DEF 14A 1 cah-2017xdef14a.htm DEFINITIVE PROXY STATEMENT Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to § 240.14a-12

CARDINAL HEALTH, INC.
 
(Name of Registrant as Specified In Its Charter)
 
N/A
 
(Names of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notice of Annual Meeting of Shareholders
To Be Held November 8, 2017

Date and time:
Wednesday, November 8, 2017, at 8:00 a.m., local time
Location:
Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017
Purpose:
(1)
To elect the 11 director nominees named in the proxy statement;
 
(2)
To ratify the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending June 30, 2018;
 
(3)
To approve, on a non-binding advisory basis, the compensation of our named executive officers;
 
(4)
To vote, on a non-binding advisory basis, on the frequency of future advisory votes to approve executive compensation;
 
(5)
To vote on two shareholder proposals described in the accompanying proxy statement, if properly presented at the meeting; and
 
(6)
To transact such other business as may properly come before the meeting or any adjournment or postponement.
Who may vote:
Shareholders of record at the close of business on September 11, 2017 are entitled to notice of, and to vote at, the meeting or any adjournment or postponement.
By Order of the Board of Directors.
September 21, 2017
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JESSICA L. MAYER
 
Executive Vice President, Deputy General Counsel and
    Corporate Secretary
Important notice regarding the availability of proxy materials for the Annual Meeting of Shareholders to be held on November 8, 2017:
This Notice of Annual Meeting of Shareholders, the accompanying proxy statement and our 2017 Annual Report to Shareholders all are available at www.edocumentview.com/cah.




Proxy Summary
This summary highlights information contained elsewhere in our proxy statement. This summary does not contain all of the information that you should consider, and you should carefully read the entire proxy statement and our 2017 Annual Report to Shareholders before voting.
Fiscal 2017 Performance
 
In fiscal 2017, we took important actions to strengthen our market position, increase our scale, add new, long-term drivers of growth and improve the overall balance of our integrated portfolio.
In July 2017, we acquired the Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses (the "Patient Recovery Business") from Medtronic plc for $6.1 billion. These well-established, industry-leading product lines are complementary to our medical product business, fit naturally into our customer offering and expand our global reach. The new portfolio will help us further expand our scope in the operating room, in long-term care facilities and in home healthcare, reaching customers across the entire continuum of care.
In our Pharmaceutical segment, our Specialty Solutions business had outstanding growth, expanding its therapeutic reach and growing its hospital and physician customer base, and we saw excellent performance from our Red Oak Sourcing generic sourcing venture with CVS Health Corporation.
In our Medical segment, our medical products distribution business had its strongest growth in recent years, and we continued to expand our Cardinal Health branded product portfolio with nearly 12,000 product SKUs in 850 categories, more than double from five years ago. We also saw excellent growth from our naviHealth business.
On the financial side:
Revenue increased 7% to a record $130.0 billion.
GAAP diluted earnings per share ("EPS") decreased 7% to $4.03, while non-GAAP diluted EPS* increased 3% to $5.40, reflecting a challenging generic pharmaceutical pricing environment.
Our Pharmaceutical segment grew revenue 7%, while segment profit decreased 12% largely driven by the generic pharmaceutical pricing environment, partially offset by the benefits from Red Oak Sourcing.
Our Medical segment grew revenue 9% and segment profit 25%, with profit growth being driven by contributions from the naviHealth business, Cardinal Health branded products and distribution services.
We returned $1.2 billion to shareholders, including $1.80 per share in dividends and $600 million in share repurchases.
CEO Compensation Decisions
 
Our Chairman and Chief Executive Officer, Mr. Barrett, declined to be considered for an annual incentive payout due to our performance. While we achieved 89% of the adjusted non-GAAP operating earnings goal under our annual incentive plan, we did not meet the threshold for a payout, largely as a result of the challenging generic pharmaceutical pricing environment. Mr. Barrett's cash compensation (salary plus annual incentive payout) was down 64% compared to the prior fiscal year.
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* 
We provide the reasons we use non-GAAP financial measures and the reconciliations to their most directly comparable U.S. Generally Accepted Accounting Principles ("GAAP") financial measures on pages 18 through 20 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (the "Fiscal 2017 Form 10-K").


 
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Proxy Summary
 
 


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Proxy Summary
 
 


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Additional Information About Our Board of Directors
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2017 Proxy Statement
General Information
These proxy materials are being furnished to solicit proxies on behalf of the Board of Directors of Cardinal Health, Inc. for use at our Annual Meeting of Shareholders to be held on Wednesday, November 8, 2017, and at any adjournment or postponement (the “Annual Meeting”). The Annual Meeting will take place at our principal executive office located at 7000 Cardinal Place, Dublin, Ohio 43017, at 8:00 a.m., local time.
These proxy materials include our Notice of Annual Meeting and Proxy Statement and our 2017 Annual Report to Shareholders, which includes our Fiscal 2017 Form 10-K. In addition, these proxy materials may include a proxy card for the Annual Meeting. These proxy materials are first being sent or made available to our shareholders commencing on September 21, 2017.
References to our fiscal years in this proxy statement mean the fiscal year ended or ending on June 30 of such year. For example, “fiscal 2017” refers to the fiscal year ended June 30, 2017.
Notice of Internet Availability of Proxy Materials
As permitted by the Securities and Exchange Commission ("SEC"), we are providing proxy materials to some of our shareholders via the Internet. Commencing on September 21, 2017, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) explaining how to access our proxy materials online. If you received the Notice, you will not receive a printed copy of our proxy materials by mail unless you request one by following the directions included on the Notice.
Record Date  
We have fixed the close of business on September 11, 2017 as the record date for determining our shareholders entitled to notice of and to vote at the Annual Meeting. On that date, we had 315,215,877 common shares outstanding. Shareholders as of the record date will have one vote per share for the election of each director nominee and on each other voting matter.
Quorum  
We will have a quorum to conduct business at the Annual Meeting if the holders of a majority of our common shares are present, either in person or by proxy.
 
Board Recommendation
The Board recommends that you vote FOR the election of the 11 director nominees, FOR Proposals 2 and 3, ONE YEAR for Proposal 4, and AGAINST Proposals 5 and 6.
How to Vote
Shareholders of record. If you are a “shareholder of record” (meaning your shares are registered in your name with our transfer agent, Computershare Trust Company, N.A.), you may vote either in person at the Annual Meeting or by proxy. If you decide to vote by proxy, you may do so in any one of the following three ways:
By telephone.  You may vote your shares 24 hours a day by calling the toll free number 1-800-652-VOTE (8683) within the United States, U.S. territories or Canada, and following instructions provided by the recorded message. You will need to enter identifying information that appears on your proxy card or the Notice. The telephone voting system allows you to confirm that your votes were properly recorded.
By Internet.  You may vote your shares 24 hours a day by logging on to a secure website, www.envisionreports.com/CAH, and following the instructions provided. You will need to enter identifying information that appears on your proxy card or the Notice. As with the telephone voting system, you will be able to confirm that your votes were properly recorded.
By mail.  If you received a proxy card, you may mark, sign and date your proxy card and return it by mail in the enclosed postage-paid envelope.
Telephone and Internet voting is available through 2:00 a.m. Eastern time on Wednesday, November 8, 2017. If you vote by mail, your proxy card must be received before the Annual Meeting to assure that your vote is counted. We encourage you to vote promptly.
Beneficial owners. If, like most shareholders, you are a beneficial owner of shares held in “street name” (meaning a broker, trustee, bank or other nominee holds shares on your behalf), you may vote in person at the Annual Meeting only if you obtain a legal proxy from the nominee that holds your shares. Alternatively, you may


 
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General Information
 
 

vote by completing, signing and returning the voting instruction form that the nominee provides to you or by following any telephone or Internet voting instructions described on the voting instruction form, the Notice or other materials that the nominee provides to you. We encourage you to vote promptly.
Changing or Revoking Your Proxy  
Your attendance at the Annual Meeting will not automatically revoke your proxy. If you are a shareholder of record, you may change or revoke your proxy at any time before a vote is taken at the meeting by giving notice to us in writing or at the Annual Meeting, by executing and forwarding to us a later-dated proxy or by voting a later proxy over the telephone or the Internet. If you are a beneficial owner of shares, you should check with the broker, trustee, bank or other nominee that holds your shares to determine how to change or revoke your vote.
Shares Held Though Our Employee Plans  
If you hold shares through our 401(k) Savings Plans or Deferred Compensation Plan ("DCP"), you will receive voting instructions from Computershare Trust Company, N.A. and can vote through one of the three methods described above under "How to Vote." Please note that employee plan shares have an earlier voting deadline of 2:00 a.m. Eastern time on Monday, November 6, 2017.
Broker Non-Votes  
If you are a beneficial owner whose shares are held by a broker, as stated above you must instruct the broker how to vote your shares. If you do not provide voting instructions, your broker is not permitted to vote your shares on the election of directors, the advisory vote to approve the compensation of our named executive officers, the advisory vote on the frequency of future advisory votes to approve executive compensation or the shareholder proposals. The inability of the broker to vote your shares on these proposals results in a “broker non-vote.” In the absence of voting instructions, the broker can only register your shares as being present at the Annual Meeting for purposes of determining a quorum and may vote your shares on ratification of the appointment of our auditor.
Voting
You may either vote FOR, AGAINST or ABSTAIN on each of the proposals with the exception of Proposal 4 where you may vote for ONE YEAR, TWO YEARS, THREE YEARS or ABSTAIN. Votes will be tabulated by or under the direction of inspectors of election, who will certify the results following the Annual Meeting.
To elect directors under Proposal 1, our governing documents require that in an uncontested election, a director nominee be elected by a majority of votes cast. Abstentions and broker non-votes are not considered as votes cast and are not counted in determining the outcome of the voting results. If a director nominee is not re-elected by a majority of votes cast, that individual is required to tender a resignation for the Board’s consideration. See
 
“Resignation Policy for Incumbent Directors Not Receiving Majority Votes” on page 13. Proxies may not be voted for more than 11 director nominees, and shareholders may not cumulate their voting power.
Each of Proposals 2 through 6 requires approval by a majority of votes cast, with the exception of Proposal 4 which requires the majority of the votes cast for one of the options (i.e., one year, two years or three years). Abstentions and broker non-votes are not considered as votes cast and will not be counted in determining the outcome of the voting results.
How Shares Will Be Voted  
The shares represented by all valid proxies received by telephone, by Internet or by mail will be voted in the manner specified. For shareholders of record who do not specify a choice for a proposal, proxies that are signed and returned will be voted FOR the election of all 11 director nominees, FOR the ratification of the appointment of Ernst & Young LLP as independent auditor, FOR approval of the compensation of our named executive officers, FOR conducting future advisory votes to approve executive compensation every ONE YEAR, and AGAINST the shareholder proposals. If any other matters properly come before the Annual Meeting, the individuals named in your proxy, or their substitutes, will determine how to vote on those matters in their discretion. The Board of Directors does not know of any other matters that will be presented for action at the Annual Meeting.
Attending the Annual Meeting
To attend the Annual Meeting, you must be a shareholder as of September 11, 2017, the record date, and have an admission ticket or satisfactory proof of share ownership and photo identification. If you are a shareholder of record, you must present an admission ticket (which is attached to your proxy card) or you must present the Notice of Internet Availability. If you are a beneficial owner, in order to be admitted to the meeting, you must present either a valid legal proxy from your bank, broker or other nominee as to your shares, the Notice of Internet Availability, a voting instruction form or a bank or brokerage account statement. Anyone holding an admission ticket or other documentation not issued in his or her name will not be admitted to the meeting. Our annual meeting rules prohibit cameras, videotaping equipment and other recording devices, large packages, banners or placards in the meeting and prohibit use of a phone or other device.
You can call our Investor Relations department at (614) 757-4757 if you need directions to the Annual Meeting.
Even if you expect to attend the Annual Meeting in person, we urge you to vote your shares in advance.


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Proposal 1—Election of Directors
Our Board has nominated 11 directors for election at this Annual Meeting to serve until the next Annual Meeting of Shareholders and until his or her successor is duly elected and qualified. All of the nominees are currently directors of Cardinal Health.
The Board seeks members that possess the experience, skills and diverse backgrounds to perform effectively in overseeing the company's current and evolving business and strategic direction and to properly perform its oversight responsibilities. All of our director nominees bring to the Board a wealth of executive leadership experience derived from their diverse professional backgrounds and areas of expertise. As a group, they have
 
extensive healthcare and global business experience, financial expertise and business acumen , as well as public company board experience. Each of our director nominees has sound judgment and integrity and is able to commit sufficient time and attention to the activities of the Board. All director nominees other than the Chairman and Chief Executive Officer are independent.
Each director nominee agreed to be named in this proxy statement and to serve if elected. If, due to death or other unexpected occurrence, one or more of the director nominees is not available for election, proxies will be voted for the election of all remaining nominees and any substitute nominee(s) the Board selects.
Biographies of our Director Nominees
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David J. Anderson
Age 68
Director since 2014
Senior Vice President and Chief Financial Officer of Honeywell International Inc. (retired); Former Executive Vice President and Chief Financial Officer of Alexion Pharmaceuticals, Inc.
Independent Director
Director Qualification Highlights
Other Public Boards: American Electric Power Company, Inc., a public utility holding company (since 2011); B/E Aerospace, Inc., a manufacturer of aircraft interior products (2014 -2017); Fifth Street Asset Management Inc., an alternative asset manager (2014 - 2015)
ü Financial Literacy / Expertise - Former CFO roles
ü Healthcare
ü International
ü Executive Leadership
ü Strategic Planning / Acquisitions
ü Technology
ü Operations
ü Regulatory / Public Policy
Mr. Anderson served as Chief Financial Officer of Honeywell International Inc., a global diversified technology and manufacturing company, from 2003 to 2014 and as Chief Financial Officer of Alexion Pharmaceuticals, Inc. ("Alexion"), a biotechnology company, from December 2016 to August 2017. While at Honeywell, Mr. Anderson was responsible for the company’s corporate finance activities including domestic and international tax, accounting, treasury, audit, investments, financial planning, acquisitions and real estate. Prior to his roles at Honeywell and Alexion, Mr. Anderson held a number of other finance-related executive positions with ITT Corporation, Newport News Shipbuilding, RJR Nabisco and Quaker Oats Company.
Skills and Qualifications of Particular Relevance to Cardinal Health
Through his prior finance leadership positions as Chief Financial Officer at Honeywell and Alexion, as well as other leading companies, Mr. Anderson brings to the Board relevant experience in the areas of global finance and accounting, healthcare, management, executive leadership, strategic planning, acquisitions, information technology, manufacturing operations and international markets. Given his extensive financial expertise, Mr. Anderson provides valuable insight in the areas of financial reporting, accounting and internal controls, as well as international tax and finance. In addition, his recent experience as Chief Financial Officer of Alexion brings to the Board relevant experience in the areas of healthcare and pharmaceutical manufacturing. Mr. Anderson also brings to the Board valuable perspectives and insights from his service on the board of directors of American Electric Power, including service on its Audit and Finance Committees, as well as his prior service on B/E Aerospace's board of directors.


 
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Proposal 1—Election of Directors
 
 

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Colleen F. Arnold
Age 60
Director since 2007
Senior Vice President, Sales and Distribution, International Business Machines Corporation (retired)
Independent Director
Director Qualification Highlights
Other Public Boards: None
ü Technology
ü International and Global Leadership
ü Operations
ü Executive Leadership
ü Strategic Planning

Ms. Arnold was Senior Vice President, Sales and Distribution of International Business Machines Corporation ("IBM"), a provider of systems, financing, software and services, from 2014 until March 2016. Prior to that, she held a number of senior positions with IBM from 1998 to 2014, including Senior Vice President, Application Management Services, IBM Global Business Services; General Manager of GBS Strategy, Global Consulting Services, Global Industries and Global Application Services; General Manager, Europe; General Manager, Australia and New Zealand Global Services; and CEO, Global Services Australia, an IBM joint venture.
Skills and Qualifications of Particular Relevance to Cardinal Health
A former senior executive of IBM for over 17 years, Ms. Arnold's significant experience in the areas of global business operations and information technology contributes to the Board's discussions regarding information technology in our business and global strategies. Given her extensive international business experience, including leadership of international commercial operations at IBM, Ms. Arnold provides valuable insight for our growing presence in international markets. She also brings to the Board more than 30 years of relevant experience in the areas of operations, management, executive leadership and strategic planning.
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George S. Barrett
Age 62
Director since 2009
Chairman and Chief Executive Officer, Cardinal Health, Inc.
Other Public Boards: Eaton Corporation plc, a diversified power management company (2011 - 2015)
Director Qualification Highlights
ü Healthcare
ü Operations
ü Strategic Planning
ü Executive Leadership
ü International
ü Regulatory / Public Policy
ü Financial Expertise

Mr. Barrett has served as Chairman and Chief Executive Officer of Cardinal Health, Inc. since 2009. He joined Cardinal Health in 2008 as Vice Chairman and Chief Executive Officer of the company's Healthcare Supply Chain Services segment. From 1997 to 2008, Mr. Barrett held a number of executive positions with Teva Pharmaceutical Industries Ltd., a multinational generic and branded pharmaceutical manufacturer, including President and Chief Executive Officer of Teva North America.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having served in leadership positions with companies in the pharmaceutical industry for over 30 years, Mr. Barrett has extensive healthcare experience in the areas of distribution and manufacturing operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and global markets. As a result, he provides the Board with unique perspectives and insights regarding our businesses and our growing international presence, industry, challenges and opportunities. He also brings to the Board valuable perspectives and insights from his service as Chairman of the Healthcare Leadership Council, an alliance of leading companies and organizations representing all sectors of U.S. healthcare. In addition, Mr. Barrett brings relevant experience and perspectives to the Board from his service on public and not-for-profit boards of directors, including his prior service on Eaton’s board of directors.


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Proposal 1—Election of Directors
 
 

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Carrie S. Cox
Age 60
Director since 2009
Chairman and Chief Executive Officer of Humacyte, Inc.; Executive Vice President and President of Global Pharmaceuticals, Schering-Plough Corporation (retired)
Independent Director
Director Qualification Highlights
Other Public Boards: Texas Instruments Incorporated, a developer, manufacturer and marketer of semiconductors (since 2004); Celgene Corporation, a biopharmaceutical company (since 2009)
ü Healthcare
ü International
ü Operations
ü Executive Leadership
ü Strategic Planning
ü Regulatory / Public Policy
Ms. Cox has served as Chief Executive Officer of Humacyte, Inc., a privately held, development stage company focused on regenerative medicine, since 2010 and as Chairman of Humacyte since 2013. She previously served as Executive Vice President and President of Global Pharmaceuticals at Schering-Plough Corporation, a multinational branded pharmaceutical manufacturer, from 2003 until its merger with Merck & Co. in 2009. Ms. Cox previously was Executive Vice President and President of Global Prescription Business of Pharmacia Corporation from 1997 to 2003.
Skills and Qualifications of Particular Relevance to Cardinal Health
Through her roles as a former executive officer of Schering-Plough, President of Pharmacia's Global Prescription business and a licensed pharmacist, and now with Humacyte, Ms. Cox brings to the Board substantial expertise in healthcare, particularly the pharmaceutical and international aspects of our business. She has worked in the global pharmaceutical industry for over 30 years, giving her relevant experience with large, multinational healthcare companies in the areas of manufacturing operations, management, regulatory compliance, executive leadership, strategic planning and global markets. She also brings to the Board valuable perspectives and insights from her service on the boards of directors of Celgene and Texas Instruments, including on Texas Instruments' Compensation Committee and her former service as its Lead Director.
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Calvin Darden
Age 67
Director since 2005
Senior Vice President of U.S. Operations of United Parcel Service, Inc. (retired)
Independent Director
Director Qualification Highlights
Other Public Boards: Target Corporation, an operator of large-format general merchandise discount stores (since 2003); Coca-Cola Enterprises, Inc., a marketer, manufacturer and distributor of nonalcoholic beverages in selected international markets (2004 - 2016)
ü Operations
ü Distribution / Supply Chain
ü Executive Leadership
ü Strategic Planning
ü Labor Relations
ü International

Mr. Darden was Senior Vice President of U.S. Operations of United Parcel Service, Inc. ("UPS"), an express carrier and package delivery company, from January 2000 until 2005. During his 33-year career with UPS, he served in a number of senior leadership positions, including developing the corporate quality strategy for UPS and leading the business and logistics operations for its Pacific Region, the largest region of UPS at that time.
Skills and Qualifications of Particular Relevance to Cardinal Health
A former executive officer of UPS, Mr. Darden has expertise in supply chain networks and logistics that contributes to the Board’s understanding of this important aspect of our business. He has over 30 years of relevant experience in the areas of operations, distribution and supply chain, executive leadership, efficiency and quality control, strategic planning, human resources and labor relations. Drawing upon his past experience as a member of Coca-Cola Enterprises' board of directors, Mr. Darden provides the Board with a valuable understanding of distribution operations in international markets. He also brings to the Board valuable perspectives and insights from his service on Target’s board of directors, including its Compensation Committee, and his prior service on Coca-Cola Enterprises’ Human Resources and Compensation Committee.


 
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Proposal 1—Election of Directors
 
 

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Bruce L. Downey
Age 69
Director since 2009
Chairman and Chief Executive Officer of Barr Pharmaceuticals, Inc. (retired); Partner of NewSpring Health Capital II, L.P.
Independent Director
Director Qualification Highlights
Other Public Boards: Momenta Pharmaceuticals, Inc., a biotechnology company (since 2009)
ü Healthcare
ü Regulatory / Public Policy
ü Operations
ü International
ü Financial Expertise
ü Executive Leadership
ü Strategic Planning
Mr. Downey was Chairman and Chief Executive Officer of Barr Pharmaceuticals, Inc., a global generic pharmaceutical manufacturer, from 1994 to 2008. Mr. Downey has served on a part-time basis as a Partner of NewSpring Health Capital II, L.P., a venture capital firm, since 2009.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having spent 14 years as Chairman and Chief Executive Officer of Barr Pharmaceuticals, Mr. Downey brings to the Board substantial global healthcare experience in the areas of manufacturing operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources and corporate governance. He also offers valuable experience in the pharmaceutical and international aspects of our businesses. Mr. Downey brings to the Board valuable perspectives and insights from his service on Momenta Pharmaceuticals’ board of directors, including its Audit Committee, and from his prior service as Chairman of Barr Pharmaceutical's board of directors. Before his career at Barr Pharmaceuticals, Mr. Downey was a practicing attorney for 20 years, having worked in both private practice and with the U.S. Department of Justice.
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Patricia A. Hemingway Hall
Age 64
Director since 2013
President and Chief Executive Officer of Health Care Service Corporation (retired)
Independent Director
Director Qualification Highlights
Other Public Boards: ManpowerGroup, Inc., a workforce solutions company (since 2011)
ü Healthcare
ü Regulatory / Public Policy / Government
ü Operations
ü Financial Expertise
ü Executive Leadership
ü Strategic Planning
ü Technology

Ms. Hemingway Hall served as President and Chief Executive Officer of Health Care Service Corporation, a mutual health insurer ("HCSC"), from 2008 until 2015. Previously, she held several leadership positions at HCSC, including President and Chief Operating Officer from 2007 to 2008 and Executive Vice President of Internal Operations from 2006 to 2007.
Skills and Qualifications of Particular Relevance to Cardinal Health
As retired President and Chief Executive Officer of HCSC, the largest customer-owned health insurer in the United States and fourth largest overall operating through Blue Cross and Blue Shield Plans in Texas, Illinois, Montana, New Mexico and Oklahoma, Ms. Hemingway Hall brings to the Board valuable experience regarding evolving healthcare payment models at a time of change and reform in the healthcare industry. She has worked in the healthcare industry for over 30 years, first as a registered nurse and most recently in health insurance, and has relevant experience in the areas of healthcare reform, operations, management, regulatory compliance, government relations, finance, executive leadership, strategic planning, technology and human resources. In addition, Ms. Hemingway Hall provides the Board with a deep understanding of operations, management and technology from her experience in previous roles at HCSC. She also brings to the Board valuable perspectives and insights from her service on ManpowerGroup's board of directors, including its Audit Committee.


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Proposal 1—Election of Directors
 
 

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Clayton M. Jones
Age 68
Director since 2012
Chairman, President and Chief Executive Officer of Rockwell Collins, Inc. (retired)
Independent Director
Director Qualification Highlights
Other Public Boards: Deere & Company, an agricultural and construction machinery manufacturer (since 2007); Motorola Solutions, Inc., a data communications and telecommunications equipment provider (since 2015); Rockwell Collins, Inc. (2001 - 2014)
ü Operations
ü Executive Leadership
ü Strategic Planning
ü Technology
ü Financial Expertise
ü International
ü Regulatory / Public Policy / Government

Mr. Jones served as Chairman of the Board of Rockwell Collins, Inc., a multinational aviation electronics and communications equipment company, from 2002 through 2014, and as Chief Executive Officer from 2001 until his retirement in 2013. He previously served as president of Rockwell Collins and corporate officer and senior vice president of Rockwell International, which he joined in 1979.
Skills and Qualifications of Particular Relevance to Cardinal Health
As retired Chairman, President and Chief Executive Officer of Rockwell Collins, Mr. Jones brings to the Board relevant experience in highly regulated industries as well as in the areas of manufacturing operations, management, finance, executive leadership, strategic planning, information technology, human resources, corporate governance, international markets and government contracting. He provides the Board with a valuable understanding of commercial operations in international markets. As a former member of the President's National Security Telecommunications Advisory Committee and a current member of The Business Council, Mr. Jones provides insights in regulatory affairs, government and public policy matters. He also brings to the Board valuable perspectives and insights from his service on Motorola Solutions' board of directors, including its Audit Committee, and Deere & Company's board of directors, as well as from his previous service as Chairman of Rockwell Collins' board of directors.
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Gregory B. Kenny
Age 64
Director since 2007
President and Chief Executive Officer of General Cable Corporation (retired)
Independent Lead Director
Director Qualification Highlights
Other Public Boards: Ingredion Incorporated, a corn refining and ingredient company (since 2005); AK Steel Holding Corporation, an integrated producer of flat-rolled, carbon and electrical stainless steels and tubular products (since January 2016); General Cable Corporation (1997 - 2015)
ü Executive Leadership
ü Operations
ü Strategic Planning
ü International
ü Financial Expertise

Mr. Kenny served as President and Chief Executive Officer of General Cable Corporation, a global manufacturer of aluminum, copper and fiber-optic wire and cable products, from 2001 until 2015. Prior to that, he was President and Chief Operating Officer of General Cable from 1999 to 2001 and Executive Vice President and Chief Operating Officer from 1997 to 1999. Mr. Kenny previously also served in executive level positions at Penn Central Corporation, where he was responsible for corporate business strategy, and in diplomatic service as a Foreign Service Officer with the United States Department of State.
Skills and Qualifications of Particular Relevance to Cardinal Health
Mr. Kenny brings to the Board significant experience in the areas of Board and executive leadership, manufacturing operations, strategic planning, management, finance, human resources, corporate governance and international markets. He provides the Board with a deep understanding of strategic and financial implications impacting a global business with manufacturing and distribution operations. He also draws upon his Board governance and leadership experience as previous Chair of our Human Resources and Compensation Committee and current Chair of our Nominating and Governance Committee, and as Ingredion's Lead Director and Corporate Governance and Nominating Committee Chair. As our independent Lead Director, Mr. Kenny has promoted strong independent leadership on our Board and a robust, deliberative decision making process among independent directors. In addition, Mr. Kenny brings to the Board valuable perspectives and insights from his service on AK Steel's Board of Directors and his prior service on General Cable's and IDEX's board of directors.


 
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Proposal 1—Election of Directors
 
 

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Nancy Killefer
Age 63
Director since 2015
Senior Partner, Public Sector Practice, McKinsey & Company, Inc. (retired)
Independent Director
Director Qualification Highlights
Other Public Boards: The Advisory Board Company, a provider of software and solutions to the healthcare and education industries (since 2013); Avon Products, Inc., a global manufacturer and marketer of beauty products (since 2013); CSRA, Inc., a provider of information technology services to the U.S. federal government (since 2015); Computer Sciences Corporation, a global provider of information technology services (2013 - 2015)
ü Strategic Planning
ü Healthcare
ü Regulatory / Public Policy / Government
ü Technology
ü Executive Leadership
ü Financial Expertise
Ms. Killefer served as Senior Partner of McKinsey & Company, Inc., a global management consulting firm, from 1992 until 2013. She joined McKinsey in 1979 and held a number of key leadership roles, including serving as a member of the firm's governing board. Ms. Killefer founded McKinsey's Public Sector Practice in 2007 and served as its managing partner until her retirement. She also served as Assistant Secretary for Management, Chief Financial Officer and Chief Operating Officer for the United States Department of Treasury from 1997 to 2000.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having served in key leadership positions in both the public and private sectors and provided strategic counsel to healthcare and consumer-based companies during her 30 years with McKinsey, Ms. Killefer brings to the Board substantial experience in the areas of strategic planning, including healthcare strategy, marketing and brand building, executive leadership and information technology. Her extensive experience as a partner of a global consulting firm and as a chief financial officer of a government agency provides valuable insight in these areas as well as in government relations and public policy. Ms. Killefer also brings to the Board valuable perspectives and insights from her service on the boards of directors of The Advisory Board, Avon Products (including its Compensation and Management Development Committee), and CSRA, Inc. (including her role as independent Chairman since August 2016).
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David P. King
Age 61
Director since 2011
Chairman, President and Chief Executive Officer of Laboratory Corporation of America Holdings
Independent Director
Director Qualification Highlights
Other Public Boards: Laboratory Corporation of America Holdings (since 2007)
ü Healthcare
ü Regulatory / Public Policy
ü Strategic Planning
ü Operations
ü Executive Leadership
ü Financial Expertise
ü International
Mr. King has served as President and Chief Executive Officer of Laboratory Corporation of America Holdings, a global healthcare diagnostics company ("LabCorp"), since 2007, and as Chairman of LabCorp since 2009. Previously he held other senior positions with LabCorp, including Executive Vice President and Chief Operating Officer, Executive Vice President, Strategic Planning and Corporate Development, and Senior Vice President, General Counsel and Chief Compliance Officer.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having spent 16 years in senior executive roles with LabCorp, including the past ten years as its Chief Executive Officer, Mr. King brings to the Board substantial experience in the areas of healthcare, operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and global healthcare markets. He also brings to the Board valuable perspectives and insights from his position as Chairman of LabCorp’s board of directors. Prior to LabCorp, Mr. King was a practicing attorney for 17 years, having worked in both private practice focusing on healthcare and with the U.S. Department of Justice.
The Board recommends that you vote FOR the election of these director nominees.


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Cardinal Health | 2017 Proxy Statement
 



Proposal 1—Election of Directors
 
 

Our director nominees possess relevant experience, skills and qualifications that contribute to a well-functioning Board that effectively oversees the company's strategy and management. A chart of director skills and expertise is provided below:
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genderethnicdiversity.jpg     yearsofsvcnew.jpg


 
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9 



Corporate Governance
Board of Directors
 
Our Board of Directors currently consists of 11 members, 10 of whom are independent. Our Board is led by Chairman and Chief Executive Officer George S. Barrett, independent Lead Director Gregory B. Kenny (who also chairs the Nominating and Governance Committee), Audit Committee Chair Clayton M. Jones, and Human Resources and Compensation Committee Chair David P. King.
 
The Board held eight meetings during fiscal 2017. During fiscal 2017, each director attended 75% or more of the meetings of the Board and Board committees on which he or she served. All of our directors attended the 2016 Annual Meeting of Shareholders. Absent unusual circumstances, each director is expected to attend the Annual Meeting of Shareholders.
Board Leadership Structure
 
For a number of years, our Board has been led by a Chairman of the Board (who is also the Chief Executive Officer), a strong independent Lead Director, and active, independent chairs of the Audit, Nominating and Governance and Human Resources and Compensation Committees.
Our Board is responsible for selecting the Chairman of the Board and the Chief Executive Officer and has determined that its current leadership structure effectively promotes strong Board governance and oversight. The combined Chairman and Chief Executive Officer structure has allowed us to focus on long-term shareholder value and respond effectively to rapidly evolving industry changes and market dynamics, as well as to acquisition opportunities and competitive market pressures. Under this leadership structure, our Board has continued to provide effective, independent oversight of strategic decisions, management and regulatory compliance. The effectiveness of this structure has been demonstrated by strong performance over the past several years, including compound annual non-GAAP diluted EPS growth rate of 13.4% and total shareholder return (TSR) of 272% since August 31, 2009.
The Board believes that our Chief Executive Officer is best suited to serve as Chairman because of his unique knowledge of our businesses, the healthcare industry and our shareholders. This structure fosters effective decision-making and alignment between the Board and management, enables a single person to speak on behalf of the Board and the company to our customers, vendors, employees, shareholders and regulators, and provides strong leadership and a powerful "tone from the top" to focus on our compliance and reputation, growth and long-term success.
 
The Board ensures rigorous independent leadership through an active, engaged independent Lead Director with clearly defined responsibilities, who is elected annually by the independent directors. In selecting a Lead Director, the independent directors look for robust leadership skills, including fostering open dialogue among independent directors, candid input to management, an understanding of our strategy and businesses, and substantial governance experience and understanding. The independent Lead Director:
works closely with the Chairman in developing the agenda, materials and schedule for Board meetings and approves the agenda and information sent to the Board;
consults with and advises the Chairman on matters arising between Board meetings relating to our business, strategy, operations or governance;
leads the Board's annual self-evaluation in coordination with the Nominating and Governance Committee;
reviews the results of the evaluation of individual directors with those directors;
contributes to the annual performance assessment of the Chief Executive Officer;
participates in engagement with major shareholders;
sets the agenda for and leads all executive sessions of independent directors;
serves as a liaison between the Chairman and the independent directors; and
has the authority to call additional executive sessions of the independent directors.
___________
 
Total shareholder return over the period from August 31, 2009, when Mr. Barrett became Chairman and Chief Executive Officer, through June 30, 2017 expressed as a percentage, calculated based on changes in stock price assuming reinvestment of dividends.


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Cardinal Health | 2017 Proxy Statement
 



Corporate Governance
 
 

Mr. Kenny, who has served as Lead Director since November 2014, has been actively engaged in Board leadership and shareholder engagement. Over the past year, Mr. Kenny has met regularly with Mr. Barrett and worked closely with him in developing Board agendas, schedules and topics, including discussions regarding long-term strategies and capital deployment. He has chaired regular executive sessions of the independent directors and met with Mr. Barrett regarding matters arising from these meetings. He has frequently gathered feedback and input from independent directors and provided it to Mr. Barrett and other members of management. Mr. Kenny has devoted significant time
 
to understanding our businesses and strategy, and has access to members of senior management. Mr. Kenny also leads the annual evaluation of the Board and the individual evaluation of each director. In addition, Mr. Kenny participated in the Human Resources and Compensation Committee's meeting to review Mr. Barrett's annual performance and compensation. Finally, during the year, Mr. Kenny held governance discussions with several large investors and attended a major healthcare investor conference with management, where he also met with many of our investors.
Committees of the Board of Directors
 
The Board has an Audit Committee, a Nominating and Governance Committee and a Human Resources and Compensation Committee (the "Compensation Committee"). Each member of these Committees is independent under our Corporate Governance Guidelines and under applicable Committee independence rules.
 
The charter for each committee is available on our website at www.cardinalhealth.com under “About Us—Corporate—Investor Relations—Corporate Governance—Board Committees and Charters.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
Audit Committee
 
 
 
Members:
 
The Audit Committee’s primary duties are to:
Clayton M. Jones (Chair)
 
oversee the integrity of our financial statements, including reviewing annual and quarterly financial statements and earnings releases and the effectiveness of our internal and disclosure controls;
appoint the independent auditor and oversee its qualifications, independence and performance, including pre-approving all services by the independent auditor;
review our internal audit plan and oversee our internal audit department;
approve the appointment of our Chief Legal and Compliance Officer and oversee our ethics and compliance program and our compliance with applicable legal and regulatory requirements; and
oversee our major financial and information technology risk exposures and our process for assessing and managing risk through our enterprise risk management program.

The Board has determined that each member of the Audit Committee is an “audit committee financial expert” for purposes of the SEC rules.
David J. Anderson*
 
Bruce L. Downey
 
Patricia A. Hemingway Hall
 

Meetings in fiscal 2017: 8

*Mr. Anderson served on the Audit Committee until December 2016 and was re-appointed to the Committee on September 14, 2017 after his employment with Alexion ended.
 
 
 
 
Nominating and Governance Committee
 
 
 
Members:
 
The Nominating and Governance Committee’s primary duties are to:
Gregory B. Kenny (Chair)
 
identify, review and recommend candidates for the Board, including recommending criteria to the Board for potential Board candidates and assessing the qualifications, attributes, skills, contributions and independence of individual directors and director candidates;
make recommendations to the Board concerning the structure, composition and functions of the Board and its committees;
advise the Board on Board leadership and leadership structure;
review our corporate governance guidelines and practices and recommend changes;
conduct the annual Board evaluation and oversee the process for the evaluation of each director; and
oversee our policies and practices regarding political expenditures.
Colleen F. Arnold
 
Patricia A. Hemingway Hall
 

Meetings in fiscal 2017: 4
 
 
 


 
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Corporate Governance
 
 

Human Resources and Compensation Committee
 
 
 
Members:
 
The Compensation Committee’s primary duties are to:
approve compensation for the Chief Executive Officer, establish relevant performance goals, and evaluate his performance;
approve compensation for our other executive officers and oversee their evaluations;
make recommendations to the Board with respect to the adoption of, and administer, equity and incentive compensation plans;
review our non-management directors’ compensation program and recommend changes to the Board;
oversee the management succession process for the Chief Executive Officer and senior executives;
oversee workplace diversity initiatives and progress;
oversee and assess material risks related to compensation arrangements; and
assess the independence of Compensation Committee’s consultant and evaluate its performance.

The Compensation Discussion and Analysis, which begins on page 22, discusses how the Compensation Committee makes compensation-related decisions regarding our named executive officers.  The Compensation Committee acts as the administrator of our incentive plans and delegates to our officers authority to administer the plans with respect to participants who are not officers subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act").
David P. King (Chair)
 
Carrie S. Cox
 
Calvin Darden
 
Nancy Killefer
 

Meetings in fiscal 2017: 6
 
 
 
Director Independence
 
The Board has established director independence standards based on the NYSE Rules. These standards can be found within our Corporate Governance Guidelines on our website at www.cardinalhealth.com under “About Us—Corporate—Investor Relations—Corporate Governance—Corporate Governance Documents." These standards address, among other things, employment and compensation relationships, relationships with our auditor and customer and business relationships.
The Board assesses director independence annually, and as needed, based on the recommendations of the Nominating and Governance Committee.
 
The Board has determined that each of Messrs. Anderson, Darden, Downey, Jones, Kenny and King, and each of Mmes. Arnold, Cox, Hemingway Hall and Killefer, is independent. Mr. Anderson ceased to be independent in December 2016 when he became Chief Financial Officer of Alexion, which supplies pharmaceuticals to us in the ordinary course of its business. Mr. Anderson again became independent after his employment with Alexion ended.
In determining that Mr. King is independent, the Nominating and Governance Committee considered that he is Chairman, President and Chief Executive Officer of LabCorp. We sell medical and laboratory products to LabCorp in the ordinary course of business. LabCorp's payments to us were less than 1% of our, and less than 2% of LabCorp's, revenue for each of the last three years.
Director Qualification Standards
 
The Nominating and Governance Committee considers and reviews with the Board the appropriate skills and characteristics for Board members. These include business experience, qualifications, attributes and skills, including healthcare industry and knowledge, as well as financial, international, operations, and technology experience, independence (including independence from the interests of a particular group of shareholders), judgment, integrity, ability to commit sufficient time and attention to the activities of the Board and the absence of potential conflicts with our interests.
 
The Nominating and Governance Committee considers these skills and qualifications when assessing the composition of the Board as a whole, and seeks diversity of skills, experience and backgrounds on the Board. The Nominating and Governance Committee assesses the effectiveness of this process based on its review of qualifications in the Director skills matrix on page 9. This assessment is ongoing and occurs both during the Committee's regular meetings as well as during the Board's annual self-assessment process.


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Cardinal Health | 2017 Proxy Statement
 



Corporate Governance
 
 

The Nominating and Governance Committee is responsible for identifying, reviewing and recommending candidates for the Board and is working with a firm that was retained to assist in identifying and selecting independent director candidates. The Board is
 
responsible for selecting candidates for election as directors based on the recommendation of the Nominating and Governance Committee.
Board Diversity
 
Our Corporate Governance Guidelines provide that the Board should be diverse, engaged and independent. In developing and recommending criteria for identifying and evaluating candidates for the Board, the Nominating and Governance Committee considers the diversity of the Board, including ethnic and gender
 
diversity. We believe the composition of our Board appropriately reflects a diversity of skills, professional and personal backgrounds and experiences and 45% of our Board members are ethnically or gender diverse.
Board Performance Assessment
 
For several years, our Board has had a rigorous self-evaluation process, which has included individual director evaluations. This process is overseen by the Nominating and Governance Committee and led by our independent Lead Director.
Our Board uses an outside facilitator with corporate governance experience who interviews each director to obtain his or her feedback regarding the Board's performance as well as feedback on each director. Based on the feedback, which is compiled anonymously, the Board identifies follow-up items and provides feedback to management.
The Board evaluation process includes an assessment of both Board process and substance, including:
 
the Board's effectiveness, structure, composition and culture;
quality of Board discussions, including time devoted to discussion and presentations;
the Board's performance in oversight of strategy, succession planning, business performance, regulatory compliance, risk management and other key areas; and
agenda topics for future meetings.
The outside facilitator also compiles feedback regarding each individual director, which the Lead Director provides to each director in individual discussion. The Board believes this annual process supports its effectiveness and continuous improvement.
Resignation Policy for Incumbent Directors Not Receiving Majority Votes
 
Our Corporate Governance Guidelines require any incumbent director who is not re-elected by shareholders in an uncontested election to promptly tender a resignation to the Chairman of the Board. Within 90 days following the certification of the shareholder
 
vote, the Nominating and Governance Committee will recommend to the Board whether to accept the resignation. Thereafter, the Board will promptly act and publicly disclose its decision and the rationale behind the decision.
Shareholder Engagement
 
We actively engage with our shareholders throughout the year so that management and the Board can better understand shareholder perspectives on governance, executive compensation and other topics that are important to them, and to assess emerging issues that may help shape our practices and enhance our corporate disclosures. We strive for a collaborative approach to shareholder engagement and value the variety of shareholders' perspectives received.
 
During the past three years, our independent Lead Director has participated in outreach discussions with our large shareholders. In addition, as in past years, we held regular discussions with our largest shareholders and solicited feedback from our top 50 investors on corporate governance matters. During fiscal 2017 we contacted governance professionals from our largest shareholders collectively representing more than 50% of our outstanding shares during fiscal 2017. An overview of our engagement process is below.


 
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Corporate Governance
 
 

engagement.jpg
After considering feedback from shareholders in recent years, we have:
adopted a proxy access right for shareholders;
enhanced our disclosures regarding the Board's role in strategy and risk oversight;
formalized additional responsibilities for the independent Lead Director and enhanced our disclosure about the Lead Director’s role and activities;
 
formalized our annual individual director evaluation process and expanded our disclosure about the annual Board evaluation process;
enhanced our executive compensation clawback provision;
provided more detailed disclosure in the Proxy Summary and the Compensation Discussion and Analysis Executive Summary; and
added a chart of director qualifications and experience in the proxy statement.
Strategy and Risk Oversight
 
Board’s Oversight of Strategy and Capital Deployment
The Board regularly discusses our strategy in light of company performance, developments in the rapidly changing healthcare industry and the general business and global economic environment, and reviews and approves our capital deployment, including dividends, share repurchase plans and significant acquisitions. At two of its in-person meetings each year, the Board conducts dedicated strategy sessions with in-depth discussions with senior management on the healthcare industry and environmental factors and reviews specific businesses and new business opportunities. These strategy sessions have included external speakers such as business partners and advisors, as well as off-site visits to company facilities and customer locations. The Board also discusses risks related to our strategies, including those resulting from possible competitor, customer and supplier actions, the changing healthcare environment and new technologies. The collective backgrounds, skills and experiences of our directors, including broad healthcare experience, contribute
 
to robust discussions regarding strategic planning and risk oversight.
As an example, our Board discussed the possible acquisition of the Patient Recovery Business from Medtronic plc over a number of meetings beginning in the fall of 2016, when we learned that these assets might be for sale. We devoted significant portions of two in-person Board meetings to a detailed review and discussion of the possible acquisition and related capital deployment, and had several Board updates between these meetings. The Board approved the acquisition at a special meeting in April 2017.
Board’s Role in Risk Oversight
Management has day-to-day responsibility for assessing and managing risks, and the Board is responsible for risk oversight. We have developed an enterprise risk management process, which our Audit Committee oversees and our Chief Legal and Compliance Officer administers. Under this process, management identifies and prioritizes enterprise risks and develops systems to assess, monitor and mitigate those risks. Management reviews and discusses with the Board significant risks identified through the process. The Audit Committee also is responsible for


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Corporate Governance
 
 

discussing with management our major financial risk exposures, our ethics and compliance programs, and compliance with legal and regulatory requirements. The Board and Audit Committee receive regular updates on the effectiveness of our compliance programs, including our healthcare regulatory compliance, anti-corruption and controlled substance anti-diversion program, as well as updates on potential information system and cyber security
 
exposures and mitigation strategies. In connection with its risk oversight role, the Audit Committee meets regularly with representatives from our independent registered public accounting firm and our Chief Financial Officer, Chief Legal and Compliance Officer and the head of our internal audit function.
 
 
 
 
The Opioid Epidemic and Risk Management
As a pharmaceutical distributor, we provide a safe and secure channel for transporting prescription medications of all types, including opioid pain medications, from manufacturers approved by the Food and Drug Administration to licensed pharmacies. Our role is to ensure medications of all kinds—oncology, blood pressure, antibiotic, pain and other medications—are available to pharmacies that are licensed by their state and regulated by the Drug Enforcement Administration to dispense these medications to patients with valid medical prescriptions. As a pharmaceutical distributor, we do not manufacture, market, promote or dispense these medications, and we do not interact with patients, diagnose medical conditions, write prescriptions or otherwise practice medicine. As part of our safe and secure distribution channel, we maintain a rigorous anti-diversion program to prevent opioid pain medications from being diverted for improper uses.
Our Board is highly engaged in oversight of our anti-diversion program and is committed to helping with the complex national opioid abuse public health crisis. Our anti-diversion program includes state-of-the-art controls designed to prevent diversion of pain medication from legitimate uses. The Board regularly reviews and discusses with management the effectiveness of our anti-diversion program, which focuses on our regulatory obligation to detect and report suspicious orders. The Board also monitors and discusses the causes of, and our role in helping to address, this national epidemic. In 2014, in response to a shareholder demand, the Board appointed a committee of independent directors to conduct a review of our anti-diversion program utilizing independent counsel. The committee found, among other things, that we had implemented and maintained a robust system of controls to detect and report suspicious orders and that our Board was well informed of those controls. Since that review, the Board has continued to actively focus on the effectiveness of our anti-diversion program and to support its continued enhancements through regular reviews with management.
 
Ethics and Compliance Program
 
The Board has adopted written Standards of Business Conduct that outline our corporate values and standards of integrity and behavior. The Standards of Business Conduct are designed to foster a culture of integrity, drive compliance with legal and regulatory requirements and protect and promote the reputation of our company. The full text of the Standards of Business Conduct is posted on our website at www.cardinalhealth.com under “About Us—Our Business—Ethics and Compliance.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
 
Our Chief Legal and Compliance Officer has responsibility to implement and maintain an effective ethics and compliance program. He also provides quarterly updates on our ethics and compliance program to the Audit Committee and an update to the full Board at least once a year. He reports to the Chair of the Audit Committee and to the Chief Executive Officer and meets in separate executive sessions quarterly with the Audit Committee.
Management Succession Planning
 
The Board is actively engaged in our talent management program. The Compensation Committee oversees the process for succession planning for the Chief Executive Officer and senior executives, and management provides an organizational update at each quarterly Compensation Committee meeting. The Board
 
maintains an emergency succession plan as well as a long-term succession plan for the position of Chief Executive Officer.
The Board holds a formal succession planning and talent review session annually, which includes succession planning for other senior management positions. These talent review and


 
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Corporate Governance
 
 

succession planning discussions take into account desired leadership skills, key capabilities and experience in light of our current and evolving business and strategic direction, and include identification and development of internal candidates. Directors also have exposure to leaders through Board presentations and
 
discussions, as well as through informal events and interactions with key talent throughout the year, both in small group and one-on-one settings. In addition, the Board regularly discusses management talent and succession in its executive sessions.
Certain Relationships and Related Transactions
 
Related Person Transactions Policy
The Board follows a written policy that the Audit Committee must approve or ratify any "related person transactions" (transactions exceeding $120,000 in which we are a participant and any related person has a direct or indirect material interest). "Related persons" include our directors, nominees for election as a director, persons controlling over 5% of our common shares, executive officers and the immediate family members of each of these individuals.
Once a related person transaction is identified, the Audit Committee will review all of the relevant facts and circumstances and determine whether to approve the transaction. The Audit Committee will take into account such factors as it considers appropriate, including the material terms of the transaction, the nature of the related person’s interest in the transaction, the significance of the transaction to the related person and us, the nature of the related person’s relationship with us and whether the transaction would be likely to impair the judgment of a director or executive officer to act in our best interest.
If advance approval of a transaction is not feasible, the Audit Committee will consider the transaction for ratification at its next regularly scheduled meeting. The Audit Committee Chairman may
 
pre-approve or ratify any related person transactions in which the aggregate amount is expected to be less than $1 million.
Related Person Transactions
Since July 1, 2016, there have been no transactions, and there are no currently proposed transactions, involving an amount exceeding $120,000 in which we were or are to be a participant and in which any related person had or will have a direct or indirect material interest, except as described below.
Mr. Anderson served as Chief Financial Officer of Alexion, a biotechnology company, from December 11, 2016 until July 31, 2017, and as an employee of Alexion until August 31, 2017. When Mr. Anderson joined Alexion, we had a pre-existing commercial relationship with Alexion which was negotiated at arm's length and in the ordinary course of business, and has continued since Mr. Anderson ended his employment with Alexion. From July 1, 2016 through July 31, 2017, we purchased for distribution to our customers approximately $394 million of Alexion product. Mr. Anderson has not been involved in any decisions or activities directly associated with the transactions between Alexion and us. These transactions were approved by our Audit Committee in accordance with the Related Person Transactions Policy.
Corporate Governance Guidelines
 
You can find the full text of our Corporate Governance Guidelines on our website at www.cardinalhealth.com under “About Us—Corporate—Investor Relations—Corporate Governance—Corporate Governance Documents.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.



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Cardinal Health | 2017 Proxy Statement
 



Proposal 2—Ratification of Ernst & Young LLP as Independent Auditor
The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation, retention and oversight of our independent auditor and approves the audit engagement letter with Ernst & Young LLP and its audit fees. The Audit Committee has appointed Ernst & Young LLP as our independent auditor for fiscal 2018 and believes that the continued retention of Ernst & Young LLP as our independent auditor is in the best interest of Cardinal Health and its shareholders. Ernst & Young LLP has served as our independent auditor since 2002. In accordance with SEC rules, lead audit partners are subject to rotation requirements, which limit the number of consecutive years an individual partner may serve us. The Audit Committee oversees the rotation of the audit partners. The Audit Committee Chairman interviews candidates for audit partner and the Audit Committee discusses them.
While not required by law, we are asking our shareholders to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2018 at the Annual Meeting as a matter of good corporate
 
governance. If shareholders do not ratify this appointment, the Audit Committee will consider whether it is appropriate to appoint another audit firm. Even if the appointment is ratified, the Audit Committee in its discretion may appoint a different audit firm at any time during the fiscal year if it determines that such a change would be in the best interest of the company and its shareholders. Our Audit Committee approved, and our shareholders ratified, the appointment of Ernst & Young LLP as our independent auditor for fiscal 2017.
We expect representatives of Ernst & Young LLP to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.
The Board recommends that you vote FOR the proposal to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2018.
Audit Committee Report and Audit Matters
Audit Committee Report
 
The Audit Committee is responsible for monitoring the integrity of Cardinal Health’s financial statements; the independent auditor’s qualifications, independence and performance; Cardinal Health’s internal audit function; Cardinal Health’s ethics and compliance program and its compliance with legal and regulatory requirements; and Cardinal Health’s processes for assessing and managing risk. As of the date of the report, the Audit Committee consisted of three members of the Board of Directors. Mr. Anderson was subsequently re-appointed to the Audit Committee on September 14, 2017. The Board of Directors has determined that each current Committee member is an “audit committee financial expert” for purposes of the SEC rules and is independent. The Audit Committee’s activities are governed by a written charter, most recently revised by the Board of Directors in November 2016. The charter is available on Cardinal Health’s website at www.cardinalhealth.com under “About Us—Corporate—Investor Relations—Corporate Governance—Board Committees and Charters."
 
Management has primary responsibility for the financial statements and for establishing and maintaining the system of internal control over financial reporting. Management also is responsible for reporting on the effectiveness of Cardinal Health’s internal control over financial reporting. Cardinal Health’s independent auditor, Ernst & Young LLP, is responsible for performing an independent audit of Cardinal Health’s consolidated financial statements and for issuing a report on the financial statements and a report on the effectiveness of Cardinal Health’s internal control over financial reporting based on its audit.
The Audit Committee reviewed and discussed the audited financial statements for the fiscal year ended June 30, 2017 with management and with Ernst & Young LLP. The Audit Committee also reviewed and discussed with management and Ernst & Young LLP the effectiveness of Cardinal Health’s internal control over financial reporting as well as management's report and Ernst & Young LLP's report on the subject. The Audit Committee discussed with Ernst & Young LLP the matters related to the conduct of its audit that are required to be communicated by auditors to audit committees under applicable requirements of the Public Company


 
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Audit Committee Report and Audit Matters
 
 

Accounting Oversight Board (the "PCAOB") and matters related to Cardinal Health’s financial statements, including critical accounting estimates and judgments. The Audit Committee received from Ernst & Young LLP the written disclosures and letter regarding Ernst & Young LLP’s independence from Cardinal Health required by applicable PCAOB requirements and discussed Ernst & Young LLP’s independence.
The Audit Committee meets regularly with Ernst & Young LLP, with and without management present, to review the overall scope and plans for Ernst & Young LLP’s audit work and to discuss the results of its examinations, the evaluation of Cardinal Health’s internal control over financial reporting and the overall quality of Cardinal Health’s accounting and financial reporting. In addition, the Audit Committee annually considers the performance of Ernst & Young LLP.
 
In reliance on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended June 30, 2017 be included in Cardinal Health’s Annual Report on Form 10-K for filing with the SEC.
Submitted by the Audit Committee of the Board of Directors on August 8, 2017.
Clayton M. Jones, Chairman
Bruce L. Downey
Patricia A. Hemingway Hall
Fees Paid to Independent Accountants
 
The following table sets forth the fees billed to us by Ernst & Young LLP for services in fiscal 2017 and 2016.
 
Fiscal Year 
Ended
June 30, 2017
($)
Fiscal Year 
Ended
June 30, 2016
($)
Audit fees (1)
9,546,537

 
9,722,883

 
Audit-related fees (2)
2,722,451

 
3,780,485

 
Tax fees (3)
841,082

 
980,523

 
All other fees

 

 
Total fees
13,110,070

 
14,483,891

 
(1)
Audit fees include fees paid to Ernst & Young LLP related to the annual audit of our consolidated financial statements, the annual audit of the effectiveness
 
of our internal control over financial reporting, the review of financial statements included in our Quarterly Reports on Form 10-Q and statutory audits of various international subsidiaries. Audit fees also include fees for services performed by Ernst & Young LLP that are closely related to the audit and in many cases could only be provided by our independent accountant, such as comfort letters and consents related to SEC registration statements.
(2)
Audit-related fees include fees for services related to acquisitions and divestitures, audit-related research and assistance, internal control reviews, service auditor’s examination reports and employee benefit plan audits.
(3)
Tax fees include fees for tax compliance and other tax-related services. The aggregate fees billed to us by Ernst & Young LLP for tax compliance and other tax-related services for fiscal 2017 were $797,514 and $43,568, respectively, and for fiscal 2016 were $546,722 and $433,801, respectively.
Audit Committee Audit and Non-Audit Services Pre-Approval Policy
 
The Audit Committee must pre-approve the audit and permissible non-audit services performed by our independent accountants in order to help ensure that the accountants remain independent from Cardinal Health. The Audit Committee has adopted a policy governing this pre-approval process.
Under the policy, the Audit Committee annually pre-approves certain services and assigns specific dollar thresholds for these types of services. If a proposed service is not included in the annual pre-approval, the Audit Committee must separately pre-approve the service before the engagement begins.
 
The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for proposed services up to $500,000. Proposed services exceeding $500,000 require full Audit Committee approval.
All audit and non-audit services provided for us by Ernst & Young LLP for fiscal 2017 and 2016 were pre-approved by the Audit Committee.


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Cardinal Health | 2017 Proxy Statement
 



Proposal 3—Advisory Vote to Approve the Compensation of Our Named Executive Officers
In accordance with Section 14A of the Exchange Act, we are asking our shareholders to approve, on a non-binding advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.
We urge shareholders to read the Compensation Discussion and Analysis beginning on page 22 of this proxy statement, which describes in more detail how our executive compensation program operates and is designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables, notes and narrative appearing on pages 30 through 41, which provide detailed information on the compensation of our named executive officers.
The Compensation Committee and the Board believe that the executive compensation program described in the Compensation Discussion and Analysis is designed to support our long-term growth, with accountability for key annual results. We tie most of executive pay to performance based on financial, operational and individual performance, and we believe that our compensation programs are competitive in the marketplace.
While we took important actions to strengthen our market position, increase our scale, add new, long-term drivers of growth and improve the overall balance of our integrated portfolio in fiscal 2017, we did not achieve the earnings goal under our annual
 
incentive plan, largely as a result of a challenging generic pharmaceutical pricing environment. Our named executives other than Mr. Barrett received payouts at 25% of their respective targets. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout. The payouts demonstrate strong alignment between our pay and our performance.
Although this advisory vote is not binding on the Board, the Board and the Compensation Committee will review and consider the voting results when evaluating our executive compensation program.
The Board has adopted a policy providing for annual say-on-pay advisory votes. Accordingly, subject to the outcome of Proposal 4 and the decision of the Board, the next say-on-pay advisory vote will be held at our 2018 Annual Meeting of Shareholders.
The Board recommends that you vote FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.
Proposal 4—Advisory Vote on Frequency of Future Advisory Votes to Approve Executive Compensation
In accordance with Section 14A of the Exchange Act, we are asking shareholders to vote on whether future advisory votes on executive compensation (like Proposal 3 above) should occur once every one, two or three years. This vote is not binding on the Board. Based on input from shareholders, the Board has determined that holding an advisory vote on executive compensation every year is most appropriate for us at this time, and recommends that shareholders vote to hold such votes every year. Holding an annual advisory vote provides us with more direct and immediate insight into our shareholders’ views on our executive compensation program.
Although this advisory vote is not binding on the Board, we will carefully review the voting results on this proposal. Notwithstanding the Board’s recommendation and the outcome of
 
the shareholder vote, the Board may in the future decide to vary its practice on the frequency of advisory votes on executive compensation based on factors such as discussions with shareholders.
You may specify one of four choices for this proposal on the proxy card: one year, two years, three years or abstain. You are not voting to approve or disapprove the Board’s recommendation.
The Board recommends that you vote to conduct future advisory votes to approve executive compensation every ONE YEAR.



 
Cardinal Health | 2017 Proxy Statement
19 



Share Ownership Information
Beneficial Ownership
 
The table below sets forth certain information regarding the beneficial ownership of our common shares by and the percentage of our outstanding common shares represented by such ownership for:
each person known by us to own beneficially more than 5% of our outstanding common shares;
our directors;
our executive officers named in the Summary Compensation Table on page 30; and
 
all executive officers and directors as a group.
A person has beneficial ownership of shares if the person has voting or investment power over the shares or the right to acquire such power in 60 days. Investment power means the power to direct the sale or other disposition of the shares. Except as otherwise described in the notes below, information on the number of shares beneficially owned is as of September 11, 2017, and the listed beneficial owners have sole voting and investment power.
Name of Beneficial Owner
Common Shares
Additional Restricted and
Performance Share
Units (11)
Number
Beneficially
Owned
Percent
of
Class
Wellington Management Group LLP (1)
40,120,566

 
12.7

 

 
BlackRock, Inc. (2)
23,919,543

 
7.6

 

 
The Vanguard Group (3)
22,358,098

 
7.1

 

 
Barrow, Hanley, Mewhinney & Strauss, LLC (4)
21,364,753

 
6.8

 

 
State Street Corporation (5)
16,617,021

 
5.3

 

 
David J. Anderson (6)(7)
7,785

 
*

 

 
Colleen F. Arnold (7)
7,511

 
*

 
19,569

 
George S. Barrett (8)
1,752,605

 
*

 
86,199

 
Donald M. Casey Jr. (8)
313,002

 
*

 
99,090

 
Carrie S. Cox (7)
6,758

 
*

 
16,306

 
Calvin Darden (7)
12,972

 
*

 
19,608

 
Bruce L. Downey (7)
16,975

 
*

 
18,387

 
Jon L. Giacomin (8)
148,271

 
*

 
24,684

 
Patricia A. Hemingway Hall (7)
6,323

 
*

 
2,612

 
Clayton M. Jones (7)
6,323

 
*

 
6,018

 
Michael C. Kaufmann (8)(9)
486,626

 
*

 
47,990

 
Gregory B. Kenny (7)
12,492

 
*

 
19,584

 
Nancy Killefer (7)
4,295

 
*

 

 
David P. King (7)
8,975

 
*

 
9,446

 
Craig S. Morford (8)
142,510

 
*

 
108,768

 
All Executive Officers and Directors as a Group (18 Persons)(10)
3,071,048

 
*

 
521,343

 
*
Indicates beneficial ownership of less than 1% of the outstanding shares.
(1)
Based on information obtained from a Schedule 13G/A filed with the SEC on February 9, 2017 by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP. The address of these entities is 280 Congress Street, Boston, Massachusetts 02210. These entities reported that, as of December 30, 2016, Wellington Management Group LLP had shared voting power with respect to 9,616,602 shares and shared


  20

Cardinal Health | 2017 Proxy Statement
 



Share Ownership Information
 
 


dispositive power with respect to all shares shown in the table, Wellington Group Holdings LLP had shared voting power with respect to 9,616,602 shares and shared dispositive power with respect to all shares shown in the table, Wellington Investment Advisors Holdings LLP had shared voting power with respect to 9,616,602 shares and shared dispositive power with respect to all shares shown in the table and Wellington Management Company LLP had shared voting power with respect to 9,301,550 shares and shared dispositive power with respect to 39,350,365 shares. The number and percentage of shares held by these entities may have changed since the filing of the Schedule 13G/A.
(2)
Based on information obtained from a Schedule 13G/A filed with the SEC on January 23, 2017 by BlackRock, Inc. ("BlackRock"). The address of BlackRock is 55 East 52nd Street, New York, New York 10055. BlackRock reported that, as of December 31, 2016, it had sole voting power with respect to 19,458,612 shares and sole dispositive power with respect to all shares shown in the table. The number and percentage of shares held by BlackRock may have changed since the filing of the Schedule 13G/A.
(3)
Based on information obtained from a Schedule 13G/A filed with the SEC on February 10, 2017 by The Vanguard Group ("Vanguard"). The address of Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. Vanguard reported that, as of December 31, 2016, it had sole voting power with respect to 500,349 shares, shared voting power with respect to 62,268 shares, sole dispositive power with respect to 21,797,227 shares and shared dispositive power with respect to 560,871 shares. The number and percentage of shares held by Vanguard may have changed since the filing of the Schedule 13G/A.
(4)
Based on information obtained from a Schedule 13G filed with the SEC on February 10, 2017 by Barrow, Hanley, Mewhinney & Strauss, LLC ("Barrow Hanley"). The address of Barrow Hanley is 2200 Ross Avenue, 31st Floor, Dallas, TX 75201-2761. Barrow Hanley reported that, as of December 31, 2016, it had sole voting power with respect to 5,459,797 shares, shared voting power with respect to 15,904,956 shares, and sole dispositive power with respect to all shares shown in the table. The number and percentage of shares held by Barrow Hanley may have changed since the filing of the Schedule 13G.
(5)
Based on information obtained from a Schedule 13G filed with the SEC on February 10, 2017 by State Street Corporation ("State Street"). The address of State Street is State Street Financial Center, One Lincoln Street, Boston, MA 02111. State Street reported that, as of December 31, 2016, it had sole voting power with respect to 90,515 shares, shared voting power with respect to 16,526,506 shares, and shared dispositive power with respect to all shares shown in the table. The number and percentage of shares held by State Street may have changed since the filing of the Schedule 13G.
(6)
Includes 400 common shares held by Mr. Anderson's spouse.
(7)
Common shares listed as being beneficially owned by our non-management directors include (a) outstanding restricted share units ("RSUs") that may be settled within 60 days, as follows: Mr. Anderson—6,323 shares; Ms. Arnold—6,323 shares; Ms. Cox—6,323 shares; Mr. Darden—6,323 shares; Mr. Downey—6,323 shares; Ms. Hemingway Hall—4,475 shares; Mr. Jones—6,323 shares; Mr. Kenny—7,113 shares; Ms. Killefer—4,295 shares; and Mr. King—6,323 shares; and (b) phantom stock over which the participants have sole voting rights under our DCP, as follows: Mr. Anderson—62 shares; Ms. Arnold—1,188 shares; Mr. Darden—5,514 shares; and Mr. Kenny—5,379 shares.
(8)
Common shares listed as being beneficially owned by our named executives include (a) outstanding stock options that are currently exercisable or will be exercisable within 60 days, as follows: Mr. Barrett—1,320,419 shares; Mr. Casey—260,841 shares; Mr. Giacomin—123,751 shares; Mr. Kaufmann—346,477 shares; and Mr. Morford—141,120 shares; and (b) outstanding RSUs that will be settled within 60 days, as follows: Mr. Casey—10,006 shares; Mr. Giacomin—1,779 shares; and Mr. Kaufmann —13,341 shares.
(9)
Includes 10 common shares held by Mr. Kaufmann's spouse.
(10)
Common shares listed as being beneficially owned by all executive officers and directors as a group include (a) outstanding stock options for an aggregate of 2,281,968 shares that are currently exercisable or will be exercisable within 60 days; (b) an aggregate of 85,270 RSUs that may or will be settled in common shares within 60 days; and (c) an aggregate of 12,143 shares of phantom stock over which the participants have sole voting rights under our DCP.
(11)
"Additional Restricted and Performance Share Units" include vested and unvested RSUs and vested performance share units ("PSUs") that will not be settled in common shares within 60 days. RSUs and PSUs do not confer voting rights and generally are not considered "beneficially owned" shares under the SEC rules.
Compliance with Section 16(a) of the Exchange Act
 
Based solely upon a review of Forms 3, 4 and 5 furnished to us and written representations from our officers and directors, we believe that all of our officers and directors and all beneficial owners of 10% or more of any class of our registered equity securities timely filed all reports required under Section 16(a) of the Exchange Act during fiscal 2017.


 
Cardinal Health | 2017 Proxy Statement
21 



Compensation Discussion and Analysis
Executive Summary
 
This Compensation Discussion and Analysis focuses on the compensation of the following executive officers (the "named executives") for fiscal 2017 and describes the executive compensation program and the decisions of the Compensation Committee under the program.
Name
Title
George S. Barrett
Chairman and Chief Executive Officer
Michael C. Kaufmann
Chief Financial Officer
Donald M. Casey Jr.
Chief Executive Officer—Medical Segment
Jon L. Giacomin
Chief Executive Officer—Pharmaceutical Segment
Craig S. Morford
Chief Legal and Compliance Officer
Fiscal 2017 Performance
In fiscal 2017, we took important actions to strengthen our market position, increase our scale, add new, long-term drivers of growth and improve the overall balance of our integrated portfolio.
In July 2017, we acquired the Patient Recovery Business from Medtronic plc for $6.1 billion. These well-established, industry-leading product lines are complementary to our medical product business, fit naturally into our customer offering and expand our global reach. The new portfolio will help us further expand our scope in the operating room, in long-term care facilities and in home healthcare, reaching customers across the entire continuum of care.
In our Pharmaceutical segment, our Specialty Solutions business had outstanding growth, expanding its therapeutic reach and growing its hospital and physician customer base, and we saw excellent performance from our Red Oak Sourcing generic sourcing venture with CVS Health Corporation.
In our Medical segment, our medical products distribution business had its strongest growth in recent years, and we continued to expand our Cardinal Health branded product portfolio with nearly 12,000 product SKUs in 850 categories, more than double from five years ago. We also saw excellent growth from our naviHealth business.
On the financial side:
Revenue increased 7% to a record $130.0 billion.
 
GAAP diluted EPS decreased 7% to $4.03, while non-GAAP diluted EPS increased 3% to $5.40, reflecting a challenging generic pharmaceutical pricing environment.
Our Pharmaceutical segment grew revenue 7%, while segment profit decreased 12% largely driven by the generic pharmaceutical pricing environment, partially offset by the benefits from Red Oak Sourcing.
Our Medical segment grew revenue 9% and segment profit 25%, with profit growth being driven by contributions from the naviHealth business, Cardinal Health branded products and distribution services.
We returned $1.2 billion to shareholders, including $1.80 per share in dividends and $600 million in share repurchases.
Fiscal 2017 Key Compensation Decisions
For fiscal 2017, the Compensation Committee set the adjusted non-GAAP operating earnings goal for a 100% payout under our annual incentive plan higher than the prior fiscal year goal, and set the threshold for a 40% payout at 92% of that goal. While we achieved 89% of the goal, we did not achieve the threshold, largely as a result of the challenging generic pharmaceutical pricing environment. In recognition of our strategic and operational accomplishments during fiscal 2017, however, the Compensation Committee awarded payouts to our named executives other than Mr. Barrett at 25% of their respective targets under our annual incentive plan. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout. Cash compensation (salary plus annual incentive payout) for each of our named executives was down between 38% to 64% compared to the prior fiscal year.

___________
 
We provide the reasons we use non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures on pages 18 through 20 of the Fiscal 2017 Form 10-K.


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Cardinal Health | 2017 Proxy Statement
 



Compensation Discussion and Analysis
 
 


Results of 2016 Advisory Vote to Approve Executive Compensation and Shareholder Engagement
At the 2016 Annual Meeting of Shareholders, our say-on-pay advisory vote received 93% support. The Compensation Committee considered this vote—as well as shareholder feedback from our engagement efforts discussed below—as demonstrating strong support for our executive compensation program and determined to maintain the current structure of our executive
 
compensation program when making compensation decisions for fiscal 2017.
We hold regular discussions with our largest shareholders and solicit feedback from our top 50 investors on corporate governance topics, including executive compensation. During fiscal 2017, we contacted governance professionals from our shareholders representing more than 50% of our outstanding shares. (See pages 13 and 14 for further detail about shareholder engagement.)
Compensation Philosophy and Practices
 
Our compensation program is designed to support our long-term growth, with accountability for key annual results. It has the following key objectives:
Reward performance. We tie most of executive pay to performance based on financial, operational and individual performance.
Drive stock ownership. Long-term incentive grants combined with stock ownership guidelines provide executives with meaningful ownership stakes and align their interests with shareholders.
 
Emphasize long-term incentive compensation. We emphasize performance and retention through the use of long-term incentive compensation, which supports sustainable long-term shareholder return.
Attract, retain and reward the best talent to achieve superior results for shareholders. We need to attract and retain top talent to drive superior results for our shareholders. We have structured our compensation programs to be competitive in the marketplace, with a focus on pay and performance alignment.
Executive Compensation Governance Features
 
WHAT WE HAVE
WHAT WE DON'T HAVE
ü
Significant portion of executive pay "at risk"
û
No dividend equivalents on unvested PSUs or RSUs
ü
Different metrics for annual incentives and PSUs
û
No repricing of underwater options without shareholder approval
ü
Caps on annual cash incentive and PSU payouts
û
No hedging or pledging of company stock
ü
Minimum vesting period for long-term incentive awards
û
No executive pensions or supplemental retirement plans
ü
Stock ownership guidelines for directors and executive officers
û
No "single trigger" change of control arrangements
ü
Compensation recoupment ("clawback") provisions
û
No excise tax gross-ups upon change of control
ü
Long-standing, proactive shareholder engagement program
 
 
 
 
 
 


 
Cardinal Health | 2017 Proxy Statement
23 



Compensation Discussion and Analysis
 
 


Elements of Fiscal 2017 Compensation for Executive Officers
 
We have three elements of total direct compensation: base salary, annual incentives and long-term incentives. Long-term incentives consist of an equally-weighted mix of PSUs, stock options and RSUs. A significant portion of executive compensation is performance-based and at-risk (annual incentives, PSUs and stock options). At the beginning of the fiscal year, the Compensation Committee reviews targets for the named executives’ incentives and sets the performance goals under our annual incentive plan and PSUs. Following the end of the performance period, the Compensation Committee evaluates actual performance against the performance goals and determines payouts.
ceopaymixa03.jpg otherexecpaymixa01.jpg
Pay Element
Description and Purpose
Links to Business and Talent Strategies
Base salary
Fixed cash compensation; reviewed annually and adjusted when appropriate
Set based on historic salary levels, market data, individual performance, experience and skills, and internal pay equity
Competitive base salaries support our ability to attract and retain executive talent
Annual incentives
Variable cash compensation based on achieving annual financial goals and operational and individual performance
Target as a percentage of base salary based on market data and internal pay equity
Primary financial measure reflects our focus on operating earnings, with tangible capital modifier promoting efficient use of capital
Long-term incentives
Equally weighted between PSUs, stock options and RSUs
PSUs vest based on achieving the performance goal over a three-year period; stock options and RSUs vest ratably over three years
Target annual grant value based on market data and internal pay equity
Supports sustainable long-term shareholder return and closely aligns management's interests with shareholders'
PSU measures (non-GAAP diluted EPS growth and dividend yield) influence shareholder returns over the long term
Stock options and RSUs retain executive talent and promote focus on stock price appreciation
Base Salary
 
The Compensation Committee did not change Mr. Barrett's base salary during fiscal 2017. At the beginning of fiscal 2017, the Compensation Committee increased base salaries for Messrs. Kaufmann, Casey, Giacomin and Morford between 3% and 5% based on individual performance, an assessment of market data for their roles and internal pay equity.


  24

Cardinal Health | 2017 Proxy Statement
 



Compensation Discussion and Analysis
 
 


Annual Incentive Compensation
 
While we achieved 89% of our earnings goal, we did not achieve the threshold for a 40% payout under our annual incentive plan, largely as a result of the challenging generic pharmaceutical pricing environment. In recognition of our strategic and operational accomplishments during fiscal 2017, however, the Compensation Committee awarded payouts to our named executives other than Mr. Barrett at 25% of their respective targets under our annual incentive plan, and approved a 33% enterprise funding percentage for the remainder of the organization. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout. Cash compensation (salary plus annual incentive payout) for each of our named executives was down between 38% to 64% compared to the prior fiscal year.
 
At the beginning of fiscal 2017, the Compensation Committee set the goal of $3,089 million of adjusted non-GAAP operating earnings, which, if achieved, would fund a 100% payout. This goal represented 5% growth compared to the prior fiscal year. In order to fund a 40% payout, we had to achieve a threshold of $2,853 million (or 92% of the goal). Our actual performance of $2,734 million (or 89% of the goal) fell short of that threshold. (We describe how we calculate adjusted non-GAAP operating earnings under “Annual Cash Incentive and PSU Performance Measure Calculations” on page 34.)
(in millions)
Actual
Threshold
Goal
Maximum
Comments
Adjusted non-GAAP operating earnings
$2,734
$2,853
$3,089
$3,749
Achieved 89% of the goal
Enterprise funding percentage (1)
33%
40%
100%
200%
 
(1)
Had we achieved threshold performance, the enterprise funding percentage would have been subject to adjustment up or down by up to 10 percentage points based on tangible capital performance.
In exercising its discretion to award annual incentive payouts, the Compensation Committee considered the following strategic and operational accomplishments during fiscal 2017:
strategy, deal execution and financing efforts for the Patient Recovery Business acquisition;
outstanding growth in our Specialty Solutions and Nuclear Pharmacy Services businesses and excellent performance from Red Oak Sourcing;
 
significant and timely progress on the Pharmaceutical segment's project to replace certain finance and operating information systems and the pharmaceutical distribution business's SG&A expense control; and
strong performance of the naviHealth business and the Medical segment's distribution services.
Name
Target
(Percent of Base Salary)
Target
Amount
($)
Actual Amount
($)
Actual
(Percent of Target)
Barrett
150
 
1,980,000

 
0

 
0
 
Kaufmann
100
 
746,438

 
186,609

 
25
 
Casey
100
 
705,014

 
176,253

 
25
 
Giacomin
100
 
567,151

 
141,788

 
25
 
Morford
85
 
469,328

 
117,332

 
25
 
Long-Term Incentive Compensation
 
At the beginning of fiscal 2017, the Compensation Committee awarded Mr. Barrett long-term incentive compensation with a total value of $9.5 million, consistent with the target value in his employment agreement. The Compensation Committee increased Mr. Kaufmann's, Casey's and Giacomin's targets to
 
$2.85 million, in each case based on market data and internal pay equity considerations. The Committee increased Mr. Morford's target to $1.55 million based on the additional responsibilities he assumed following the Cordis acquisition, leadership transitions within the Legal and Compliance organization and market data.


 
Cardinal Health | 2017 Proxy Statement
25 



Compensation Discussion and Analysis
 
 


We equally weight our long-term incentive grants between PSUs, stock options and RSUs and may adjust annual grants from target to reflect individual performance, retention or succession planning.
Fiscal 2017 Long-Term Incentive Grants
Name
Annual Grant Target
($)
Actual Grants
Stock
Options
($)
RSUs
($)
Target
PSUs
($)
Total
($)
Barrett
9,500,000
3,166,667

 
3,166,667

 
3,166,667

 
9,500,001
Kaufmann
2,850,000
997,500

 
997,500

 
950,000

 
2,945,000
Casey
2,850,000
997,500

 
997,500

 
950,000

 
2,945,000
Giacomin
2,850,000
950,000

 
950,000

 
950,000

 
2,850,000
Morford
1,550,000
516,667

 
516,667

 
516,667

 
1,550,001
Fiscal 2017-2019 PSU Grants
For the PSUs granted at the beginning of fiscal 2017 (the "Fiscal 17-19 PSUs"), the Compensation Committee set the three-year performance goal based on the sum of non-GAAP diluted EPS compound annual growth rate ("CAGR") and average annual dividend yield, which are the same performance measures we used for PSU grants made in prior years. These measures influence total shareholder return over the long term and align management's interests with shareholders'. These measures reflect operating performance as well as capital deployment through acquisitions, dividends and share repurchases. We describe how we calculate these measures under “Annual Cash Incentive and PSU Performance Measure Calculations” on page 34.
While we stated the performance goal in absolute terms, as in years past, we established the goal factoring in relative market data. We considered historical data for diluted EPS growth rate and dividend yield of the Standard & Poor's ("S&P") 500 Index, the S&P 500 Healthcare Index and our Comparator Group, which is discussed on page 28. We also took into account our company-specific long-term outlook, as well as analysts' estimates of future performance of Comparator Group companies.
The table below shows the funding percentages set for the three-year period for varying levels of performance.
 
Performance
(%)
Funding Percentage
Threshold
7.0
 
50
 
Goal
12.0
 
100
 
Maximum
17.0
 
200
 
 
Fiscal 2015-2017 PSU Payouts
In August 2017, the Compensation Committee certified the payout of the PSUs granted at the beginning of fiscal 2015 (the "Fiscal 15-17 PSUs") based on performance against the non-GAAP diluted EPS CAGR and average annual dividend yield goal. The table below shows the funding percentages at varying levels of performance over the three-year period and the actual funding percentage.
 
Performance
(%)
Funding Percentage
Threshold
7.0

 
50

 
Goal
12.0

 
100

 
Maximum
17.0

 
200

 
Actual
14.1

(1)
133

 
(1)
Non-GAAP diluted EPS CAGR was 11.9% and average annual dividend yield was 2.2% over the performance period. As permitted by the terms of the PSU agreements, the Compensation Committee excluded the respective $0.02 and $0.04 per share net positive effect of certain discrete tax items from fiscal 2014 and 2017 non-GAAP diluted EPS.
The following table shows the target and earned Fiscal 15-17 PSUs for our named executives.
 
Name
Target
Number of Shares
(#)
Number of Shares
Earned
(#)
 
 
Barrett
37,333

 
49,653

 
 
Kaufmann
9,800

 
13,034

 
 
Casey
9,800

 
13,034

 
 
Giacomin
8,253

 
10,976

 
 
Morford
5,600

 
7,448

 


  26

Cardinal Health | 2017 Proxy Statement
 



Compensation Discussion and Analysis
 
 


Other Elements of Compensation
 
Deferred Compensation and 401(k) Savings Plans
We maintain a DCP and 401(k) Savings Plan to allow the vast majority of our employees based in the United States and Puerto Rico to accumulate value on a tax-deferred basis and to be competitive in recruiting and retaining talent. Our DCP permits certain management employees, including the named executives, to defer payment and taxation of a portion of their salary and annual incentive compensation into a variety of different investment alternatives. We may make matching contributions to the deferred balances of participants, subject to limits discussed under “Deferred Compensation” on page 36. We also may make non-matching contributions to the 401(k) Savings Plan and DCP based on pre-established performance goals on the same basis for all employees. We did not exceed the pre-established performance goal for fiscal 2017 and accordingly did not make any non-matching contributions for fiscal 2017. Named executives also may elect to defer payment and taxation of PSUs and RSUs.
Other Benefits and Perquisites
Mr. Barrett's employment agreement provides that he may use our corporate aircraft for personal travel. He does not receive tax reimbursement for any imputed income associated with personal travel. The Compensation Committee encourages Mr. Barrett to use corporate aircraft for personal travel as it increases his time available for business purposes and enhances his safety and security. During fiscal 2017, the Compensation Committee set Mr. Barrett's personal travel allowance at $150,000. Consistent with Mr. Barrett's employment agreement, any personal travel that
 
would cause the amount reported in our annual proxy statement to exceed $150,000 requires advance approval from the Compensation Committee. Under an aircraft time sharing agreement with Mr. Barrett, he may reimburse us for incremental costs when he uses the aircraft for personal travel; reimbursed travel does not count against the $150,000 allowance.
Severance and Change of Control Benefits
Mr. Barrett's employment agreement provides for benefits payable upon specified employment termination events. Mr. Barrett will receive cash severance equal to two times the sum of his annual base salary and his target bonus payable in 24 equal monthly installments if we terminate his employment without "cause,” or if he terminates employment for “good reason.” He also will receive a prorated bonus for the year of termination based on actual achievement of performance goals and his vested stock options will remain exercisable for two years. Mr. Barrett's employment agreement does not provide for special treatment of any unvested equity awards.
We discuss our limited severance payments and benefits in detail under “Potential Payments on Termination of Employment or Change of Control” beginning on page 38. We do not have any agreements to provide change-of-control excise tax gross-ups.
Our Board has a policy requiring us to obtain shareholder approval of severance agreements with our executives that provide cash severance benefits that exceed 2.99 times the sum of base salary and bonus.
Our Policies, Guidelines and Practices Related to Executive Compensation
 
Role of Compensation Committee’s Compensation Consultant
The Compensation Committee has retained Frederic W. Cook & Co., Inc. ("Cook") as its independent executive compensation consultant since 2011.
The nature and scope of Cook's engagement consist primarily of:
participating in meetings of the Compensation Committee;
providing compensation data on the Comparator Group; and
providing support, advice and recommendations related to compensation for our Chief Executive Officer and other executive officers, the design of our executive compensation program (including the plan design for annual and long-term incentives), the composition of our Comparator Group and director compensation.
 
The Compensation Committee has made an assessment under factors set forth in NYSE rules and concluded that Cook is independent and that the firm's work for the Compensation Committee did not raise any conflicts of interest.
Role of Executive Officers
Our Chief Executive Officer and Chief Human Resources Officer participate in Compensation Committee meetings to make recommendations as to design and compensation amounts, to present performance assessments of the named executives (other than our Chief Executive Officer) and, together with our Chief Financial Officer, to discuss our financial and operational performance.
Our Chief Executive Officer reviewed fiscal 2017 performance objectives with the Compensation Committee at the beginning of the fiscal year, including financial objectives and non-financial objectives for customer, strategic and talent priorities. The


 
Cardinal Health | 2017 Proxy Statement
27 



Compensation Discussion and Analysis
 
 


Compensation Committee reviews and discusses the performance and compensation of our Chief Executive Officer in executive session and with the Lead Director. The Chief Executive Officer does not participate in decisions regarding his own compensation.
Comparator Group
The Compensation Committee establishes target compensation levels based on a variety of factors, including data from a "Comparator Group" of similarly situated public companies, which helps the Committee to assess whether our executive pay remains reasonable and competitive in the marketplace. Developed with the assistance of Cook, our Comparator Group reflects the industry in which we primarily compete for executive talent and includes direct competitors and other companies in the healthcare field. Our Comparator Group also includes air/freight and logistics companies because of those companies' similar business models. The following companies comprised the Comparator Group for fiscal 2017 executive pay decisions:
Aetna
Express Scripts
Quest Diagnostics
AmerisourceBergen
FedEx
Sysco
Anthem
Henry Schein
Thermo Fisher Scientific
Baxter International
Humana
United Parcel Service
Becton, Dickinson
Kimberly-Clark*
UnitedHealth Group
Boston Scientific
LabCorp
Walgreens Boots Alliance
CIGNA
McKesson
 
CVS Health
Owens & Minor
 
* Removed for fiscal 2018 executive pay decisions.
The Committee, working with its compensation consultant, periodically reviews the group's composition to ensure that the companies remain relevant for comparison purposes. The Committee used the following screening criteria when it last reviewed the Comparator Group's composition:
revenue ranging from 0.2 to 2 times our annual revenue;
market capitalization ranging from 0.2 to 5 times our market capitalization;
inclusion in the peer group of 5 or more of the other companies in our Comparator Group; and
inclusion in our Global Industry Classification Standard (GICS) sub-industry group, Health Care Equipment and Services.
Our revenue has been in the top quintile of the Comparator Group, while our market capitalization has been in the third quintile.
Our Compensation Committee compares total direct compensation (base salary plus annual and long-term incentives) against the 50th percentile of the Comparator Group as a reference point in setting target compensation levels. In addition to
 
competitive market data, the Committee also considers internal pay equity and an executive’s experience and scope of responsibility, individual performance, potential and unique or hard-to-replace skills, as well as retention concerns.
Risk Assessment of Compensation Programs
Management has assessed our compensation programs and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on Cardinal Health. This risk assessment included reviewing the design and operation of our compensation programs, identifying and evaluating situations or compensation elements that could raise more significant risks and evaluating other controls and processes designed to identify and manage risk. The Compensation Committee reviewed and discussed the risk assessment and Cook reviewed the risk assessment and concurred with management's conclusion.
Stock Ownership Guidelines
We have stock ownership guidelines to align the interests of executive officers and directors with the interests of our shareholders. The guidelines specify a dollar value (expressed as a multiple of salary or cash retainer) of shares that executive officers and directors must accumulate and hold while serving in these positions. All named executives exceed the required ownership level.
 
Multiple of Base Salary/
Annual Cash Retainer
Chairman and Chief Executive Officer
6x
Chief Financial Officer and Segment CEOs
4x
Other executive officers
3x
Non-management directors
5x
We count common shares, RSUs and phantom shares held through the DCP under the stock ownership guidelines. Executive officers and directors must retain 100% of the net after-tax shares received under any equity awards until they satisfy the required ownership levels.
Potential Impact on Compensation from Executive Misconduct ("Clawbacks")
Our incentive plans and agreements provide that we may require repayment of cash incentives and gains realized under equity awards and cancel outstanding equity awards in specified instances of executive misconduct. In addition, in August 2017, we amended our incentive plan to provide that any cash award paid to an executive officer will be subject to repayment if the executive officer commits a material violation of law or of our Standards of Business Conduct that causes material financial harm to us.


  28

Cardinal Health | 2017 Proxy Statement
 



Compensation Discussion and Analysis
 
 


We will disclose publicly the incentive compensation forfeitures or repayments from our executive officers if required by law or if we have already disclosed publicly the underlying event triggering the forfeiture or repayment and the disclosure would not violate any individual’s privacy rights, is not likely to result in or exacerbate any existing or threatened employee, shareholder or other litigation, arbitration, investigation or proceeding against us and is not otherwise prohibited.
We discuss these provisions in more detail under “Potential Impact on Compensation from Executive Misconduct ("Clawbacks")” on page 34.
Hedging and Pledging Shares
Our Board has adopted a policy prohibiting all employees and directors from engaging in short sales, publicly traded options, puts and calls, forward sale contracts and other swap, hedging and derivative transactions relating to our securities. The Board also has adopted a policy prohibiting our executive officers and directors from holding our securities in margin accounts or pledging our securities as collateral for a loan.
Equity Grant Practices
The Compensation Committee typically approves the annual equity grant in August of each year and sets August 15 as the grant date. The Compensation Committee expects the annual grant date to follow the release of earnings for the prior fiscal year in early August, without regard to whether we are aware of material nonpublic information.
 
Equity Dilution Practices
Our fiscal 2017 annual equity run rate was 0.8%. We calculate our equity run rate as the total number of shares subject to equity awards granted in the fiscal year divided by the weighted average number of our common shares outstanding during the fiscal year.
Minimum Vesting of Equity Grants
We recently added one-year minimum vesting provisions to our 2011 Long-Term Incentive Plan (the "2011 LTIP"). We discuss these provisions in more detail under “2011 Long-Term Incentive Plan” on page 33.
Tax Matters
Section 162(m) of the Internal Revenue Code ("Code") precludes us from taking a tax deduction for non-performance-based compensation in excess of $1 million paid in any fiscal year to our Chief Executive Officer and three other most highly compensated executive officers (other than the Chief Financial Officer). While we intend annual cash incentive, PSU and stock option awards to qualify as performance-based compensation within the meaning of Section 162(m) and, as such, to be fully deductible, due to the complexity of Section 162(m), amounts intended to qualify as "performance-based compensation" may not satisfy applicable requirements. In addition, we maintain flexibility to operate our compensation programs in a manner designed to promote varying company goals. For purposes of qualifying payments as performance-based compensation under Section 162(m), the Compensation Committee established the performance criteria of $900 million in non-GAAP operating earnings for fiscal 2017 annual cash incentive awards and $1.00 of non-GAAP diluted EPS in fiscal 2017 for the Fiscal 15-17 PSUs, both of which we exceeded.
Executive Compensation
Human Resources and Compensation Committee Report
 
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017.
Submitted by the Human Resources and Compensation Committee of the Board.
David P. King, Chairman
Carrie S. Cox
Calvin Darden
Nancy Killefer


 
Cardinal Health | 2017 Proxy Statement
29 



Executive Compensation
 
 


Executive Compensation Tables
 
The table below summarizes fiscal 2017 compensation for our Chief Executive Officer, our Chief Financial Officer and each of our three other most highly compensated executive officers at June 30, 2017, the end of our fiscal 2017.
Summary Compensation Table
Name and
Principal Position
Year
Salary
($)
Bonus
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)(3)
Non-Equity
Incentive
Plan
Compensation
($)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)(4)
Total
($)
George S. Barrett
Chairman and Chief Executive Officer
2017
1,320,000

 

 
6,333,255

 
3,166,434

 

 
165,488

 
10,985,177

2016
1,320,000

 

 
6,491,739

 
3,330,665

 
2,386,755

 
131,928

 
13,661,087

2015
1,320,000

 

 
5,983,334

 
3,320,657

 
2,510,508

 
135,232

 
13,269,731

Michael C. Kaufmann
Chief Financial Officer
2017
746,438

 
186,609

 
1,947,561

 
997,432

 

 
14,979

 
3,893,019

2016
721,311

 

 
1,575,006

 
826,402

 
880,723

 
27,251

 
4,030,693

2015
688,630

 

 
4,540,005

 
841,018

 
1,053,260

 
36,338

 
7,159,251

Donald M. Casey Jr.
Chief Executive Officer—Medical Segment
2017
705,014

 
176,253

 
1,947,561

 
997,432

 

 
10,800

 
3,837,060

2016
671,311

 

 
1,505,062

 
806,369

 
894,188

 
22,830

 
3,899,760

2015
650,000

 

 
3,005,055

 
805,967

 
618,118

 
31,653

 
5,110,793

Jon L. Giacomin
Chief Executive Officer—Pharmaceutical Segment
2017
567,151

 
141,788

 
1,900,060

 
949,930

 

 
14,966

 
3,573,895

2016
542,623

 

 
1,400,062

 
701,196

 
602,314

 
27,770

 
3,273,965

2015
480,685

 

 
1,237,482

 
629,304

 
679,692

 
37,170

 
3,064,333

Craig S. Morford
Chief Legal and Compliance Officer
2017
552,151

 
117,332

 
1,033,386

 
516,631

 

 
14,967

 
2,234,467

2016
531,311

 

 
1,620,055

 
420,707

 
576,487

 
37,579

 
3,186,139

2015
510,000

 

 
800,016

 
400,477

 
559,598

 
35,453

 
2,305,544

(1)
As discussed in Compensation Discussion and Analysis above, while we did not achieve the performance threshold for a 40% payout under our annual incentive plan, the Compensation Committee, in its discretion, awarded payouts to our named executives other than Mr. Barrett at 25% of their respective targets under under the Management Incentive Plan (the "MIP"). Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout.
(2)
The amounts reported represent the aggregate grant date fair value of PSUs (at target) and RSUs granted during each fiscal year. The amounts reported in each fiscal year do not represent amounts paid to or realized by the named executives. See the Grants of Plan-Based Awards for Fiscal 2017 table on page 32 and the accompanying footnotes for information on the grant date fair value of each award granted in fiscal 2017. The value of the Fiscal 17-19 PSUs granted during fiscal 2017 assuming achievement of the maximum 200% funding would be: Mr. Barrett—$6,333,255; Mr. Kaufmann—$1,900,060; Mr. Casey—$1,900,060; Mr. Giacomin—$1,900,060; and Mr. Morford—$1,033,386. The named executives may never realize any value from the PSUs.
(3)
The amounts reported represent the grant date fair value of nonqualified stock options granted during each fiscal year and do not represent amounts paid to or realized by the named executives. See the Grants of Plan-Based Awards for Fiscal 2017 table on page 32 and the accompanying footnotes for information on the grant date fair value of stock options granted during fiscal 2017 and the assumptions used in determining the grant date fair value. The named executives may never realize any value from these stock options, and to the extent they do, the amounts realized may be more or less than the amounts reported above.
(4)
The elements of compensation included in the “All Other Compensation” column for fiscal 2017 are set forth in the table below.


  30

Cardinal Health | 2017 Proxy Statement
 



Executive Compensation
 
 


The amounts shown for “All Other Compensation” for fiscal 2017 include (a) company matching contributions to the named executive’s account under our 401(k) plan; (b) company matching contributions to the named executive’s account under our DCP; and (c) perquisites, in the following amounts:
Name
Company
401(k) Savings
Plan
Contributions
($)
Company
Deferred
Compensation
Plan
Contributions
($)
Perquisites
($)(a)
Total
($)
Barrett
10,800
4,000

 
150,688

 
165,488

 
Kaufmann
10,800
4,179

 

 
14,979

 
Casey
10,800
0

 

 
10,800

 
Giacomin
10,800
4,166

 

 
14,966

 
Morford
10,800
4,167

 

 
14,967

 
(a)
The amounts shown include the value of perquisites and other personal benefits if the aggregate value exceeded $10,000. Where we report perquisites and other personal benefits, we quantify each perquisite or personal benefit if it exceeds $25,000. The amount reported for Mr. Barrett for fiscal 2017 included the incremental cost to us of his personal use of corporate aircraft ($149,731) and home security system monitoring fees.
We own corporate aircraft and lease other aircraft. We calculate the incremental cost of personal use of corporate aircraft based on the average cost of fuel, average trip-related maintenance costs, crew travel expenses, per flight landing fees, hangar and parking costs and smaller variable costs, offset by any timeshare payments by the executive. Since we use our aircraft primarily for business travel, we do not include fixed costs, such as depreciation, pilot salaries and certain maintenance costs. Mr. Barrett receives up to $150,000 in personal use of corporate aircraft without advance approval of the Compensation Committee. He does not receive tax reimbursement for any imputed income associated with personal travel. We have an aircraft time sharing agreement with Mr. Barrett under which he is permitted to reimburse us for the incremental costs of his personal use of corporate aircraft consistent with Federal Aviation Administration regulations; reimbursed travel does not count against the $150,000 authorization.
CEO Employment Agreement
Mr. Barrett is the only executive officer with an employment agreement. In August 2015, we entered into an amendment with Mr. Barrett to his employment agreement to provide that he will continue to serve as Chairman and Chief Executive Officer until the earlier of the date of our Annual Meeting of Shareholders following June 30, 2018 or December 31, 2018, subject to earlier termination in accordance with its terms.
As amended, the employment agreement provides, among other things, for Mr. Barrett:
to receive an annual base salary of at least $1,320,000;
to participate in our annual cash incentive award program with a target annual award of at least 150% of his annual base salary, payable based on performance objectives that our Compensation Committee determines in consultation with him; and
 
to receive an annual long-term incentive award grant comprised of PSUs, stock options, RSUs and other incentives as determined by the Committee with a target value of $9,500,000, with each annual award subject to the Board's discretion based on both company and individual performance.
The agreement also provides that Mr. Barrett receives personal use of corporate aircraft, which currently is a maximum of $150,000.


 
Cardinal Health | 2017 Proxy Statement
31 



Executive Compensation
 
 


Grants of Plan-Based Awards for Fiscal 2017
The table below supplements our Summary Compensation Table by providing additional information about our plan-based compensation for fiscal 2017.
Name/
Award Type
Grant
Date
Approval
Date
Estimated Potential Payouts
Under Non-Equity Incentive Plan Awards (1)
Estimated Potential Payouts Under Equity Incentive Plan
Awards (2)
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)(3)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(4)
Exercise
or Base
Price of
Option
Awards
($/Sh)(5)
Grant
Date Fair
Value of
Stock and
Option
Awards
($)(6)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Barrett
 
 
 
 
 
 
 
 
 
 
 
 
Annual Incentive
 
8/4/2016
792,000

1,980,000

3,960,000

 
 
 
 
 
 
 
PSUs
8/15/2016
8/4/2016
 
 
 
19,033

38,065

76,130

 
 
 
3,166,627

Option
8/15/2016
8/4/2016
 
 
 
 
 
 
 
189,380

83.19

3,166,434

RSUs
8/15/2016
8/4/2016
 
 
 
 
 
 
38,065

 
 
3,166,627

Kaufmann
 
 
 
 
 
 
 
 
 
 
 
 
Annual Incentive
 
8/4/2016
298,575

746,438

1,492,876

 
 
 
 
 
 
 
PSUs
8/15/2016
8/4/2016
 
 
 
5,710

11,420

22,840

 
 
 
950,030

Option
8/15/2016
8/4/2016
 
 
 
 
 
 
 
59,655

83.19

997,432

RSUs
8/15/2016
8/4/2016
 
 
 
 
 
 
11,991

 
 
997,531

Casey
 
 
 
 
 
 
 
 
 
 
 
 
Annual Incentive
 
8/4/2016
282,005

705,014

1,410,028

 
 
 
 
 
 
 
PSUs
8/15/2016
8/4/2016
 
 
 
5,710

11,420

22,840

 
 
 
950,030

Option
8/15/2016
8/4/2016
 
 
 
 
 
 
 
59,655

83.19

997,432

RSUs
8/15/2016
8/4/2016
 
 
 
 
 
 
11,991

 
 
997,531

Giacomin
 
 
 
 
 
 
 
 
 
 
 
 
Annual Incentive
 
8/4/2016
226,860

567,151

1,134,302

 
 
 
 
 
 
 
PSUs
8/15/2016
8/4/2016
 
 
 
5,710

11,420

22,840

 
 
 
950,030

Option
8/15/2016
8/4/2016
 
 
 
 
 
 
 
56,814

83.19

949,930

RSUs
8/15/2016
8/4/2016
 
 
 
 
 
 
11,420

 
 
950,030

Morford
 
 
 
 
 
 
 
 
 
 
 
 
Annual Incentive
 
8/4/2016
187,731

469,328

938,656

 
 
 
 
 
 
 
PSUs
8/15/2016
8/4/2016
 
 
 
3,106

6,211

12,422

 
 
 
516,693

Option
8/15/2016
8/4/2016
 
 
 
 
 
 
 
30,899

83.19

516,631

RSUs
8/15/2016
8/4/2016
 
 
 
 
 
 
6,211

 
 
516,693

(1)
This information relates to annual cash incentive award opportunities with respect to fiscal 2017 performance.
(2)
"Equity Incentive Plan Awards" are PSUs granted during the fiscal year under our 2011 LTIP that are eligible to vest after a three-year performance period based on the sum of (i) non-GAAP diluted EPS CAGR and (ii) average annual dividend yield. We accrue cash dividend equivalents that are payable when, and only to the extent that, the PSUs vest.
(3)
"All Other Stock Awards" are RSUs granted during the fiscal year under our 2011 LTIP that vest ratably over three years and accrue cash dividend equivalents that are payable when, and only to the extent that, the RSUs vest.
(4)
"All Other Option Awards" are nonqualified stock options granted during the fiscal year under our 2011 LTIP that vest ratably over three years and have a term of 10 years.
(5)
The stock options have an exercise price equal to the closing price of our common shares on the NYSE on the grant date.
(6)
We valued the PSUs and RSUs by multiplying the closing price of our common shares on the NYSE on the grant date ($83.19) by the number of PSUs (at target) and RSUs awarded. We valued the stock options granted utilizing a lattice model with the following assumptions: expected stock option life: 7.05 years; dividend yield: 2.16%; risk-free interest rate: 1.42%; and expected volatility: 23.86%. The amounts reported represent the grant date fair value and do not represent amounts paid to or realized by the named executives. The named executives may never realize any value from the PSUs or stock options. To the extent they realize value from stock options, the amounts realized may be more or less than the amounts reported above.


  32

Cardinal Health | 2017 Proxy Statement
 



Executive Compensation
 
 


Management Incentive Plan
Our key executive employees, including our named executives, were eligible to receive fiscal 2017 annual cash incentive awards under our MIP. The Compensation Committee establishes "performance criteria" during the first three months of each fiscal year and may establish "performance goals" (which criteria and goals may vary from year to year). For fiscal 2017, the Compensation Committee established the performance criterion of $900 million in non-GAAP operating earnings. This performance criterion was intended to allow payments under the MIP to qualify as performance-based compensation under Section 162(m) of the Code and to be fully tax deductible by us. The named executives would not receive any payout under the MIP unless we achieved this threshold.
As discussed in the Compensation Discussion and Analysis, the Compensation Committee also set a performance goal of adjusted non-GAAP operating earnings, and established a matrix of potential funding percentages based upon achievement of varying levels of earnings, subject to adjustment based on tangible capital performance. The funding percentage determines the total pool for annual incentive awards under the MIP.
Adjusted non-GAAP operating earnings is based on the non-GAAP operating earnings measure that we use in our presentations with shareholders, which is one of our primary measures of operating performance, but is adjusted to exclude certain variable, performance-based compensation expenses. Tangible capital focuses on the efficient use of capital. We describe how we calculate these measures under "Annual Cash Incentive and PSU Performance Measure Calculations” on page 34.
The MIP allows the Compensation Committee, in its discretion, to make annual incentive awards to named executives if we do not achieve the threshold level for the performance goal, but we achieve the performance criterion. As discussed in the Compensation Disclosure and Analysis, our actual fiscal 2017 adjusted non-GAAP operating earnings fell below the threshold level for the performance goal, but we exceeded the performance criterion of $900 million in non-GAAP operating earnings. For our named executives other than Mr. Barrett, the Committee recognized our fiscal 2017 strategic and operational accomplishments and, in its discretion, awarded payouts at 25% of their respective targets. Mr. Barrett declined to be considered for an annual incentive payout, and the Compensation Committee did not award him a payout.
As we previously disclosed, beginning in fiscal 2018, we administer our annual cash incentive program under our 2011 LTIP in order to have a single plan for all of our executive incentive compensation.
 
2011 Long-Term Incentive Plan
Under our 2011 LTIP, we may grant stock options, stock appreciation rights, stock awards, other stock-based awards and cash awards to employees. During fiscal 2017, we granted PSUs, nonqualified stock options and RSUs to our named executives, as shown in the Grants of Plan-Based Awards for Fiscal 2017 table on page 32, under the 2011 LTIP. The plan provides for “double-trigger” accelerated vesting in connection with a change of control, under which the vesting of awards will accelerate only if there is a qualifying termination within two years after the change of control or if the surviving entity does not provide qualifying replacement awards.
We recently added one-year minimum vesting provisions to our 2011 LTIP. Under these provisions, stock options and stock awards are subject to a one-year vesting condition, except upon a change of control, upon the death or disability of the grantee or for up to an aggregate not to exceed 5% of the total number of shares provided for in the 2011 LTIP.
PSUs granted under the 2011 LTIP settle following the end of a performance period by the issuance of a number of our common shares, which may be a fraction or multiple of the target number of PSUs subject to an award. Issuance of the shares is subject to both continued employment and the achievement of performance criteria and goals established by the Compensation Committee (which may vary from award to award).
The Compensation Committee establishes PSU performance criteria and goals during the first three months of each performance period. For the PSUs granted during fiscal 2017, the Compensation Committee established the performance criterion of non-GAAP diluted EPS for our fiscal year ending June 30, 2019 equal to or greater than $1.00 per share. This performance criterion is intended to allow the PSUs to be performance-based compensation under Section 162(m) of the Code and to be fully tax deductible by us.
As discussed in the Compensation Discussion and Analysis, the Compensation Committee also established a three-year performance goal under the PSUs granted during fiscal 2017 based upon the achievement of the sum of non-GAAP diluted EPS CAGR and average annual dividend yield over the performance period. A participant can receive 50% of target PSUs if we attain threshold performance and can receive up to 200% of target PSUs for above-target performance. A participant will receive no shares under the PSUs if we do not attain threshold performance. We describe how we calculate these measures under "Annual Cash Incentive and PSU Performance Measure Calculations” on page 34.


 
Cardinal Health | 2017 Proxy Statement
33 



Executive Compensation
 
 


Annual Cash Incentive and PSU Performance Measure Calculations
Award
Performance Measure
 
Calculation
Annual Cash Incentive
Adjusted non-GAAP operating earnings(1)
 
Non-GAAP operating earnings(2) adjusted to exclude annual cash incentive expense to the extent below or above target performance, contributions to the DCP and 401(k) Savings Plan when we exceed pre-established performance goals and income or expense related to the performance of our DCP assets that is included within distribution, selling, general and administrative expenses in our consolidated statement of earnings.
 
Tangible capital(1)
 
12-month average of total assets, less total liabilities (other than interest-bearing long-term obligations), goodwill and other intangibles, net, and cash and equivalents.
PSUs
Sum of non-GAAP diluted EPS CAGR and average annual dividend yield
 
Non-GAAP diluted EPS CAGR is non-GAAP diluted EPS(3) for the last fiscal year of the performance period divided by non-GAAP diluted EPS for the last fiscal year preceding the performance period; the quotient is then raised to the power of one divided by the number of years in the performance period.
 
 
 
Average annual dividend yield is the sum of all cash dividends paid per share during a performance period divided by the number of years in the performance period; the quotient is then divided by our closing share price on the grant date.
(1)
We generally exclude the results of acquired or divested businesses from the adjusted non-GAAP operating earnings and tangible capital calculations if they are not included in our Board-approved annual budget. Accordingly, we excluded a few small acquisitions for fiscal 2017. The Compensation Committee also may make other adjustments to adjusted non-GAAP operating earnings and tangible capital for purposes of determining whether we achieved our performance goals, although none were made for fiscal 2017.
(2)
Non-GAAP operating earnings is operating earnings, excluding LIFO inventory credits and charges, restructuring and employee severance costs, amortization and other acquisition-related costs, impairments and gains and losses on disposal of assets and net litigation recoveries and charges.
(3)
Non-GAAP diluted EPS is non-GAAP net earnings from continuing operations attributable to Cardinal Health, Inc. divided by the diluted weighted average shares outstanding. Non-GAAP net earnings from continuing operations attributable to Cardinal Health, Inc. is net earnings attributable to Cardinal Health, Inc., adjusted to exclude earnings and losses from discontinued operations, LIFO inventory credits and charges, restructuring and employee severance costs, amortization and other acquisition-related costs, impairments and gains and losses on disposal of assets, net litigation recoveries and charges, loss on extinguishment of debt and tax benefits and expenses associated with each of the items mentioned above. For purposes of the PSUs, the Compensation Committee may approve adjustments to how we calculate non-GAAP net earnings attributable to Cardinal Health, Inc. to reflect a change by us to the definition of that measure as presented to investors, exceptional acquisitions or divestitures, changes in accounting principles or other exceptional items that are not reflective of our operating performance.
In addition to determining incentive compensation, we use the non-GAAP financial measures referenced above internally to evaluate our performance, evaluate the balance sheet, and engage in financial and operational planning because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors.
Potential Impact on Compensation from Executive Misconduct ("Clawbacks")
The MIP and 2011 LTIP both authorize us to seek repayment of incentive awards from a participant if that participant engages in misconduct that causes or contributes to the need to restate previously filed financial statements and the payment was based on financial results that we subsequently restate. In addition, incentive awards granted under these plans may be subject to repayment if a participant commits misconduct, including a breach of our Standards of Business Conduct or violation of an applicable non-competition or confidentiality agreement.
 
Under our stock option, PSU and RSU agreements, unexercised stock options, unvested PSUs and RSUs and certain vested PSUs and RSUs are forfeited if the holder breaches our Standards of Business Conduct, discloses confidential information, commits fraud, gross negligence or willful misconduct, solicits business or our employees, disparages us or engages in competitive actions while employed by Cardinal Health or during a set time period after termination of employment. We also may require the holder to repay the gross gain realized from any stock option exercises or the value of the PSUs and RSUs settled within a set time period prior to such conduct.
Mr. Barrett’s employment agreement gives Cardinal Health the right to repayment of any bonus or other compensation paid to him if he engaged in misconduct that caused or materially contributed to the need to restate financial statements and, if based on the financial statements as restated, he otherwise would not have received such compensation. This right of repayment applies to compensation granted or vesting within three years of the date on which we originally filed the subject financial statements with the SEC.


  34

Cardinal Health | 2017 Proxy Statement
 



Executive Compensation
 
 


Outstanding Equity Awards at Fiscal Year-End for Fiscal 2017
The table below shows the number of shares underlying exercisable and unexercisable stock options and unvested PSUs and RSUs held by our named executives on June 30, 2017.
Name
Option Awards
Stock Awards
Option Grant Date
Number of Securities Underlying Unexercised Options
(#)
Exercisable
Number of Securities Underlying
Unexercised Options
(#)
Unexercisable (1)
Option Exercise Price
($/Sh)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
Market Value of Shares or Units of Stock That Have Not Vested
($)(2)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)(3)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)(2)(3)
Barrett
8/15/2011
308,302

 

 
41.60
8/15/2021
 
 
 
 
 
 
 
8/15/2012
330,738

 

 
39.81
8/15/2022
 
 
 
 
 
 
 
8/15/2013
279,770

 

 
51.49
8/15/2023
 
 
 
 
 
 
 
8/15/2014
141,346

 
70,674

 
71.43
8/15/2024
 
 
 
 
 
 
 
8/15/2015
63,231

 
126,464

 
84.27
8/15/2025
 
 
 
 
 
 
 
8/15/2016

 
189,380

 
83.19
8/15/2026
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79,848

(4)
6,221,756
106,264

(5)
8,280,091
Kaufmann
8/15/2011
76,909

 

 
41.60
8/15/2021
 
 
 
 
 
 
 
8/15/2012
96,291

 

 
39.81
8/15/2022
 
 
 
 
 
 
 
8/15/2013
68,316

 

 
51.49
8/15/2023
 
 
 
 
 
 
 
8/15/2014
35,798

 
17,900

 
71.43
8/15/2024
 
 
 
 
 
 
 
8/15/2015
15,689

 
31,378

 
84.27
8/15/2025
 
 
 
 
 
 
 
8/15/2016

 
59,655

 
83.19
8/15/2026
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35,779

(6)
2,787,900
27,644

(7)
2,154,020
Casey
8/15/2012
83,731

 

 
39.81
8/15/2022
 
 
 
 
 
 
 
8/15/2013
75,148

 

 
51.49
8/15/2023
 
 
 
 
 
 
 
8/15/2014
34,306

 
17,154

 
71.43
8/15/2024
 
 
 
 
 
 
 
8/15/2015
15,308

 
30,618

 
84.27
8/15/2025
 
 
 
 
 
 
 
8/15/2016

 
59,655

 
83.19
8/15/2026
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32,123

(8)
2,503,024
27,051

(9)
2,107,814
Giacomin
8/15/2012
26,166

 

 
39.81
8/15/2022
 
 
 
 
 
 
 
8/15/2013
21,349

 

 
51.49
8/15/2023
 
 
 
 
 
 
 
8/15/2014
9,766

 
4,884

 
71.43
8/15/2024
 
 
 
 
 
 
 
9/15/2014
16,024

 
8,013

 
74.96
9/15/2024
 
 
 
 
 
 
 
8/15/2015
13,312

 
26,624

 
84.27
8/15/2025
 
 
 
 
 
 
 
8/15/2016

 
56,814

 
83.19
8/15/2026
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19,807

(10)
1,543,361
24,993

(11)
1,947,455
Morford
8/15/2011
12,795

 

 
41.60
8/15/2021
 
 
 
 
 
 
 
8/15/2012
37,444

 

 
39.81
8/15/2022
 
 
 
 
 
 
 
8/15/2013
39,038

 

 
51.49
8/15/2023
 
 
 
 
 
 
 
8/15/2014
17,046

 
8,524

 
71.43
8/15/2024
 
 
 
 
 
 
 
8/15/2015
7,987

 
15,974

 
84.27
8/15/2025
 
 
 
 
 
 
 
8/15/2016

 
30,899

 
83.19
8/15/2026
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20,758

(12)
1,617,463
15,301

(13)
1,192,254
(1)
These stock options vest 33% on the first, second and third anniversaries of the grant date.
(2)
The market value is the product of $77.92, the closing price of our common shares on the NYSE on June 30, 2017, and the number of unvested stock awards.
(3)
Fiscal 15-17 PSUs are actual amounts that vested upon our achieving the performance goal over the performance period. Based on current performance in accordance with the SEC rules, PSUs for the fiscal 2016-2018 ("Fiscal 16-18 PSUs") assume payout at target and Fiscal 17-19 PSUs assume payout at threshold.
(4)
Reflects RSUs that vest as follows: 41,318 shares on August 15, 2017; 25,841 shares on August 15, 2018; and 12,689 shares on August 15, 2019.


 
Cardinal Health | 2017 Proxy Statement
35 



Executive Compensation
 
 


(5)
Reflects 49,653 Fiscal 15-17 PSUs, 37,578 Fiscal 16-18 PSUs and 19,033 Fiscal 17-19 PSUs.
(6)
Reflects RSUs that vest as follows: 11,180 shares on August 15, 2017; 13,341 shares on September 15, 2017; 7,261 shares on August 15, 2018; and 3,997 shares on August 15, 2019.
(7)
Reflects 13,034 Fiscal 15-17 PSUs, 8,900 Fiscal 16-18 PSUs and 5,710 Fiscal 17-19 PSUs.
(8)
Reflects RSUs that vest as follows: 10,938 shares on August 15, 2017; 10,006 shares on September 15, 2017; 7,182 shares on August 15, 2018; and 3,997 shares on August 15, 2019.
(9)
Reflects 13,034 Fiscal 15-17 PSUs, 8,307 Fiscal 16-18 PSUs and 5,710 Fiscal 17-19 PSUs.
(10)
Reflects RSUs that vest as follows: 7,645 shares on August 15, 2017; 1,779 shares on September 15, 2017; 6,576 shares on August 15, 2018; 3,807 shares on August 15, 2019.
(11)
Reflects 10,976 Fiscal 15-17 PSUs, 8,307 Fiscal 16-18 PSUs and 5,710 Fiscal 17-19 PSUs.
(12)
Reflects RSUs that vest as follows: 5,598 shares on August 15, 2017; 4,678 shares on November 15, 2017; 3,732 shares on August 15, 2018; 4,679 shares on November 15, 2018; and 2,071 on August 15, 2019.
(13)
Reflects 7,448 Fiscal 15-17 PSUs, 4,747 Fiscal 16-18 PSUs and 3,106 Fiscal 17-19 PSUs.
Option Exercises and Stock Vested for Fiscal 2017
The table below shows stock options that were exercised, and PSUs and RSUs that vested, during fiscal 2017 for each of our named executives.
Name
Option Awards
 
Stock Awards
 
Number
of Shares
Acquired on
Exercise
(#)
Value Realized
on Exercise
($)
Number 
of Shares
Acquired on Vesting
(#)(1)
Value Realized
on Vesting
($)
Barrett
685,989

(2)
32,061,337

(2)
135,230

 
11,305,228

 
Kaufmann

 

 
48,167

 
3,915,506

 
Casey
59,180

 
2,545,598

 
45,043

 
3,682,153

 
Giacomin
62,951

 
2,892,986

 
13,911

 
1,148,123

 
Morford

 

 
19,324

 
1,615,486

 
(1)
This column represents the vesting during fiscal 2017 of PSUs granted during fiscal 2014 for the fiscal 2014-2016 performance period and RSUs granted during fiscal 2014, 2015 and 2016. The number of shares acquired on vesting includes the following PSUs and RSUs deferred at the election of the named executive, net of required withholdings: Mr. Casey—2,939 RSUs; and Mr. Morford—12,401 PSUs and 5,741 RSUs. See “Deferred Compensation” below for a discussion of deferral terms.
(2)
During fiscal 2017, Mr. Barrett exercised an option granted in August 2010, which had an expiration date of August 2017.
Deferred Compensation
Our DCP permits certain management employees, including the named executives, to defer between 1% and 50% of base salary and between 1% and 80% of incentive compensation. In addition, we may make additional matching and non-matching contributions to the deferred balances of participants. We make matching contributions on amounts deferred under the DCP from compensation in excess of $270,000 but not in excess of $370,000 at the same rate as contributions are matched under the 401(k) Savings Plan. We also may credit participants’ accounts with additional, non-matching company contributions in the same amount as company contributions made to the 401(k) Savings Plan based on a percentage of fiscal year compensation in excess of $270,000 but not in excess of $370,000. Company non-matching contributions are made only when we exceed pre-established performa