support of our approach to executive compensation. As a result, the Committee decided not to make any significant changes to the structure of our compensation program.

2015 Say-on-Pay Vote

 

LOGO

Named Executive Officers

James Havel assumed the role of executive vice president and interim chief financial officer on January 2, 2015. On September 9, 2015, Eric Slusser assumed the role of executive vice president and chief financial officer and Mr. Havel left the role of interim chief financial officer and remained an employee of the Company through March 11, 2016 as executive vice president, finance. Keith Ebling left the role of executive vice president and general counsel effective July 24, 2015, but is expected to remain employed with the Company through June 1, 2016 (unless employment is earlier terminated by either Mr. Ebling or the Company) in order to facilitate a smooth and orderly transition. For a summary of termination benefits for each of Mr. Havel and Mr. Ebling, see “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – James Havel” on page 63 and “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – Keith Ebling (Expected Payments)” on page 64.

We refer to the following individuals as the “named executives,” “named executive officers,” or “NEOs” for the purposes of this proxy statement: George Paz, our chief executive officer; Timothy Wentworth, our president; Mr. Slusser, our executive vice president and chief financial officer; Sara Wade, our senior vice president and chief human resources officer; Christine Houston, our senior vice president, operations; Mr. Havel, our former executive vice president and interim chief financial officer; and Mr. Ebling, our former executive vice president and general counsel.

The compensation of our named executive officers is approved by the Committee and ratified by the board in the case of our executive vice presidents and ratified by the independent members of the board in the case of our CEO and president.

Summary of Compensation Components

The key components of our compensation program for our named executives are outlined in the following table (excluding health and similar benefits which are generally available to all employees).

 

Base Salary

Key Elements

 

 A fixed cash amount, determined annually.

 

Objective

 

 Provides a pay opportunity that is generally competitive with the companies with which we compete for management talent.

 

Compensation Actions in 2015

 

 Increased base salary in 2015 by approximately 2.8% for Mr. Paz, 2.9% for Mr. Wentworth and Ms. Wade, 3.6% for Ms. Houston and 3.7% for Mr. Ebling. Base salary was not adjusted for Messrs. Slusser and Havel as each was hired by the Company in 2015.

 

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Executive Performance-Based Cash Bonus Awards

Key Elements

 

 An annual cash award approved by the Committee for senior executive officers (and ratified by the board, with respect to our executive vice presidents, and ratified by the independent members of the board, with respect to Mr. Paz and Mr. Wentworth).

 

 All of our named executives are eligible to receive annual performance-based cash bonus awards.

 

 In the first quarter of the performance year, the Committee approves, and the board ratifies, as applicable, a performance-based cash bonus award for each executive officer to be paid in the first quarter of the following year. The award is granted at 215% of each executive’s target bonus amount, which reflects the maximum potential award. For purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Committee also approves, and the board ratifies, a minimum EPS target that must be achieved during the performance year or the award is forfeited. If the minimum EPS target is met, the Committee retains the discretion to adjust the actual payout of the award downward from the maximum potential award.

 

 Performance-based cash bonus awards are awarded under the 2011 LTIP. The Committee may, in its discretion, use a variety of subjective performance factors when granting these awards and considers, among other factors, each executive’s individual performance as a key factor in determining the actual payout.

 

Objective

 

 Rewards the achievement of certain operational and performance metrics that are established for each year.

 

 Motivates performance by delivering greater rewards for superior Company and individual performance, while delivering reduced or no awards for Company or individual underperformance.

 

Compensation Actions in 2015

 

 The target cash bonus award as a percentage of projected base salary was set at 150% for Mr. Paz, 125% for Mr. Wentworth, 100% for Mr. Slusser, 80% for each of Ms. Wade and Ms. Houston, and 100% for each of Mr. Havel and Mr. Ebling.

 

 Consistent with historical practice, in the first quarter of 2015 the Committee approved, and the board ratified, a performance-based cash bonus award for each named executive officer to be paid in the first quarter of the following year. The award was granted at 215% of each executive’s target bonus amount, which reflected the maximum potential award. For purposes of Section 162(m) of the Code, the Committee also approved, and the board ratified, a minimum EPS target for 2015.

 

 For 2015, the Committee approved, and the board ratified, a minimum EPS target of $1.75 (representing non-adjusted EPS as determined in accordance with GAAP).

 

 The minimum EPS target was exceeded for 2015; however, the Committee used its downward discretion to reduce the actual payout of the awards. This decision was based primarily on (i) the percentage payout of the 2015 Employee Annual Bonus Plan, applicable to employees below the senior staff level, which paid out at 157% of target based in part on certain 2015 financial metrics, including adjusted EBITDA and adjusted EPS (as presented in detail in the Company’s earnings release included on Form 8-K as filed with the SEC on February 16, 2016) and (ii) the individual performance of each named executive together with the subjective achievement of certain strategic and operational goals, including a client retention rate of 97%, a strong “1/1” or “January 1” operational performance, and the execution of capital structure initiatives. As adjusted by the Committee the actual payout of each award (as a percentage of the maximum potential award) was reduced to 73% for Mr. Paz, 73% for Mr. Wentworth, 73% for Mr. Slusser, 73% for Ms. Wade, 80% for Ms. Houston, and 73% for Mr. Havel. Pursuant to the terms of his Transition Agreement (as defined below), Mr. Ebling did not receive a 2015 performance-based cash bonus award. See “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – Keith Ebling (Expected Payments)” on page 64.

 

 

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Long-Term Incentive Plan

Key Elements

 

 Stock options comprise approximately 331/3% of annual long-term incentive equity awards for our named executives, and have a three-year vesting and ten-year expiration period for stock options issued after January 1, 2015.

 

 Restricted stock units comprise approximately 331/3% of annual long-term incentive equity awards for our named executives and have a three-year vesting period.

 

 Performance shares comprise approximately 331/3% of annual long-term incentive equity awards for our named executives and vest based upon the Company’s performance over three years in two equally weighted performance categories:

 

 total stockholder return relative to the S&P 100 Index; and

 

 three-year average return on invested capital relative to a predetermined target.

 

 The Committee may from time to time grant one-time awards in connection with hiring, promotion or other events.

 

Objective

 

 Stock options and restricted stock units align compensation to long-term stockholder value and stock price appreciation.

 

 Performance shares reward the achievement of our long-term financial goals and value creation to our stockholders relative to a defined peer group and predetermined targets.

 

 Overlapping vesting periods manage compensation-related risks associated with maximizing performance in any one period at the expense of another.

 

 Multi-year vesting period serves as a retention tool.

 

Compensation Actions in 2015

 

 Long-term incentive equity awards were granted consistent with historical practice, except that prior to January 1, 2015, (i) equity awards for our CEO were comprised of approximately 40% stock options, 25% restricted stock units and 35% performance shares; (ii) performance shares also used relative EPS growth as a performance criteria; and (iii) stock options had a seven-year expiration period.

 

Compensation Philosophy and Objectives

The Committee regularly discusses the general principles that form the basis of our compensation program. These principles, which guided the Committee’s compensation decisions in 2015, are discussed below.

Aligning Compensation with Stockholder Interests

The primary goal of our compensation program is to align the interests of our executives, including our named executive officers, with those of our stockholders through compensation vehicles that reward sustainable performance. Rewarding the achievement of established annual and long-term goals has the ultimate objective of increasing long-term stockholder value. The elements utilized to help achieve this alignment include:

 

    grants of performance shares, which incentivize management actions that are likely to enhance stockholder return and return on invested capital;

 

    grants of time-vested non-qualified stock options and awards of time-vested restricted stock units under our long-term incentive plan;

 

    executive stock ownership guidelines pursuant to which executives are expected to maintain significant holdings of our stock; and

 

    annual performance-based cash bonus awards applicable to all of our named executives under which amounts paid out to our named executive officers, if any, are approved by the Committee and ratified by the board in the case of our executive vice presidents and ratified by the independent members of the board in the case of our CEO and president (but, in each case, only if the established minimum EPS target is achieved) and are determined on a subjective basis, based on a variety of factors, including, with respect to 2015, the percentage payout under the Company’s 2015 Employee Annual Bonus Plan applicable to employees below the senior staff level, the individual performance of each named executive, and the subjective achievement of certain strategic and operational goals.

 

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Rewarding Both Annual and Long-Term Performance, with an Emphasis on Long-Term Performance

The various components of our compensation program are intended to reward the achievement of both annual and long-term performance, strategic, and operational objectives by the Company, the Company’s business units, and the individual executives, in each case, with a greater emphasis on long-term, sustainable performance. This objective, in many ways, overlaps with the alignment objective and is achieved through the same compensation elements, which include:

 

    grants of performance shares, the payout of which is contingent upon our performance, as measured by certain key financial metrics, over a three-year period;

 

    grants of stock options and restricted stock units, the values of which are dependent upon the growth of the Company’s stock price over a period of several years; and

 

    annual performance-based cash bonus awards applicable to all of our named executives, which are designed to focus our executives on annual Company-wide, operational, and individual goals.

Providing a Pay Opportunity Comparable with Peer Companies

In a constantly growing and rapidly changing business, it is imperative that we are able to attract and retain superior employees in key executive positions. For that purpose, it is our goal to provide opportunities that are generally competitive with the companies with which we compete for talent. These opportunities include:

 

    a competitive total direct compensation package consisting of base salary, performance-based cash bonus awards, and long-term incentive equity awards;

 

    employment agreements with our key executives which contain severance and change in control provisions; and

 

    an Executive Deferred Compensation Plan, which provides a tax-advantaged method for executives to save for retirement and under which we make contributions that cliff vest after three years (subject to acceleration upon eligibility for retirement (see “Other Compensation Related Matters – Deferred Compensation” on page 39)).

Managing Compensation-Related Risks

As discussed in more detail below, we do not believe our program encourages excessive or unnecessary risk-taking. See page 41 for additional detail.

 

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Mix of Compensation

While total direct compensation of our named executive officers consists of base salary, performance-based cash bonus awards and long-term incentive equity awards, in light of the focus of our executive compensation program on sustainable long-term performance and increased stockholder value, the majority of total direct compensation is granted in the form of long-term incentive equity awards. The following chart shows the relative value of the various compensation components for 2015 (base salary, performance-based cash bonus awards and long-term incentive equity awards), valued at target, in the case of performance-based awards, as a percentage of 2015 total direct compensation.

 

     

Base Salary and All

Other Compensation(1)

   Performance-Based Cash
Bonus Awards (target)
   Long-Term Incentive Equity
Awards (target)
CEO    $1,579,952    $1,914,417    $10,250,000
NEOs (other than CEO)(2)      4,137,186      3,635,005      15,300,000
for all NEOs      5,717,138      5,549,422      25,550,000

 

LOGO

 

  (1) All other compensation is discussed in footnote 6 to the “Summary Compensation Table” on page 43.

 

  (2) Excludes sign-on grant of restricted stock units with a grant date fair value of $1,000,000 and $2,500,000 with respect to Mr. Slusser and Mr. Havel, respectively.

Implementing our Compensation Objectives

Compensation Committee

The Committee is responsible for establishing, overseeing and reviewing executive compensation policies as well as approving, validating and benchmarking the compensation and benefits provided to our named executive officers. Any decision by the Committee related to compensation for our executive vice presidents is submitted for ratification by the board. Any decision by the Committee related to compensation for our CEO and president is submitted for ratification by the independent members of the board. The Committee’s charter is available on the Corporate Governance page at the “Investor Relations — Governance — Corporate Governance Documents” section of our website at www.express-scripts.com. The Committee currently includes four directors – Maura C. Breen (Chair), William J. DeLaney, Nicholas J. LaHowchic, and Woodrow A. Myers, Jr. Each of these directors is independent, as defined by the listing standards of The Nasdaq Global Select Market.

Role of Management in Establishing Compensation

At the direction of the Chair of the Committee, management generally prepares briefing materials for the Committee in advance of its meetings. An independent compensation consultant retained by the Committee may also prepare materials depending on the topics to be covered at the meeting. At the meetings, the Committee considers for approval compensation matters for senior executive officers and for newly hired or promoted senior executive officers. Management may also request the Committee consider additional issues involving compensation policies or design. During the annual evaluation process, the CEO evaluates the performance of our named executive officers (other than himself) and other members of our senior management team and provides

 

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a recommendation to the Committee with respect to annual increases to base salary, annual performance-based cash bonus awards, and long-term incentive equity awards. The Committee makes the final compensation decisions with respect to our named executives and other members of our senior management team, which are ratified by the board in the case of our executive vice presidents and which are ratified by the independent members of the board in the case of our CEO and president.

Management may be asked to assist in conducting the meetings and to provide relevant data, information and other resources. The Committee’s independent compensation consultant also participates as requested by the Committee. As part of regular Committee meetings, Committee members generally meet in executive session during which members of management are not present.

In consultation with the Committee, management establishes compensation parameters for employees below the senior management level. These compensation parameters generally reflect the philosophy and objectives established by the Committee in designing the compensation program for our named executive officers.

Role of the Compensation Consultant

Pursuant to its charter, the Committee has the independent authority to engage the services of outside advisors and experts. The Committee engaged Frederic W. Cook & Co., Inc. (“FWC”) as its compensation consultant with respect to 2015 compensation matters related to our senior executive officers, including our CEO. For purposes of this proxy statement, the term “Compensation Consultant” refers to FWC.

The Committee is solely responsible for commissioning the work of the Compensation Consultant, which is independent of management. The Committee has also assessed the independence of the Compensation Consultant pursuant to the rules of the SEC and concluded that its work for the Committee does not raise any conflict of interest. The Committee has adopted a policy requiring the approval of the Committee Chair or, at the Chair’s discretion, the entire Committee, before the Compensation Consultant can be utilized to perform any other services for the Company other than those required under its engagement by the Committee. In 2015, the Compensation Consultant was not utilized to perform any other services for the Company. The Committee has the authority to hire and dismiss the Compensation Consultant as well as to establish new engagements. With the permission of the Committee, management may receive copies of completed work performed by the Compensation Consultant and may also discuss work in progress. If requested by the Committee, a representative of the Compensation Consultant may participate in the meetings of the Committee in person or by telephone.

The role of the Compensation Consultant is to provide independent, expert advice to the Committee on the design of the Company’s compensation programs and the level of compensation paid to our senior executive officers. On an annual basis, the Compensation Consultant develops a peer group median based on a market analysis of the compensation elements of a selected group of peer companies (“Peer Group Median”) and a market analysis of the compensation elements of our general industry (“General Industry Median”) using a blend of nationally recognized compensation survey data. The Compensation Consultant then develops a market blend median (“Market Blend Median”) based on a blend of the Peer Group Median and the General Industry Median. The Compensation Consultant next conducts an annual competitive market assessment by comparing the compensation elements of our senior executive officers, including the CEO, with the General Industry Median and, where available, the Peer Group Median and the Market Blend Median. The Committee considers the competitive market assessment when making its final compensation decisions. It is the Committee’s current intention to continue annual competitive market assessments to ensure that our senior executive officers are compensated appropriately from a competitive and design perspective. In December 2014, FWC delivered its competitive market assessment and reviewed the results with the Committee (as discussed in further detail below). Management did not engage a separate executive compensation consultant during 2015.

Peer Group

The Compensation Consultant works with the Committee and management to review and select a group of peer companies that is reflective of the Company’s size and scope of business. The peer group companies (the “Peer Group Companies”) used for the December 2014 competitive market assessment include the ten companies above and the ten companies below our Company on the Fortune 100 list at the time the peer group was approved by the Committee in 2012 and includes

 

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companies from industries other than healthcare (exclusive of financial service and oil and gas companies due to their unique compensation practices). The Peer Group Companies are set forth below:

Peer Group Companies: Compensation Benchmarking

 

AmerisourceBergen Corp.    Home Depot Inc.
Apple Inc.    International Business Machines Corp.
AT&T Inc.    The Kroger Co.
The Boeing Co.    McKesson Corp.
Cardinal Health Inc.    Pfizer Inc.
Costco Wholesale Corp.    The Procter & Gamble Co.
CVS Health Corp.    Target Corp.
Ford Motor Co.    UnitedHealth Group Inc.
General Motors Co.    Verizon Communications, Inc.
Hewlett-Packard Co.    Walgreens Boots Alliance, Inc.

The following table provides a recent overview of our financial information relative to that of our Peer Group Companies:

Financial Information for Peer Group Companies

(based on publicly available information as of February 2016)

($ in billions)*

 

      Revenue
(most recent
four quarters)
    Total Assets
(most recent
quarter end)
    Market
Capitalization
(as of 2/8/16)
 
75th Percentile    $ 149.2      $ 170.9      $ 143.9   
50th Percentile      112.9        94.4        79.5   
25th Percentile      96.1        44.2        43.1   
Express Scripts      101.8        53.2        45.7   
Express Scripts Percentile      30     30     35

 

* Reflects adjustments to account for the breakup of Hewlett-Packard Co. into two separate entities: HP, Inc. and Hewlett Packard Enterprise Co.

The Committee expects to review and update our Peer Group Companies from time to time as necessary to account for mergers, acquisitions or other changes, or otherwise based on a determination by the Committee that any of our Peer Group Companies is no longer appropriate for benchmarking purposes.

Competitive Market Assessment of Executive Compensation Programs

The objective of our compensation design is to combine base salary, performance-based cash bonus awards, and long-term incentive equity awards to create an aggregate total direct compensation package that is generally competitive with the companies with which we compete for talent.

As stated above, the Committee engaged FWC to conduct a competitive market assessment for our senior executive officers, including our CEO, which was presented to the Committee in December 2014, in advance of the time 2015 executive compensation decisions were approved. The December 2014 competitive market assessment included a compensation benchmarking report with respect to our compensation program as compared to the General Industry Median and, with respect to the positions of CEO, president, chief financial officer, and general counsel, the Peer Group Median and the Market Blend Median. The results of the December 2014 compensation benchmarking report provide the market competitiveness for all three components of total direct compensation (as well as in total) for our senior executive officers, including each of our named executive officers. This compensation benchmarking report constitutes one of the factors considered by the Committee in determining the appropriate compensation levels of our named executive officers.

The results of the December 2014 compensation benchmarking assessment are outlined below and were considered by the Committee when approving our 2015 executive compensation program. Separate assessments were completed for Mr. Paz, Mr. Wentworth, Ms. Wade, Ms. Houston and Mr. Ebling. Mr. Slusser was appointed to the role of chief financial officer in September 2015 and Mr. Havel was appointed to the role of interim chief financial officer in January 2015 and, accordingly, neither an assessment of Mr. Havel’s compensation nor an assessment of Mr. Slusser’s compensation was included in the December 2014 compensation benchmarking assessment; however, the market data with respect to the position of chief

 

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financial officer was included in the report and considered when determining the compensation level for Messrs. Slusser and Havel. The following is a summary of the December 2014 compensation benchmarking assessment which assumes payout of performance-based variable pay at target:

 

    total target cash compensation (base salary and annual performance-based cash bonus awards) was 26% below market median for Mr. Paz, 10% below market median for Mr. Wentworth, 18% below market median for Ms. Wade, 23% below market median for Ms. Houston, and 6% below market median for Mr. Ebling; and

 

    total target direct compensation (base salary, annual performance-based cash bonus awards and long-term incentive equity awards) was 19% below market median for Mr. Paz, 9% above market median for Mr. Wentworth, 3% above market median for Ms. Wade, 6% below market median for Ms. Houston, and 6% above market median for Mr. Ebling.

The Compensation Consultant also conducted a competitive market assessment (which included a compensation benchmarking report) with respect to 2015 executive compensation which was presented to the Committee in December 2015. The December 2015 compensation benchmarking report was prepared on a similar basis to the December 2014 compensation benchmarking report described above. The results of the December 2015 compensation benchmarking report provide the market competitiveness for all three components of total direct compensation (as well as in total) for Mr. Paz, Mr. Wentworth, Mr. Slusser, Ms. Wade and Ms. Houston. As discussed above, Mr. Havel left the role of interim chief financial officer in September 2015 and Mr. Ebling left the role of general counsel in July 2015; accordingly, neither is included in the December 2015 compensation benchmarking report. The following is a summary of the December 2015 compensation benchmarking assessment which assumes payout of performance-based variable pay at target and does not include Mr. Paz or Mr. Wentworth as the December 2015 compensation benchmarking report reflected Mr. Paz’s expected retirement as CEO and Mr. Wentworth’s transition to the role of CEO, in each case, following the annual meeting:

 

    total target cash compensation (base salary and annual performance-based cash bonus awards) was 24% below market median for Mr. Slusser, 22% below market median for Ms. Wade, and 37% below market median for Ms. Houston; and

 

    total target direct compensation (base salary, annual performance-based cash bonus awards and long-term incentive equity awards) was 23% below market median for Mr. Slusser, 2% below market median for Ms. Wade, and 13% below market median for Ms. Houston.

The results of the December 2015 competitive market assessment demonstrated that total direct compensation for our named executive officers is generally below the market median (assuming payout of performance-based variable pay awards at target).

Components of Executive Compensation

Base Salary

The Committee considers the following when determining the annual base salary (and any changes thereto) of our named executive officers:

 

    the individual performance of the executive officer;

 

    the recommendations of management (for named executive officers other than our CEO) and the Compensation Consultant;

 

    the level, scope and complexity of responsibilities of the position;

 

    the competitive market assessment (described above);

 

    the performance of the business unit or functional division for which the executive officer is responsible; and

 

    our overall budget for compensation.

Base salary levels are typically reviewed annually as part of our performance review process or upon a promotion or significant change in a senior executive officer’s responsibilities. Changes in base salary for our named executive officers are approved by the Committee and ratified by the board in the case of our executive vice presidents and ratified by the independent members of the board in the case of our CEO and president. Annual changes are generally effective each year as of April 1.

 

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Following a careful review of the December 2014 competitive market assessment, in March 2015, following approval by the Committee and ratification by the board in the case of our executive vice presidents and our president, and ratification by the independent members of the board in the case of our CEO, base salaries were increased as follows:

 

    CEO: by 2.8% from $1,250,000 to $1,285,000;

 

    Mr. Wentworth: by 2.9% from $850,000 to $875,000;

 

    Ms. Wade: by 2.9% from $550,000 to $566,000;

 

    Ms. Houston: by 3.6% from $550,000 to $570,000; and

 

    Mr. Ebling: by 3.7% from $675,000 to $700,000.

The base salary of Mr. Havel remained unchanged at $725,000. The base salary for Mr. Slusser was set at $725,000 in connection with his commencement of employment and appointment to the role of executive vice president and chief financial officer in September 2015. The new base salary amounts were effective April 1, 2015.

Executive Performance-Based Cash Bonus Awards

Pursuant to our executive performance-based cash bonus award program, each member of our senior management team, including each of our named executive officers, has an annual target bonus amount expressed as a percentage of the executive’s base salary – 150% for Mr. Paz, 125% for Mr. Wentworth, 100% for Mr. Slusser, 80% for each of Ms. Wade and Ms. Houston, and 100% for each of Mr. Havel and Mr. Ebling (the effect of any salary adjustments during the year are pro-rated when determining “base salary”). In the first quarter of each year, the Committee approves, and the board ratifies, a performance-based cash bonus award under the 2011 LTIP for each member of our senior management team to be paid in the first quarter of the following year. The award is granted at 215% of each such executive’s target bonus amount, which reflects the maximum potential award. For purposes of Section 162(m) of the Code, the Committee approves, and the board ratifies, a minimum EPS target that must be achieved during the performance year or the award is forfeited. If the minimum EPS target is met, the maximum potential award is eligible for payout and the Committee retains discretion to adjust the actual payout of the award downward from the maximum potential award. The EPS target with respect to 2015 was $1.75 (representing non-adjusted EPS as determined in accordance with GAAP).

The minimum EPS target was exceeded for 2015; however, the Committee used its downward discretion to reduce the actual payout of the awards. This decision was based on a variety of subjective factors (none of which were established in advance), including (i) the percentage payout under the 2015 Employee Annual Bonus Plan applicable to employees below the senior staff level, which paid out at 157% of target based in part on certain 2015 financial metrics, including adjusted EBITDA and adjusted EPS (as presented in detail in the Corporation’s earnings release included on From 8-K as filed with the SEC on February 16, 2016) and (ii) the individual performance of each named executive together with the subjective achievement of certain strategic and operational goals, including a client retention rate of 97%, a strong “1/1” or “January 1” operational performance, and the execution of capital structure initiatives. The actual payout of each award, as adjusted by the Committee, is set forth in the table below. The final bonus payout awards for our named executive officers were approved by the Committee and, with respect to Messrs. Slusser and Havel, ratified by the board and, with respect to Messrs. Paz and Wentworth, ratified by the independent members of the board.

 

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Each of our named executive officers (other than Mr. Ebling) received actual payouts in March 2016 under their respective 2015 performance-based cash bonus award as reflected in the following table:

 

Executive    Maximum Potential
Bonus Award(1)
     Bonus Award
Paid Out
     Percentage of
Maximum
Potential
Bonus Award
Paid Out
    Target Bonus
Award
     Percentage of
Target
Bonus Award
Paid Out
 
George Paz    $ 4,115,997       $ 3,005,635         73   $ 1,914,417         157
Timothy Wentworth      2,334,996         1,705,091         73     1,086,045         157
Eric Slusser      491,113         358,627         73     228,425         157
Sara Wade      966,734         705,941         73     449,644         157
Christine Houston      971,918         780,699         80     452,055         173
James Havel      1,558,750         1,138,250         73     725,000         157
Keith Ebling(2)      1,491,747                        693,836           

 

(1) Maximum 2015 performance-based cash bonus awards were granted pursuant to the 2011 LTIP.

 

(2) As noted above, Mr. Ebling left the role of executive vice president and general counsel in July 2015. See “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – Keith Ebling (Expected Payments)” on page 64.

Annual Long-Term Incentive Equity Awards

The 2011 LTIP permits the Company to grant stock options, restricted stock units, performance shares and other awards to eligible individuals, which awards may be subject to one or more performance metrics selected from a broad range of permitted performance goals set forth in the 2011 LTIP.

The Company considers many factors in determining the appropriate mix of long-term incentive equity awards, including the prevalence and composition of equity awards as reported in the competitive market assessment and the mix of awards required to effectively incentivize management and to appropriately reward the creation of value for stockholders and strong financial performance. The Committee approves and the members of the board ratify (in the case of our executive vice presidents) and the independent members of the board ratify (in the case of our CEO and president) an aggregate value of long-term incentive equity awards for each named executive. The awards are then allocated among three different types of equity awards as follows:

 

Stock Options

Target % of Annual Long-Term Incentive Equity Awards

 

 331/3% based on the value calculated by the Black-Scholes valuation model, as described in Note 9 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for year ended December 31, 2015.

 

Key Features

 

 Vests in three equal annual installments, subject to acceleration in certain circumstances.

 

 Expires ten years from the date of grant (seven years for stock options issued prior to January 1, 2015).

 

 Exercise price equals the fair market value of our common stock on the grant date. The Company may not reduce the exercise price of any previously granted stock option, nor make any payment for cancellation of a stock option if the exercise price is below the fair market value of our common stock.

 

 Only provides compensation value if the stock price increases after the stock options are granted.

 

Restricted Stock Units

Target % of Annual Long-Term Incentive Equity Awards

 

 331/3% based on the fair market value of our common stock on the date of grant.

 

Key Features

 

 Vests in three equal annual installments, subject to acceleration in certain circumstances.

 

 Upon vesting, settled in shares of our common stock on a share-for-share basis.

 

 Realizable value is determined based on our stock price at the time of vesting.

 

 

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EXECUTIVE COMPENSATION

 

 

Performance Shares

Target % of Annual Long-Term Incentive Equity Awards

 

 331/3% based on the fair market value of our common stock on the date of grant.

 

Key Features

 

 Value of payout depends on the achievement of certain performance metrics over a three-year period. Performance metrics are weighted equally and include the following:

 

 Three-year total stockholder return: The Company’s performance with respect to three-year total stockholder return relative to the S&P 100 Index determines the payout with respect to 50% of the total number of performance shares granted based on the following scale, with results between the various thresholds resulting in proportionately adjusted payouts, provided that achievement below the 30th percentile will trigger a 0% payout:

 

–  Threshold: 30th percentile results in a payout of 50% with respect to 50% of the total number of performance shares granted;

 

–  Target: 50th percentile results in a payout of 100% with respect to 50% of the total number of performance shares granted; and

 

–  Maximum: 80th percentile results in a payout of 250% with respect to 50% of the total number of performance shares granted.

 

“Stockholder return” is the annualized rate of return reflecting price appreciation over the performance period plus reinvestment of dividends on a monthly basis and the compounding effect of dividends paid on reinvested dividends.

 

 Three-year average return on invested capital: The Company’s performance with respect to three-year return on invested capital relative to a predetermined target that aligns with the Company’s annual budget determines the payout with respect to 50% of the total number of performance shares granted based on the following scale, with results between the various thresholds resulting in proportionately adjusted payouts, provided that a three-year average return on invested capital below 10.50% will trigger a 0% payout:

–  Threshold: a three-year average return on invested capital equal to 10.50% results in a payout of 50% with respect to 50% of the total number of performance shares granted;

 

–  Target: a three-year average return on invested capital equal to 10.75% results in a payout of 100% with respect to 50% of the total number of performance shares granted; and

 

–  Maximum: a three-year average return on invested capital equal to 11.25% results in a payout of 250% with respect to 50% of the total number of performance shares granted.

 

“Return on invested capital” is income before extraordinary items (available for common stock), divided by total invested capital, which is the sum of total long-term debt, preferred stock, minority interest and total common equity.

 

 Performance shares are settled in shares of our common stock on a share-for-share basis.

The Committee determines the vesting schedule for each time-based equity grant and generally makes grants that vest in equal amounts over approximately three years. In order to relieve administrative burdens inherent with multiple vestings within a short period of time (e.g., calculation of tax withholding amounts, multiple SEC filing requirements, etc.), we generally align the annual vesting date for time-based equity awards to a specific date (as opposed to the anniversary of the actual grant date). For example, with respect to annual long-term incentive equity awards granted to employees, which are typically granted in late February or early March of each year, we have historically set the annual vesting dates for all awards to February 28. Except in the case of retirement, disability or death, certain change in control transactions, or, in the case of performance share awards, termination by the Company without “Cause” (as defined in the applicable employment agreement), executive officers generally must be employed by the Company on the scheduled vesting date in order for such vesting to occur.

The aggregate value of a named executive’s long-term incentive equity award is determined by the Committee based, in part, upon the contribution that the executive officer is expected to make to the overall growth, profitability and financial performance of the Company during the vesting period. The Committee also considers long-term incentive equity compensation levels of our Peer Group Companies and the results of the competitive market assessment. While the Company maintains stock ownership guidelines (see “Stock Ownership Guidelines for Executives” on page 40), the Committee does not consider existing stock ownership levels of individual executives in determining the amount of long-term incentive equity awards.

 

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EXECUTIVE COMPENSATION

 

 

Target values were determined by the Committee following consideration of the competitive market assessment presented to the Committee by FWC in December 2014. The value and the composition of long-term incentive equity awards granted to our named executive officers is set forth in the “Summary Compensation Table” on page 43.

Summary of 2015 Direct Compensation Decisions

The table below details the total direct compensation decisions for 2015.

 

Name    2015 Base
Salary(1)
     Bonus
Target
Percentage
(% of Base
Salary)
     Target
Bonus
Amount
(2)
     2015 LTI
Award(3)
    Total Target
Direct
Compensation(4)
     Amount
Earned
Above/
(Below)
Target
Bonus
Amount(5)
    Total Actual
Direct
Compensation
 
George Paz    $ 1,285,000         150       $ 1,914,417       $ 10,250,000      $ 13,449,417       $ 1,091,218      $ 14,540,635   
Timothy Wentworth      875,000         125         1,086,045         5,750,000        7,711,045         619,046        8,330,091   
Eric Slusser      725,000         100         228,425         1,000,000 (6)      1,953,425         130,202        2,083,627   
Sara Wade      566,000         80         449,644         2,150,000        3,165,644         256,297        3,421,941   
Christine Houston      570,000         80         452,055         1,900,000        2,922,055         328,644        3,250,699   
James Havel(8)      725,000         100         725,000         5,250,000 (7)      6,700,000         413,250        7,113,250   
Keith Ebling(8)      700,000         100         693,836         2,750,000        4,143,836         (693,836     3,450,000   

 

(1) Amounts shown represent annualized base salaries effective April 1, 2015 (or, in the case of Mr. Slusser, effective September 8, 2015).

 

(2) The target bonus amount is calculated by multiplying the bonus target percentage by the executive’s base salary, with the effect of any salary adjustments during the year pro-rated for the portion of the year during which such adjustments were in effect.

 

(3) The amounts shown, other than for Mr. Slusser, include stock options, restricted stock units and performance shares (assuming payout at target) and reflect grant date fair market value. These awards are also reflected in the “Summary Compensation Table” below. Specific 2015 long-term incentive equity awards (which reflect grant date fair market value in the table above) are included in the “Grants of Plan-Based Awards in 2015” table below.

 

(4) The amounts shown include base salary, target performance-based cash bonus award, stock options, restricted stock units and performance shares (assuming payout at target). Values with respect to stock options, restricted stock units and performance shares (assuming payout at target), reflect grant date fair market value and are also included in the “Summary Compensation Table” below.

 

(5) With respect to each of our named executive officers, amounts represent the amount by which the actual payout under the 2015 performance-based cash bonus awards was in excess of (or below) such named executives’ target bonus amount.

 

(6) Includes a one-time sign-on grant of restricted stock units with a grant date fair value of $1,000,000.

 

(7) Includes a one-time sign-on grant of restricted stock units with a grant date fair value of $2,500,000.

 

(8) Mr. Havel left the role of executive vice president and interim chief financial officer on September 9, 2015 and left the Company on March 11, 2016 and Mr. Ebling left the role of executive vice president and general counsel in July 2015. For a summary of the expected termination benefits with respect to Messrs. Havel and Ebling, see “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – James Havel” on page 63 and “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – Keith Ebling (Expected Payments)” on page 64.

Performance Measures

The performance measures used to determine the payout of 2015 performance-based cash bonus awards to our named executives in the first quarter of 2016 are discussed above, see “Compensation Discussion and Analysis — Components of Executive Compensation — Executive Performance-Based Cash Bonus Awards” on page 34. The performance metrics that will be used to determine the vesting of performance share awards granted in March 2015 for the 2015 – 2017 performance period (the “2015 PSUs”) are discussed above, see “Compensation Discussion and Analysis – Components of Executive Compensation – Annual Long-Term Incentive Equity Awards – Performance Shares” on page 36.

The performance metrics used to determine the vesting of performance share awards for the 2013 – 2015 performance period (the “2013 PSUs”) include three-year total stockholder return and three-year average return on invested capital as well as three-year compounded annual growth rate of earnings per share, with equal weighting (331/3%) for each performance metric.

 

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The performance metrics for the 2013 PSUs are calculated relative to a defined industry peer group and were designed to trigger payout as follows (with respect to 331/3% of the 2013 PSUs for each performance metric): 0% payout if the Company is ranked less than the 40th percentile relative to the peer group; 25% payout if the Company is ranked greater than the 40th percentile and less than the 50th percentile relative to the peer group; 100% payout if the Company is ranked greater than the 50th percentile and less than the 80th percentile relative to the peer group; and 250% payout if the Company is ranked greater than the 80th percentile relative to the peer group. Achievement of a percentile rank between the defined percentiles, would trigger a prorated number of 2013 PSUs with respect to the applicable performance metric. The defined industry peer group with respect to the 2013 PSUs is set forth below:

Industry Peer Group: Performance Share Awards for the 2013 – 2015 Performance Period: Granted in 2013 and Paid Out in 2016

 

Aetna Inc.    Humana Inc.
AmerisourceBergen Corp.    Laboratory Corp. of America Holdings
Anthem, Inc.    McKesson Corp.
Cardinal Health, Inc.    Patterson Companies, Inc.
Cigna Corp.    Quest Diagnostics Inc.
Coventry Health Care, Inc.    Tenet Healthcare Corp.
CVS Health Corp.    UnitedHealth Group Inc.
DaVita HealthCare Partners Inc.    Walgreens Boots Alliance, Inc.

Coventry Health Care, Inc. was not included in the determination of the 2016 payout of the 2013 PSUs due to its acquisition in the second quarter of 2013. The payout of the 2013 PSUs is reflected in the Option Exercises and Stock Vested Table on page 50.

With respect to both performance share awards and performance-based cash bonus awards, the Committee has the power and authority to make determinations concerning whether the performance measures have been achieved and may make appropriate adjustments to the results of the Company and/or any of the companies in the defined industry peer group (or the S&P 100 Index with respect to the 2015 PSUs), to account for changes in accounting principles or practices, changes in the number of shares outstanding (which would affect earnings per share targets), and similar changes, and may appropriately adjust for one-time items, extraordinary items, prior period adjustments, discontinued operation charges, and similar items, in determining whether the performance measures have been achieved. The Committee generally expects that it will only make such adjustments to the extent permitted by Section 162(m) of the Code.

Performance Share Award Results

The 2013 PSUs vested at 154.2% based on the achievement of the performance criteria as set forth in the table below.

 

Criteria    Express
Scripts
Performance
    Weight     Percentile
Rank
    Peer Group
Rank
     Vesting as a
Percentage
of PSU
Grant
    Vesting
Percent by
Relative
Weighting
 
Total Stockholder Return      17.0     33 13     33.33     11 out of 16         0     0
Three-Year Compounded Annual Growth Rate — EPS      13.9     33 13     73.33     5 out of 16         212.5     70.83
Three-Year Average Return on Invested Capital(1)      15.6     33 13     100     1 out of 16         250     83.33
Total Vesting                                               154.2

 

(1) The acquisition of Medco Health Solutions, Inc. by Express Scripts, Inc. (the “Medco transactions”) significantly impacted the Company’s three-year average return on invested capital, primarily due to the fact that acquisitions are priced based on future expected returns. However, it can take years for synergies to be fully realized. “Invested capital” reflects the full acquisition price in the first year, which significantly reduces an acquiring company’s return on invested capital. Under the original terms of the performance share awards, the Company’s three-year average return on invested capital resulted in a payout of 138% with respect to 331/3% of the total number of performance shares granted. However, the Committee exercised its authority to make appropriate adjustments and performed an adjusted calculation, whereby the cost of the Medco transactions was phased-in over a period of 5 years, resulting in a three-year average return on invested capital outcome as set forth in the table above. The Committee determined this adjustment was appropriate because the Medco transactions were a significant benefit to the Company and concluded it was in the best interests of the Company and its stockholders to incentivize management to actively pursue beneficial acquisitions.

 

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EXECUTIVE COMPENSATION

 

 

Other Compensation Related Matters

Perquisites

In accordance with our pay-for-performance compensation philosophy, no perquisites are provided to our senior executive officers that would be required to be reported in this proxy statement except for the reimbursement of relocation expenses and certain other miscellaneous expenses for Mr. Slusser as reflected on page 44. All of the offices in our headquarters building are the same size, including the offices of our senior executive officers; no reserved parking is provided to employees at any level; and no financial counseling programs are provided to our senior executive officers. In addition, our senior executive officers pay significantly higher premiums for medical insurance than our lower compensated employees.

Deferred Compensation

The Company provides an opportunity for senior executive officers to participate in the Executive Deferred Compensation Plan (“EDCP”), a deferred compensation program that is intended to comply with the rules provided under Section 409A of the Code. Participating executive officers can elect to defer up to 50% of their annual base salary and up to 100% of their annual performance-based cash bonus award. In addition, we have historically made contributions to each executive officer’s EDCP account in an amount equal to 6% of such executive officer’s annual cash compensation, with the contributions subject to cliff vesting at the end of the third calendar year following the year for which they are awarded. When a senior executive officer becomes eligible for retirement under the EDCP (which occurs upon reaching a minimum age of 55 and having a combined age plus years of service with the Company of 65), or upon termination due to death or disability (as defined in the EDCP plan), all Company EDCP contributions vest in full. Upon termination for any reason other than death, disability or retirement (as defined above), all unvested Company EDCP contributions are forfeited. Other than the 6% annual contribution to the EDCP and the opportunity to participate in the Company’s qualified 401(k) plan, the Company provides no retirement benefits to its senior executive officers.

Deferred compensation provides our senior executive officers a tax favored method of accumulating assets. The three-year vesting schedule applicable to Company contributions is intended to serve as a retention device for our senior executive officers. Amounts contributed to the EDCP by the participant are deemed to be invested in the hypothetical investment options selected by the participant from among the investment options similar to those available under the Company’s 401(k) plan and a Company stock fund. Contributions made by the Company are allocated as follows: 75% of the contribution is allocated to the participant’s selected hypothetical investment options and 25% is allocated to the Company stock fund. The account is credited with gains or losses actually experienced by the selected hypothetical investments. Accordingly, the EDCP does not credit above-market or preferential earnings on nonqualified deferred compensation.

Additional Benefits

Our senior executive officers also participate in employee benefit plans generally available to all employees on the same terms as similarly situated employees, including our 401(k) plan and health and welfare plans. The Company provides equivalent health insurance to all of our employees, and the employee paid portions of the premiums on such insurance are tiered such that more highly compensated employees pay higher premiums in order to subsidize the premiums for lower paid employees. As a result, the employee contributions paid by our highest paid employees can be nearly 300% higher than those paid by our lowest paid employees.

Clawback Policy

The Committee has approved and adopted a formal clawback policy that is applicable to all current and former executive officers (including the chief accounting officer) who receive incentive-based compensation (performance-based cash bonus awards and long-term incentive equity awards). The policy provides, subject to Committee discretion, for the recovery of incentive compensation in the event of a restatement of financial results, regardless of whether misconduct was the cause of the restatement. The policy became effective beginning with fiscal year 2012 reporting. Once final clawback rules are approved by the SEC, we intend to review our policy and compensation plans and, if necessary, amend them to comply with the new mandates.

 

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EXECUTIVE COMPENSATION

 

 

Employment Agreements

As discussed beginning on page 51, we have entered into employment agreements with our chief executive officer and each of our other senior executive officers, which provide for, among other things, severance benefits and change in control protections. The Committee believes that these agreements are appropriate and provide value to the Company for a number of reasons:

 

    the agreements assist in attracting and retaining senior executive officers as we compete for talented employees in a marketplace where such agreements are commonly offered;

 

    the severance provisions require terminated executives to execute a release in favor of the Company in order to receive any severance payments and such payments are further conditioned upon compliance with certain terms of the agreement, including covenants with respect to non-competition, non-solicitation and non-disparagement; and

 

    the change in control protections and severance benefits help to retain key personnel during rumored or actual acquisitions or similar corporate changes.

The employment agreement with Mr. Paz runs through March 2017. The employment agreements with our other senior executive officers are automatically renewed on April 1 of each year for successive one-year periods unless either party provides at least ninety days notice prior to the end of the term. Mr. Paz intends to retire as chief executive officer immediately following the meeting but is expected to remain in his role as chair of the board.

Deductibility of Compensation

The goal for the deductibility of compensation is to comply with the requirements of Section 162(m) of the Code, to the extent deemed practicable or appropriate by the Committee, which retains flexibility to exercise discretion in the design and administration of our compensation program. Section 162(m) places a limit of $1 million on the amount of compensation that a publicly-traded company may deduct in any one year for any of its “named executive officers” (as defined in the Code). This limitation does not apply to performance-based compensation meeting certain requirements (including the requirement that such compensation be paid under a stockholder-approved plan).

For 2015, the stock option, performance share and performance-based cash bonus awards, all of which were granted under the stockholder-approved 2011 LTIP, were designed with the intention of satisfying the deductibility requirements of Section 162(m). However, we cannot guarantee that our awards will in fact satisfy such requirements.

Stock Ownership Guidelines for Executives

The Company maintains guidelines for stock ownership with respect to its senior executive officers and vice presidents. The purpose of the guidelines is to encourage our senior executive officers and vice presidents to show a commitment to the Company and its stockholders by holding a prescribed number of shares of Company stock. In addition to shares of Company stock, the following equity vehicles (in each case assuming shares are withheld for taxes) are included when determining compliance with the ownership guidelines:

 

    unvested restricted stock units, net of taxes;

 

    Company share equivalents held under the EDCP, net of taxes; and

 

    vested, unexercised stock options, net of taxes.

Unvested performance shares and unvested stock options are not included in determining compliance. While the guidelines are not mandatory, compliance is reviewed annually by the Committee and communicated to the senior executive officers and vice presidents. Each senior executive officer and vice president has five years from the time of becoming an executive officer or vice president to attain the recommended ownership level. The guidelines suggest that each senior executive officer or vice president hold a number of eligible shares with a value at least equal to a multiple of his or her base annual salary as follows: 5.0x for the chief executive officer, 4.0x for the president, 3.0x for all executive vice presidents, 2.5x for all senior vice presidents, and 1.0x-1.5x for our vice presidents, with an exception for cases where the guidelines are not met due to a significant decrease in the stock price, in which case, the guidelines provide a period of two years to remedy the shortfall. As of December 31, 2015, each of our named executive officers was in compliance with the guidelines.

Equity Award Granting Policy

The Company has an equity awards policy which covers grant approvals and the establishment of the grant date for equity awards. Pursuant to this policy:

 

   

annual long-term incentive equity awards granted to our named executive officers during the first quarter of each year have an effective grant date as of the last to occur of the following: (i) the date of the final action necessary by the Committee or the board (as appropriate) to approve such award; (ii) such later date as may be specified in the terms of such award; or (iii) if the effective date under (i) or (ii) above would not fall within an “open window” trading period, then

 

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EXECUTIVE COMPENSATION

 

 

  such award will be granted with an effective grant date as of the third trading date following the date of the next release of quarterly or annual financial results;

 

    special equity awards for new hires, retention, promotion and special recognition may be granted during an “open window” trading period or, if the Committee, the board or the chief executive officer (as appropriate) acts outside of such a period, then such award will be granted with an effective grant date as of the third trading date following the date of the next release of quarterly or annual financial results;

 

    the exercise price of stock options will not be less than the closing trading price of the stock on the grant date; and

 

    equity grants with a prospective grant date will be made on a nominal value basis consistent with the method the Company uses to value options for financial reporting purposes under applicable authoritative accounting guidance.

By granting annual long-term incentive equity awards during the first quarter, the Committee is able to consider the previous year’s financial performance in determining the size and structure of such awards, both in the aggregate and with respect to individual senior executive officers. In addition, by granting annual long-term incentive equity awards during the first quarter, such grants are coordinated with the payout of performance-based cash bonus awards and annual base salary adjustments.

Derivatives Trading and Pledging

Because a primary goal of our equity-based incentive compensation program is to align the interests of our senior executive officers with those of our stockholders, we prohibit the trading of derivative securities related to shares of our stock, including hedging strategies, puts, calls or other types of derivative securities. Our policy also prohibits pledging shares of our stock.

Assessment of Risk

We do not believe that our compensation program generally, including the executive compensation program, encourages excessive or inappropriate risk-taking. A significant portion of our executive compensation program is generally performance-based, and, while appropriate risk-taking is a necessary component of growing a business, the Committee and management have focused on aligning our compensation policies with our long-term interests and avoiding short-term rewards for management and employee decisions that could pose undue long-term risks. Examples of such practices include:

 

    Limits on Annual Performance-Based Cash Bonus Awards. The compensation of our named executive officers is not overly-weighted toward short-term incentives. For instance, our CEO’s target performance-based cash bonus award for 2015 was approximately 14% of his total target direct compensation. Performance-based cash bonus awards with respect to each senior executive officer are also capped at 215% of such executive officer’s target bonus award.

 

    Emphasis on Long-Term Incentive Equity Awards; Overlapping Vesting Periods. The largest percentage of total target direct compensation for our named executive officers is provided through long-term incentive equity compensation which vests over a period of years. This vesting period encourages our senior executive officers to focus on sustaining and enhancing our Company’s long-term performance. Long-term incentive equity awards are also made annually so that our senior executive officers always have unvested equity awards which could significantly decrease in value if our business is not appropriately managed for the long-term.

 

    Performance Share Awards. A significant portion of the long-term incentive equity compensation of our named executive officers consists of performance shares. Performance share payouts are tied to the achievement of certain performance metrics which encourages focus on sustaining our long-term performance. These awards also have overlapping performance periods, so that any risks taken to increase the payout under one award could jeopardize the potential payout under other awards. To further reduce the incentive for unnecessary risk-taking, we cap the payout of these awards at 250% of target.

 

    Performance Metrics. A significant portion of awards are made based on the achievement of a variety of performance metrics, both predetermined (return on invested capital and earnings per share) and relative to the S&P 100 index (total stockholder return), which diversifies the risks associated with any single indicator of performance. We believe these metrics are affected by management decisions and correlate to the creation of stockholder value over the long-term.

 

    Role of Compensation Committee. Members of the Committee approve the final payout of the annual performance-based cash bonus awards for our named executive officers, following a review of executive and Company performance, which is ratified by the members of the board in the case of our executive vice presidents and by the independent members of the board in the case of our CEO and president. The Committee also reviews the Company’s compensation and incentive plans available to employees other than our named executive officers to, among other things, prevent unnecessary risk taking under such plans.

 

    Stock Ownership Guidelines. Our stock ownership guidelines require our senior executive officers and vice presidents to hold a certain amount of Company stock. This requirement ensures that each senior executive officer and vice president will have a significant amount of personal wealth tied to the long-term performance of our stock.

 

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EXECUTIVE COMPENSATION

 

 

 

    Clawback Policy. We have adopted a clawback policy applicable to all current and former executive officers (including the chief accounting officer) who receive incentive based compensation following the effectiveness of the policy. The policy provides, subject to Committee discretion, for the recovery of incentive compensation in the event of a restatement of financial results, regardless of whether misconduct was the cause of the restatement.

In summary, we have structured our compensation program so that a considerable amount of the wealth of our senior executive officers is tied to the long-term health and performance of our Company. We seek to provide incentives for our senior executive officers to manage for long-term performance while safeguarding our stockholders from inappropriate incentive compensation payments in the event of financial restatement. We also seek to avoid the type of disproportionately large short-term incentives that could encourage senior executive officers to take risks which may not be in the best long-term interests of our stockholders. We believe this combination of factors encourages our senior executive officers to manage our Company in a prudent manner.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is comprised of Maura C. Breen (Chair), William J. DeLaney, Nicholas J. LaHowchic and Woodrow A. Myers, Jr., none of whom are employees or current or former officers of our Company, or had any relationship with our Company required to be disclosed under “Certain Relationships and Related Party Transactions.”

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this proxy statement with management. Based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

COMPENSATION COMMITTEE

Maura C. Breen, Chair

William J. DeLaney

Nicholas J. LaHowchic

Woodrow A. Myers, Jr.

March 8, 2016

 

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Summary Compensation Table

The following table summarizes the compensation of our named executive officers for the year ended December 31, 2015:

 

Name and
Principal Position
  Year     Salary(1)      Bonus   Stock
Awards
(2)(3)
    Option
Awards
(4)
    Non-Equity
Incentive Plan
Compensation
(5)
    All Other
Compensation
(6)
    Total  
George Paz     2015      $ 1,324,058         $ 6,833,333 (7)    $ 3,416,667      $ 3,005,635      $ 255,894      $ 14,835,587   

Chief Executive Officer and Chair of the Board

   
 
2014
2013
  
  
   

 

1,235,385

1,187,308

  

  

      

 

6,000,000

5,400,000

  

  

   

 

4,000,000

3,600,000

  

  

   

 

1,392,233

2,764,507

  

  

   

 

293,388

88,867

  

  

   

 

12,921,006

13,040,682

  

  

Timothy Wentworth     2015        901,250           3,833,333 (8)      1,916,667        1,705,091        108,562        8,464,903   

President

    2014        815,303       $489,180(9)     3,400,000        1,700,000        775,683        106,036        7,286,202   
Eric Slusser     2015        220,289           1,000,000 (10)             358,627        32,493        1,611,409   

Executive Vice President and Chief Financial Officer

                
Sara Wade     2015        583,031           1,433,333 (11)      716,667        705,941        79,762        3,518,734   

Senior Vice President and Chief Human Resources Officer

    2014        535,385           1,375,000        687,500        387,029        80,367        3,065,281   
Christine Houston     2015        586,000           1,266,666 (12)      633,334        780,699        76,576        3,343,275   

Senior Vice President, Operations

                
James Havel(13)     2015        716,635       110,000(14)     4,333,333 (15)      916,667        1,138,250               7,214,885   

Former Executive Vice President and Interim Chief Financial Officer

                
Keith Ebling(16)     2015        719,519           1,833,333 (17)      916,667               113,069        3,582,588   

Former Executive Vice President and General Counsel

   
 
2014
2013
  
  
   

 

660,385

617,788

  

  

        

 

1,800,000

1,533,334

  

  

   

 

900,000

766,667

  

  

   

 

662,540

959,093

  

  

   

 

121,202

51,139

  

  

   

 

4,144,127

3,928,021

  

  

 

(1) The salary amount with respect to 2015 for each named executive officer, other than Mr. Slusser, is greater than such named executive officer’s 2015 base salary (see “Summary of 2015 Direct Compensation Decisions” on page 37) due to the timing of payroll processing and an additional paycheck included for the 2015 calendar year.

 

(2) Amounts reflect the aggregate fair value of restricted stock units and performance share awards (assuming payout at target), in each case, as of the grant date calculated in accordance with applicable authoritative accounting guidance. For restricted stock units and performance share awards, fair value is calculated using the closing price of our common stock on the date of grant. For additional information regarding stock-based compensation, refer to Note 9 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 10-K”).

 

(3) With respect to the value of performance share awards, the payout is dependent on the achievement of certain performance metrics over a three-year period. Based on these performance metrics, the maximum payout is 250% of the target award, which would result in a maximum value of: $8,541,668 for Mr. Paz; $4,791,668 for Mr. Wentworth; $1,791,668 for Ms. Wade; $1,583,333 for Ms. Houston; and $2,291,668 for Messrs. Havel and Ebling, with respect to performance share awards granted in 2015. For a full discussion of performance share awards, see “Compensation Discussion and Analysis — Components of Executive Compensation — Annual Long-Term Incentive Equity Awards — Performance Shares” on page 36.

 

(4) Amounts reflect the aggregate fair value of stock options as of the grant date calculated in accordance with applicable authoritative accounting guidance. The value of the stock option awards was calculated using a Black-Scholes multiple option-pricing model. For additional information regarding stock-based compensation, including the assumptions used in the Black-Scholes model, refer to Note 9 to the Consolidated Financial Statements included in our 2015 10-K.

 

(5) With respect to 2015, amounts reflect the performance-based cash bonus awards (unvested as of December 31, 2015) earned during 2015, as discussed in the Compensation Discussion and Analysis above. These amounts were approved by the Committee at its February 16, 2016 meeting and ratified by the board, as applicable, at its March 9, 2016 meeting.

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    43


Table of Contents

EXECUTIVE COMPENSATION

 

 

 

(6) Amounts include the basic Company contribution under the EDCP and the matching contribution under the 401(k) Plan. The amounts for 2015 are as follows:

 

Compensation Category   Mr. Paz     Mr. Wentworth     Mr. Slusser     Ms. Wade     Ms. Houston     Mr. Havel     Mr. Ebling  
Company Contribution under the EDCP   $ 239,994      $ 92,662      $      $ 63,862      $ 60,676      $      $ 97,169   
Company Matching Contribution under the 401(k) Plan     15,900        15,900               15,900        15,900               15,900   
Other                   32,493 (i)                             
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total     255,894        108,562        32,493        79,762        76,576                —        113,069   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (i) Includes a relocation allowance in the amount of $32,333 and $160 of miscellaneous expenses.

 

(7) Includes (i) an award of performance shares with a grant date fair value of $3,416,667 (assuming payout at target), which is based on the market price of our common stock on the date of grant and (ii) an award of time-based restricted stock units with a grant date fair value of $3,416,667, which is based on the market price of our common stock on the date of grant.

 

(8) Includes (i) an award of performance shares with a grant date fair value of $1,916,667 (assuming payout at target), which is based on the market price of our common stock on the date of grant and (ii) an award of time-based restricted stock units with a grant date fair value of $1,916,667, which is based on the market price of our common stock on the date of grant.

 

(9) Represents amounts paid in connection with Mr. Wentworth’s $2,935,050 retention bonus granted in January 2012.

 

(10) Amount reflects Mr. Slusser’s sign-on equity grant of restricted stock units.

 

(11) Includes (i) an award of performance shares with a grant date fair value of $716,667 (assuming payout at target), which is based on the market price of our common stock on the date of grant and (ii) an award of time-based restricted stock units with a grant date fair value of $716,667, which is based on the market price of our common stock on the date of grant.

 

(12) Includes (i) an award of performance shares with a grant date fair value of $633,333 (assuming payout at target), which is based on the market price of our common stock on the date of grant and (ii) an award of time-based restricted stock units with a grant date fair value of $633,333, which is based on the market price of our common stock on the date of grant.

 

(13) Mr. Havel left the role of interim chief financial officer effective September 9, 2015 and left the Company on March 11, 2016. The amounts set forth in the table above reflect compensation amounts for Mr. Havel with respect to 2015. For a summary of Mr. Havel’s termination benefits, see “Employment Agreements and Potential Payments Upon a Termination or Change in Control – Estimated Benefits – James Havel” on page 63.

 

(14) Reflects a one-time payment of $110,000 in connection with Mr. Havel’s sign-on bonus.

 

(15) Includes (i) an award of performance shares with a grant date fair value of $916,667 (assuming payout at target), which is based on the market price of our common stock on the date of grant; (ii) an award of time-based restricted stock units with a grant date fair value of $916,667, which is based on the market price of our common stock on the date of grant; and (iii) a one-time sign-on award of time-based restricted stock units with a grant date fair value of $2,500,000.

 

(16) Mr. Ebling left the role of executive vice president and general counsel effective July 24, 2015, but is expected to remain employed with the Company through June 1, 2016 (unless employment is earlier terminated by either Mr. Ebling or the Company) in order to facilitate a smooth and orderly transition. The amounts set forth in the table above reflect compensation amounts for Mr. Ebling with respect to 2015. For a summary of Mr. Ebling’s expected termination benefits, see “Employment Agreements and Potential Payments Upon Termination or Change in Control – Estimated Benefits – Keith Ebling (Expected Payments)” on page 64.

 

(17) Includes (i) an award of performance shares with a grant date fair value of $916,667 (assuming payout at target), which is based on the market price of our common stock on the date of grant and (ii) an award of time-based restricted stock units with a grant date fair value of $916,667, which is based on the market price of our common stock on the date of grant.

 

44    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

Grants of Plan-Based Awards in 2015

The following table provides additional information about our annual long-term incentive equity awards, which consist of performance share awards (PSUs), restricted stock unit awards (RSUs), non-qualified stock option awards (options) and non-equity incentive plan awards, in each case, granted to our named executive officers in 2015 pursuant to the 2011 LTIP.

 

                        Estimated Future
Payouts Under
Non-Equity
Incentive Plan
Awards(2)
    Estimated Future
Payouts Under
Equity
Incentive Plan
Awards(3)
   

All Other
Stock
Awards:

Number of
Shares of
Stock or
Units(i) (#)

   

All Other
Option
Awards:

Number of
Securities
Underlying
Options(j)
(#)

    Exercise
or Base
Price of
Option
Awards(k)
($/sh)
    Grant Date
Fair Value
of Stock
and Option
Awards(4)
(l) ($)
 
Name (a)   Type of
Award
  Grant
Date (b)(1)
    Committee
Action
Date (1)
    Threshold
(c) ($)
  Target (d)
($)
    Maximum
(e) ($)
    Threshold
(f) (#)
    Target
(g) (#)
    Maximum
(h) (#)
         
George Paz   PSUs     03/04/2015        03/03/2015              20,138        40,276        100,690            $ 3,416,667   
  RSUs     03/04/2015        03/03/2015                    40,276 (5)        $ 3,416,667   
  Options     03/04/2015        03/03/2015                      189,385 (6)    $ 84.83      $ 3,416,667   
  2015
Performance-
Based Cash
Bonus
Award
      02/17/2015 (7)    N/A   $ 1,914,417      $ 4,115,997                 
Timothy Wentworth   PSUs     03/04/2015        03/03/2015              11,297        22,594        56,485            $ 1,916,667   
  RSUs     03/04/2015        03/03/2015                    22,594 (5)        $ 1,916,667   
  Options     03/04/2015        03/03/2015                      106,240 (6)    $ 84.83      $ 1,916,667   
  2015
Performance-
Based Cash
Bonus
Award
      02/17/2015 (7)    N/A   $ 1,086,045      $ 2,334,996                 
Eric Slusser   RSUs     09/09/2015        09/08/2015                    11,960 (5)        $ 1,000,000   
  2015
Performance-
Based Cash
Bonus
Award
      09/08/2015 (7)    N/A   $ 228,425      $ 491,114                 
Sara Wade   PSUs     03/04/2015        03/03/2015              4,224        8,448        21,120            $ 716,667   
  RSUs     03/04/2015        03/03/2015                    8,448 (5)        $ 716,667   
  Options     03/04/2015        03/03/2015                      39,724 (6)    $ 84.83      $ 716,667   
  2015
Performance-
Based Cash
Bonus
Award
      02/17/2015 (7)    N/A   $ 449,644      $ 966,734                 
Christine Houston   PSUs     03/04/2015        03/03/2015              3,733        7,465        18,663            $ 633,333   
  RSUs     03/04/2015        03/03/2015                    7,465 (5)        $ 633,333   
  Options     03/04/2015        03/03/2015                      35,105 (6)    $ 84.83      $ 633,333   
  2015
Performance-
Based Cash
Bonus
Award
      02/17/2015 (7)    N/A   $ 452,055      $ 971,918                 
James Havel(8)   PSUs     03/04/2015        03/03/2015              5,403        10,805        27,013            $ 916,667   
  RSUs     03/04/2015        03/03/2015                    10,805 (5)        $ 916,667   
  RSUs     03/04/2015        03/03/2015                    29,470 (9)        $ 2,500,000   
  Options     03/04/2015        03/03/2015                      50,810 (6)    $ 84.83      $ 916,667   
  2015
Performance-
Based Cash
Bonus Award
    03/04/2015        02/17/2015 (7)    N/A   $ 725,000      $ 1,558,750                 
Keith Ebling(10)   PSUs     03/04/2015        03/03/2015              5,403        10,805        27,013            $ 916,667   
  RSUs     03/04/2015        03/03/2015                    10,805 (5)        $ 916,667   
  Options     03/04/2015        03/03/2015                      50,810 (6)    $ 84.83      $ 916,667   
    2015
Performance-
Based Cash
Bonus
Award
    03/04/2015        02/17/2015 (7)    N/A   $ 693,836      $ 1,491,747                                                           

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    45


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EXECUTIVE COMPENSATION

 

 

 

(1) The terms of the awards provide for a grant date which is typically the first practical date during an open window period following Committee approval and ratification by the board (as applicable).

 

(2) The amounts in columns (c), (d) and (e) represent the threshold, target and maximum payouts with respect to 2015 performance-based cash bonus awards. In the first quarter of the 2015 performance year, the Committee approved, and the board ratified, a performance-based cash bonus award for each executive officer to be paid in the first quarter of 2016. The award was granted at 215% of each executive’s target bonus amount, which reflected the maximum potential award (column (e)). For purposes of Section 162(m) of the Code, the Committee also approved, and the board ratified, a minimum EPS target that must be achieved during the performance year or the award would be forfeited. If the minimum EPS target was achieved, the Committee retained the discretion to adjust the actual payout of the award downward from the maximum potential award. The minimum EPS target was exceeded for 2015; however, the Committee used its downward discretion to reduce the actual payout of each award (as a percentage of the maximum potential award) for each named executive officer. See “Compensation Discussion and Analysis — Components of Executive Compensation — Executive Performance-Based Cash Bonus Awards” on page 34.

 

(3) The numbers in columns (f), (g) and (h) represent the threshold (50%), target (100%) and maximum (250%) payouts with respect to the performance share awards granted to our named executives in March 2015 for the January 1, 2015 through December 31, 2017 performance period. The number of shares of our common stock to be delivered upon settlement of the performance shares will be determined based upon our achievement of certain performance metrics over a three-year period. Realization of the performance share awards and their actual value, if any, will depend on our achievement of the performance metrics and the market value of our common stock on the date the performance share awards are settled. See “Compensation Discussion and Analysis — Components of Executive Compensation — Annual Long-Term Incentive Equity Awards — Performance Shares” on page 36.

 

(4) The amounts in column (l) with respect to performance share awards are based on the grant date fair value of the award assuming payout at target. The amounts in column (l) with respect to restricted stock unit awards are based on the grant date fair value of the award. The amounts in column (l) with respect to stock option awards are estimated on the date of grant using a Black-Scholes multiple option-pricing model. For additional information regarding equity-based compensation, including the assumptions used in the Black-Scholes model, refer to Note 9 to the Consolidated Financial Statements included in our 2015 10-K.

 

(5) Numbers represent restricted stock unit awards. With respect to Mr. Paz, Mr. Wentworth, Ms. Wade and Ms. Houston, one-third of the restricted stock units vested on February 28, 2016 and the remainder is scheduled to vest in two equal installments on February 28, 2017 and February 28, 2018, subject to acceleration under the terms of the 2011 LTIP and the applicable award agreement. With respect to Mr. Slusser, all of the restricted stock units (granted as a sign-on equity grant) are scheduled to vest on September 9, 2018. With respect to Mr. Havel, one-third of these restricted stock units vested on February 28, 2016 and the remainder were forfeited to the Company as of his termination date (March 11, 2016). With respect to Mr. Ebling, one-third of these restricted stock units vested on February 28, 2016 and the remainder are expected to be forfeited to the Company as of his expected termination date (June 1, 2016, unless employment is earlier terminated by either Mr. Ebling or the Company).

 

(6) Numbers represent non-qualified stock option awards. The stock options have an exercise price of $84.83 (the closing price of our common stock on the grant date) and, with respect to Mr. Paz, Mr. Wentworth, Ms. Wade and Ms. Houston, one-third of these stock options vested on February 28, 2016 and the remainder is scheduled to vest in two equal installments on February 28, 2017 and February 28, 2018, subject to acceleration under the terms of the 2011 LTIP and the applicable award agreement, and, in each case, will expire ten years following the date of grant. With respect to Mr. Havel, one-third of these stock options vested on February 28, 2016 and the remainder were forfeited to the Company as of his termination date (March 11, 2016). With respect to Mr. Ebling, one-third of these stock options vested on February 28, 2016 and the remainder are expected to be forfeited to the Company as of his expected termination date (June 1, 2016, unless employment is earlier terminated by either Mr. Ebling or the Company).

 

(7) Consistent with historical practice, in the first quarter of 2015 the Committee approved (at its February 17, 2015 meeting), and the board ratified (at its March 4, 2015 meeting), a performance-based cash bonus award to be paid in the first quarter of the following year (Mr. Slusser’s performance-based cash bonus award was approved by the Committee at its September 8, 2015 meeting and ratified by the board at its September 9, 2015 meeting). The award was granted at 215% of each respective executive’s target bonus amount, which reflected the maximum potential award. For purposes of Section 162(m) of the Code the Committee also approved, and the board ratified, a minimum EPS target that must be achieved during the performance year or the award would be forfeited. For 2015, the Committee approved, and the board ratified, a minimum EPS target of $1.75 (representing non-adjusted EPS as determined in accordance with GAAP). The actual payout for the 2015 performance-based cash bonus awards is discussed under “Compensation Discussion and Analysis — Components of Executive Compensation — Executive Performance-Based Cash Bonus Awards” on page 34.

 

46    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

 

(8) Mr. Havel left the role of interim chief financial officer effective September 9, 2015 and left the Company on March 11, 2016. The amounts set forth in the table above reflect grants of plan based awards in 2015 with respect to Mr. Havel. For a summary of Mr. Havel’s termination benefits, including the treatment of equity awards, see “Employment Agreements and Potential Payments Upon Termination or Change in Control — Estimated Benefits — James Havel” on page 63.

 

(9) Number represents restricted stock unit award in connection with Mr. Havel’s sign-on grant. These restricted stock units vested on March 11, 2016, in accordance with the terms of the award, following Mr. Havel’s assistance with the successful transition of the chief financial officer position to Mr. Slusser.

 

(10) Mr. Ebling left the role of executive vice president and general counsel effective July 24, 2015, but is expected to remain employed with the Company through June 1, 2016 (unless employment is earlier terminated by either Mr. Ebling or the Company) in order to facilitate a smooth and orderly transition. The amounts set forth in the table above reflect grants of plan based awards in 2015 with respect to Mr. Ebling. For a summary of Mr. Ebling’s expected termination benefits, including the treatment of equity awards, see “Employment Agreements and Potential Payments Upon Termination or Change in Control — Estimated Benefits — Keith Ebling (Expected Payments)” on page 64.

 

EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement    47


Table of Contents

EXECUTIVE COMPENSATION

 

 

Outstanding Equity Awards at 2015 Fiscal Year-End

The following table provides information on vested and unvested equity awards held by our named executive officers as of December 31, 2015:

 

            Option Awards     Stock Awards  
Name   Grant
Date
    Number of
Securities
Underlying
Unexercised
Options
(# Exercisable)
    Number of
Securities
Underlying
Unexercised
Options
(# Unexercisable)
    Option
Exercise
Price
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have Not
Vested
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
   

Equity
Incentive
Plan Awards:

Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

   

Equity
Incentive
Plan

Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

 
George Paz     3/3/2010        174,386        $ 49.495        3/3/2017           
    3/2/2011        161,666          56.50        3/2/2018           
    2/27/2012        209,358          53.05        2/27/2019           
    3/6/2013        140,060        70,031 (1)      58.17        3/6/2020        12,893 (4)    $ 1,126,977        83,500 (7)    $ 7,298,735   
    3/5/2014        73,835        147,671 (2)      77.15        3/5/2021        21,603 (5)      1,888,318        113,415 (8)      9,913,605   
    3/4/2015          189,385 (3)      84.83        3/4/2025        40,276 (6)      3,520,525        100,690 (9)      8,801,313   
Timothy Wentworth     2/24/2012        43,081          47.61        2/24/2022           
    3/6/2013        22,046        11,023 (1)      58.17        3/6/2020        3,247 (4)      283,820        15,020 (7)      1,312,898   
    3/5/2014        31,380        62,760 (2)      77.15        3/5/2021        14,690 (5)      1,284,053        55,085 (8)      4,814,980   
    3/4/2015          106,240 (3)      84.83        3/4/2025        22,594 (6)      1,974,942        56,485 (9)      4,937,354   
Eric Slusser     9/9/2015                11,960 (10)      1,045,424       
Sara Wade     2/22/2011        3,646          54.59        2/22/2018           
    3/2/2011        20,348          56.50        3/2/2018           
    2/27/2012        20,579          53.05        2/27/2019           
    3/6/2013        18,156        9,078 (1)      58.17        3/6/2020        2,674 (4)      233,734        12,369 (7)      1,081,174   
    3/5/2014        12,690        25,381 (2)      77.15        3/5/2021        5,941 (5)      519,303        22,278 (8)      1,947,320   
    3/4/2015          39,724 (3)      84.83        3/4/2025        8,448 (6)      738,440        21,120 (9)      1,846,099   
Christine Houston     3/2/2009        15,002          22.87        3/2/2016           
    3/3/2010        10,742          49.495        3/3/2017           
    3/2/2011        10,104          56.50        3/2/2018           
    11/17/2011        19,889          43.77        11/17/2018           
    2/27/2012        22,898          53.05        2/27/2019           
    3/6/2013        16,858        8,430 (1)      58.17        3/6/2020        2,483 (4)      217,039        11,486 (7)      1,003,991   
    3/5/2014        10,152        20,305 (2)      77.15        3/5/2021        4,752 (5)      415,372        17,820 (8)      1,557,646   
    3/4/2015          35,105 (3)      84.83        3/4/2025        7,465 (6)      652,516        18,663 (9)      1,631,333   
James Havel(12)     3/4/2015          50,810 (3)      84.83        3/11/2017        10,805 (6)      944,465        7,113 (12)      621,747   
    3/4/2015                29,470 (11)      2,575,973       
Keith Ebling(12)     3/2/2011        45,609          56.50        3/2/2018           
    2/27/2012        63,818          53.05        2/27/2019           
    3/6/2013        29,826        14,915 (1)      58.17        3/6/2020        4,393 (4)      383,992        20,322 (7)      1,776,346   
    3/5/2014        16,612        33,226 (2)      77.15        3/5/2021        7,777 (5)      679,788        10,047 (12)      878,208   
      3/4/2015                50,810 (3)      84.83        3/4/2025        10,805 (6)      944,465        7,654 (12)      668,996   

 

(1) The unvested portion of this stock option award vested on February 28, 2016.

 

(2) One half of the unvested portion of this stock option award vested on February 28, 2016 and the remainder is scheduled to vest on February 28, 2017. With respect to Mr. Ebling, one-half of the unvested portion of this stock option award vested on February 28, 2016, which remains exercisable for one year following his termination date (expected June 1, 2016 unless employment is earlier terminated by either Mr. Ebling or the Company) and the remainder will be forfeited to the Company as of his termination date.

 

48    EXPRESS SCRIPTS HOLDING COMPANY – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

 

(3) One-third of the unvested portion of this stock option award vested on February 28, 2016 and the remainder is scheduled to vest in two equal installments on February 28, 2017 and February 28, 2018. With respect to Mr. Havel, one-third of the unvested portion of this stock option award vested on February 28, 2016, which remains exercisable for one year following his termination date (March 11, 2016) and the remainder was forfeited to the Company as of his termination date. With respect to Mr. Ebling, one-third of the unvested portion of this stock option award vested on February 28, 2016, which remains exercisable for one year following his termination date (expected June 1, 2016 unless employment is earlier terminated by either Mr. Ebling or the Company) and the remainder will be forfeited to the Company as of his termination date.

 

(4) The unvested portion of this restricted stock unit award vested on February 28, 2016.

 

(5) One half of the unvested portion of this restricted stock unit award vested on February 28, 2016 and the remainder is scheduled to vest on February 28, 2017. With respect to Mr. Ebling, one-half of the unvested portion of this restricted stock unit award vested on February 28, 2016 and the remainder will be forfeited to the Company as of his termination date (expected June 1, 2016 unless employment is earlier terminated by either Mr. Ebling or the Company).

 

(6) One-third of the unvested portion of this restricted stock unit award vested on February 28, 2016 and the remainder is scheduled to vest in two equal installments on February 28, 2017 and February 28, 2018. With respect to Mr. Havel, one-third of the unvested portion of this restricted stock unit award vested on February 28, 2016 and the remainder was forfeited to the Company as of his termination date (March 11, 2016). With respect to Mr. Ebling, one-third of the unvested portion of this restricted stock unit award vested on February 28, 2016 and the remainder will be forfeited to the Company as of his termination date (expected June 1, 2016 unless employment is earlier terminated by either Mr. Ebling or the Company).

 

(7) Performance shares became payable following the end of the performance period on December 31, 2015 and were settled on March 9, 2016. The stated numbers reflect a payout of 154.2% of target. See “Compensation Discussion and Analysis — Summary of 2015 Direct Compensation Decisions — Performance Share Award Results” on page 38.

 

(8) Performance shares become payable following the end of the performance period on December 31, 2016. In accordance with SEC rules, because our performance in 2014 and 2015 was above target level, we are reporting the maximum number (250% of target) for these outstanding performance share awards. The number of shares payable may decrease from the maximum amount based upon the performance of the Company relative to the performance metrics during the remainder of the performance period.

 

(9) Performance shares become payable following the end of the performance period on December 31, 2016. In accordance with SEC rules, because our performance in 2015 was above target level, we are reporting the maximum number (250% of target) for these outstanding performance share awards. The number of shares payable may decrease from the maximum amount based upon the performance of the Company relative to the performance metrics during the remainder of the performance period.

 

(10) The unvested portion of this restricted stock unit award is scheduled to vest on September 9, 2018.

 

(11) The unvested portion of this restricted stock unit award vested on March 11, 2016, in accordance with its terms, following Mr. Havel’s assistance with the successful transition of the chief financial officer position to Mr. Slusser.

 

(12) As discussed above, Mr. Havel left the Company effective March 11, 2016 and Mr. Ebling is expected to leave the Company effective June 1, 2016 (unless employment is earlier terminated by either Mr. Ebling or the Company). All unvested stock and option awards as of the respective termination date will be forfeited to the Company as of such date. Performance shares will be treated as described under “Employment Agreements and Potential Payments Upon a Termination or Change in Control – Benefits Upon a Termination by the Company Other Than for ‘Cause’” as set forth below.

 

   Pursuant to the terms of their executive employment agreements, each of Messrs. Havel and Ebling will vest in a number of performance shares equal to the lesser of (i) the number of performance shares which would have vested and been paid based on the actual achievement of the performance metrics at the end of the performance period, or (ii) the number of performance shares which would have vested and been paid based on an assumed performance period ending as of the most recently completed fiscal quarter prior to termination, in the case of Mr. Havel, and as of September 1, 2015 in the case of Mr. Ebling, in either case, pro-rated for the portion of the performance period during which each of Messrs. Havel and Ebling was employed by the Company.

 

   Because we are unable to calculate the actual amounts to be paid out with respect to performance shares for the performance period ending December 31, 2016 and December 31, 2017, the amount set forth in the table above is based on an assumed performance period ending December 31, 2015 in the case of Mr. Havel and September 1, 2015 in the case of Mr. Ebling. The amount is based on the closing price of our common stock on December 31, 2015. The award is payable in shares of our common stock and is pro-rated for the portion of the performance period during which each of Messrs. Havel and Ebling were employed by the Company.

 

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Option Exercises and Stock Vested Table

The following table provides information on the value realized by our named executive officers with respect to stock options exercised during 2015 and with respect to restricted stock units (RSUs) and performance share awards (PSUs) that vested during 2015:

 

      Type of Award    Option Awards      Stock Awards  
Name       Number of Shares
Acquired on Exercise
     Value Realized on
Exercise
     Number of Shares
Acquired on Vesting
     Value Realized on
Vesting(1)
 
George Paz    PSUs

RSUs

    

 


  

  

    

 


  

  

    

 

87,984

36,261

  

  

   $

 

7,463,683

3,074,570

  

  

Timothy Wentworth    RSUs                      28,215         2,442,210   
Eric Slusser    N/A                                
Sara Wade    PSUs

RSUs

    

 


  

  

    

 


  

  

    

 

8,640

7,373

  

  

    

 

732,931

625,157

  

  

Christine Houston    PSUs

RSUs

    

 


  

  

    

 


  

  

    

 

5,497

5,959

  

  

    

 

466,311

505,264

  

  

James Havel    N/A                                
Keith Ebling    PSUs

RSUs

    

 


  

  

    

 


  

  

    

 

13,354

10,952

  

  

    

 

1,132,820

928,620

  

  

 

(1) Amounts reflect the value of the vested stock based on the closing price for our stock on the vesting date.

Nonqualified Deferred Compensation in 2015

The following table provides the EDCP account balance as of December 31, 2015 as well as 2015 EDCP contributions and earnings for each of our named executives. None of our named executive officers received payments under the EDCP in 2015:

 

Name    Executive
Contributions
in Last FY(1)
     Registrant
Contributions
in Last FY(2)
     Aggregate
Earnings in
Last FY(3)
     Aggregate
Withdrawals/
Distributions(4)
     Aggregate
Balance at
Last FYE(5)
 
George Paz            $ 239,994       $ (44,543)               $ 9,513,479   
Timothy Wentworth              92,662         (1,113)                 225,233   
Eric Slusser      50,216                 (338)                 49,519   
Sara Wade              63,862         (1,414)                 212,344   
Christine Houston              60,676         (956)                 153,708   
James Havel                      —                    
Keith Ebling              97,169         (3,182)                 498,307   

 

(1) Executives are entitled to defer up to 50% of their annual base salary and up to 100% of their annual performance-based cash bonus award.

 

(2) Amounts reflect contributions made by the Company to each named executive’s EDCP account during the first quarter of 2015. These amounts are equal to 6% of all cash compensation (base salary and performance-based cash bonus award) received by the named executive during 2014. These contributions vest on December 31 of the third year after the year for which they were calculated, in this case December 31, 2017, unless the executive is eligible for retirement as defined under the EDCP, in which case these contributions vest immediately.

 

(3) A named executive’s account under the EDCP is deemed to be invested in the hypothetical investment options selected by the participant from among the investment options available under the Company’s 401(k) plan, which provided returns ranging from -11.35% to 6.59% in 2015 and a Company Stock Fund, which provided a return of 3.24% in 2015. A participant may change the investment options during the annual open window period. The EDCP account is credited with gains or losses actually experienced by the selected hypothetical investments. Accordingly, the EDCP does not credit above-market or preferential earnings on nonqualified deferred compensation. Contributions made by the Company are allocated as follows: 75% of the contribution is allocated to the participant’s selected hypothetical investment options and 25% is allocated to the Company Stock Fund.

 

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(4) Upon a termination for any reason other than death, “disability” or “retirement” (a termination of employment after attaining age 55 and having a combination of full years of age plus service with Express Scripts totaling at least 65), all unvested contributions (i.e. Company EDCP contributions) are forfeited. All Company EDCP contributions vest upon a termination due to death or disability or upon becoming eligible for retirement. Withdrawals/distributions of vested amounts are made after termination from the Company, either at a fixed time in a lump sum payment or pursuant to a fixed schedule as previously specified. Distribution of a participant’s EDCP account shall be made in cash, except for those amounts that are invested in the Company Stock Fund, which will be distributed in whole shares of our common stock with fractional shares paid in cash. All withdrawals and distributions are made in compliance with Section 409A of the Code. Mr. Paz and Mr. Wentworth are each eligible for “retirement” under the terms of the EDCP.

 

(5) Amounts include 2015 executive and Company contributions and related earnings, as well as Company contributions and deferrals of base salary and performance-based cash bonus awards (together with related earnings) from past participation in the EDCP.

Employment Agreements and Potential Payments Upon Termination or Change in Control

We have employment agreements with all of our named executive officers. The employment agreement with Mr. Paz was publicly filed as Exhibit 10.1 to our Form 8-K filed January 14, 2014 and an amendment thereto was filed as Exhibit 10.2 to our Form 8-K filed September 11, 2015, and the form of employment agreement for our other named executive officers was publicly filed as Exhibit 10.2 to our Form 8-K filed on March 24, 2014.

General Terms of Employment Agreements

 

    Term. The employment agreement with Mr. Paz runs through March 2017 and the employment agreements with our other named executive officers are automatically renewed for a one-year period on April 1 of each year unless either party provides at least ninety days notice prior to the end of the term. Mr. Paz is expected to retire from his role as chief executive officer effective immediately following the annual meeting, with his departure treated as “tenured retirement” for purposes of his employment agreement. Mr. Havel’s employment with the Company terminated effective March 11, 2016 and Mr. Ebling’s employment with the Company is expected terminate effective June 1, 2016 (unless earlier terminated by either Mr. Ebling or the Company). On September 9, 2015, Mr. Ebling and the Company entered into a Transition and Release Agreement to provide for a transition period through June 1, 2016 and, accordingly, the terms of the employment agreements summarized below may not apply to Mr. Ebling. See “Employment Agreements and Potential Payments Upon Termination or Change in Control — Estimated Benefits — Keith Ebling (Expected Payments)” on page 64.

The following provides a summary of the benefits provided to our named executive officers under the employment agreements and the form of grant notices for long-term incentive equity awards. Defined terms set forth below have the meanings ascribed under one or more of the 2011 LTIP, the EDCP, the employment agreements and the award agreements, as applicable. Where benefits are subject to approval by the committee, such benefits are also ratified by the board in the case of our executive vice presidents and ratified by the independent members of the board in the case of our CEO and president. The benefits and payments set forth below are generally subject to adjustment and deferral as necessary to comply with section 409A of the Code.

 

    Compensation and Benefits. Each of the agreements generally provides for: (i) the payment of an annual base salary (which may not be reduced after any increase); (ii) a minimum target performance-based cash bonus award as a fixed percentage of the named executive officer’s base salary; (iii) participation in our employee benefit plans (other than bonus and incentive plans) on the same basis as such plans are generally made available to our other senior executives; (iv) the right to receive restricted stock unit awards, stock option awards and other equity awards and deferred compensation, to the extent determined by the Committee and the board; (v) the reimbursement of reasonable business expenses incurred in performing the named executive officer’s duties; and (vi) such perquisites and fringe benefits to which our other executive officers are entitled and which are suitable for the named executive’s position. Other than as set forth below, if the named executive’s employment is terminated, (i) all unvested stock options are forfeited and all vested stock options remain exercisable for the one-year period following the date of termination, and (ii) all unvested restricted stock units and performance shares are forfeited. Additionally, if the named executive’s employment is terminated by the Company for “cause,” all vested stock options are forfeited.

 

    Benefits Upon Termination of Employment. Each agreement provides for the provision and forfeiture of certain benefits if the named executive officer’s employment is terminated for any reason. In general, if the named executive officer’s employment is terminated at any time, the named executive officer is entitled to (i) all previously earned and accrued, but unpaid, base salary; (ii) reimbursement for any business expenses properly incurred prior to termination; and (iii) such other employee benefits (if any) to which the named executive officer may be entitled under our employee benefit plans.

 

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    Benefits Upon Termination by the Company Other Than for “Cause.” If the named executive officer’s employment is terminated by us other than for “cause”, the named executive officer is entitled to:

 

    Any performance-based cash bonus award earned for a previously completed performance year but unpaid as of the termination date, payable solely to the extent approved by the Committee.

 

    A severance benefit equal to (i) 18 months of base salary plus (ii) 150% of the executive officer’s target performance-based cash bonus award for the year in which the termination date occurs. The severance benefit is payable in 18 substantially equal monthly installments beginning the first full month after termination, subject to a six-month deferral if necessary to avoid certain adverse tax consequences.

 

    Reimbursement for the cost of continuing medical insurance under COBRA for a period of 18 months after termination (for Mr. Paz, payments for 36 months equal to either the cost of continuing medical insurance under COBRA or, following expiration of the COBRA period, equivalent medical insurance coverage). With respect to Mr. Paz, following the cessation of the 36 month coverage and subject to certain conditions, Mr. Paz may pay the full cost to continue participating in the retiree medical plan through his 65th birthday; and if the retiree medical plan is no longer offered, the Company will use commercially reasonable efforts to assist Mr. Paz in purchasing medical coverage that is reasonably equivalent to the medical benefits provided to current employees (these rights with respect to medical benefits transfer to Mr. Paz’s spouse at the time of his death or disability).

 

    For performance share awards, the named executive vests in a number of unvested performance shares equal to the lesser of (i) the number of performance shares which would have vested and been paid based on the actual achievement of the performance metrics at the end of the performance period, or (ii) the number of performance shares which would have vested and been paid based on an assumed performance period ending as of the most recently completed fiscal quarter prior to termination, in either case, pro-rated for the portion of the performance period during which the named executive was employed by the Company.

 

    With respect to Mr. Paz only, the provision of office space at a mutually agreed upon location, including administrative support, technical support, and other customary maintenance and support services. Following an initial five-year period, Mr. Paz must reimburse the Company at reasonable and customary rates for these benefits.

 

    Benefits Upon Termination by the Named Executive for “Good Reason.” If the named executive officer terminates employment with us for “good reason”, the named executive officer is entitled to the benefits set forth under “Benefits Upon Termination by the Company Other Than for ‘Cause’” above, except (i) all unvested and unpaid performance shares are forfeited and (ii) subject to approval by the Committee in its sole discretion, the named executive officer is entitled to receive an amount equal to the performance-based cash bonus award the named executive would have been entitled to receive for the year in which the termination occurs had the named executive remained employed through the end of such year, which amount shall be pro-rated for the portion of the termination year during which the named executive was employed by the Company and is payable in a lump sum at the same time performance-based cash bonus awards are paid out to other executive officers.

 

    Benefits Upon Termination On Account of Death or “Disability.” If the named executive officer’s employment terminates on account of death or “disability”, the named executive officer is generally entitled to:

 

    Any performance-based cash bonus award earned for a previously completed performance year but unpaid as of the termination date, payable solely to the extent approved by the Committee.

 

    Reimbursement for the cost of continuing medical insurance set forth under “Benefits Upon Termination by the Company Other Than for ‘Cause.’”

 

    Subject to approval by the Committee in its sole discretion, the pro-rata performance-based cash bonus award set forth under “Benefits Upon Termination by the Named Executive for ‘Good Reason.’”

 

    All unvested stock options vest and become exercisable in full, and all vested stock options may be exercised at any time, or from time to time, within one year after the date of death or disability.

 

    All unvested restricted stock units vest, pro-rated for the portion of the period from the grant date through the last vesting date on the vesting schedule with respect to each restricted stock unit award during which the named executive was employed by the Company.

 

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    The named executive vests in a number of unvested performance shares to the extent the performance criteria are ultimately achieved and any payment of performance shares is pro-rated for the portion of the performance period during which the named executive was employed by the Company.

 

    All Company EDCP contributions to the named executive’s EDCP account are accelerated and vested.

 

    Benefits Upon Non-Renewal of the Employment Period.

 

    If the named executive elects not to renew the agreement at the end of any employment period, the named executive officer will be entitled to receive any performance-based cash bonus award earned for a previously completed performance year but unpaid as of the termination date, payable solely to the extent approved by the Committee.

 

    If the Company elects not to renew the agreement at the end of any employment period, the named executive officer is entitled to the benefits set forth under “Benefits Upon Termination by the Named Executive for ‘Good Reason.’”

 

    Benefits Upon “Tenured Retirement.” If the named executive officer’s employment terminates on account of a “tenured retirement” (59.5 years of age and 4.5 years of service as a senior executive), the named executive is generally entitled to:

 

    Any performance-based cash bonus award earned for a previously completed performance year but unpaid as of the termination date, payable solely to the extent approved by the Committee.

 

    Reimbursement for the cost of continuing medical insurance set forth under “Benefits Upon Termination by the Company Other Than for ‘Cause.’”

 

    Subject to approval by the Committee in its sole discretion, the pro-rata performance-based cash bonus award set forth under “Benefits Upon Termination by the Named Executive for ‘Good Reason.’”

 

    All vested stock options remain vested and exercisable through the end of their term, and all unvested stock options continue to vest in accordance with their term as if the named executive was still employed by the Company, and remain vested and exercisable through the end of their term.

 

    All unvested restricted stock units continue to vest in accordance with their term as if the named executive was still employed by the Company.

 

    The named executive vests in a number of unvested performance shares to the extent that the performance criteria are ultimately achieved; provided, however, that if the named executive’s termination date occurs prior to the third calendar month of the final year of the applicable performance period, the number of performance shares eligible for a payout greater than 100% of target with respect to such performance period is limited to a pro-rated number of performance shares based on the portion of the performance period during which the named executive was employed by the Company and the remaining performance shares are subject to a maximum payout equal to 100% of target.

 

    With respect to Mr. Paz only, the provision of office space at a mutually agreed upon location, including administrative support, technical support, and other customary maintenance and support services. Following an initial five-year period, Mr. Paz must reimburse the Company at reasonable and customary rates for these benefits.

 

    Benefits Upon “Early Retirement.” If the named executive officer’s employment terminates on account of “early retirement” (54.5 years of age, 4.5 years of service as a senior executive and the sum of the named executive’s age and cumulative years of service as a senior executive equal at least 64 years), the named executive is generally entitled to:

 

    Any performance-based cash bonus award earned for a previously completed performance year but unpaid as of the termination date, payable solely to the extent approved by the Committee.

 

    Reimbursement for the cost of continuing medical insurance set forth under “Benefits Upon Termination by the Company Other Than for ‘Cause.’”

 

    Subject to approval by the Committee in its sole discretion, the pro-rata performance-based cash bonus award set forth under “Benefits Upon Termination by the Named Executive for ‘Good Reason.’”

 

    With respect to stock options granted prior to January 1, 2014:

 

    vested stock options remain vested and exercisable until the earlier of (i) the end of their term and (ii) 12 months from the date of retirement plus the number of months employed by the Company past age 55 (the “early retirement extension period”); and

 

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    unvested stock options that are scheduled to vest prior to the date that is “early retirement option expiration date” (12 months from the date of retirement plus the number of months employed by the Company past age 55) vest on schedule, pro-rated based on the number of months employed by the Company past age 55 divided by 60, and remain vested and exercisable through the early retirement option expiration date; unvested stock options scheduled to vest following the early retirement option expiration date are forfeited.

 

    With respect to stock options granted after January 1, 2014:

 

    vested awards remain vested and exercisable until the earlier of (i) the end of their term and (ii) four years following the date of retirement; and

 

    unvested stock options that are scheduled to vest prior to the “early retirement option expiration date” (four years following the date of retirement) vest on schedule, pro-rated based on the number of months employed by the Company past age 55 divided by 60 and remain vested and exercisable through the early retirement option expiration date; unvested stock options scheduled to vest following the early retirement option expiration date are forfeited.

 

    A pro-rated portion of restricted stock units (based on the number of months employed by the Company past age 55, divided by 60) that are scheduled to vest on or prior to the third anniversary of the retirement date shall continue to vest in accordance with their terms as if the executive officer was still employed by the Company.

 

    Unvested performance shares vest, pro-rated based on the number of months employed by the Company past age 55, divided by 60, and such vested performance shares are only paid out to the extent the performance metrics are ultimately achieved; provided, however, that if the named executive’s termination date occurs prior to the third calendar month of the final year of the applicable performance period, the number of performance shares eligible for a payout greater than 100% of target with respect to such performance period is limited to a pro-rated number of performance shares based on the portion of the performance period during which the named executive was employed by the Company and the remaining performance shares are subject to a maximum payout equal to 100% of target.

 

    Benefits Upon Retirement. If the named executive officer’s employment terminates on account of “retirement” (and such “retirement” is not treated as an “early retirement” or a “tenured retirement”) the named executive is generally entitled to:

 

    If the named executive has attained the age of 59.5:

 

    any performance-based cash bonus award earned for a previously completed performance year but unpaid as of the termination date, payable solely to the extent approved by the Committee;

 

    reimbursement for the cost of continuing medical insurance set forth under “Benefits Upon Termination by the Company Other Than for ‘Cause;’” and

 

    subject to approval by the Committee in its sole discretion, the pro-rata performance-based cash bonus award set forth under “Benefits Upon Termination by the Named Executive for ‘Good Reason.’”

 

    With respect to stock options granted prior to January 1, 2013, if the named executive has attained the age of 65, all unvested stock options vest and become exercisable in full, and all vested stock options may be exercised at any time, or from time to time, within one year after the date of retirement.

 

    If the named executive has attained the age of 60 and 5 years of continuous service with the Company:

 

    all unvested restricted stock units vest, pro-rated for the portion of the period from the grant date through the last vesting date on the vesting schedule with respect to each restricted stock unit award during which the named executive was employed by the Company; and

 

    unvested performance shares vest to the extent the performance criteria are ultimately achieved and any payment of performance shares is pro-rated for the portion of the performance period during which the named executive was employed by the Company.

 

    All Company contributions to the named executive’s EDCP account vest at the time the named executive officer attains the age of 55 and has a combination of full years of age plus service with Express Scripts totaling at least 65.

 

    Benefits Upon a Change in Control.

 

   

If, prior to, concurrent with or following a change in control, the named executive officer is terminated without “cause” or the named executive officer terminates employment and such termination constitutes “good

 

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  reason,” then the named executive officer shall be entitled to the benefits, except with respect to performance share awards, set forth under “Benefits Upon Termination by the Company Other Than for ‘Cause’” or “Benefits Upon Termination by the Named Executive for ‘Good Reason’” as applicable.

 

    If following the change in control date there will be no generally recognized U.S. public market for the Company’s common stock or any common stock for which the Company’s common stock is exchanged, then all unvested stock options shall vest and become fully exercisable and each stock option shall be cancelled on the change in control date and the Company shall provide payment in connection with such cancellation at a purchase price equal to the excess (if any) of the per share change in control purchase price over the exercise price of the option. If following the change in control date there will be a generally recognized U.S. public market for the Company’s common stock or any common stock for which the Company’s common stock is exchanged, then all stock options shall be assumed, exchanged or substituted for by a successor or acquirer entity and shall be subject to the same terms and conditions that were applicable to the stock options prior to the change in control. In addition, upon the occurrence of a change in control, if (i) within 90 days prior to the change in control date the employment of the named executive is terminated without cause, or (ii) within two years following the change in control date, the employment of the named executive is terminated without cause or the named executive terminates employment due to a constructive termination, then all outstanding unvested options shall vest in full on the change in control date, in the case of clause (i) above, and as of the date of termination, in the case of clause (ii) above and remain exercisable for the duration of their term.

 

    If within two years following the change in control date either (i) the employment of the named executive officer is terminated without cause or (ii) the named executive terminates employment due to a constructive termination, then the outstanding unvested restricted stock units shall vest in full on the date of such termination. If the named executive is terminated without cause within 90 days prior to the change in control date then the outstanding unvested restricted stock units held by such named executive as of the date of termination shall vest in full on the change in control date. If following the change in control date there will be no generally recognized U.S. public market for the Company’s common stock or any common stock for which the Company’s common stock is exchanged, then as of the change in control date, the Company shall pay into a rabbi trust, in respect of each cancelled restricted stock unit, a purchase price equal to the per share change in control purchase price and all restricted stock units shall be cancelled, and such per share amount shall be disbursed on the date on which the respective cancelled restricted stock unit would have vested, either according to its original schedule or upon acceleration, as applicable. If following the change in control date there will be a generally recognized U.S. public market for the Company’s common stock or any common stock for which the Company’s common stock is exchanged, then each outstanding restricted stock unit shall be assumed, exchanged or substituted by a successor or acquirer entity and shall relate to the common stock of such successor or acquirer entity and shall continue to vest according to its original schedule or upon acceleration, as applicable.

 

    With respect to performance shares, if the named executive officer is employed by the Company on the change in control date, then the named executive officer receives in cash the value of one share of the Company’s common stock as of the last trading day before the change in control date, multiplied by the greater of (i) the target grant with respect to each performance share award and (ii) the portion of each performance share award which would have vested and been paid based on an assumed performance period ending the day immediately preceding the change in control date. If the named executive officer’s employment has terminated due to death, “disability” or “retirement”, then the named executive officer shall receive in cash the value of one share of the Company’s common stock as of the last trading day before the change in control date, multiplied by the target grant with respect to each performance share award. If the named executive officer’s employment has been terminated by the Company without cause prior to the change in control date, then the named executive officer shall receive in cash the value of one share of the Company’s common stock as of the last trading day before the change in control date, multiplied by the lesser of (i) the target grant with respect to each performance share award and (ii) the portion of each performance share award which would have vested and been paid based on an assumed performance period ending as of the most recently completed fiscal quarter prior to termination, in either case, pro-rated for the portion of the actual performance period during which the named executive officer was employed. The Committee, at its discretion, may provide for different treatment of performance share awards that are not assumed, exchanged or substituted or are cancelled in connection with a change in control.

 

   

Restrictive Covenants. Upon termination of employment, each named executive officer is prohibited from (i) soliciting certain clients or prospective clients of the Company for a period of two years after termination; (ii) soliciting or hiring employees of the Company for a period of two years after termination; (iii) competing with the Company for a period of eighteen months after termination; (iv) disparaging the Company or its officers, directors and employees; and (v) disclosing certain confidential information with respect to the Company or its business. If, following a termination the

 

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  named executive violates any of these covenants, then the named executive would forfeit all termination benefits provided under the executive employment agreement, and would be required to reimburse the Company for any realized benefits resulting from termination.

Estimated Benefits

The following tables reflect the amount of incremental compensation that would be paid to each named executive officer (other than Mr. Havel) upon the termination of employment or a change in control, in each case, as of December 31, 2015. The computation of these amounts requires us to make certain estimates that are described above in the description of the employment agreements or in the accompanying footnotes. Some of these amounts are payable pursuant to the terms of the employment agreement while others arise from the terms of the applicable grant agreement and/or benefit plan. Those amounts payable pursuant to the employment agreement generally require the named executive officer to sign a general release and to comply with certain restrictive covenants, including those related to nonsolicitation, noncompetition, non-disparagement and confidentiality.

Because the incremental amount of payments to be made depends on several factors, the actual amounts to be paid out upon the termination of employment or a change in control can only be determined at the time of the event. The tables do not include the nonqualified deferred compensation that would be paid, which is set forth in the “Nonqualified Deferred Compensation Table” above, except to the extent an individual is entitled to an additional benefit as a result of the termination or change in control. The estimated payments, compensation and benefits upon termination and change in control are set forth in the tables below. All amounts based on the value of our common stock are calculated using the closing price of our common stock ($87.41) on December 31, 2015. Because Mr. Havel left the Company effective March 11, 2016 and Mr. Ebling is expected to leave the Company effective June 1, 2016 (unless his employment is earlier terminated by either Mr. Ebling or the Company) the payments expected to be actually made to Messrs. Havel and Ebling in connection with their respective terminations are set forth on pages 63 and 64, respectively.

GEORGE PAZ

 

Executive Benefits and
Payments Upon
Termination
  Voluntary
Termination
    Retirement
(1)(2)
    Good Reason or
Involuntary Not
for Cause
Termination (2)
    For Cause
Termination (2)
    Death or
Disability (2)
    Change in Control (2)  
            With Offer of
Comparable
Employment
    Without Offer of
Comparable
Employment
 

Compensation:

             

Severance Benefit

  $      $      $ 4,740,000 (3)    $      $      $      $ 4,740,000 (3)(4) 

Long-term Incentive:

             

PSUs

           16,700,886 (5)      13,032,055 (6)             13,032,055 (7)      19,375,197 (8)      19,375,197 (8) 

Stock Options Unvested & Accelerated

           4,051,424 (9)                    4,051,424 (10)      4,051,424 (11)      4,051,424 (11) 

RSUs Unvested & Accelerated

           6,535,821 (12)                    3,196,263 (13)             6,535,821 (14) 

Deferred Compensation Unvested & Accelerated(15)

                                                

Benefits:

             

Post-termination Health Care

           38,255 (16)      38,255 (16)             38,255 (16)             38,255 (16) 

Total

           27,326,386        17,810,310               20,317,997        23,426,621        34,740,697   

 

 

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EXECUTIVE COMPENSATION

 

 

TIMOTHY WENTWORTH

 

Executive Benefits and
Payments Upon
Termination
  Voluntary
Termination
    Retirement
(1)(2)
    Good Reason or
Involuntary Not
for Cause
Termination (2)
    For Cause
Termination (2)
    Death or
Disability (2)
    Change in Control (2)  
            With Offer of
Comparable
Employment
    Without Offer of
Comparable
Employment
 

Compensation:

             

Severance Benefit

  $      $      $ 2,906,250 (3)    $      $      $      $ 2,906,250 (3)(4) 

Long-term Incentive:

             

PSUs

           726,911 (5)      4,272,043 (6)             4,272,043 (7)      7,701,844 (8)      7,701,844 (8) 

Stock Options Unvested & Accelerated

           144,705 (9)                    1,240,329 (10)      1,240,329 (11)      1,240,329 (11) 

RSUs Unvested & Accelerated

           413,328 (12)                    1,601,346 (13)             3,542,815 (14) 

Deferred Compensation Unvested & Accelerated(15)

                                                

Benefits:

             

Post-termination Health Care

           28,675 (16)      28,675 (16)             28,675 (16)             28,675 (16) 

Total

           1,313,619        7,206,968               7,142,393        8,942,173        15,419,913   

ERIC SLUSSER

 

Executive Benefits and
Payments Upon
Termination
  Voluntary
Termination
    Retirement
(1)(2)
    Good Reason or
Involuntary Not
for Cause
Termination (2)
    For Cause
Termination (2)
    Death or
Disability (2)
    Change in Control (2)  
            With Offer of
Comparable
Employment
    Without Offer of
Comparable
Employment
 

Compensation:

             

Severance Benefit

  $        N/A      $ 2,175,000 (3)    $      $      $      $ 2,175,000 (3)(4) 

Long-term Incentive:

             

PSUs

           N/A                                      

Stock Options Unvested & Accelerated

           N/A                                      

RSUs Unvested & Accelerated

           N/A                      116,158 (13)             1,045,424 (14) 

Deferred Compensation Unvested & Accelerated

           N/A                                      

Benefits:

             

Post-termination Health Care

           N/A        22,552 (16)             22,552 (16)             22,552 (16) 

Total

           N/A        2,197,552               138,710               3,242,976   

 

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EXECUTIVE COMPENSATION

 

 

SARA WADE

 

Executive Benefits and
Payments Upon
Termination
  Voluntary
Termination
    Retirement
(1)(2)
    Good Reason or
Involuntary Not
for Cause
Termination (2)
    For Cause
Termination (2)
    Death or
Disability (2)
    Change in Control (2)  
            With Offer of
Comparable
Employment
    Without Offer of
Comparable
Employment
 

Compensation:

             

Severance Benefit

  $        N/A      $ 1,509,000 (3)    $      $      $      $ 1,509,000 (3)(4) 

Long-term Incentive:

             

PSUs

           N/A        2,238,296 (6)             2,238,296 (7)      3,546,026 (8)      3,546,026 (8) 

Stock Options Unvested & Accelerated

           N/A                      628,338 (10)      628,338 (11)      628,338 (11) 

RSUs Unvested & Accelerated

           N/A                      743,223 (13)             1,491,477 (14) 

Deferred Compensation Unvested & Accelerated

           N/A                      180,995 (17)               

Benefits:

             

Post-termination Health Care

           N/A        18,161 (16)             18,161 (16)             18,161 (16) 

Total

           N/A        3,765,457               3,809,013        4,174,364        7,193,002   

CHRISTINE HOUSTON

 

Executive Benefits and
Payments Upon
Termination
  Voluntary
Termination
    Retirement
(1)(2)
    Good Reason or
Involuntary Not
for Cause
Termination (2)
    For Cause
Termination (2)
    Death or
Disability (2)
    Change in Control (2)  
            With Offer of
Comparable
Employment
    Without Offer of
Comparable
Employment
 

Compensation:

             

Severance Benefit

  $        N/A      $ 1,515,000 (3)    $      $      $      $ 1,515,000 (3)(4) 

Long-term Incentive:

             

PSUs

           N/A        1,970,256 (6)             1,970,256 (7)      3,097,733 (8)      3,097,733 (8) 

Stock Options Unvested & Accelerated

           N/A                      545,393 (10)      545,393 (11)      545,393 (11) 

RSUs Unvested & Accelerated

           N/A                      640,074 (13)             1,284,927 (14) 

Deferred Compensation Unvested & Accelerated

           N/A                      153,708 (17)               

Benefits:

             

Post-termination Health Care

           N/A        19,117 (16)             19,117 (16)             19,117 (16) 

Total

           N/A        3,504,373               3,328,548        3,643,126        6,462,170   

 

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EXECUTIVE COMPENSATION

 

 

KEITH EBLING

(See page 64 for a description of expected benefits payable to Mr. Ebling upon the termination of his employment expected to occur on June 1, 2016)

 

Executive Benefits and

Payments Upon

Termination

  Voluntary
Termination
    Retirement
(1)(2)
    Good Reason or
Involuntary Not
for Cause
Termination (2)
    For Cause
Termination (2)
    Death or
Disability (2)
    Change in Control (2)  
            With Offer of
Comparable
Employment
    Without Offer of
Comparable
Employment
 

Compensation:

             

Severance Benefit

  $        N/A      $ 2,062,500 (3)    $      $      $      $ 2,062,500 (3)(4) 

Long-term Incentive:

             

PSUs

           N/A        3,276,368 (6)             3,276,368 (7)      4,959,038 (8)      4,959,038 (8) 

Stock Options Unvested & Accelerated

           N/A                      908,103 (10)      908,103 (11)      908,103 (11) 

RSUs Unvested & Accelerated

           N/A                      1,040,436 (13)             2,008,245 (14) 

Deferred Compensation Unvested & Accelerated

           N/A                      316,958                 

Benefits:

             

Post-termination Health
Care

           N/A        28,675 (16)             28,675 (16)             28,675 (16) 

Total

           N/A        5,367,543               5,570,540        5,867,141        9,966,561   

 

(1) Mr. Paz is eligible for “tenured retirement” and Mr. Wentworth is eligible for “early retirement” under their respective employment agreements. No other named executive officers were retirement eligible as of December 31, 2015. If the employment of either Mr. Paz or Mr. Wentworth is terminated due to death or disability, the termination event, at the option of Mr. Paz or Mr. Wentworth, respectively, or their respective estate, as applicable, may be treated as “tenured retirement” and “early retirement,” respectively.

 

(2) The terms “retirement,” “early retirement,” “tenured retirement,” “good reason,” “cause,” “disability,” and “change in control” are defined terms under one or more of the 2000 LTIP, the 2011 LTIP, the EDCP, the employment agreements and the award agreements, as applicable. Both the 2000 LTIP and the 2011 LTIP under which the awards reflected in this table were granted, generally define a change in control as:

 

    a change in the composition of a majority of our board of directors without the approval of the incumbent directors;

 

    an acquisition of more than 25% of our common stock or voting power;

 

    any merger, unless (i) our stockholders possess more than 50% of the surviving company’s outstanding stock, (ii) no person or group who did not own 25% or more of our common stock before the change in control owns 25% or more of the stock of the surviving company, and (iii) at least a majority of the board of directors of the surviving company were members of the incumbent directors of our Company before the change in control;

 

    the sale of all or substantially all of our assets; or

 

    a stockholder-approved dissolution of our Company.

The 2000 LTIP and the award agreements under the 2011 LTIP, pursuant to which the awards reflected in this table were granted, generally define ‘‘comparable employment’’ as employment with us or our successor following a change in control pursuant to which:

 

    the responsibilities and duties of the named executive officer are substantially the same as before the change in control, and the other terms and conditions of employment following the change in control do not impose obligations materially more burdensome;

 

    the aggregate compensation is substantially economically equivalent to or greater than the named executive officer’s aggregate compensation immediately prior to the change in control; and

 

    the named executive officer remains employed in the metropolitan area in which he or she was employed immediately preceding the change in control.

 

(3)

Severance benefit under the employment agreements is equal to (i) 18 months of base salary plus (ii) 150% of the executive officer’s target performance-based cash bonus award (based on the executive officer’s base salary as of January 1 of the year in which the termination date occurs). The severance benefit is payable in 18 substantially equal

 

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  monthly installments beginning the first full month after termination; subject to a six-month deferral if necessary to avoid certain adverse tax consequences.

 

(4) Assumes termination without cause or for good reason concurrent with change in control.

 

(5) With respect to Mr. Paz, upon “tenured retirement,” all unvested performance shares vest and are paid out solely to the extent the performance metrics are ultimately achieved; provided, however, that if his termination date occurs prior to the third calendar month of the final year of the applicable performance period, the number of performance shares eligible for a payout greater than 100% of target with respect to such performance period is limited to a pro-rated number of performance shares based on the portion of the performance period during which he was employed by the Company and the remaining performance shares are subject to a maximum payout equal to 100% of target.

With respect to Mr. Wentworth, upon “early retirement,” all unvested performance shares vest, pro-rated based on the number of months such executive officer has worked past the age of 55 divided by 60 and such vested performance shares are only paid out to the extent the performance metrics are ultimately achieved; provided, however, that if his termination date occurs prior to the third calendar month of the final year of the applicable performance period, the number of performance shares eligible for a payout greater than 100% of target with respect to such performance period is limited to a pro-rated number of performance shares based on the portion of the performance period during which he was employed by the Company and the remaining performance shares are subject to a maximum payout equal to 100% of target.

The amount with respect to performance shares for the performance period ended December 31, 2015 is based on the actual payout for such performance shares at 154.2% of target. Because we are unable to calculate the number of performance shares that would have actually been paid out for the performance periods ending December 31, 2016 and 2017, the amounts with respect to performance shares for the performance periods ending December 31, 2016 and 2017 are based on an assumed performance period ended December 31, 2015. The awards are payable in shares of our common stock.

 

(6) Upon an involuntary not for cause termination, the executive officer vests in a number of performance shares equal to the lesser of (i) the number of performance shares which would have vested and been paid based on the actual achievement of the performance metrics at the end of the performance period, or (ii) the number of performance shares which would have vested and been paid based on an assumed performance period ending as of the most recently completed fiscal quarter prior to termination, in either case, pro-rated for the portion of the performance period during which the executive officer was employed by the Company. If the executive officer voluntarily terminates employment for good reason, all unvested performance shares are forfeited.

The amount with respect to performance shares for the performance period ended December 31, 2015 is based on the actual payout for such performance shares at 154.2% of target. Because we are unable to calculate the number of performance shares that would have actually been paid out for the performance periods ending December 31, 2016 and 2017, the amounts with respect to performance shares for the performance periods ending December 31, 2016 and 2017 are based on an assumed performance period ended December 31, 2015. The awards are payable in shares of our common stock.

 

(7) Upon a termination due to death or disability, the executive officer vests in a number of unvested performance shares to the extent that the performance criteria are ultimately achieved and any payment of performance shares is pro-rated for the portion of the performance period during which the executive officer was employed by the Company.

The amount with respect to performance shares for the performance period ended December 31, 2015 is based on the actual payout for such performance shares at 154.2% of target. Because we are unable to calculate the number of performance shares that would have actually been paid out for the performance periods ending December 31, 2016 and 2017, the amounts with respect to performance shares for the performance periods ending December 31, 2016 and 2017 are based on an assumed performance period ended December 31, 2015. The awards are payable in shares of our common stock.

 

(8) Upon a change in control, if the executive officer is employed by the Company on the change in control date, the executive officer receives in cash the value of one share of the Company’s common stock as of the last trading day before the change in control date, multiplied by the greater of (i) the target grant with respect to each performance share award and (ii) the portion of each performance share award which would have vested and been paid based on an assumed performance period ending the day immediately preceding the change in control date. This amount assumes the executive officer is employed on the change in control date regardless of whether an offer of comparable employment is made.

The amount with respect to performance shares for the performance period ended December 31, 2015 is based on the actual payout for such performance shares at 154.2% of target. Because we are unable to calculate the number of

 

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performance shares that would have actually been paid out for the performance periods ending December 31, 2016 and 2017, the amounts with respect to performance shares for the performance periods ending December 31, 2016 and 2017 are based on an assumed performance period ended December 31, 2015. The awards are payable in cash.

If the executive officer’s employment was previously terminated due to death, disability or retirement prior to the change in control date, then the executive officer receives in cash the value of one share of the Company’s common stock as of the last trading day before the change in control date, multiplied by the target grant with respect to each performance share award. If the executive officer’s employment was previously terminated by the Company without cause prior to the change in control date, then the executive officer receives in cash the value of one share of the Company’s common stock as of the last trading day before the change in control date, multiplied by the lesser of (i) the target grant with respect to each performance share award and (ii) the portion of each performance share award which would have vested and been paid based on an assumed performance period ending as of the most recently completed fiscal quarter prior to termination, in either case, pro-rated for the portion of the actual performance period during which the executive officer was employed. The Committee, at its discretion, may provide for different treatment of performance share awards that are not assumed, exchanged or substituted or are cancelled in connection with a change in control.

 

(9) With respect to Mr. Paz, upon “tenured retirement,” all unvested stock options continue to vest on schedule. The amount set forth in the table reflects the value of unvested stock options as of December 31, 2015 that continue vest on schedule following the date of termination.

With respect to Mr. Wentworth, upon “early retirement,” (i) all unvested stock options granted prior to January 1, 2014 and scheduled to vest prior to the date that is 12 months plus the number of months worked by the executive officer past the age of 55 and (ii) all unvested stock options granted after January 1, 2014 and scheduled to vest prior to the fourth anniversary of the date of termination, in each case, continue to vest on schedule, pro-rated based on the number of months he was employed past the age of 55 divided by 60 and remain vested and exercisable through such date. The amount set forth in the table reflects the value of unvested stock options as of December 31, 2015 that continue vest on schedule following the date of termination.

 

(10) Upon a termination due to death or disability, all unvested stock options vest and remain exercisable for one year following the date of termination. The amount set forth in the table reflects the value of unvested stock options as of December 31, 2015 that vest on the date of termination.

 

(11) Upon a change in control where there will be no U.S. public market for the Company’s common stock or successor to the Company’s common stock following the change in control date, all unvested stock options vest and are payable in cash. Upon a change in control where there will be a U.S. public market for the Company’s common stock or successor to the Company’s common stock following the change in control date, all options will be assumed, exchanged or substituted for by the successor entity to the Company’s common stock and if (i) within 90 days prior to the change in control date the employment of the named executive is terminated without cause, or (ii) within two years following the change in control date, the employment of the named executive is terminated without cause or the named executive terminates employment due to a constructive termination, then all outstanding unvested options shall vest in full on the change in control date, in the case of clause (i) above, and as of the date of termination, in the case of clause (ii) above and remain exercisable for the duration of their term.

The amount set forth in the table reflects the value of unvested stock options as of December 31, 2015 that vest on the date of termination assuming that either (i) there is no U.S. public market for the Company’s common stock or successor to the Company’s common stock following the change in control date or (ii) there will be a U.S. public market for the Company’s common stock or successor to the Company’s common stock following the change in control date, but the named executive is terminated without cause on the change of control date immediately following the change in control.

 

(12) With respect to Mr. Paz, upon “tenured retirement,” all restricted stock units continue to vest on schedule. The amounts set forth in the table reflect the value of unvested restricted stock units as of December 31, 2015 that continue to vest in accordance with their terms following the date of termination.

With respect to Mr. Wentworth, upon “early retirement,” a pro-rated portion (based on the number of months such executive officer has worked past the age of 55, divided by 60) of his unvested restricted stock units that are scheduled to vest on or prior to the third anniversary of the termination date continue to vest in accordance with their terms. The amounts set forth in the table reflect the value of unvested restricted stock units as of December 31, 2015 that continue to vest in accordance with their terms following the date of termination.

 

(13) Upon a termination due to death or disability, all unvested restricted stock units vest, pro-rated for the portion of the period from the grant date through the last vesting date on the vesting schedule with respect to each restricted stock unit award during which the executive officer was employed by the Company.

 

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(14) If the executive officer is either (i) terminated without cause within 90 days prior to the change in control date or (ii) involuntarily terminated without cause within two years following the change in control date or constructively terminated within two years following the change in control date, then all of the executive officer’s restricted stock units vest as of the change in control date (in the case of clause (i) above) and as of the termination date (in the case of clause (ii) above). The amount set forth in the table assumes that on the change of control date, immediately following the change of control, the executive officer is terminated without cause.

 

(15) Mr. Paz and Mr. Wentworth are each eligible for “retirement” and accordingly, all of the Company EDCP contributions to Mr. Paz and Mr. Wentworth have fully vested. For the total amount payable to Mr. Paz and Mr. Wentworth under the EDCP upon termination of employment, see the “Nonqualified Deferred Compensation in 2015” table on page 50.

 

(16) Reimbursement for cost of continuing health insurance under COBRA for 18 months after termination (for Mr. Paz, payments for 36 months after termination equal to either the cost of continuing medical insurance under COBRA or, following expiration of the COBRA period, equivalent medical insurance coverage). Amounts are calculated based on the current monthly cost for COBRA for the highest cost options under our current health plans.

 

(17) Upon a termination due to death or “disability”, all Company contributions to the named executive’s EDCP account are accelerated and vested. Withdrawals/distributions of vested amounts can be made after termination from the Company, either at a fixed time in a lump sum payment or pursuant to a fixed schedule as previously specified. The amount set forth in the table reflects the unvested Company contributions that vest on the termination date. Distribution of a participant’s EDCP account shall be made in cash, except for those amounts that are invested in the Company Stock Fund, which will be distributed in whole shares of our common stock with fractional shares paid in cash.

 

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EXECUTIVE COMPENSATION

 

 

JAMES HAVEL

As discussed above, Mr. Havel left the role of interim chief financial officer effective September 9, 2015 and remained an employee of the Company through March 11, 2016 as executive vice president, finance. A summary of the expected payments, compensation and benefits with respect to Mr. Havel’s termination of employment is as follows:

 

Executive Benefits and

Payments Upon

Termination

   Benefits Upon
Termination
 
Compensation:   

Severance Benefit

   $ 2,175,000 (1) 

Long-term Incentive:

  

PSUs

     499,922 (2) 

Stock Options Unvested & Accelerated

       

RSUs Unvested & Accelerated

     2,071,152 (3) 

Deferred Compensation Unvested & Accelerated

       
Benefits:   

Post-termination Health Care

     33,291 (4) 

280G Tax Gross-up

       
Total      4,779,365   

 

(1) Payable in 18 monthly installments beginning March 11, 2016, subject to a six-month deferral if necessary to avoid certain adverse tax consequences.

 

(2) Pursuant to the terms of his executive employment agreement, Mr. Havel will vest in a number of performance shares equal to the lesser of (i) the number of performance shares which would have vested and been paid based on the actual achievement of the performance metrics at the end of the performance period, or (ii) the number of performance shares which would have vested and been paid based on an assumed performance period ending as of the most recently completed fiscal quarter prior to termination, in either case, pro-rated for the portion of the performance period during which he was employed by the Company.

 

   The amount set forth in the table is calculated based on the closing price of our common stock of $70.28 on March 11, 2016 and an assumed performance period ending as of December 31, 2015 and is pro-rated for the portion of the performance period during which Mr. Havel was employed by the Company.

 

(3) 29,470 restricted stock units vested on March 11, 2016, pursuant to the terms of the award agreement, following Mr. Havel’s assistance with the successful transition of the chief financial officer role, which was reviewed and approved by the Committee at its March 8, 2016 meeting and ratified by the board at its March 9, 2016 meeting. The amount set forth above is based on the closing price of our common stock of $70.28 on March 11, 2016.

 

(4) Estimated reimbursement for cost of continuing health insurance under COBRA.

Mr. Havel also received an amount of $1,138,250 pursuant to the 2015 executive performance-based cash bonus award program which represents 73% of his maximum potential performance-based cash bonus award granted by the Committee (and ratified by the board) in March 2015.

 

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EXECUTIVE COMPENSATION

 

 

KEITH EBLING

(Expected Payments)

As discussed above, Mr. Ebling left the role of executive vice president and general counsel effective July 24, 2015. On September 9, 2015, Mr. Ebling and the Company entered into a Transition and Release Agreement (the “Transition Agreement”) to provide for a transition period through June 1, 2016. Accordingly, Mr. Ebling is expected to remain employed with the Company through June 1, 2016 (unless employment is earlier terminated by either Mr. Ebling or the Company) in order to facilitate a smooth and orderly transition. A summary of the expected payments, compensation and benefits (subject to certain conditions) with respect to Mr. Ebling’s expected termination of employment effective June 1, 2016 is as follows:

 

Executive Benefits and

Payments Upon

Termination

   Benefits Upon
Termination
 
Compensation:   

Severance Benefit

   $ 1,575,000 (1) 

Long-term Incentive:

  

PSUs

     2,375,271 (2) 

Stock Options Unvested & Accelerated

       

RSUs Unvested & Accelerated

       

Deferred Compensation Unvested & Accelerated

       
Benefits:   

Post-termination Health Care

     15,101 (3) 

280G Tax Gross-up

       
Total      3,965,372   

 

(1) Payable in 9 monthly installments beginning July 1, 2016, subject to a six-month deferral if necessary to avoid certain adverse tax consequences.

 

(2) Pursuant to the terms of the Transition Agreement, with respect to performance share units for the performance periods ending December 31, 2016 and 2017, Mr. Ebling will vest in a number of performance shares equal to the lesser of (i) the number of performance shares which would have vested and been paid based on the actual achievement of the performance metrics at the end of the performance period, or (ii) the number of performance shares which would have vested and been paid based on an assumed performance period ending as of September 1, 2015, in either case, pro-rated for the portion of the performance period during which he was employed by the Company through September 1, 2015. With respect to performance share units for the performance period ended December 31, 2015, Mr. Ebling vested in 20,322 performance shares.

 

   With respect to performance share units for the performance period ended December 31, 2015, the amount set forth in the table above is based on the closing price of our common stock of $70.28 on March 11, 2016, the date performance shares with respect to the performance period ended December 31, 2015 vested. With respect to performance share units for the performance periods ending December 31, 2016 and 2017, the amount set forth in the table above is based on the closing price of our common stock of $70.28 on March 11, 2016 and an assumed performance period ending as of September 1, 2015 and is pro-rated for the portion of the performance period during which Mr. Ebling was employed by the Company through September 1, 2015.

 

(3) Estimated reimbursement for cost of continuing health insurance under COBRA through March 1, 2017.

Mr. Ebling also received a transition bonus of $346,918 which was paid in the first quarter of 2016.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Stock Ownership of Directors and Executive Officers

The following table contains certain information regarding the beneficial ownership of our common stock as of February 15, 2016 (unless otherwise noted) by (i) each of our directors and director nominees, (ii) each of our executive officers named in the Summary Compensation Table above, and (iii) all of our current executive officers and directors as a group. Unless otherwise indicated, each of the persons or entities listed below exercises sole voting and investment power over the shares that each of them beneficially owns. The business address for each of our directors and executive officers listed below is c/o Express Scripts Holding Company, One Express Way, St. Louis, MO 63121.

 

Name    Shares of
Common
Stock
Beneficially
Owned
Directly or
Indirectly(1)
     Stock
Options
Exercisable
currently or
within 60
days
     Shares
Issuable
within
60
days(2)
     Other Stock-
Based
Holdings(3)
     Total Shares
Beneficially
Owned(4)
 
George Paz      890,342         966,299         120,619         69,859         2,047,119   
Gary G. Benanav      44,304         28,426                         72,730   
Maura C. Breen      15,547         28,426                         43,973   
William J. DeLaney      3,668         16,092                         19,760   
Elder Granger                                        
Nicholas J. LaHowchic      24,230         20,776                         45,006   
Thomas P. Mac Mahon      39,837         41,554                         81,391   
Frank Mergenthaler      10,397         44,128                         54,525   
Woodrow A. Myers      9,654         14,084                         23,738   
Roderick A. Palmore      255         1,127                         1,382   
William L. Roper      3,534         12,918         6,872                 23,324   
Seymour Sternberg      39,496         6,048                         45,544   
Timothy Wentworth      60,296         174,323         33,143         1,059         268,821   
Eric Slusser                                        
Sara Wade      11,537         110,428         20,829         257         143,051   
Christine Houston      23,441         135,928         18,833         98         178,300   
James Havel              16,936         3,601                 20,537   
Keith Ebling      47,542         204,329         32,204         953         285,028   
Directors and Executive Officers as a Group (26 persons)      1,196,819         1,894,844         252,076         73,800         3,417,539   

 

(1) Includes shares in which voting and investment power are shared with the director’s or executive’s spouse or held in family trust(s), as follows: Mr. Paz 139,797, Mr. Benanav 44,304, Mr. Mac Mahon 39,837, Mr. Sternberg 37,823, Mr. Wentworth 9,635, Mr. Ebling 33,317; and for directors and executive officers as a group 304,713.

 

(2) Includes shares that may be acquired within 60 days of February 15, 2016 upon the vesting of restricted stock units (“RSUs”) and the payout of performance shares (“PSUs”). RSUs vesting within 60 days of February 15, 2016 are as follows: Mr. Paz 37,119; Mr. Wentworth 18,123; Ms. Wade 8,460; Ms. Houston 7,347; Mr. Havel 3,601; Mr. Ebling 11,882; and for directors and executive officers as a group 102,508. PSUs approved for payout on March 9, 2016 are as follows: Mr. Paz 83,500; Mr. Wentworth 15,020; Ms. Wade 12,369; Ms. Houston 11,486; Mr. Ebling 20,322; and for directors and executive officers as a group 142,696. Also includes vested restricted stock units, the settlement of which has been deferred, as follows: Mr. Roper 6,872 shares, and for directors and executive officers as a group 6,872 shares.

 

(3) Includes vested phantom shares representing investments in the Company stock fund under the EDCP, as to which no voting or investment power exists. Also includes vested phantom shares contributed on February 29, 2016.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

 

 

(4) The total beneficial ownership for any individual, and total for the directors and executive officers as a group, is less than 1%, based on 668,056,786 shares of common stock issued and outstanding on February 15, 2016.

Five Percent Owners of Company Stock

The following table sets forth information as to each person or entity known to us, based on information available to us, to be the beneficial owner of more than five percent of the outstanding shares of our common stock as of February 15, 2016 (percent of common stock outstanding based on shares of common stock issued and outstanding on February 15, 2016).

 

Name and Mailing Address    Number of
Shares
    Percent of
Common
Stock
Outstanding
 

Capital World Investors

333 South Hope Street, Los Angeles, CA 90071

     44,862,058 (1)      6.72

Vanguard Group Inc.

100 Vanguard Blvd., Malvern, PA 19355

     40,444,684 (2)      6.05

BlackRock, Inc.

55 East 52nd Street, New York, NY 10055

     37,804,297 (3)      5.66

 

(1) Information based on Schedule 13G/A filed with the SEC on March 4, 2016 by Capital World Investors, reporting beneficial ownership as of December 31, 2015. Such filing reports that the beneficial owner, Capital World Investors holds sole voting power and sole dispositive power with respect to the shares reported.

 

(2) Information based on Schedule 13G/A filed with the SEC on February 10, 2016 by Vanguard Group Inc., including on behalf of certain subsidiaries, reporting beneficial ownership as of December 31, 2015. Such filing reports that the beneficial owner, Vanguard Group Inc. holds sole voting power with respect to 1,260,322 of the shares reported, shared voting power with respect to 70,200 of the shares reported, sole dispositive power with respect to 39,100,678 of the shares reported, and shared dispositive power with respect to 1,344,006 of the shares reported.

 

(3) Information based on Schedule 13G/A filed with the SEC on February 10, 2016 by BlackRock, Inc., including on behalf of certain subsidiaries, reporting beneficial ownership as of December 31, 2015. Such filing reports that the beneficial owner, BlackRock, Inc. holds sole voting power with respect to 32,143,389 of the shares reported, shared voting power with respect to 15,323 of the shares reported, sole dispositive power with respect to 37,788,974 of the shares reported, and shared dispositive power with respect to 15,323 of the shares reported. The filing also reports that various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of the shares and that no one person’s interest in the shares is greater than five percent (5%) of the total number of outstanding shares.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, persons who beneficially own more than ten percent of a registered class of our equity securities, and certain other persons to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and to furnish the Company with copies of the forms. Based solely on our review of the forms we received or that were filed with the SEC, or written representations from reporting persons, we believe that all of our directors, executive officers and any greater than ten percent beneficial owners complied with all such filing requirements during 2015.

 

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REPORT OF THE AUDIT COMMITTEE

 

 

REPORT OF THE AUDIT COMMITTEE

Our Audit Committee is composed of four directors who, in the judgment of our board of directors, meet the independence requirements of The Nasdaq Global Select Market.

Since 1992 the Audit Committee has operated under a charter adopted by our board of directors. The charter, as amended, can be found at the “Investor Relations — Governance — Corporate Governance Documents” section of our website at www.express-scripts.com. The primary function of the Audit Committee is to assist our board of directors in its oversight of the integrity of our Company’s financial reporting processes and system of internal controls with respect to finance and accounting. Management is responsible for our financial statements and overall reporting process, including the system of internal controls. The independent registered public accountants are responsible for conducting annual audits and quarterly reviews of our financial statements and expressing an opinion as to the conformity of the annual financial statements with generally accepted accounting principles.

The Audit Committee submits the following report pursuant to SEC rules:

 

    The Audit Committee has reviewed and discussed with management the audited consolidated financial statements of Express Scripts Holding Company included in the annual report on Form 10-K for the year ended December 31, 2015 (which we refer to as the “Financial Statements”).

 

    The Audit Committee has discussed with PricewaterhouseCoopers LLP, or “PwC,” our Company’s independent registered public accountants, the matters required to be discussed by Auditing Standard No. 16, as adopted by the Public Company Accounting Oversight Board, or “PCAOB.”

 

    The Audit Committee has received from PwC the written disclosures and the letter required by the applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence (which relates to the auditor’s independence from our Company and its related entities), and has discussed with PwC the independence of PwC from us.

 

    Based upon the aforementioned review and discussions, the Audit Committee recommended to the board of directors that the Financial Statements be included in the Express Scripts Holding Company Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for filing with the SEC.

Respectfully submitted,

Frank Mergenthaler, Chair

William J. DeLaney

Nicholas J. LaHowchic

Seymour Sternberg

The Report of the Audit Committee will not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement or portions thereof into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed filed under such Acts.

 

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PROXY ITEM NO. 2

 

 

PROXY ITEM NO. 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

The firm of PricewaterhouseCoopers LLP served as our independent registered public accountants for the year ended December 31, 2015. The Audit Committee of the board of directors has appointed PricewaterhouseCoopers LLP to act in that capacity for the year ending December 31, 2016. A representative of PricewaterhouseCoopers LLP is expected to be present at the annual meeting, will have the opportunity to make a statement, and will be available to respond to appropriate questions from stockholders.

Although we are not required to submit this appointment to a stockholder vote, the Audit Committee believes that it is appropriate as a matter of policy to request that our stockholders ratify the appointment of PricewaterhouseCoopers LLP as our principal independent registered public accountants. If the stockholders do not ratify the appointment, the Audit Committee will investigate the reasons for stockholder rejection and consider whether to retain PricewaterhouseCoopers LLP or appoint another auditor. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditor at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.

Principal Accountant Fees

The following table presents fees for professional services rendered by PricewaterhouseCoopers LLP for the audit with respect to our annual financial statements for the years ended December 31, 2014 and December 31, 2015, as well as fees billed for other services rendered by PricewaterhouseCoopers LLP during those periods.

 

      2014      2015  
Audit fees(1)    $ 3,375,000       $ 3,615,000   
Audit-related fees(2)      1,006,000         1,027,500   
Tax fees(3)      344,400         31,600   
All other fees(4)      5,200         8,900   
Total fees    $ 4,730,600       $ 4,683,000   

 

(1) Audit fees are fees paid for professional services rendered for the audit of our annual consolidated financial statements, for reviews of our interim consolidated financial statements and SEC filings, and for the audit of internal controls over financial reporting. Audit fees also include fees for work generally only the independent auditor can be expected to provide such as services associated with documents filed with the SEC and with assistance in responding to SEC comment letters, as well as reports, specific audits and agreed upon procedures as required by regulators.

 

(2) Audit related fees are fees paid for assurance and related services performed by our independent registered public accountant including services related to SOC 1 reports.

 

(3) Tax fees are fees paid for state tax apportionment work, preparation and review of international tax filings and international tax consulting and advice related to compliance with international tax laws.

 

(4) All other fees include any fees earned for services rendered by PricewaterhouseCoopers LLP during 2014 and 2015 which are not included in any of the above categories. The other fees for 2014 and 2015 consist of licensing fees paid by us with respect to certain accounting research software.

The Audit Committee charter requires the Audit Committee’s pre-approval of all services, both audit and permitted non-audit, to be performed for the Company by the independent auditors. In determining whether proposed services are permissible, the Audit Committee considers whether the provision of such services is compatible with maintaining auditor independence. As part of its consideration of proposed services, the Audit Committee may (i) consult with management as part of the decision-making process, but may not delegate this authority to management and (ii) delegate, from time to time, its authority to pre-approve such services to one or more Audit Committee members, provided that any such approvals are presented to the full Audit Committee at the next scheduled Audit Committee meeting.

 

Directors’ Recommendation

 

The board of directors unanimously recommends a vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accountants for the year ending December 31, 2016.

 

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PROXY ITEM NO. 3

 

 

PROXY ITEM NO. 3: NON-BINDING VOTE ON EXECUTIVE COMPENSATION

Section 14A of the Securities Exchange Act requires that we include in this proxy statement a non-binding stockholder vote on our executive compensation as described in this proxy statement.

We encourage stockholders to review the Compensation Discussion and Analysis, or “CD&A”, beginning on page 25. The CD&A provides additional details of our executive compensation program, including our compensation philosophy and objectives, the individual elements of our executive compensation program, and how our executive compensation program is administered.

The board of directors believes that the executive compensation as disclosed in the CD&A, tabular disclosures, and other narrative executive compensation disclosures in this proxy statement aligns with our compensation philosophy and objectives as well as the pay practices of our Peer Group Companies. The board of directors strongly endorses the Company’s executive compensation program and recommends that stockholders vote in favor of the following resolution:

RESOLVED, that the stockholders approve the compensation of the named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis section and the tabular and narrative disclosures, included in the Company’s 2016 annual meeting proxy statement.

Because the vote is advisory, it will not be binding upon the board of directors or the Compensation Committee and neither the board nor the Compensation Committee will be required to take any action as a result of the outcome of the vote on this proposal. The board of directors values the opinions of the Company’s stockholders as expressed through their votes and other communications. Although the resolution is non-binding, the board of directors and the Compensation Committee will consider the outcome of the advisory vote on executive compensation and those opinions when making future compensation decisions. We currently intend to hold a non-binding stockholder vote on our executive compensation each year at the annual meeting of our stockholders.

 

Directors’ Recommendation

 

The board of directors unanimously recommends a vote FOR

the approval of the above resolution and the Company’s executive compensation.

 

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PROXY ITEM NO. 4

 

 

PROXY ITEM NO. 4: APPROVAL AND RATIFICATION OF THE EXPRESS SCRIPTS HOLDING COMPANY 2016 LONG-TERM INCENTIVE PLAN

The board of directors has adopted the Express Scripts Holding Company 2016 Long-Term Incentive Plan (the “2016 LTIP”) for employees and non-employee directors of the Company and its affiliates, subject to stockholder approval. The 2016 LTIP will become effective as of May 4, 2016, subject to the approval and ratification by the Company’s stockholders at the meeting.

The 2016 LTIP provides for the grant of stock options, both incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other awards to eligible individuals. A summary of the principal provisions of the 2016 LTIP is set forth below (terms used in the following summary and not otherwise defined have the meanings ascribed to them in the 2016 LTIP). The summary is qualified by reference to the full text of the 2016 LTIP, which is attached as Appendix A to this Proxy Statement. Defined terms used in the summary and not otherwise defined in this Proxy Statement have the meaning set forth in the 2016 LTIP.

The 2016 LTIP aims to reflect certain “best practices,” and accordingly includes the following provisions:

 

    No Single Trigger Acceleration of Awards upon a Change in Control. Generally, awards will not automatically accelerate upon the occurrence of a Change in Control unless the awards are not assumed by an acquirer or employment is terminated, subject to the descriptions on page 77.

 

    No Share Recycling. Shares tendered or withheld in payment of the exercise price for options and stock appreciation rights or in satisfaction of withholding taxes for any awards will not be available again for issuance as future awards under the 2016 LTIP.

 

    Minimum Vesting Requirement. The 2016 LTIP provides that all but 5% of the awards granted will provide for a vesting period or performance period of at least one year following the date of grant.

 

    Limited Discretionary Accelerations. The plan’s administrator may not accelerate the vesting of an award, except in the event of death, disability or a Change in Control.

 

    No Repricing. The terms of the 2016 LTIP prohibit the repricing of the exercise price of underwater options or stock appreciation rights, including the cancellation of an underwater option or stock appreciation right in exchange for cash.

 

    Clawback. Awards under the plan to senior executives are subject to the current and any other applicable clawback policies of the Company.

 

    Limits on Awards to Non-Employee Directors. The awards granted to any non-employee director in any consecutive 12-month period may not exceed $500,000 except with respect to a $1,000,000 cap for an independent chair of the board of directors.

 

    5 Year Term. The 2016 LTIP will terminate in 2021 which is the fifth anniversary of the effective date.

Our long-term incentive program aligns the interests of our employees, officers and directors with those of our stockholders. In furtherance of this objective, our Compensation Committee has considered two key metrics in making equity grants under the 2016 LTIP: “historical burn rate” and “overhang.”

 

    Historical Burn Rate. Our historical burn rate is equal to the number of shares subject to equity awards granted during a period, assuming the target payout for performance shares, in proportion to our outstanding shares. Our burn rate for fiscal year 2015 was 0.59%, and our three-year average burn rate for fiscal years 2013 through 2015 was 0.55%.

 

    Overhang. Our overhang is the number of shares subject to equity awards outstanding at fiscal year-end plus the number of shares available for future grants in proportion to our shares outstanding at fiscal year-end. As of December 31, 2015, our overhang was 8.53%.

Internal Revenue Code Section 162(m)

Section 162(m) of the Code, generally limits the deductibility for tax purposes of compensation in excess of $1 million per year paid by a publicly traded company to certain executive officers who are deemed to be “covered employees” under Section 162(m) of the Code. Compensation that qualifies under Section 162(m) of the Code as “performance-based” compensation is, however, exempt from the $1 million deductibility limitation. The deductibility of payments made under the 2016 LTIP resulting in total covered compensation in excess of $1 million for our covered employees following the annual meeting will depend on whether the payment is performance-based within the meaning of Section 162(m) of the Code.

 

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PROXY ITEM NO. 4

 

 

The 2016 LTIP is intended to enable us to grant awards that satisfy the requirements of a performance-based compensation program under Section 162(m) of the Code, including the requirement that the compensation must be paid solely on account of the attainment of pre-established, objective performance goals. However, in order for compensation granted pursuant to the 2016 LTIP to qualify for the performance-based exemption from the applicability of Section 162(m) of the Code, the material terms under which the compensation is to be paid must be disclosed to and approved by stockholders in a separate vote prior to payment. Accordingly, we are asking our stockholders to approve the 2016 LTIP.

The board believes that the 2016 LTIP will promote the success and enhance the value of the Company by linking the personal interests of participants to those of the Company’s stockholders and by providing participants with an incentive for outstanding performance. The board believes it is in the best interest of the Company and its stockholders to approve the 2016 LTIP.

Summary of the Express Scripts Holding Company 2016 LTIP

The purpose of the 2016 LTIP is to motivate key personnel to produce a superior return to stockholders of the Company by offering an opportunity to benefit from stock appreciation through stock ownership. The 2016 LTIP is intended to reward high levels of corporate performance and to facilitate the recruiting and retention of key personnel.

All full-time and part-time employees (including officers and directors who are employees) and non-employee directors (except with respect to grants of incentive stock options) of the Company and its affiliates will be eligible to participate in the 2016 LTIP at the discretion of the Compensation Committee. As of February 15, 2016 approximately 5,500 individuals were eligible to participate in the 2016 LTIP. The Compensation Committee will make awards based on, among other factors, an individual’s capacity for contributing to the future growth and profitability of the Company. Each award will be evidenced by an agreement or certificate setting forth the terms and conditions of the award, including the term of the award, which will not be greater than ten years. All awards are non-transferable unless the agreement or certificate permits the transfer to the participant’s successor upon the participant’s death. The board (which may delegate the determination to a committee of the board) may determine that each individual who is elected or appointed to the office of director as a non-employee director receive an award (other than incentive stock options) as compensation. In determining the level and terms of such awards, the board may consider a var