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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McKESSON CORPORATION

(Name of Registrant as Specified In Its Charter)

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McKesson Corporation

One Post Street, San Francisco CA 94104-5296

Notice of 2013 Annual Meeting of Stockholders

Wednesday, July 31, 2013

8:30 a.m. Pacific Daylight Time

The 2013 Annual Meeting of Stockholders of McKesson Corporation will be held at the Parc 55 Hotel, 55 Cyril Magnin Street, San Francisco, California.

ITEMS OF BUSINESS:

•

Elect for a one-year term a slate of nine directors as nominated by the Board of Directors;

•

Ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2014;

•

Conduct a non-binding, advisory vote on executive compensation;

•

Approve the 2013 Stock Plan, including the reservation of 30,000,000 shares of common stock for issuance under the plan;

•

Approve an amendment to the 2000 Employee Stock Purchase Plan to increase the number of shares of common stock reserved for issuance under the plan by 5,000,000;

•

Approve amendments to our Amended and Restated By-Laws to provide for a stockholder right to call special meetings;

•

Vote on four proposals submitted by stockholders, if properly presented; and

•

Conduct such other business as may properly be brought before the meeting.

Stockholders of record at the close of business on June 3, 2013 are entitled to notice of and to vote at the meeting or any adjournment or postponement of the meeting.

June 21, 2013

By Order of the Board of Directors

Willie C. Bogan

Associate General Counsel and Secretary

YOUR VOTE IS IMPORTANT.

We encourage you to read the proxy statement and vote your shares as soon as possible. You may vote via the Internet or by telephone. Specific instructions on how to vote using either of these methods are included on the proxy card. You may also vote by mail, and a return envelope for your proxy card is enclosed for your convenience.

Table of Contents

GENERAL INFORMATION 1

Proxies and Voting at the Annual Meeting 1

Attendance at the Annual Meeting 2

Dividend Reinvestment Plan 2

Vote Required and Method of Counting Votes 2

Voting Results of the Annual Meeting 3

Quorum Requirement 3

Broker Non-Votes 3

Profit-Sharing Investment Plan 3

List of Stockholders 3

Online Access to Annual Reports on Form 10-K and Proxy Statements 4

Householding of Proxy Materials 4

ITEM 1. Election of Directors 5

The Board, Committees and Meetings 9

Director Compensation 11

Corporate Governance 13

ITEM 2. Ratification of Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm
for Fiscal Year 2014 19

Audit Committee Report 20

PRINCIPAL STOCKHOLDERS 21

Security Ownership of Certain Beneficial Owners 21

Security Ownership of Directors and Executive Officers 22

EXECUTIVE COMPENSATION 23

Compensation Discussion and Analysis 23

Compensation Committee Report on Executive Compensation 40

Compensation Committee Interlocks and Insider Participation 40

2013 Summary Compensation Table 41

2013 Grants of Plan-Based Awards Table 43

2013 Outstanding Equity Awards Table 44

2013 Option Exercises and Stock Vested Table 45

2013 Pension Benefits Table 45

2013 Nonqualified Deferred Compensation Table 48

Executive Employment Agreements 50

Potential Payments upon Termination or Change in Control 54

ITEM 3. Advisory Vote on Executive Compensation 60

ITEM 4. Approval of our 2013 Stock Plan 60

ITEM 5. Approval of Amendment to our 2000 Employee Stock Purchase Plan 69

ITEM 6. Approval of Amendments to our By-Laws to Provide for a Stockholder Right to Call Special Meetings 73

ITEM 7. Stockholder Proposal on Action by Written Consent of Stockholders 74

ITEM 8. Stockholder Proposal on Disclosure of Political Contributions and Expenditures 76

ITEM 9. Stockholder Proposal on Significant Executive Stock Retention until Reaching Normal Retirement Age
or Terminating Employment 78

ITEM 10. Stockholder Proposal on Compensation Clawback Policy 80

ADDITIONAL CORPORATE GOVERNANCE MATTERS 82

APPENDIX A Supplemental Information: GAAP to Non-GAAP Reconciliation A-1

APPENDIX B McKesson Corporation 2013 Stock Plan B-1

APPENDIX C McKesson Corporation 2000 Employee Stock Purchase Plan C-1

APPENDIX D Amended and Restated By-Laws D-1

PROXY STATEMENT

GENERAL INFORMATION

Proxies and Voting at the Annual Meeting

The Board of Directors of McKesson Corporation (the “Company,” “McKesson,” “we” or “us”), a Delaware corporation, is soliciting proxies to be voted at the Annual Meeting of Stockholders to be held July 31, 2013 (the “Annual Meeting”), and at any adjournment or postponement thereof. This proxy statement includes information about the matters to be voted upon at the Annual Meeting.

Items of business to be considered at the Annual Meeting

The Board is asking you to take the following actions at the Annual Meeting:

Item	Your Board’s Recommendation
• Election of Nine Directors Named in the Proxy Statement	Vote FOR
• Ratification of the Appointment of the Independent Registered Public Accounting Firm	Vote FOR
• Non-binding, Advisory Vote on Executive Compensation	Vote FOR
• Approval of our 2013 Stock Plan	Vote FOR
• Approval of Amendment to our 2000 Employee Stock Purchase Plan	Vote FOR
• Approval of Amendments to our By-Laws to Provide for a Stockholder Right to Call Special Meetings	Vote FOR
• Stockholder Proposal on Action by Written Consent of Stockholders	Vote AGAINST
• Stockholder Proposal on Disclosure of Political Contributions and Expenditures	Vote AGAINST
• Stockholder Proposal on Significant Executive Stock Retention until Reaching Normal Retirement Age or Terminating Employment	Vote AGAINST
• Stockholder Proposal on Compensation Clawback Policy	Vote AGAINST

Record date; Who can vote

On June 21, 2013, the Company began delivering proxy materials to all stockholders of record at the close of business on June 3, 2013 (the “Record Date”). On the Record Date, there were 228,486,941 shares of the Company’s common stock outstanding and entitled to vote. As a stockholder, you are entitled to one vote for each share of common stock you held on the Record Date, including shares: (i) held for you in an account with a broker, bank or other nominee; (ii) held directly in your name as the stockholder of record; or (iii) allocated to your account in the Company’s Profit-Sharing Investment Plan (the “PSIP”).

How to vote

Stockholders can vote by mail, telephone or the Internet or in person at the Annual Meeting.

Stockholders of Record or a Participant in the Company’s PSIP

If you are a stockholder of record or a participant in the Company’s PSIP, you can vote your shares by using the Internet, by calling a toll-free number, or by mailing your signed proxy card(s). Specific instructions for voting by means of the Internet or telephone are included on the enclosed proxy card. The Internet and telephone voting procedures are designed to authenticate your identity and to allow you to vote your shares and confirm that your voting instructions have been properly recorded. If you do not wish to vote via the Internet or by telephone, please complete, sign and return the proxy card in the self-addressed, postage-paid envelope provided.

– 2013 Proxy Statement   1

Street Name Stockholders

If you have shares held by a broker, bank or other nominee, you can vote your shares by following the instructions provided by your broker, bank or other nominee.

Your vote as a stockholder is important. Please vote as soon as possible to ensure that your vote is recorded.

Valid Proxies

All shares represented by valid proxies will be voted as specified. If you sign and return a proxy card without specific voting instructions, your shares will be voted as recommended by our Board of Directors (the “Board” or the “Board of Directors”) on all proposals described in this proxy statement, and in the discretion of the designated proxy holders as to any other matters that may properly come before the Annual Meeting. We currently know of no other matter to be presented at the Annual Meeting, except for the proposals described in this proxy statement.

All votes cast at the Annual Meeting will be tabulated by Broadridge Financial Solutions, Inc. (“Broadridge”), which has been appointed the independent inspector of election. Broadridge will determine whether or not a quorum is present.

Revocation

You can revoke your proxy at any time before the Annual Meeting by sending to the Company’s Secretary a written revocation or a proxy bearing a later date. You may also revoke your proxy by attending the Annual Meeting in person and casting a ballot. If you hold your shares through a broker, bank or other nominee and have instructed the broker, bank or other nominee as to how to vote your shares, you must obtain a legal proxy and bring it to the meeting in order to change your vote or to vote at the Annual Meeting. Please contact your broker, bank or other nominee for specific information on how to obtain a legal proxy in order to vote your shares at the meeting.

Attendance at the Annual Meeting

You will need to bring your admission ticket and any valid government-issued form of identification if you plan to attend the Annual Meeting. You will find an admission ticket attached to the proxy card if you are a registered stockholder or PSIP participant. If your shares are held in the name of a broker, bank or other stockholder of record and you plan to attend the Annual Meeting in person, you may obtain an admission ticket in advance by sending a request, along with proof of ownership, such as a brokerage or bank account statement, to the Company’s Secretary, One Post Street, 35^th Floor, San Francisco, California 94104. Stockholders who do not have an admission ticket will only be admitted upon verification of ownership at the sole discretion of the Company.

Dividend Reinvestment Plan

For those stockholders who participate in the Company’s Automatic Dividend Reinvestment Plan (“DRP”), the enclosed proxy card includes all full shares of common stock held in your DRP account on the Record Date for the Annual Meeting, as well as your shares held of record.

Vote Required and Method of Counting Votes

Item 1 – Election of Directors. Each share of the Company’s common stock you own entitles you to one vote at the Annual Meeting. You may vote “for” or “against” one or more of the director nominees, or “abstain” from voting on the election of any nominee. A nominee will be elected as a director if he or she receives a majority of votes cast (that is, the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that nominee). Abstentions or broker non-votes (as described below), if any, will not count as votes cast. There is no cumulative voting with respect to the election of directors.

Items 4 and 5 – Approval of our 2013 Stock Plan; and Approval of Amendment to our 2000 Employee Stock Purchase Plan. Under the requirements of the rules of the New York Stock Exchange (“NYSE”), the approval of our 2013 Stock Plan and amendment to our 2000 Employee Stock Purchase Plan requires the affirmative vote of the majority of the votes cast on the proposal, provided that the total votes cast on the proposal represent at least 50% of the outstanding shares entitled to vote on the proposal. You may vote “for” or “against,” or “abstain” from voting on, each of these proposals.  The NYSE counts votes “for” and “against” and abstentions as votes cast.  Broker non-votes do not count as votes cast, but do count as shares outstanding and entitled to vote. Accordingly, the sum of votes “for,” plus votes “against,” plus abstentions, which sum is referred to as the “NYSE Votes Cast,” must be greater than 50% of the outstanding shares entitled to vote. Further, the number of votes “for” each proposal must be greater than 50% of the NYSE Votes Cast. Thus, abstentions have the same effect as a vote against the proposal. Broker non-votes could impair our ability to satisfy the requirement that the NYSE Votes Cast represent over 50% of the outstanding shares entitled to vote.

Item 6 – Approval of Amendments to our By-Laws to Provide for a Stockholder Right to Call Special Meetings. Approval of this proposal requires the affirmative vote of a majority of the shares outstanding and entitled to vote on this proposal at the Annual Meeting. You may vote “for” or “against,” or “abstain” from voting on, this proposal. Shares represented by abstentions or broker non-votes on this proposal will have the effect of a vote against the matter.

– 2013 Proxy Statement   2

All Other Items – For all other items to be presented at the Annual Meeting, approval of each of these proposals requires the affirmative vote of a majority of the shares present, in person or by proxy, and entitled to vote on the proposal at the Annual Meeting. You may vote “for” or “against,” or “abstain” from voting on, each of these other proposals. Shares represented by abstentions on a proposal will be counted as present at the Annual Meeting and will have the effect of a vote against the matter; however, broker non-votes with respect to a proposal will have no effect on the outcome of the matter.

Voting Results of the Annual Meeting

We intend to announce preliminary voting results at the Annual Meeting, and publish preliminary results or, if available, final results in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission (the “SEC”) within four business days after the Annual Meeting.

Quorum Requirement

The presence in person or by proxy of holders of a majority of the outstanding shares of common stock entitled to vote will constitute a quorum for the transaction of business at the Annual Meeting. In the event of abstentions or broker non-votes, the shares represented will be considered present for quorum purposes.

Broker Non-Votes

Generally, broker non-votes occur when a broker, bank or other nominee does not have discretion to vote on a proposal without specific instructions from the beneficial owner and instructions are not given. NYSE rules prohibit discretionary voting by brokers on certain matters. At the Annual Meeting, if brokers, banks and other nominees have not received instructions from the beneficial owners, they will not be permitted to vote on any proposal other than the ratification of the appointment of the independent registered public accounting firm (Item 2).

Therefore, we encourage all beneficial owners to provide voting instructions to your nominees to ensure that your shares are voted at the Annual Meeting.

Profit-Sharing Investment Plan

Participants in the Company’s tax-qualified 401(k) plan, the PSIP, have the right to instruct the PSIP trustee, on a confidential basis, how the shares allocated to their accounts are to be voted, and will receive a voting instruction card for that purpose. In general, the PSIP provides that all shares for which no voting instructions are received from participants will be voted by the trustee in the same proportion as shares for which voting instructions are received. However, shares that have been allocated to PSIP participants’ PAYSOP accounts for which no voting instructions are received will not be voted.

List of Stockholders

The names of stockholders of record entitled to vote at the Annual Meeting will be available at the meeting and for ten days prior to the meeting for any purpose germane to the Annual Meeting, during ordinary business hours, at our principal executive offices at One Post Street, 35^th Floor, San Francisco, California. You may obtain this information by contacting the Secretary of the Company.

– 2013 Proxy Statement   3

Online Access to Annual Reports on Form 10-K and Proxy Statements

The notice of annual meeting, proxy statement and Annual Report on Form 10-K for our fiscal year ended March 31, 2013 are available at www.proxyvote.com. Instead of receiving future copies of the proxy statement and Annual Report on Form 10-K by mail, you may, by following the applicable procedures described below, elect to receive these documents electronically, in which case you will receive an e-mail with a link to these documents.

Stockholders of Record: You may elect to receive proxy materials electronically next year in place of printed materials by logging on to www.‌proxyvote.‌com and entering your control number, which you can find on the accompanying proxy card. By doing so, you will save the Company printing and mailing expenses, reduce the impact on the environment and obtain immediate access to the Annual Report on Form 10-‌‌K, proxy statement and voting form when they become available.

Beneficial Stockholders: If you hold your shares through a broker, bank or other holder of record, you may also have the opportunity to receive copies of the proxy statement and Annual Report on Form 10-K electronically. Please check the information provided in the proxy materials mailed to you by your broker, bank or other holder of record regarding the availability of this service or contact the broker, bank or other holder of record through which you hold your shares and inquire about the availability of such an option for you.

If you elect to receive your materials via the Internet, you can still request paper copies by leaving a message with Investor Relations at (800) 826-9360 or by sending an e-mail to investors@mckesson.com.

Householding of Proxy Materials

In a further effort to reduce printing costs, postage fees and the impact on the environment, we have adopted a practice approved by the SEC called “householding.” Under this practice, stockholders who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our proxy materials, unless any of these stockholders notifies us that he or she wishes to continue receiving individual copies. Stockholders who participate in householding will continue to receive separate proxy cards.

If you share an address with another stockholder and received only one set of proxy materials, but would like to request a separate copy of these materials, please contact Broadridge by calling (800) 542-1061 or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Similarly, you may also contact Broadridge if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future.

– 2013 Proxy Statement   4

PROPOSALS TO BE VOTED ON

ITEM 1.    Election of Directors

There are nine nominees for election to the Board of Directors of the Company. The directors elected at the Annual Meeting will hold office until the 2014 Annual Meeting of Stockholders and until their successors have been elected and qualified, or until their earlier death, resignation or removal.

All nominees are existing directors and were elected to the Board at the 2012 Annual Meeting of Stockholders. For purposes of the upcoming Annual Meeting, the Committee on Directors and Corporate Governance (sometimes referred to as the “Governance Committee”) recommended the reelection of each nominee as a director. Each nominee has informed the Board that he or she is willing to serve as a director. If any nominee should decline or become unable or unavailable to serve as a director for any reason, your proxy authorizes the persons named in the proxy to vote for a replacement nominee, if the Board names one, as such persons determine in their best judgment. As an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.

Majority Voting Standard for Election of Directors. The Company’s Amended and Restated By-laws (the “By-Laws”) provide for a majority voting standard for the election of directors in uncontested director elections, such as that being conducted this year. Under this standard, a director nominee will be elected only if the number of votes cast “for” the nominee exceeds the number of votes cast “against” that nominee. In the case of contested elections (a situation in which the number of nominees exceeds the number of directors to be elected), the plurality voting standard will apply. This majority voting standard is described further below under the section entitled “Corporate Governance — Majority Voting Standard.”

The following is a brief description of the age, principal occupation, position and business experience, including other public company directorships, for at least the past five years and major affiliations of each of the nominees. Each director’s biographical information includes a description of the director’s experience, qualifications, attributes or skills that qualify the director to serve on the Company’s Board at this time.

– 2013 Proxy Statement   5

Nominees

Your Board recommends a vote “FOR” each Nominee.

  Andy D. Bryant

Chairman of the Board, Intel Corporation

Mr. Bryant, age 63, was elected Chairman of the Board of Intel Corporation in May 2012. He was named a director of Intel’s board in July 2011 and served as Vice Chairman of the Board from that time until his election as Chairman. He served as Executive Vice President and Chief Administrative Officer of Intel from October 2007 to July 2011. Mr. Bryant joined Intel in 1981 and held a number of management positions before serving as Intel’s Chief Financial Officer from February 1994 to October 2007. He is also a director of Columbia Sportswear Company. He was formerly a director of Synopsys Inc. Mr. Bryant has been a director of the Company since January 2008. He is Chair of the Finance Committee and a member of the Audit Committee.

Mr. Bryant’s years of experience as an executive at a large global company, including in the roles of Chief Administrative Officer and Chief Financial Officer, provide to the Company’s Board operational, strategic planning and financial expertise and considerable business acumen, as well as international business experience. We believe the Company benefits from his Board leadership perspective garnered from serving as both Vice Chairman and Chairman of Intel’s Board. Mr. Bryant also has other public company board experience with service on audit and governance committees.

  Wayne A. Budd

Senior Counsel, Goodwin Procter LLP

Mr. Budd, age 71, joined the law firm of Goodwin Procter LLP as Senior Counsel in October 2004. He had been Senior Executive Vice President and General Counsel and a director of John Hancock Financial Services, Inc. since 2000 and a director of John Hancock Life Insurance Company since 1998. From 1996 to 2000, Mr. Budd was Group President-New England for Bell Atlantic Corporation (now Verizon Communications, Inc.). From 1994 to 1997, Mr. Budd was a Commissioner, United States Sentencing Commission and from 1993 to 1996, he was a senior partner at the law firm of Goodwin Procter LLP. From 1992 to 1993, he was the Associate Attorney General of the United States and from 1989 to 1992, he was United States Attorney for the District of Massachusetts. Mr. Budd has been a director of the Company since October 2003. He is a member of the Audit Committee and the Committee on Directors and Corporate Governance.

Mr. Budd brings to our Board significant legal and regulatory expertise gained from years of large law firm practice and major governmental positions with law enforcement responsibilities. His legal experience and seasoned judgment have been instrumental in helping the Board navigate legal challenges. In recognition of his distinguished legal career and important contributions to public life, Mr. Budd was named a 2011 recipient of the American Lawyer Lifetime Achievement Award. Additionally, Mr. Budd has senior executive business experience and public company board experience with service on audit, governance, compensation, and special litigation committees. His Board leadership skills have been enhanced through his role as Chairman of the National Board of Directors of the American Automobile Association from April 2011 to April 2013.

  John H. Hammergren

Chairman of the Board, President and Chief Executive Officer, McKesson Corporation

Mr. Hammergren, age 54, has served as Chairman of the Board since July 2002, and President and Chief Executive Officer of the Company since April 2001. Mr. Hammergren joined the Company in 1996 and held a number of management positions before becoming President and Chief Executive Officer. He was a director of the Hewlett-Packard Company from 2005 through April 2013. He has been a director of the Company since July 1999.

Including his experience at other significant healthcare organizations prior to joining the Company, Mr. Hammergren brings to the Board over 30 years of business and leadership experience in healthcare, as well as public company board experience. In addition to the strong leadership skills exhibited as Chief Executive Officer of the Company, he recently served as Chairman of the Healthcare Leadership Council, a coalition of chief executives of the nation’s leading healthcare companies and organizations. His healthcare industry and general business perspective has been broadened through his membership on this council, on the Business Council and on the Business Roundtable. The Board benefits from Mr. Hammergren’s extensive knowledge of the Company, and from his deep understanding of its customer base, workforce, competition, challenges and opportunities.

– 2013 Proxy Statement   6

  Alton F. Irby III

Chairman and Founding Partner, London Bay Capital

Mr. Irby, age 72, was the founding partner and has been Chairman of London Bay Capital, a privately-held investment firm, since May 2006. He was the founding partner of Tricorn Partners LLP, a privately-held investment bank, from May 2003 to May 2006, a partner of Gleacher & Co. Ltd. from January 2001 until April 2003, and Chairman and Chief Executive Officer of HawkPoint Partners, formerly known as National Westminster Global Corporate Advisory, from 1997 until 2000. He was a founding partner of Hambro Magan Irby Holdings from 1988 to 1997. He serves as a director of Stifel Financial Corporation and of McKesson Information Solutions UK Limited, an indirect wholly-owned subsidiary of the Company. He was formerly a director of Catlin Group PLC, Centaur Holdings PLC and ContentFilm PLC. Mr. Irby has been a director of the Company since January 1999. He is Chair of the Compensation Committee and a member of the Finance Committee.

Mr. Irby has over 40 years of experience as a senior executive of financial services companies, and over 35 years of service on various private and public company boards. During this time, he has acquired significant international business experience and demonstrated entrepreneurial talent as the founding partner of several firms. Based on his overall experience, Mr. Irby is able to provide to the Company’s Board valuable insights into financial and capital market matters, acquisition opportunities and divestiture considerations.

  M. Christine Jacobs

Chairman of the Board, President and Chief Executive Officer, Theragenics Corporation

Ms. Jacobs, age 62, is the Chairman, President and Chief Executive Officer of Theragenics Corporation, a manufacturer of prostate cancer treatment devices and surgical products. She has held the position of Chairman since May 2007, and previously from 1998 to 2005. She was Co-Chairman of the Board from 1997 to 1998 and was elected President in 1992 and Chief Executive Officer in 1993. Ms. Jacobs has been a director of the Company since January 1999. She is a member of the Compensation Committee and the Committee on Directors and Corporate Governance.

Having led a public company within the healthcare industry for over 20 years, Ms. Jacobs brings to our Board significant relevant industry experience and a keen understanding of and strong insight into issues, challenges and opportunities facing the Company, including those related to legislative healthcare initiatives. As a Chairman and Chief Executive Officer, she is at the forefront of her company in regard to the evolving corporate governance environment, which enables her to provide valuable contributions as a member of the Governance Committee of our Board. Since September 2011, Ms. Jacobs has served as Co-Chair of the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies, which reflects her leadership experience and capital formation experience. She is serving a term of two years on the Advisory Committee.

  Marie L. Knowles

Executive Vice President and Chief Financial Officer, Retired, ARCO

Ms. Knowles, age 66, retired from Atlantic Richfield Company (“ARCO”) in 2000 and was Executive Vice President and Chief Financial Officer from 1996 until 2000 and a director from 1996 until 1998. She joined ARCO in 1972. Ms. Knowles is also a member of the Board of Trustees of the Fidelity Funds. She has been a director of the Company since March 2002. She is Chair of the Audit Committee and a member of the Finance Committee.

Ms. Knowles brings to the Board extensive financial experience gained through her career at ARCO, including her tenure as Chief Financial Officer. This experience makes her well qualified to serve as Chair of the Company’s Audit Committee and as the audit committee financial expert. This experience also enables Ms. Knowles to provide critical insight into, among other things, the Company’s financial statements, accounting principles and practices, internal control over financial reporting, and risk management processes. It is also noteworthy that Ms. Knowles was named a 2013 Outstanding Director by the San Francisco Business Times and the Silicon Valley Business Journal.

– 2013 Proxy Statement   7

  David M. Lawrence, M.D.

Chairman of the Board and Chief Executive Officer, Retired, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals

Dr. Lawrence, age 72, retired from Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals in 2002, having served as Chairman of the Board from 1992 and Chief Executive Officer from 1991. He held a number of management positions with these organizations prior to assuming these positions, including Vice Chairman of the Board and Chief Operating Officer. He is also a director of Agilent Technologies Inc. He was formerly a director of Raffles Medical Group, Inc., PG&E Corporation and Dynavax Technologies Corporation. Dr. Lawrence has been a director of the Company since January 2004. He is a member of the Compensation Committee and the Finance Committee.

Dr. Lawrence possesses considerable leadership experience in the healthcare industry, having served for a decade as Chairman and Chief Executive Officer of one of the largest private healthcare systems in the world. This experience, coupled with his training as a physician, enables him to provide an important perspective and valuable insight into various aspects of the Company’s businesses. In addition, Dr. Lawrence brings to our Board broad experience and perspective gained through his considerable public company board experience, including his service on compensation, audit, finance and governance committees.

  Edward A. Mueller

Chairman of the Board and Chief Executive Officer, Retired, Qwest Communications International Inc.

Mr. Mueller, age 66, retired as Chairman and Chief Executive Officer of Qwest Communications International Inc., a provider of voice, data and video services, in April 2011. He held the position of Chairman and Chief Executive Officer of Qwest Communications from August 2007 to April 2011. From January 2003 until July 2006, he served as Chief Executive Officer of Williams-Sonoma, Inc., a provider of specialty products for cooking. Prior to joining Williams-Sonoma, Inc., Mr. Mueller served as President and Chief Executive Officer of Ameritech Corporation, a subsidiary of SBC Communications, Inc., from 2000 to 2002. He is also a director of The Clorox Company. He was formerly a director of CenturyLink, Inc., Williams-Sonoma, Inc. and VeriSign, Inc. Mr. Mueller has been a director of the Company since April 2008. He is a member of the Compensation Committee and the Committee on Directors and Corporate Governance.

Mr. Mueller brings to the Board chief executive leadership and business management experience, as well as a strong business acumen and strategic planning expertise. Having worked outside the healthcare industry, he also adds to the mix of experiences and perspectives on our Board that promote a robust deliberative and decision-making process. While Chairman of the Board of Qwest Communications, Mr. Mueller had a leadership role in corporate governance, which enables him to provide valuable contributions as a member of the Governance Committee of our Board. He also has public company board experience with audit committee service.

  Jane E. Shaw, Ph.D.

Chairman of the Board, Retired, Intel Corporation; Chairman of the Board and Chief Executive Officer, Retired, Aerogen, Inc.

Dr. Shaw, age 74, retired as the non-executive Chairman of the Board of Intel Corporation in May 2012. She had held that position since May 2009. Dr. Shaw retired as Chairman of the Board of Aerogen, Inc., a company specializing in the development of products for improving respiratory therapy, in October 2005. She had held that position since 1998. She retired as Chief Executive Officer of that company in June 2005. She is also a director of AeroSurgical Limited and Stamford Devices Ltd. She was formerly a director of Talima Therapeutics, Inc. Dr. Shaw has been a director of the Company since April 1992. She is Chair of the Committee on Directors and Corporate Governance and a member of the Audit Committee.

As a former Chief Executive Officer, Dr. Shaw brings to the Board executive leadership and business management experience in the healthcare industry. She also has a strong financial background, which positions her well to serve on the Audit Committee. Dr. Shaw gained valuable board leadership experience as former executive Chairman of Aerogen, Inc. and former non-executive Chairman of Intel Corporation. This experience also makes her well qualified to serve as Chair of the Governance Committee, and she has played a major role in helping the Company navigate the changing governance landscape.

Having been raised and educated in Europe, she also has an international background that broadens the Board’s perspective. As the longest-standing Board member, the Board benefits from her considerable institutional knowledge. It is also noteworthy that Dr. Shaw was named a 2010 Outstanding Director by the Outstanding Directors Exchange and a 2013 Outstanding Director by the San Francisco Business Times and the Silicon Valley Business Journal.

– 2013 Proxy Statement   8

The Board, Committees and Meetings

The Board of Directors is the Company’s governing body with responsibility for oversight, counseling and direction of the Company’s management to serve the long-term interests of the Company and its stockholders. The Board’s goal is to build long-term value for the Company’s stockholders and to ensure the vitality of the Company for its customers, employees and other individuals and organizations that depend on the Company. To achieve its goals, the Board monitors both the performance of the Company and the performance of the Chief Executive Officer (“CEO”). The Board currently consists of nine members, all of whom are independent with the exception of the Chairman.

The Board has, and for many years has had, standing committees: currently, the Audit Committee, the Compensation Committee, the Committee on Directors and Corporate Governance, and the Finance Committee. Each of these committees is governed by a written charter approved by the Board in compliance with the applicable requirements of the SEC and the NYSE listing requirements (collectively, the “Applicable Rules”). The charter of each committee requires an annual review by such committee. Each member of our standing committees is independent, as determined by the Board, under the NYSE listing standards and the Company’s director independence standards. In addition, each member of the Audit Committee and Compensation Committee meets the additional, heightened independence criteria applicable to committee members under the Applicable Rules. The members of each standing committee are appointed by the Board each year for a term of one year or until their successors are elected.

The membership of each standing committee and the number of meetings held during the fiscal year ended March 31, 2013 (“FY 2013”) is identified in the table below.

Board and Meeting Attendance

The Board met ten times during FY 2013. Each director attended at least 75% of the aggregate number of meetings of the Board and of all the standing and other committees on which he or she served. Directors meet their responsibilities not only by attending Board and committee meetings, but also through communication with executive management, independent accountants, advisors and consultants and others on matters affecting the Company. Directors are also expected to attend the upcoming Annual Meeting, and all directors except Mr. Bryant attended the Annual Meeting of Stockholders held in July 2012.

Director	Audit	Compensation	Directors and Corporate Governance	Finance
Andy D. Bryant	X	—	—	Chair
Wayne A. Budd	X	—	X	—
John H. Hammergren	—	—	—	—
Alton F. Irby III	—	Chair	—	X
M. Christine Jacobs	—	X	X	—
Marie L. Knowles	Chair	—	—	X
David M. Lawrence, M.D.	—	X	—	X
Edward A. Mueller	—	X	X	—
Jane E. Shaw, Ph.D.	X	—	Chair	—
Number of meetings held during FY 2013	7	5	5	5

In addition, the Board has, on occasion, established committees to deal with particular matters the Board believes appropriate to be addressed in that manner.

Committee Responsibilities and Other Information

Audit Committee

The Audit Committee is responsible for, among other things, reviewing with management the annual audited financial statements filed in the Annual Report on Form 10-K, including any major issues regarding accounting principles and practices as well as the adequacy and effectiveness of internal control over financial reporting that could significantly affect the Company’s financial statements. Along with other responsibilities, the Audit Committee reviews with management and the independent registered public accounting firm (the “independent accountants”) the interim financial statements prior to the filing of the Company’s quarterly reports on Form 10-Q. In addition to appointing the independent accountants, monitoring their independence, evaluating their performance and approving their fees, the Audit Committee has responsibility for reviewing and accepting the annual audit plan, including the scope of the audit activities of the independent accountants.

– 2013 Proxy Statement   9

The Audit Committee at least annually reassesses the adequacy of its charter and recommends to the Board any proposed changes, and periodically reviews major changes to the Company’s accounting principles and practices. The committee also reviews the appointment, performance and replacement of the senior internal audit department executive and advises the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s code of conduct. Additionally, the committee performs such other activities and considers such other matters, within the scope of its responsibilities, as the Audit Committee or Board deems necessary or appropriate. The composition of the Audit Committee, the attributes of its members, including the requirement that each be “financially literate” and have other requisite experience, and the responsibilities of the committee, as reflected in its charter, are in accordance with the Applicable Rules for corporate audit committees.

Audit Committee Financial Expert

The Board has designated Ms. Knowles as the Audit Committee’s financial expert and has determined that she meets the qualifications of an “audit committee financial expert” in accordance with SEC rules, and that she is “independent” as defined for audit committee members in the listing standards of the NYSE and applicable SEC requirements, and in accordance with the Company’s director independence standards.

Compensation Committee

The Compensation Committee has responsibility for, among other things, reviewing all matters relating to executive officer compensation. Along with other responsibilities, the Compensation Committee will, with respect to executive officers, annually review and determine the salary paid; the grant of cash-based bonuses and equity compensation provided; the entering into or amendment or extension of any employment contract or similar arrangement; the severance or change in control arrangements; the material perquisites provided; and any other executive officer compensation matter that may arise from time to time as directed by the Board.

The Compensation Committee will periodically review and make recommendations to the Board with respect to adoption of, or amendments to, all equity-based incentive compensation plans and arrangements for employees and cash-based incentive plans for executive officers, including an evaluation of whether the relationship between the incentives associated with these plans and the level of risk-taking by executive officers in response to such incentives is reasonably likely to have a material adverse effect on the Company. Subject to certain limitations, the Compensation Committee will approve the grant of stock, stock options, stock purchase rights or other equity grants to employees eligible for such grants. Annually, the Compensation Committee will review its charter and recommend to the Board any changes it determines are appropriate. It will participate with management in the preparation of the Compensation Discussion and Analysis for the Company’s proxy statement. The committee also performs such other activities required by applicable law, rules or regulations, and consistent with its charter, as the Compensation Committee or the Board deems necessary or appropriate.

The Compensation Committee may delegate to any officer or officers the authority to grant awards to employees other than directors or executive officers, provided that such grants are within the limits established by the Delaware General Corporation Law and by resolution of the Board. The Compensation Committee determines the structure and amount of all executive officer compensation, including awards of equity, after considering the initial recommendation of management and in consultation with the Compensation Committee’s independent compensation consultant.

In accordance with its charter, the Compensation Committee annually evaluates the qualifications, performance and independence of its advisors. The Compensation Committee has the sole authority and right, when it deems necessary or appropriate, to retain, obtain the advice of and terminate compensation consultants, independent legal counsel or other advisors of its choosing. The committee has the sole authority to approve the fee arrangement and other retention terms of such advisors, and the Company must provide for appropriate funding. In this regard, the Compensation Committee is directly responsible for the appointment, fee arrangement and oversight of the work of any compensation consultant, independent legal counsel or other advisor retained.

The Compensation Committee directly employs its own independent compensation consultant, Compensation Strategies, Inc., and independent legal counsel, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP. These advisors do not provide any other services to the Company, except that Compensation Strategies, Inc. provides consulting services to the Governance Committee in the area of director compensation. Additional information on the Compensation Committee’s process and procedures for consideration of executive compensation is addressed in the Compensation Discussion and Analysis.

Finance Committee

The Finance Committee has responsibility for, among other things, reviewing the Company’s dividend policy, reviewing the adequacy of the Company’s insurance programs and reviewing with management the long-range financial policies of the Company. Along with other responsibilities, the Finance Committee provides advice and counsel to management on the financial aspects of significant acquisitions and divestitures, major capital commitments, proposed financings and other significant transactions. The committee also makes recommendations concerning significant changes in the capital structure of the Company, reviews tax planning strategies utilized by management, reviews the funding status and investment policies of the Company’s tax-qualified retirement plans, and reviews and (when authorized by the Board) approves the principal terms and conditions of securities that may be issued by the Company.

– 2013 Proxy Statement   10

Committee on Directors and Corporate Governance

The Governance Committee has responsibility for, among other things, recommending guidelines and criteria to be used to select candidates for Board membership; reviewing the size and composition of the Board to assure that proper skills and experience are represented; recommending the slate of nominees to be proposed for election at the annual meeting of stockholders; and recommending qualified candidates to fill Board vacancies. Along with other responsibilities, the Governance Committee evaluates the Board’s overall performance, develops and administers the Company’s related party transactions policy and advises the Board on matters of corporate governance, including the Corporate Governance Guidelines and composition of committees. The committee also advises the Board regarding director compensation and administering the 2005 Stock Plan with respect to directors’ equity awards.

Director Qualifications, Nomination and Diversity

To fulfill its responsibility to recruit and recommend to the full Board nominees for election as directors, the Governance Committee considers all qualified candidates who may be identified by any one of the following sources: current or former Board members, a professional search firm, Company executives or stockholders. Stockholders who wish to propose a director candidate for consideration by the Governance Committee may do so by submitting the candidate’s name, resume and biographical information and qualifications to the attention of the Secretary of the Company at One Post Street, 35^th Floor, San Francisco, California 94104. All proposals for recommendation or nomination received by the Secretary will be presented to the Governance Committee for its consideration. The Governance Committee and the Company’s CEO will interview those candidates who meet the criteria described below, and the Governance Committee will recommend to the Board nominees that best suit the Board’s needs. In order for a recommended director candidate to be considered by the Governance Committee for nomination for election at an upcoming annual meeting of stockholders, the recommendation must be received by the Secretary not less than 120 days prior to the anniversary date of the Company’s most recent annual meeting of stockholders.

In evaluating candidates for the Board, the Governance Committee reviews each candidate’s biographical information and credentials, and assesses each candidate’s independence, skills, experience and expertise based on a variety of factors. Members of the Board should have the highest professional and personal ethics, integrity and values consistent with the Company’s values. They should have broad experience at the policy-making level in business, technology, healthcare or public interest, or have achieved national prominence in a relevant field as a faculty member or senior government officer. The Governance Committee will consider whether the candidate has had a successful career that demonstrates the ability to make the kind of important and sensitive judgments that the Board is called upon to make, and whether the candidate’s skills are complementary to the existing Board members’ skills. Board members must take into account and balance the legitimate interests and concerns of all of the Company’s stockholders and other stakeholders, and each must be able to devote sufficient time and energy to the performance of his or her duties as a director, as well as have a commitment to diversity.

The Governance Committee has responsibility under its charter to review annually with the Board the size and composition of the Board with the objective of achieving the appropriate balance of knowledge, experience, skills, expertise and diversity required for the Board as a whole. Although the Board does not maintain a formal policy regarding diversity, the Governance Committee considers diversity to include diversity of backgrounds, cultures, education, experience, skills, thought, perspectives, personal qualities and attributes, and geographic profiles (i.e., where the individuals have lived and worked), as well as race, ethnicity, gender, national origin and other categories. A high level of diversity on our Board has been achieved in these areas, as evidenced by the information concerning our directors that is provided under “Nominees” above. Our Governance Committee and Board believe that a diverse representation on the Board fosters a robust, comprehensive, and balanced deliberative and decision-making process that is essential to the continued effective functioning of the Board and continued success of the Company.

Director Compensation

The Company believes that compensation for non-employee directors should be competitive and should encourage ownership of the Company’s stock. The compensation for each non-employee director of the Company includes an annual cash retainer, an annual restricted stock unit (“RSU”) award and per-meeting fees. With regard to committees other than standing committees, the Board determines on a case-by-case basis whether meeting fees are appropriate for non-employee directors. The Board currently has established a $1,500 per-meeting fee in each case in which it determines a meeting fee is appropriate. In addition to the compensation described above, the Presiding Director and chairs of the standing committees receive an annual retainer. Non-employee directors are paid their reasonable expenses for attending Board and committee meetings. Directors who are employees of the Company or its subsidiaries do not receive any compensation for service on the Board. The Governance Committee annually reviews the level and form of the Company’s director compensation and, if it deems appropriate, recommends to the Board changes in director compensation.

– 2013 Proxy Statement   11

Cash Compensation

Director annual retainers and meeting fees are paid in cash. Directors may elect in advance of a calendar year to defer up to 100% of their annual retainer (including any standing committee chair or Presiding Director retainer) and meeting fees into the Company’s Deferred Compensation Administration Plan III (“DCAP III”). The minimum deferral period for any amounts deferred is five years; however, notwithstanding the director’s deferral election, if a director ceases to be a director of the Company for any reason other than death, disability or retirement, the account balance will be paid in a lump sum in the first January or July which is at least six months following and in the year after his or her separation from service. In the event of death, disability or retirement, the account balance will be paid in accordance with the director’s deferral election. To be eligible for retirement, a director must have served on the Board for at least six consecutive years prior to his or her separation. The Compensation Committee approves the interest rates to be credited each year to amounts deferred into DCAP III, which currently are (i) 8.0% per annum for amounts deferred prior to January 1, 2010, and (ii) 120% of the long-term applicable federal rate as published each year in December by the U.S. Internal Revenue Service, for amounts deferred on or after January 1, 2010.

The following table summarizes the cash compensation provided to non-employee directors:

Non-Employee Director Cash Compensation
Annual cash retainer	$	75,000
Additional retainer for Presiding Director	$	10,000
Additional retainer for Chair of the Audit Committee	$	20,000
Additional retainer for Chair of the Compensation Committee	$	20,000
Additional retainer for Chair of all other standing committees	$	10,000
Meeting fee for each Audit Committee meeting attended	$	2,000
Meeting fee for each Board or other committee meeting attended	$	1,500

Equity Compensation

Each July, non-employee directors receive an automatic annual grant of RSUs with an approximate value as of the grant date equal to $150,000. The actual number of RSUs granted is determined by dividing $150,000 by the closing price of the Company’s common stock on the grant date (with any fractional unit rounded up to the nearest whole unit); provided, however, that the number of units granted in any annual grant will in no event exceed 5,000, in accordance with our 2005 Stock Plan.

The RSUs granted to non-employee directors are vested upon grant. If a director meets the director stock ownership guidelines (currently $300,000 in shares and share equivalents), then the director will, on the grant date, receive the shares underlying the RSUs, unless the director elects to defer receipt of the shares. The determination of whether a director meets the director stock ownership guidelines is made as of the last day of the deferral election period preceding the applicable RSU award. If a non-employee director has not met the stock ownership guidelines as of the last day of such deferral election period, then payment of the shares underlying the RSUs will automatically be deferred until the director’s separation from service.

Recipients of RSUs are entitled to dividend equivalents at the same dividend rate applicable to the Company’s common stockholders, which currently is $0.20 per share each quarter. For our directors, dividend equivalents on the RSUs are credited quarterly to an interest-bearing cash account and are not distributed until the shares underlying the RSUs are issued to the director. Interest accrues on directors’ credited dividend equivalents at the rate set by the Compensation Committee under the terms of our 2005 Stock Plan, which for calendar year 2013 is 8.0% per annum.

All Other Compensation and Benefits

Non-employee directors are eligible to participate in the McKesson Foundation’s Executive Request Program and Matching Gifts Program. Under these programs, our non-employee directors may request that the foundation make donations to qualifying public charitable organizations, and our non-employee directors’ own gifts to schools, educational associations or funds, and other public charitable organizations are eligible for a match by the foundation up to $5,000 per director for each fiscal year.

– 2013 Proxy Statement   12

2013 Director Compensation Table

The following table sets forth information concerning the compensation paid to or earned by each non-employee director for the fiscal year ended March 31, 2013. Mr. Hammergren, our Chairman of the Board, President and CEO, is not included in this table as he is an employee of the Company and thus receives no compensation for his service as a director. The compensation paid to or earned by Mr. Hammergren as an officer of the Company is shown in the 2013 Summary Compensation Table.

Name	Fees Earned or Paid in Cash ($)(1)	Stock Awards ($)(2)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(3)	All Other Compensation ($)	Total ($)
Andy D. Bryant	131,000	150,049	11,940	—	292,989
Wayne A. Budd	119,000	150,049	31,984	—	301,033
Alton F. Irby III	122,000	150,049	33,709	—	305,758
M. Christine Jacobs	105,000	150,049	5,099	—	260,148
Marie L. Knowles	137,500	150,049	20,300	—	307,849
David M. Lawrence, M.D.	114,500	150,049	11,030	—	275,579
Edward A. Mueller	102,000	150,049	10,318	—	262,367
Jane E. Shaw, Ph.D.	129,000	150,049	21,821	—	300,870
(1) Consists of the following, as applicable, whether paid or deferred: director annual retainer; standing committee meeting fees; other committee meeting fees; and the annual standing committee chair and Presiding Director retainers. (2) Represents the aggregate grant date fair value of RSUs, computed in accordance with Accounting Standards Codification issued by the Financial Accounting Standards Board, Topic 718, labeled “Compensation — Stock Compensation” (“ASC Topic 718”) disregarding any estimates of forfeitures related to service-based vesting conditions. Such values do not reflect whether the recipient has actually realized a financial benefit from the award. For information on the assumptions used to calculate the value of the awards, refer to Financial Note 5 of the Company’s consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as filed with the SEC on May 7, 2013. For awards that are not subject to performance conditions, such as those provided to directors, the maximum award level would not result in an award greater than what is disclosed in the table above. (3) Represents the amount of above-market interest earned under the Company’s Deferred Compensation Administration Plans and above-market interest credited on undistributed dividend equivalents. As defined by the SEC, above-market interest is any amount over 120% of the long-term applicable federal rate as published by the U.S. Internal Revenue Service. A discussion of the Company’s Deferred Compensation Administration Plans is provided below in the subsection entitled “Narrative Disclosure to the 2013 Nonqualified Deferred Compensation Table.”

Corporate Governance

The Board is committed to, and for many years has adhered to, sound and effective corporate governance practices. The Board is also committed to diligently exercising its oversight responsibilities with respect to the Company’s business and affairs consistent with the highest principles of business ethics, and to meeting the corporate governance requirements of both federal law and the NYSE. In addition to its routine monitoring of best practices, each year the Board and its committees review the Company’s current corporate governance practices, the corporate governance environment and current trends, and update their written charters and guidelines as necessary. The Board has adopted independence standards for its members, Corporate Governance Guidelines, as well as charters for the Audit, Compensation, Finance and Governance Committees, all of which can be found on the Company’s website at www.mckesson.com under the caption “Investors — Corporate Governance” and are described more fully below.

Stockholder Right to Call a Special Meeting

The Board values and is responsive to input from our stockholders and is committed to continuous monitoring of sound and effective governance practices. Recognizing the interest of a number of stockholders in being able to take action between annual meetings, and having considered the alternative processes for achieving that result, the Board, on January 30, 2013, adopted amendments to the Company’s Amended and Restated By-Laws which, if approved by the stockholders at the Annual Meeting, will permit stockholders who meet certain requirements to call a special meeting of stockholders. Specifically, record holders who have held a net long position of at least twenty-five (25%) of the outstanding shares of common stock of the Company for at least one year will be able to call a special meeting. For a more detailed description of the proposed By-Law amendments, please see Item 6 below titled “Approval of Amendments to our By-Laws to Provide for a Stockholder Right to Call Special Meetings.” The Board has recommended a vote “FOR” that proposal.

– 2013 Proxy Statement   13

Elimination of Supermajority Voting Requirements

In 2011, the Board recommended, and the stockholders approved, amendments to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and, in effect, the Company’s By-Laws to eliminate the Company’s stockholder supermajority voting requirements. Specifically, the Company replaced the supermajority voting requirement with a majority of shares outstanding standard for the following actions: (i) amendment of the By-Laws and (ii) amendment of the Certificate of Incorporation in any manner that would adversely affect holders of Series A Junior Participating Preferred Stock. In addition, the supermajority voting provisions and associated “fair price” provisions applicable to certain business combinations were eliminated from the Certificate of Incorporation altogether.

Majority Voting Standard for Election of Directors

The By-Laws provide for a majority voting standard for the election of directors. This standard states that in uncontested director elections, a director nominee will be elected only if the number of votes cast “for” the nominee exceeds the number of votes cast “against” that nominee. To address the “holdover” director situation in which, under Delaware law, a director remains on the Board until his or her successor is elected and qualified, the By-Laws require each director nominee to submit an irrevocable resignation in advance of the stockholder vote. The resignation would be contingent upon both the nominee not receiving the required vote for reelection and acceptance of the resignation by the Board pursuant to its policies.

If a director nominee receives more “against” votes for his or her election, the Board’s Governance Committee, composed entirely of independent directors, will evaluate and make a recommendation to the Board with respect to the tendered resignation. In its review, the Governance Committee will consider, by way of example, the following factors: the impact of the acceptance of the resignation on stock exchange listing or other regulatory requirements; the financial impact of the acceptance of the resignation; the unique qualifications of the director whose resignation has been tendered; the reasons the Governance Committee believes that stockholders cast votes against the election of such director (such as a “vote no” campaign conducted on an illegitimate or wrongful basis); and any alternatives for addressing the “against” votes.

The Board must take action on the Governance Committee’s recommendation within 90 days following certification of the stockholders’ vote. Absent a determination by the Board that it is in the best interests of the Company for an unsuccessful incumbent to remain on the Board, the Board shall accept the resignation. The majority vote standard states that the Board expects an unsuccessful incumbent to exercise voluntary recusal from deliberations of the Governance Committee or the Board with respect to the tendered resignation. In addition, the standard requires the Company to file a current report on Form 8-K with the SEC within four business days after the Board’s acceptance or rejection of the resignation, which must include an explanation of the reasons for any rejection of the tendered resignation. Finally, the standard also provides procedures to address the situation in which a majority of the members of the Governance Committee are unsuccessful incumbents or all directors are unsuccessful incumbents.

If the Board accepts the resignation of an unsuccessful incumbent director, or if in an uncontested election a nominee for director who is not an incumbent director does not receive a majority vote, the Board may fill the resulting vacancy or decrease the size of the Board. In contested elections, the plurality voting standard will apply. A contested election is an election in which a stockholder has duly nominated a person to the Board and has not withdrawn that nomination at least five days prior to the first mailing of the notice of the meeting of stockholders.

Code of Business Conduct and Ethics

The Company is committed to the highest standards of ethical and professional conduct and has adopted a Code of Business Conduct and Ethics that applies to all employees, officers and directors. The Code describes fundamental principles, policies and procedures that shape our work and is designed to help our employees, officers and directors make ethical decisions. The Code is available on the Company’s website at www.mckesson.com under the caption “Investors — Corporate Governance.” The Company intends to post on its website any amendment to, or waiver from, the Code that applies to our CEO, Chief Financial Officer, Controller and persons performing similar functions within four business days after any such amendment or waiver.

Related Party Transactions Policy

The Company has a written Related Party Transactions Policy requiring approval or ratification of certain transactions involving executive officers, directors and nominees for director, beneficial owners of more than five percent of the Company’s common stock, and immediate family members of any such persons where the amount involved exceeds $100,000. Under the policy, the Company’s General Counsel initially determines if a transaction or relationship constitutes a transaction that requires compliance with the policy or disclosure. If so, the matter will be referred to the CEO for consideration with the General Counsel as to approval or ratification in the case of other executive officers and/or their immediate family members, or to the Governance Committee in the case of transactions involving directors, nominees for director, the General Counsel, the CEO or holders of more than five percent of the Company’s common stock and/or their immediate family members. Annually directors, nominees and executive officers are asked to identify any transactions that might fall under the policy as well as identify immediate family members. Additionally, they are required to notify the General Counsel promptly of any proposed related party transaction. The policy is administered by the Governance Committee. The transaction may be ratified or approved if it is fair and reasonable to the Company and consistent with its best interests. Factors that may be taken into account in making that determination include:

– 2013 Proxy Statement   14

(i) the business purpose of the transaction; (ii) whether it is entered into on an arms-length basis; (iii) whether it would impair the independence of a director; and (iv) whether it would violate the provisions of the Company’s Code of Business Conduct and Ethics.

The Company and its subsidiaries may, in the ordinary course of business, have transactions involving more than $100,000 with unaffiliated companies of which certain of the Company’s directors are directors and/or executive officers. Therefore, under the policy, the Governance Committee reviews such transactions. However, the Company does not consider the amounts involved in such transactions to be material in relation to its businesses, the businesses of such other companies or the interests of the directors involved. In addition, the Company believes that such transactions are on the same terms generally offered by such other companies to other entities in comparable transactions.

Corporate Governance Guidelines

The Board has long adhered to directorship practices designed to ensure effective corporate governance. The Board most recently approved revised Corporate Governance Guidelines on January 30, 2013 to provide for a Lead Independent Director, as described in more detail below under the heading “Board Leadership Structure.” On May 22, 2013, the independent directors of the Board elected Mr. Mueller to serve a two-year term as the Board’s first Lead Independent Director, effective July 31, 2013, subject to his continuing re-election and status as an independent director.

Consistent with NYSE listing requirements, the McKesson Corporation Corporate Governance Guidelines address various governance matters, including, among others: director qualification standards and the director nomination process; stockholder communications with directors; director responsibilities; selection and role of the Lead Independent Director, which will replace the Presiding Director effective July 31, 2013, following the Annual Meeting; director access to management and, as necessary and appropriate, independent advisors; director compensation; director stock ownership guidelines; director orientation and continuing education; management succession; and an annual performance evaluation of the Board. The Governance Committee is responsible for overseeing the guidelines and annually assesses the need for any amendments to the guidelines to reflect corporate governance best practices, as necessary or appropriate. Our Corporate Governance Guidelines can be found on the Company’s website at www.mckesson.com under the caption “Investors — Corporate Governance.”

Director Stock Ownership Guidelines

Our Board believes that directors should hold a meaningful equity stake in McKesson. To that end, by the terms of our Director Stock Ownership Guidelines, directors are expected to own shares or share equivalents of the Company’s common stock with a value not less than four times the annual board retainer within three years of joining our Board. We believe these terms serve the important purpose of aligning our directors’ economic interests with those of the stockholders. As of June 3, 2013, all of our directors were in compliance with the Director Stock Ownership Guidelines.

Director Independence

Under the Company’s Corporate Governance Guidelines, the Board must have a substantial majority of directors who meet the applicable criteria for independence required by the NYSE. The Board must determine, based on all relevant facts and circumstances, whether in its business judgment, each director satisfies the criteria for independence, including the absence of a material relationship with the Company, either directly or indirectly. Consistent with the continued listing requirements of the NYSE, the Board has established standards to assist it in making a determination of director independence. A director will not be considered independent if:

•

The director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer, of the Company.

•

The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).

•

(A) The director is a current partner or employee of a firm that is the Company’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Company’s audit; or (D) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the Company’s audit within that time.

•

The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee.

•

The director is an executive officer or an employee, or whose immediate family member is an executive officer, of another company (A) which in any of the last three years accounted for at least 2.0% of the Company’s consolidated gross revenues, or (B) for which in any such year the Company accounted for at least 2.0% or $1,000,000, whichever is greater, of such other company’s consolidated gross revenues.

– 2013 Proxy Statement   15

•

The director is, or has been within the last three years, an executive officer of another company that is indebted to the Company, or to which the Company is indebted, and the total amount of either company’s indebtedness to the other is more than 2.0% of the respective company’s total assets measured as of the last completed fiscal year.

•

The director serves, or served within the last three years, as an executive officer, director or trustee of a charitable organization, and the Company’s discretionary charitable contributions in any single fiscal year exceeded the greater of $1,000,000 or 2.0% of that organization’s total annual charitable receipts. (The Company’s matching of employee charitable contributions will not be included in the amount of the Company’s contributions for this purpose.)

•

For relationships not covered by the guidelines above, or for relationships that are covered, but as to which the Board believes a director may nonetheless be independent, the determination of independence shall be made by the directors who satisfy the NYSE independence rules and the guidelines set forth above. However, any determination of independence for a director who does not meet these standards must be specifically explained in the Company’s proxy statement.

These standards can also be found on the Company’s website at www.mckesson.com under the caption “Investors — Corporate Governance.” Provided that no relationship or transaction exists that would disqualify a director under these standards, and no other relationship or transaction exists of a type not specifically mentioned in these standards that, in the Board’s opinion, taking into account all relevant facts and circumstances, would impair a director’s ability to exercise his or her independent judgment, the Board will deem such person to be independent. Applying these standards, and all applicable laws, rules or regulations, the Board has determined that, with the exception of John H. Hammergren, all of the current directors, namely Andy D. Bryant, Wayne A. Budd, Alton F. Irby III, M. Christine Jacobs, Marie L. Knowles, David M. Lawrence, Edward A. Mueller and Jane E. Shaw, are independent.

Succession Planning

In accordance with our Corporate Governance Guidelines, the Board is responsible for approving and maintaining a succession plan for the CEO and other executive officers. To assist the Board with this requirement, the Company’s Executive Vice President, Human Resources annually leads the Board of Directors in a discussion of CEO and senior management succession. This meeting is held in an executive session of the full Board, with the Executive Vice President, Human Resources present. The annual review includes an evaluation of the requirements for the CEO and each senior management position, and an examination of potential permanent and interim candidates for CEO and senior management positions. In order to minimize disruption in operations of the Company in the event of a temporary or permanent absence of the CEO, including in emergency situations, the Board adopted a CEO Absence Event Management Process. This process establishes clear procedures for planning for and responding to a CEO absence event, while maintaining the Board’s ability to exercise its judgment and discretion in such event, including with regard to the selection of an interim or permanent replacement CEO.

Executive Sessions of the Board

The independent directors of the Board meet in executive session without members of management present on a regularly scheduled basis. The members of the Board have designated a “Presiding Director” to preside at such executive sessions. The Presiding Director position has rotated annually each July among independent directors. Currently, the Presiding Director establishes the agenda for each executive session and also determines which, if any, other individuals, including members of management and independent advisors, should attend each such meeting. The Presiding Director also, in collaboration with the Chairman and the Secretary, reviews the agenda in advance of the Board of Directors’ meetings. Mr. Bryant is the current Presiding Director, and he will serve in that role until after the Annual Meeting on July 31, 2013.

As discussed under the heading “Corporate Governance Guidelines” above and “Board Leadership Structure” below, the Board recently adopted revised guidelines to provide for a Lead Independent Director, effective July 31, 2013, following the Annual Meeting. The Lead Independent Director will serve a two-year term, subject to his or her continuing re-election and status as an independent director. The Lead Independent Director’s duties and powers, which include presiding at executive sessions, are described in more detail below. On May 22, 2013, the independent directors of the Board elected Mr. Mueller to serve as the Board’s first Lead Independent Director, and he will begin serving in that capacity on July 31, 2013, following the Annual Meeting.

Board Leadership Structure

The Board periodically reviews the appropriateness and effectiveness of its leadership structure, and on January 30, 2013, the Board approved amendments to the Company’s Corporate Governance Guidelines to provide for a Lead Independent Director whenever the Chairman of the Board is not an independent director. On May 22, 2013, the independent directors of the Board elected Mr. Mueller to serve as the Board’s first Lead Independent Director, and he will serve a two-year term beginning after the Annual Meeting, subject to his continuing re-election and status as an independent director. The Lead Independent Director’s duties and powers include, but are not limited to, the following: preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors; serve as liaison between the Chairman and the independent directors; approve information sent to the Board; approve meeting agendas for the Board; approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; call meetings of the independent directors, as appropriate; and if requested by major stockholders, ensure that he or she is available for consultations and direct communication.

– 2013 Proxy Statement   16

Mr. Hammergren serves as our Chairman of the Board and CEO. The Company does not have a policy regarding whether the Chairman and CEO roles should be combined or separated. Rather, the Company’s Corporate Governance Guidelines retain flexibility for the Board to choose its Chairman in any way that it deems best for the Company at any given time. Although the Company has in the past separated the roles of Chairman and CEO, the Board believes that having Mr. Hammergren serve as both Chairman and CEO, coupled with strong independent director leadership, which is being enhanced by the institution of a Lead Independent Director, is the most appropriate and effective Board leadership structure for the Company at this time.

A number of factors support the current leadership structure. Mr. Hammergren has over 30 years of experience in the healthcare industry, and has served as the Chairman and CEO of the Company for more than ten years. The Board believes that Mr. Hammergren’s in-depth knowledge of the healthcare industry and of the complex businesses and operations of the Company best equips him to lead Board meetings as the directors discuss key business and strategic matters and best equips him to focus the Board on the most critical issues. The current combined Chairman and CEO structure has promoted decisive leadership, ensured clear accountability and enhanced our ability to communicate with a single and consistent voice to stockholders, customers, employees and other stakeholders. During the time Mr. Hammergren has served as both Chairman and CEO, the Company has achieved outstanding financial results as displayed in the Compensation Discussion and Analysis below.

In addition, the Board believes that other aspects of the current leadership structure, and the enhancement of that structure by instituting a Lead Independent Director after the Annual Meeting, together with the principles and practices described in the Corporate Governance Guidelines, ensure effective independent Board leadership and oversight of management. As a matter of practice, the Chairman regularly elicits input from all of the independent directors as to the matters they would like covered at the meetings and the information they would find most helpful in their deliberations and decision-making. Strong independent director leadership is also enhanced by the fact that all of the Board’s standing committees are composed solely of, and chaired by, independent directors.

The Board’s role in risk oversight is discussed in greater detail below; however, with respect to the Board’s leadership structure, the Board believes that the current structure is consistent with, and indeed enhances the effectiveness of, its risk oversight role. In short, Mr. Hammergren’s extensive management experience and in-depth knowledge of the healthcare industry and of the complex businesses and operations of the Company, as discussed above, also assist the Board in understanding the risks facing the Company and, therefore, in more effectively performing its risk oversight function.

In sum, the Company’s existing Board leadership structure strikes an effective balance between strong, strategically advantageous Chairman and CEO leadership, and appropriate oversight of management provided by strong independent directors. The combined Chairman and CEO structure has served the Company and its stockholders well, and remains the most appropriate leadership structure for the Company at this time.

Board of Directors’ Role in Risk Oversight

The Company’s management is responsible for the day-to-day management of the risks facing the Company, including macroeconomic, financial, strategic, operational, public reporting, legal, regulatory, political, compliance, and reputational risks. Management carries out this risk management responsibility through a coordinated effort among the various risk management functions within the Company.

Under our By-Laws and Corporate Governance Guidelines, the Board has responsibility for overseeing the business and affairs of the Company. This general oversight responsibility includes oversight of risk management, which the Board carries out as a whole or through its committees. Among other things, the Board as a whole periodically reviews the Company’s enterprise risk management processes for identifying, ranking and assessing risks across the organization, as well as the output of that process. The Board as a whole also receives periodic reports from the Company’s management on various risks, including risks facing the Company’s businesses. Although the Board has ultimate responsibility for overseeing risk management, it has delegated to its committees certain oversight responsibilities. For example, in accordance with its charter, the Audit Committee engages in ongoing discussions regarding major financial risk exposures and the process and system employed to monitor and control such exposures. In addition, consistent with its charter, the Audit Committee engages in periodic discussions with management concerning the process by which risk assessment and management are undertaken. In carrying out these responsibilities, the Audit Committee, among other things, regularly reviews with the head of Internal Audit the audits or assessments of significant risks conducted by Internal Audit personnel based on their audit plan; and the committee regularly meets in executive sessions with the head of Internal Audit. The Audit Committee also regularly reviews with the Controller the Company’s internal control over financial reporting, including any significant deficiencies. As part of the reviews involving Internal Audit and the Controller, the Audit Committee reviews steps taken by management to monitor, control and mitigate risks. The Audit Committee also regularly reviews with the General Counsel and Chief Compliance Officer significant legal, regulatory, and compliance matters that could have a material impact on the Company’s financial statements or business. Finally, from time to time, executives who are responsible for managing a particular risk report to the Audit Committee on how the risk is being controlled and mitigated.

The Board has also delegated to other committees the responsibility to oversee risk within their areas of responsibility and expertise. For example, the Finance Committee exercises oversight with regard to the risk assessment and management processes related to, among other things, credit, capital structure, liquidity, insurance programs and the Company’s retirement and 401(k) plans. As noted in the section below entitled “Risk Assessment of Compensation Policies and Practices,” the Compensation Committee oversees risk assessment and management with respect to the Company’s compensation policies and practices.

In those cases in which committees have risk oversight responsibilities, the Chairs of the committees regularly report to the full Board the significant risks facing the Company, as identified by management, and the measures undertaken by management for controlling and mitigating those risks.

– 2013 Proxy Statement   17

Risk Assessment of Compensation Policies and Practices

We annually conduct a review of all incentive compensation plans utilized throughout the Company, using a framework for risk assessment provided to us by a nationally-recognized outside compensation advisor. In conducting our review, a detailed assessment of each incentive compensation plan, without regard to materiality, is first prepared by representatives from the Company’s business units and then reviewed by senior executives of our Human Resources Department. The review framework requires representatives of our business units to examine and report on the presence of certain design elements under both cash and equity incentive compensation plans that could encourage our employees to incur excessive risk, such as the selection and documentation of incentive metrics, the ratio of incentive to fixed compensation, the year-over-year variability in payouts, the amount of management discretion, and the percentage of compensation expense as compared to the business units’ revenues. Consistent with our findings in past years, management concluded that for FY 2013 our policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. A summary of management’s findings was reviewed with the Compensation Committee at its May 2013 meeting.

The Compensation Committee discussed management’s findings, and considered that the Company utilizes many design features that mitigate the likelihood of encouraging excessive risk-taking behavior. Among these design features are:

•

Multiple metrics across the entire enterprise that balance top-line, bottom-line and cash management objectives;

•

Linear payout curves, performance thresholds and caps;

•

Reasonable goals and objectives, well-defined and communicated;

•

Strong compensation recoupment (clawback) policy pertaining to all incentives;

•

Modification of payouts based upon individual performance, including assessments against our “ICARE” principles (integrity, customer first, accountability, respect and excellence); and

•

Training on our Code of Business Conduct and Ethics and other policies that educate our employees on appropriate behaviors and the consequences of taking inappropriate actions.

In addition, our incentives for senior management feature the following:

•

Balance of short- and long-term variable compensation tied to a mix of financial and operational objectives and the long-term value of our stock;

•

The Compensation Committee’s ability to exercise downward discretion in determining payouts; and

•

Rigorous stock ownership and retention guidelines.

Based on the foregoing, the Compensation Committee concurred with management that our compensation policies and practices do not create inappropriate or unintended significant risk to the Company as a whole. We believe that our incentive compensation plans do not provide incentives that encourage risk-taking beyond the organization’s ability to effectively identify and manage significant risks, are compatible with effective internal controls and the risk management practices of the Company, and are supported by the oversight and administration of the Compensation Committee with regard to our executive compensation program.

Communications with Directors

Stockholders and other interested parties may communicate with the Presiding Director, the non-management directors, or any of the directors by addressing their correspondence to the Board member or members, c/o the Corporate Secretary’s Department, McKesson Corporation, One Post Street, 35^th Floor, San Francisco, California 94104, or via e-mail to presidingdirector@mckesson.com or to nonmanagementdirectors@mckesson.com. After the Annual Meeting, the Lead Independent Director, who will replace the Presiding Director, can be contacted at the street address listed above or via email at leaddirector@mckesson.‌com. The Board has instructed the Secretary, prior to forwarding any correspondence, to review such correspondence and, in his discretion, not to forward certain items if they are irrelevant to or inconsistent with the Company’s operations, policies and philosophies, are deemed of a commercial or frivolous nature, or are otherwise deemed inappropriate for the Board’s consideration. The Corporate Secretary’s Department maintains a log of correspondence received by the Company that is addressed to members of the Board, other than advertisements, solicitations or correspondence deemed by the Secretary to be junk mail, of a frivolous nature, or otherwise not appropriate to retain. Members of the Board may review the log at any time, and request copies of any correspondence received.

Indemnity Agreements

The Company has entered into separate indemnity agreements with its directors and executive officers that provide for defense and indemnification against any judgment or costs assessed against them in the course of their service. Such agreements do not, however, permit indemnification for acts or omissions for which indemnification is not permitted under Delaware law.

– 2013 Proxy Statement   18

ITEM 2.    Ratification of Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for Fiscal Year 2014

Your Board recommends a vote “FOR” this ratification proposal.

The Audit Committee of the Company’s Board of Directors has approved Deloitte & Touche LLP (“D&T”) as the Company’s independent registered public accounting firm to audit the consolidated financial statements of the Company and its subsidiaries for the fiscal year ending March 31, 2014. D&T is knowledgeable about the Company’s operations and accounting practices, and is well qualified to act as the Company’s independent registered public accounting firm.

We are asking our stockholders to ratify the selection of D&T as the Company’s independent registered public accounting firm. Although ratification is not required by our By-Laws or otherwise, the Board is submitting the selection of D&T to our stockholders for ratification as a matter of good corporate practice. If stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain D&T. Even if the selection is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders. Representatives of D&T are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement if they desire to do so. For the fiscal years ended March 31, 2013 and 2012, professional services were performed by D&T, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”), which includes Deloitte Consulting. Fees paid for those years were as follows:

	FY 2013		FY 2012
Audit Fees	$	8,464,733	$	7,428,916
Audit-Related Fees		3,036,767		1,601,519
TOTAL AUDIT AND AUDIT-RELATED FEES		11,501,500		9,030,435
Tax Fees		30,000		1,631,783
All Other Fees		—		—
TOTAL	$	11,531,500	$	10,662,218

Audit Fees. This category consists of fees billed for professional services rendered for the audit of the Company’s consolidated annual financial statements, the audit of the Company’s internal control over financial reporting as required by the Sarbanes-Oxley Act of 2002, review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by D&T in connection with statutory and regulatory filings or engagements. This category also includes advice on accounting matters that arose during, or as a result of, the audit or the review of interim financial statements, foreign statutory audits required by non-U.S. jurisdictions, registration statements and comfort letters.

Audit-Related Fees. This category consists of fees billed for professional services rendered in connection with the performance of an audit or reviews of the Company’s consolidated financial statements and is not reported under “Audit Fees.” This includes fees for employee benefit plan audits, accounting consultations, due diligence in connection with mergers and acquisitions, attest services related to financial reporting that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

Tax Fees. This category consists of fees billed for professional services rendered for U.S. and international tax compliance, including services related to the preparation of tax returns. For the fiscal years ended March 31, 2013 and 2012, no amounts were incurred by the Company for tax advice, planning or consulting services.

All Other Fees. This category consists of fees for products and services other than the services reported above. The Company paid no fees in this category for the fiscal years ended March 31, 2013 and 2012.

– 2013 Proxy Statement   19

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

Pursuant to the Applicable Rules, and as set forth in the terms of its charter, the Audit Committee has sole responsibility for appointing, setting compensation for, and overseeing the work of the independent registered public accounting firm. The Audit Committee has established a policy that requires it to pre-approve all audit and permissible non-audit services, including audit-related and tax services, to be provided by Deloitte & Touche. Between meetings, the Chair of the Audit Committee is authorized to pre-approve services, which are reported to the committee at its next meeting. All of the services described in the fee table above were approved in conformity with the Audit Committee’s pre-approval process.

Audit Committee Report

The Audit Committee of the Company’s Board of Directors assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the Company’s financial reporting processes. The functions of the Audit Committee are described in greater detail in the Audit Committee’s written charter adopted by the Company’s Board of Directors, which may be found on the Company’s website at www.mckesson.com under the caption “Investors — Corporate Governance.” The Audit Committee is composed exclusively of directors who are independent under the applicable SEC and NYSE rules and the Company’s independence standards. The Audit Committee’s members are not professionally engaged in the practice of accounting or auditing, and they necessarily rely on the work and assurances of the Company’s management and the independent registered public accounting firm. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control over financial reporting. The independent registered public accounting firm of Deloitte & Touche LLP (“D&T”) is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and expressing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles, the effectiveness of the Company’s internal control over financial reporting and management’s assessment of the internal control over financial reporting.

The Audit Committee has: (i) reviewed and discussed with management the Company’s audited financial statements for the fiscal year ended March 31, 2013; (ii) discussed with D&T the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; (iii) received the written disclosures and the letter from D&T required by applicable requirements of the Public Company Accounting Oversight Board regarding D&T’s communications with the Audit Committee concerning independence; and (iv) discussed with D&T its independence from the Company. The Audit Committee further considered whether the provision of non-audit related services by D&T to the Company is compatible with maintaining the independence of that firm from the Company. The Audit Committee has also discussed with management of the Company and D&T such other matters and received such assurances from them as it deemed appropriate.

The Audit Committee discussed with the Company’s internal auditors and D&T the overall scope and plans for their respective audits. The Audit Committee meets regularly with the internal auditors and D&T, with and without management present, to discuss the results of their examinations, the evaluation of the Company’s internal control over financial reporting and the overall quality of the Company’s accounting.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements for the fiscal year ended March 31, 2013 be included in the Company’s Annual Report on Form 10-K for filing with the SEC.

Audit Committee of the Board of Directors

Marie L. Knowles, Chair

Andy D. Bryant

Wayne A. Budd

Jane E. Shaw, Ph.D.

– 2013 Proxy Statement   20

PRINCIPAL STOCKHOLDERS

Security Ownership of Certain Beneficial Owners

The following table sets forth information regarding ownership of the Company’s outstanding common stock by any entity or person, to the extent known by us or ascertainable from public filings, that is the beneficial owner of more than five percent of the outstanding shares of common stock:

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percent of Class*
T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, Maryland 21202	20,165,396	(1)	8.8	%
BlackRock, Inc. 40 East 52nd Street New York, New York 10022	15,117,292	(2)	6.6	%
Wellington Management Company, LLP 280 Congress Street Boston, Massachusetts 02210	14,234,154	(3)	6.2	%
* Based on 228,486,941 shares of common stock outstanding as of June 3, 2013. (1) This information is based upon a Schedule 13G/A filed with the SEC on February 6, 2013 by T. Rowe Price Associates, Inc. (“Price Associates”), which reports sole voting power with respect to 6,396,981shares, sole dispositive power with respect to 20,165,396 shares, and an aggregate beneficial ownership of 20,165,396 shares. These securities are owned by various individual and institutional investors, for which Price Associates serves as investment advisor with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. (2) This information is based upon a Schedule 13G/A filed with the SEC on February 5, 2013 by BlackRock, Inc., which reports sole voting and dispositive power with respect to 15,117,292 shares as a result of being a parent company or control person of the following subsidiaries, each of which holds less than 5% of the outstanding shares: BlackRock Advisors, LLC, BlackRock Capital Management, Inc., BlackRock Financial Management, Inc., BlackRock Investment Management, LLC, BlackRock Investment Management (Australia) Limited, BlackRock (Luxembourg) S.A., BlackRock (Netherlands) B.V., BlackRock Fund Managers Limited, BlackRock Life Limited, BlackRock Asset Management Australia Limited, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock (Singapore) Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock International Limited, BlackRock Institutional Trust Company, N.A., BlackRock Japan Co. Ltd., and BlackRock Investment Management (UK) Limited. (3) This information is based upon a Schedule 13G/A filed with the SEC on February 14, 2013 by Wellington Management Company, LLP, which reports shared voting power with respect to 3,083,229 shares and shared dispositive power with respect to 14,234,154 shares.

– 2013 Proxy Statement   21

Security Ownership of Directors and Executive Officers

The following table sets forth, as of June 3, 2013, except as otherwise noted, information regarding ownership of the Company’s outstanding common stock by: (i) all directors, each of whom is also a director nominee; (ii) each executive officer named in the 2013 Summary Compensation Table below (collectively, the “NEOs”); and (iii) all directors, NEOs and executive officers as a group. The table also includes shares of common stock that underlie outstanding RSUs and options to purchase common stock of the Company that either vest or become exercisable within 60 days of June 3, 2013:

Name of Individual	Shares of Common Stock Beneficially Owned(1)		Percent of Class
Patrick J. Blake	146,769	((2)(3)(5)		*
Andy D. Bryant	12,844	(2)		*
Wayne A. Budd	21,660	(2)(4)		*
Jeffrey C. Campbell	711,271	(3)(4)(5)		*
John H. Hammergren	2,131,844	(3)(4)(5)		*
Alton F. Irby III	69,260	(2)(3)(4)		*
M. Christine Jacobs	25,078	(2)		*
Paul C. Julian	629,904	(3)(5)		*
Marie L. Knowles	9,342	(2)		*
David M. Lawrence, M.D.	29,414	(2)(3)		*
Edward A. Mueller	12,363	(2)		*
Laureen E. Seeger	1,358	(5)		*
Jane E. Shaw, Ph.D.	63,685	(2)(4)		*
All directors, NEOs and executive officers as a group (16 persons)	4,250,324	(2)(3)(4)(5)	1.9	%
* Less than 1.0%. The number of shares beneficially owned and the percentage of shares beneficially owned are based on 228,486,941 shares of the Company’s common stock outstanding as of June 3, 2013, adjusted as required by the rules promulgated by the SEC. Shares of common stock that may be acquired by exercise of stock options or vesting of RSUs within 60 days of June 3, 2013 and vested RSUs that are not yet settled are deemed outstanding and beneficially owned by the person holding such stock options or RSUs for purposes of computing the number of shares and percentage beneficially owned, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. (1) Except as otherwise indicated in the footnotes to this table, the persons named have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable. (2) Includes vested RSUs or common stock units accrued under the 2005 Stock Plan, Directors’ Deferred Compensation Administration Plan and the 1997 Non-Employee Directors’ Equity Compensation and Deferral Plan (which plan has been replaced by the 2005 Stock Plan) as follows: Mr. Blake, 10,504 units, Mr. Bryant, 12,844 units; Mr. Budd, 21,560 units; Mr. Irby, 21,412 units; Ms. Jacobs, 22,459 units; Ms. Knowles, 9,342 units; Dr. Lawrence, 21,914 units; Mr. Mueller, 12,363 units; Dr. Shaw, 43,468 units; and all directors, NEOs and executive officers as a group, 175,866 units. Directors, NEOs and executive officers have neither voting nor investment power with respect to such units. (3) Includes shares that may be acquired by exercise of stock options or vesting of RSUs within 60 days of June 3, 2013 as follows: Mr. Blake, 134,250 shares; Mr. Campbell, 642,750 shares; Mr. Hammergren, 1,537,500 shares; Mr. Irby, 7,500 shares; Mr. Julian, 629,500 shares; Dr. Lawrence 7,500 shares; and all directors, NEOs and executive officers as a group, 3,296,750 shares. (4) Includes shares held by immediate family members who share a household with the named person, by family trusts as to which the named person and his or her spouse have shared voting and investment power, or by an independent trust for which the named person disclaims beneficial ownership as follows: Mr. Budd, 100 shares; Mr. Campbell, 67,532 shares; Mr. Hammergren, 590,527 shares; Mr. Irby, 1,550 shares; Dr. Shaw, 11,437 shares; and all directors, NEOs and executive officers as a group, 670,876 shares. (5) Includes shares held under the Company’s PSIP as of June 3, 2013 as follows: Mr. Blake, 304 shares; Mr. Campbell, 989 shares; Mr. Hammergren, 4,087 shares; Mr. Julian, 347 shares; Ms. Seeger, 1,358 shares; and all NEOs and executive officers as a group, 10,289 shares.

– 2013 Proxy Statement   22

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

We manage the Company for sustainable performance. In FY 2013, McKesson once again outperformed the market and our compensation peer group and delivered superior returns to investors. As discussed more fully below, each of our incentive plans is driven by financial metrics that we believe underpin investor return.

We held our second advisory vote on executive compensation in 2012. Nearly 63% of our investors voted in support of our advisory say on pay proposal, which was a decrease from the level of support we obtained in 2011. In response to those results and at the direction of the Compensation Committee, we engaged with investors throughout 2012 and 2013. We actively solicited feedback from our largest institutional investors, labor union funds, pension funds and proxy advisory services to understand their concerns and better address their expectations. We heard the message delivered by our investors and took steps to respond to their feedback. We used these insights to implement a number of important changes to our compensation practices that have decreased the direct compensation of our CEO, CFO and three other most highly compensated executive officers serving as of March 31, 2013 (collectively, our “NEOs”).

The feedback we received from our investors can be summarized in the following points:

•

Moderate total levels of executive compensation;

•

More closely align pay with performance;

•

Better explain the prevalence and rationale for selecting certain metrics, particularly earnings; and

•

Describe the role of stockholder return in the incentive plans.

Over the past several years, our Board, the Compensation Committee and the executive team made substantial changes to our executive compensation program. These changes reflect our continuing commitment to improving McKesson’s pay for performance alignment, while embracing contemporary compensation and governance best practices and investor feedback.

Moderating Total Pay Levels

Despite our stock currently trading at near all-time highs and a 64% appreciation in share price from the end of FY 2010 to the end of FY 2013, during the same period we decreased total direct compensation for our NEOs by an average of 18%. Total direct compensation refers to total compensation disclosed in the 2013 Summary Compensation Table as required by the SEC, minus the amount displayed under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column. To moderate total pay levels, we:

•

Reduced the maximum payout opportunity under our performance restricted stock unit (“PeRSU”) program by 9% from last year;

•

Reduced the maximum payout opportunity for our executive officers under our cash long-term incentive plan (“LTIP”) by 33%, effective for the FY 2012 – FY 2014 performance period;

•

Reduced the target payout opportunity under our LTIP for FY 2013 – FY 2015 by 5% from last year;

•

Reduced the grant date value of option awards by an average of 5% from last year;

•

Reduced PeRSU target grant amounts by an average of 4% from last year; and

•

Maintained NEO base salaries at the same levels since May 2011.

Aligning Pay with Performance

•

We listened to investor feedback and established increasingly ambitious targets. To ensure we take a sustainable approach to delivering returns to our investors, our goals motivate our executives to exceed them in a way that balances short- and long-term stockholder value creation.

•

We took care to ensure that performance targets are thoughtfully set to reflect true Company performance. For example, earnings targets established at the beginning of a fiscal year reflect anticipated annual share buybacks. This prevents the use of short-term tactics to increase incentive payouts in any particular year. For that same reason, earnings calculations apply both positive and negative adjustments for items that are reasonably out of the executive team’s control. We believe our rigorous planning process results in an analytically sound program.

•

A significant portion of compensation for our NEOs is equity-based, which closely aligns their financial interests with those of our investors. We grant stock options and performance-based RSUs, which together comprise over 67% of target direct compensation for our NEOs.

– 2013 Proxy Statement   23

Expanding Our Choice of Financial Metrics

•

Some investors raised questions about our prior practice of using earnings as the key driver of payouts in both our short- and long-term plans. In response to this feedback, we added several new financial metrics to our incentive plans that correlate to operational success, which in turn we believe fuels greater stockholder return.

•

The additional financial metrics we selected were based on our analysis of historical trends, the incentive plan design features and performance of comparable U.S. companies, analyst expectations and investor feedback.

Delivering Strong Stockholder Return

As discussed above, we added several new financial metrics to both our short- and long-term incentive plans. The metrics we chose were consistent with investor feedback and are key to our ongoing delivery of strong stockholder return.

•

We believe key drivers to sustainable stockholder return include: earnings per diluted share; earnings before interest income, interest expense, taxes, depreciation and amortization (“EBITDA”); return on invested capital (“ROIC”); and operating cash flow.

•

These financial metrics are spread appropriately between our short- and long-term incentive plans to drive sustainable performance for investors.

Responding to Questions from Investors

We also received questions from investors that centered on the following:

•

How relative performance factors into our pay plans;

•

What factors drive changes in pension values, even when no additional contributions are made; and

•

What governance provisions are included in our plans and whether our plans permit golden parachutes, excise tax gross-ups or hedging and pledging of shares.

As described below, we responded to these questions, made changes where appropriate and provided additional disclosures consistent with the feedback we received. Our Board’s response reflects its ongoing commitment to embracing contemporary pay and governance best practices.

Addressing Relative Metrics and our Compensation Peer Group

•

We have two primary direct competitors in pharmaceutical distribution, which is by far our largest business. The Compensation Committee considers this to be too small a comparator group for purposes of designing a meaningful relative peer group.

•

McKesson’s businesses as a whole offer a broader spectrum of health care services than that offered by our two direct competitors. For that reason, we compete for executive talent across a broader spectrum of companies. The Compensation Committee considers this to be critical when designing appropriate awards for management, including our executive officers. A detailed discussion of our “Compensation Peer Group” is provided below at “Selection and Use of Compensation Peer Group.”

•

Because of the small number of primary pharmaceutical distribution competitors, the average tenure and experience of their NEOs versus our own and the scope and complexity of our overall business, our Compensation Committee does not limit its peer comparisons to two pharmaceutical distribution companies or use a formulaic approach to assess peer comparisons. Rather, our Compensation Committee factors peer comparisons into its analysis of the appropriate outcomes in our pay plans, to ensure our plans are designed to drive excellent relative performance for investors.

•

Our outperformance of our Compensation Peer Group on a one-, three- and five-year basis provides strong support that our approach appropriately rewards relative performance. A detailed discussion of our performance is provided below at “Stockholder Return Compared to Total Direct Compensation for NEOs.”

Putting the Change in Pension Value in Context

•

The 2013 Summary Compensation Table includes an amount for the year-over-year change in pension value, which shows the increase in pension liability for those NEOs entitled to a pension benefit upon separation. Even though the CEO and other NEOs did not retire this year, nor do we expect them to retire next year, we are required by disclosure requirements to report these amounts using certain actuarial assumptions.

•

Each year, as part of the Company’s routine administration of its benefit plans, we carefully assess the actuarial assumptions we use to calculate our pension liability. A key assumption is the interest rate we must apply to convert the future estimated pension benefit into a lump sum – the “lump-sum interest rate.” Given the sustained low interest rate environment over an extended period of time and the potential for continued low interest rates in the foreseeable future, the Company lowered the lump-sum interest rate assumption from 4.0% to 2.3% in FY 2013. The effect of lowering this interest rate even a small amount created a meaningful increase in the estimated lump-sum value of the pension benefit reflected in the 2013 Summary Compensation Table. However, if interest rates begin to rise for an extended period and we adjust the assumed lump-sum interest rate upward in response, this change would create a meaningful decrease in the estimated pension benefit. Any pension benefit paid as a lump sum upon the eventual retirement of an NEO will be determined by the applicable interest rate at the time of separation.

– 2013 Proxy Statement   24

•

The $24 million increase to our CEO’s “Change in Pension Value and Nonqualified Deferred Compensation Earnings” reported in the 2013 Summary Compensation Table does not reflect actual compensation received by our CEO in FY 2013. Of the $24 million shown, $21 million is attributable to changes in actuarial assumptions and $2 million is attributable to the estimated value of an additional year of service credit.

•

We do not believe our investors should factor in pension value swings attributable to changes in interest rate assumptions when assessing the Compensation Committee’s annual executive compensation decisions. These value swings are not in the committee’s control. Just as investors should not give the Company credit when lump-sum pension values drop significantly because of interest rate increases, they should not view the Company as granting additional compensation when lump-sum pension values rise due to changes in interest rate assumptions.

Eliminating a Golden Parachute Benefit

In consultation with the Compensation Committee, on March 27, 2012 our CEO voluntarily relinquished his right under his employment agreement to be paid a golden parachute tax gross-up and the right to have his change in control-related cash severance calculated as the product of 2.99 times the “base amount” as defined under Section 280G of the Internal Revenue Code (“IRC”). This represents a substantial reduction in the benefits to which Mr. Hammergren would be entitled if his employment terminated in connection with a change in control.

Eliminating Excise Tax Gross-Ups

In response to investor feedback, we adopted a policy in 2009 prohibiting new or materially amended executive officer employment agreements with excise tax gross-ups, which we expanded in 2012 to cover agreements other than employment agreements. The only excise tax gross-ups that remain are legacy agreements and arrangements.

Prohibiting Hedging and Pledging

We adopted a policy in 2013 prohibiting all directors and executive officers from hedging or pledging Company securities. None of our directors or executive officers currently has Company stock hedged or pledged.

Business and Compensation Results

The strength of our balance sheet and cash flow performance continues to provide opportunities to create stockholder value through our portfolio approach to capital deployment and to serve as a catalyst for future growth. For a comprehensive discussion of our financial results, please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, which was filed with the SEC on May 7, 2013. We are proud to announce the following business highlights from the last fiscal year:

•

Delivered stockholder return of 24%;

•

Generated operating cash flows of $2.5 billion;

•

Ended the year with $2.5 billion in cash and cash equivalents;

•

Completed acquisitions valued at $2.5 billion, including our acquisitions of PSS World Medical, Inc. and MED3000, Inc.;

•

Returned capital to our investors through the repurchase of common stock valued at $1.2 billion;

•

Paid quarterly dividends of 20 cents per share on our common stock, totaling $194 million; and

•

Undertook a number of strategic and operational actions in order to focus on areas where we have a leading position, improve our efficiency and enhance our ability to continually innovate for our customers.

Stockholder Return Compared to Total Direct Compensation for NEOs

The charts below display our total stockholder return over the last five fiscal years, compared to our Compensation Peer Group and the S&P 500 Index, and the five-year trend of total direct compensation provided to our NEOs. For purposes of this display, total direct compensation refers to total compensation disclosed in the 2013 Summary Compensation Table as required by the SEC, minus the amount displayed under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column (“TDC”). We exclude this amount because it is unrelated to individual or Company performance.

– 2013 Proxy Statement   25

The tables below show the delivery of superior long-term value to McKesson’s investors and how the Compensation Committee’s recent refinements to our program have impacted executive compensation trends. For purposes of these charts and tables, total stockholder return assumes $100 invested at the close of trading on March 31, 2008 (the close of our fiscal year) and the reinvestment of dividends when paid (“TSR”). Over the past five years, we delivered stockholder returns that exceeded both our Compensation Peer Group and the S&P 500 Index.

CEO TOTAL DIRECT COMPENSATION TABLE

Fiscal Year	Salary ($000)	Stock Awards ($000)	Option Awards ($000)	Cash Incentives ($000)	All Other Compensation ($000)	TDC* ($000)	% TDC Change		MCK TSR
2013	1,680	8,201	5,820	11,464	369	27,534	(7	%)	24	%
2012	1,680	8,602	6,133	12,828	363	29,605	(6	%)	12	%
2011	1,665	12,186	7,371	9,860	512	31,594	(6	%)	22	%
2010	1,580	11,049	7,648	12,828	566	33,672	1.7	%	89	%
2009	1,566	12,287	6,473	12,035	741	33,102
* Components may not sum due to rounding.

Company/Index	3/31/2008		3/31/2009		3/31/2010		3/31/2011		3/31/2012		3/31/2013
McKesson Corporation	$	100	$	67.62	$	127.96	$	155.58	$	174.45	$	216.44
Compensation Peer Group	$	100	$	78.95	$	111.71	$	122.22	$	143.37	$	176.31
S&P 500 Index	$	100	$	61.91	$	92.73	$	107.24	$	116.39	$	132.64

– 2013 Proxy Statement   26

Governance Highlights

Executive Compensation Policies and Practices

Our Board and Compensation Committee have actively monitored and refined our compensation program and corporate governance practices in response to investor input.

WE ARE COMMITTED TO ALIGNING PAY WITH INVESTOR INTERESTS
	We pay for performance. A substantial majority of our NEOs’ compensation is tied to strategic and financial performance results.		Our equity awards vest in connection with a change in control if the employee is subsequently terminated (a “double-trigger” provision).
	Over 67% of our NEOs’ target direct compensation consists of equity awards that vest over three or four years.		We have a three-year vesting period on performance restricted stock units (“PeRSUs”) that are earned by our employees.
	Base salaries for our NEOs average approximately 10% of target direct compensation.		We do not pay accumulated dividend equivalents on restricted stock units (“RSUs”) until the end of the vesting period.
	Our CEO relinquished his right to be paid a golden parachute tax gross-up under his employment agreement and significantly reduced his potential cash severance payout for a termination in connection with a change in control.		We manage the use of our equity incentive plan conservatively. Our net equity burn rate over the last three years has averaged less than 2%. We expect it to be less than 2% in FY 2014.
	We froze our executive pension plan and executive life insurance plan to new participants.		We discontinued our executive medical plan and executive short-term disability plan.

WE ARE COMMITTED TO SOUND GOVERNANCE PRACTICES
	The Compensation Committee engages an independent compensation consultant and independent legal counsel.		We have rigorous stock ownership guidelines that all NEOs have exceeded.
	The Compensation Committee regularly reviews tally sheets and other reports detailing all components of our executive compensation program, including projected potential severance and change in control payouts.		We no longer use employment agreements. We have only two remaining employment agreements with executive officers which were originally put in place more than 10 years ago.
	The Company annually performs a robust review of all incentive programs to determine whether they present a material risk.		Financial goals for our incentive plans take into account significant corporate events, including anticipated share buybacks for the year.
	We have not provided a gross-up for any executive perquisite.		We have a rigorous compensation recoupment policy.
	We will not enter into any new agreement with an executive officer providing for a golden parachute tax gross-up.		We will not re-price stock options without stockholder approval.

– 2013 Proxy Statement   27

Compensation Practices and Implementation

As an executive’s ability to impact financial performance increases, so does the proportion of his or her at-risk compensation. Target long-term compensation grows proportionately as job responsibility increases. The graphics below illustrate the mix of fixed, annual and long-term incentive compensation we provide to our CEO and other NEOs. These graphics also illustrate the amount of target direct compensation tied to achievement of performance conditions. These proportions have generally remained consistent year-over-year.

FY 2013 Target Direct Compensation Mix

Direct Compensation Elements

McKesson’s executive compensation program provides for a mix of base salary, annual bonus and long-term incentive awards. Our approach to delivering direct compensation is to provide market-competitive target compensation levels. The amount of performance-linked compensation ultimately realized by our NEOs in any fiscal year is based on McKesson’s performance over time.

Our direct compensation elements for FY 2013 are as follows:

– 2013 Proxy Statement   28

Performance Objectives

The FY 2013 metrics approved by the Compensation Committee in our short- and long-term incentive programs, and the rationale for their selection, are displayed in the chart below. A detailed discussion of these financial metrics, and how we apply them in our executive compensation program, is provided below at “Executive Officer Compensation Elements.”

Compensation Decision-Making Process

Executive Officer Compensation Oversight

The Compensation Committee oversees all forms of compensation for our executive officers, including our NEOs. For FY 2013, our NEOs and their respective titles were as follows:

Name	Title
John H. Hammergren	Chairman of the Board, President and Chief Executive Officer
Jeffrey C. Campbell	Executive Vice President and Chief Financial Officer
Paul C. Julian	Executive Vice President and Group President
Laureen E. Seeger	Executive Vice President, General Counsel and Chief Compliance Officer
Patrick J. Blake	Executive Vice President and Group President

Selection and Use of Compensation Peer Group

The Compensation Committee oversees the design of our executive compensation program and regularly evaluates the program against competitive practices, legal and regulatory developments and corporate governance trends. A key objective of our executive compensation program is to ensure that the total compensation package for our executive officers is competitive with the companies against whom we compete for executive talent.

The Compensation Committee engages an independent compensation consultant to assist the committee in developing a compensation peer group of companies which serves as the basis for comparing McKesson’s executive compensation program to the market. The committee annually reviews the list of peer companies and evaluates potential peers by industry, company size and performance. A table displaying our “Compensation Peer Group” is provided below.

Since our Company has few direct business competitors, it is difficult to create a Compensation Peer Group based on industry codes, revenues or market capitalization alone. The Compensation Committee and its independent compensation consultant consider factors such as revenues, assets, net income, market capitalization, number of employees and business complexity to derive an appropriate number of peers while also balancing company size and industry mix among our peer companies. The committee believes our diverse selection of peer group companies provides a better understanding of the evolving and competitive marketplace for executive talent.

– 2013 Proxy Statement   29

The Compensation Committee uses data derived from our Compensation Peer Group as a guideline to assist the committee in its decisions about overall compensation, the elements of compensation, the amount of each element of compensation and the relative competitive landscape of our executive compensation program. The committee does not strive for any individual compensation component or compensation in the aggregate to be at any specific level relative to the market.

Rather, the Compensation Committee uses multiple reference points. The committee reviews the mix of our compensation components with respect to fixed versus variable, annual versus long-term and cash versus equity-based pay when setting target direct compensation amounts for our NEOs. The committee does not “target” a specific percentile of the peer group, but monitors where each NEO’s pay is relative to the peer group. In recent years, total direct CEO compensation has trended closer to the median.

The list below is sorted alphabetically by industry and reflects the Compensation Peer Group utilized by the Compensation Committee at its May 2012 meeting, when it made its FY 2013 executive compensation decisions. Revenues are stated in billions for the most recently completed fiscal year as publicly reported by each company as of June 3, 2013.

Company Name	$ Revenue	Industry	Company Name	$ Revenue	Industry
FedEx Corporation	42.7	Air Freight & Logistics	Medtronic Inc.	16.2	Health Care Equipment
Amgen Inc.	17.3	Biotechnology	Stryker Corporation	8.7	Health Care Equipment
Automatic Data Processing Inc.	10.7	Data Processing	Express Scripts Inc.	93.9	Health Care Services
Computer Sciences Corporation	15.0	Data Processing	Omnicare Inc.	6.2	Health Care Services
CVS Caremark Corporation	123.1	Drug Retail	IBM	104.5	IT Consulting
Rite Aid Corporation	25.4	Drug Retail	Thermo Fisher Scientific Inc.	12.5	Life Sciences Tools & Services
Walgreen Company	71.6	Drug Retail	Aetna Inc.	36.6	Managed Health Care
Sysco Corporation	42.4	Food Distributors	UnitedHealth Group Inc.	110.6	Managed Health Care
Safeway Inc.	44.2	Food Retail	WellPoint Inc.	61.7	Managed Health Care
AmerisourceBergen Corporation	79.5	Health Care Distributors	Bristol-Myers Squibb Company	17.6	Pharmaceuticals
Cardinal Health Inc.	107.6	Health Care Distributors	Eli Lilly and Company	22.6	Pharmaceuticals
Abbott Laboratories Inc.	39.9	Health Care Equipment	Johnson & Johnson Inc.	67.2	Pharmaceuticals
Baxter International Inc.	14.2	Health Care Equipment	Merck & Company Inc.	47.3	Pharmaceuticals
Becton, Dickinson and Company	7.7	Health Care Equipment	Pfizer Inc.	59.0	Pharmaceuticals
Covidien Public Limited Company	11.9	Health Care Equipment	Ingram Micro Inc.	37.8	Technology Distributors
COMPENSATION PEER GROUP MEDIAN					38.9
McKESSON CORPORATION					122.5

The Compensation Committee reviewed the appropriateness of our Compensation Peer Group at its January 2013 meeting, in advance of making its FY 2014 compensation decisions. The committee made no changes other than to remove Medco Health Solutions Inc. because of its April 2012 acquisition by Express Scripts, Inc.

Executive Officer Compensation Elements

Our executive compensation program consists of three elements of direct compensation: base salary, annual bonus and long-term incentives. The allocation between annual and long-term compensation is based on the Compensation Committee’s evaluation of each NEO’s skill and experience, as well as market data derived from the Company’s Compensation Peer Group as reviewed by the Compensation Committee with its independent compensation consultant. We also provide our executive officers with benefits, limited perquisites, severance and change in control benefits. These compensation elements enable us to attract and retain highly motivated and talented executives who have created significant value for our investors.

– 2013 Proxy Statement   30

Annual Compensation

Annual compensation is delivered in cash with a substantial variable portion at-risk and contingent on the successful accomplishment of pre-established performance goals. We believe it is important to have at-risk compensation that can be focused on short-term Company and individual goals.

BASE SALARY
	Attracts and retains high performing executives by providing market-competitive fixed pay
	Base salaries for our NEOs have not increased since May 2011

Base salary is the only fixed component of our executive officers’ total cash compensation. Salary decisions for our executive officers are made in May, at the same time we review base salary decisions for all employees. We review base salaries in relation to the 50^th percentile for the position within the Company’s Compensation Peer Group. In both May 2012 and May 2013, the Compensation Committee determined not to increase base salaries for our NEOs.

MANAGEMENT INCENTIVE PLAN
	Drives company-wide, business unit and individual performance
	Focuses efforts on growing earnings, profitability, cash flow and delivering on strategic business goals
	MIP opportunities for our NEOs have not increased since May 2011

The Management Incentive Plan (“MIP”) is our annual cash incentive program, with payment conditioned on the achievement of individual and Company financial performance goals. The MIP, like base salary, is intended to deliver short-term cash incentive compensation in reference to the 50^th percentile of our Compensation Peer Group when performance meets pre-determined target levels.

MIP Performance Metrics. In May 2012, the Compensation Committee selected Adjusted EPS and Adjusted EBITDA as financial MIP modifiers for the fiscal year ending March 31, 2013. The Compensation Committee has the discretion to further adjust actual MIP awards by applying an individual modifier. For FY 2013, our NEOs were eligible for MIP target award opportunities that ranged from 80% to 150% of their base salaries. The actual MIP award delivered to each NEO may range from zero to 300% of the target award amount.

The table and graphics below show our FY 2013 Adjusted EPS and Adjusted EBITDA goals with their weightings and the formula we use to calculate MIP awards. As is the case for all of the Company’s performance-based payout scales, when a result falls between reference points, the modifier is adjusted ratably along the scale. The graph displays the actual results for each performance measure for FY 2012 and FY 2013. The following summarizes each performance element of the MIP:

•

Adjusted EPS. In May 2012, the committee set an Adjusted EPS target of $7.20 with a 75% weighting for the FY 2013 MIP. Adjusted EPS is calculated as earnings per diluted share from continuing operations, excluding acquisition expenses and related adjustments, amortization of acquisition-related intangible assets and certain litigation reserve adjustments. See Appendix A to this proxy statement for a reconciliation of diluted earnings per share from continuing operations as reported under U.S. generally accepted accounting principles (“GAAP”) to Adjusted EPS. In measuring financial performance, the Compensation Committee’s focus is on business fundamentals. The committee will only adjust for items that are unusual in nature, were not already considered when developing the Company’s annual operating plan and are not indicative of core operational results. The Compensation Committee has historically applied both positive and negative adjustments to determine incentive plan payouts for all corporate employees. For these reasons, when assessing the Company’s Adjusted EPS result of $6.33 for FY 2013, the Compensation Committee reversed $0.76 per diluted share for non-cash impairment charges and reversed $0.12 per diluted share for a charge from the resolution of an investigation by an administrative authority in Canada. The resulting FY 2013 financial performance of $7.21 per diluted share was applied by the Compensation Committee to determine incentive plan payouts for all corporate employees whose payouts included an Adjusted EPS component in FY 2013. Identical adjustments, where applicable, were made by the Compensation Committee to the financial metrics used in the PeRSU program described below.

•

Adjusted EBITDA. In an effort to respond to investor feedback and reflect operational performance in the MIP, in FY 2012 the committee added Adjusted EBITDA to the MIP with a 25% weighting. The committee continued to use Adjusted EBITDA as a MIP metric for FY 2013. Adjusted EBITDA is calculated as adjusted earnings before interest income, interest expense, taxes, depreciation and amortization. For FY 2013, the committee set an Adjusted EBITDA target of $3,104 million. The Compensation Committee modified Adjusted EBITDA results for the same non-cash impairment charges and a charge from the resolution of an investigation by an administrative authority in Canada as it did for Adjusted EPS results. Our FY 2013 result was $3,070 million, resulting in a 93% payout under the ratable scale shown below.

•

Individual Modifier. In addition to the financial metrics used to calculate the MIP payout, the committee applies an individual modifier which reflects the NEO’s performance against non-financial objectives and initiatives. These objectives often focus on areas that provide immediate value, as well as those that are important for building future growth capability. These areas include, but are not limited to, the following that are measured annually: (i) employee engagement compared against norms established by global high-performing companies, (ii) leadership and workforce development, (iii) customer satisfaction and retention, (iv) six-sigma process improvements and operational success and (v) service level agreements.

– 2013 Proxy Statement   31

75% of MIP		25% of MIP
Payout	Adjusted EPS	Payout	Adjusted EBITDA (in millions)
200%	$7.92	200%	$3,415
175%	$7.78	175%	$3,352
150%	$7.63	150%	$3,290
125%	$7.49	125%	$3,228
100%	$7.20	100%	$3,104
75%	$6.91	75%	$2,980
50%	$6.62	50%	$2,856
0%	<$6.62	0%	<$2,856

The dollar values of threshold, target and maximum payouts for the FY 2013 MIP are displayed below in the 2013 Grants of Plan-Based Awards Table. Our NEOs received MIP payouts for FY 2013 at 114% to 149% of their target awards based on a combined Adjusted EPS result approved by the Compensation Committee for MIP payouts of $7.21 per diluted share, Adjusted EBITDA for MIP payouts of $3,070 million and individual modifiers ranging from 115% to 150%.

FY 2014 Targets. In May 2013, the Compensation Committee again selected Adjusted EPS, Adjusted EBITDA and individual performance as MIP modifiers for FY 2014. The MIP financial goals selected by the Compensation Committee for FY 2014 are consistent with the guidance published by the Company on May 7, 2013 that disclosed a projected Adjusted EPS range of $7.90 to $8.20 per diluted share, an increase of approximately 12% over our FY 2013 target. We believe the financial performance goals for FY 2014 MIP target awards are ambitious, meaning that based on historical performance this payout level is not assured. These goals provide strong motivation for our executives to exceed them in a way that balances short- and long-term stockholder value creation.

Long-term Compensation

Long-term compensation is a critical component of our executive compensation program. It is in the investor’s interest that our executives foster a long-term view of the Company’s financial results. Long-term incentives are also an important retention tool that management and the Compensation Committee use to align the financial interests of executives and other key contributors to sustained stockholder value creation.

The Company’s long-term direct compensation program for NEOs includes three award opportunities:

•

LTIP is a three-year cash incentive program;

•

PeRSUs are performance restricted stock units; and

•

Stock Options are time-vested equity grants.

LONG-TERM INCENTIVE PLAN
	Drives long-term returns and achievement of multi-year objectives
	Emphasizes efficient management of working capital and cash generation
	Reduced maximum payout opportunities for our executive officers by 33% for the FY 2012 – FY 2014 performance period
	Reduced target payout opportunities by 5% from last year

– 2013 Proxy Statement   32

The cash portion of the Company’s long-term incentive compensation program, the LTIP, provides incentive for performance against the Company’s long-term strategic plan. Awards under the LTIP are earned over a three-year performance cycle. A new three-year cycle with new incentive targets and performance goals begins each fiscal year. There are three performance cycles of three years each that run concurrently. Payments under the LTIP are based solely on the Company’s financial results. Consistent with the Compensation Committee’s determination in May 2011 to moderate the LTIP opportunity, payouts made to executive officers after the end of FY 2014 may not exceed 200% of target. In May 2013, the committee also determined for the second year in a row to reduce LTIP target awards for our NEOs.

The performance goals established in May 2010 for the FY 2011 — FY 2013 LTIP performance period, which ended March 31, 2013, were:

•

Cumulative EPS. For 75% of the award, cumulative earnings per diluted share adjusted for certain litigation reserve items and acquisition-related expenses (“Cumulative EPS”) of $15.95. The actual three-year result for the FY 2011 — FY 2013 performance period was cumulative EPS of $17.55 per diluted share.

•

Cumulative Adjusted OCF. For 25% of the award, cumulative operating cash flow adjusted for payments for certain litigation reserve items (“Cumulative Adjusted OCF”) of $5,400 million. The actual three-year result for the FY 2011 — FY 2013 performance period of Cumulative Adjusted OCF was $8,351 million.

Based on these results, the Compensation Committee approved a payout for the FY 2011 — FY 2013 performance period at 286% of the target award in accordance with the payout scale established in May 2010. The table below shows the Cumulative EPS and Cumulative Adjusted OCF goals adopted in May 2010 and their weightings. As with all of the Company’s performance-based payout scales, results that fall between reference points are adjusted ratably along the scale. The graphs display the actual result for each performance measure for the FY 2010 – FY 2012 and FY 2011 – FY 2013 performance periods.

75% of LTIP		25% of LTIP
Payout	Cumulative EPS	Payout	Cumulative Adjusted OCF (in millions)
300%	$17.71	300%	$8,100
250%	$17.27	250%	$7,425
200%	$16.83	200%	$6,750
150%	$16.39	150%	$6,075
100%	$15.95	100%	$5,400
50%	$14.68	50%	$3,240
0%	$13.40	0%	$1,080

FY 2014 – FY 2016 Targets. At its May 2013 meeting, following a review of all direct compensation components and market data derived from our Compensation Peer Group, the Compensation Committee decreased the target payout opportunities for our NEOs by an average of 3% for the upcoming LTIP performance period. Accordingly, FY 2014 — FY 2016 LTIP target values of $2,500,000, $625,000, $1,275,000, $370,000 and $370,000 were approved for Mr. Hammergren, Mr. Campbell, Mr. Julian, Ms. Seeger and Mr. Blake, respectively.

For the FY 2014 — FY 2016 performance period, the Compensation Committee selected performance goals that are consistent with the FY 2014 guidance published by the Company on May 7, 2013. These goals were set in reference to the three-year strategic plan reviewed by the Board. LTIP payouts will be conditioned on the achievement of the compound annual growth rate of the Company’s adjusted earnings per diluted share measured over the three-year performance period (“Long-term Earnings Growth”) and Cumulative Adjusted OCF measured over the three-year performance period. These metrics are weighted 75% for Long-term Earnings Growth and 25% for Cumulative Adjusted OCF.

We believe our Long-term Earnings Growth and Cumulative Adjusted OCF goals for FY 2014 — FY 2016 target awards are ambitious and that this payout level is not assured.

– 2013 Proxy Statement   33

PERFORMANCE RESTRICTED STOCK UNITS
	Creates focus on annual financial goals and stock price appreciation
	Encourages efficient and productive deployment of capital
	Reduced maximum payout opportunities by 9% from last year
	Reduced targets by an average of 4% from last year

PeRSUs are awards conditioned on the achievement of Company performance goals. They convert to RSUs upon completion of a one-year performance period and vest after completion of the fourth year. PeRSUs are long-term performance-based awards, because the value of the actual RSU award is directly linked to the performance of the Company’s stock at the end of the three-year vesting period. To further align the interests of our executive officers with our investors, beginning with FY 2012 we eliminated all non-financial modifiers in our PeRSU program for our executive officers.

PeRSU target award opportunities are established at the beginning of each fiscal year. The FY 2013 PeRSU target award opportunities for our NEOs are provided in the 2013 Grants of Plan-Based Awards Table below. The aggregate grant date fair values of the PeRSU award opportunities are provided in the 2013 Summary Compensation Table below.

PeRSU Performance Metrics. In May 2012, the Compensation Committee approved PeRSU performance targets based on Adjusted EPS and Adjusted ROIC. In FY 2013, our NEOs received 100% of their PeRSU target awards, based on a combined Adjusted EPS result for PeRSU payouts of $7.21 per diluted share and an Adjusted ROIC of 15.01%. The Compensation Committee modified FY 2013 PeRSU results for the same non-cash impairment charges and a charge from the resolution of an investigation by an administrative authority in Canada as it did for MIP results. Accordingly, at its May 2013 meeting, the Compensation Committee awarded Mr. Hammergren, Mr. Campbell, Mr. Julian, Ms. Seeger and Mr. Blake 94,000, 35,000, 52,000, 22,000 and 18,000 RSUs, respectively.

•

Adjusted EPS. For FY 2013, the Adjusted EPS result for PeRSU payouts was $7.21.

•

Adjusted ROIC. The FY 2013 PeRSU award was based on an Adjusted EPS result that was modified by a multiplier based on a target Adjusted ROIC of 15.18%. The table below shows our FY 2013 Adjusted EPS goals and the range of Adjusted ROIC multipliers that may be applied. The graphs display the actual results for each performance measure for FY 2012 and FY 2013.

•

Stock Price. PeRSUs have a direct link to Company performance, because their value fluctuates with the performance of our stock.

Payout	Adjusted EPS	Multiplier	Adjusted ROIC
200%	$8.02	110%	≥16.38%
150%	$7.61	105%	15.78%
100%	$7.20	100%	15.18%
75%	$7.00	95%	14.58%
50%	$6.79	90%	≤13.98%
25%	$6.59
0%	$6.38

FY 2014 Targets. In May 2013, the Compensation Committee again selected Adjusted EPS and Adjusted ROIC as PeRSU performance criteria for FY 2014. As it did for FY 2013, the committee included an Adjusted ROIC multiplier in the FY 2014 PeRSU program to drive the investment of capital, but determined to limit the adjustment on the upside and downside, because the calculation of Adjusted ROIC is susceptible to significant swings based on one-time and/or unexpected events.

– 2013 Proxy Statement   34

We believe the Adjusted EPS and Adjusted ROIC goals for FY 2014 PeRSU target awards are challenging and difficult to achieve. At its May 2013 meeting and following a review of all components of direct compensation and market data derived from our Compensation Peer Group, the Compensation Committee established FY 2014 PeRSU target award opportunities of 65,300, 24,200, 36,100, 15,200 and 12,400 PeRSUs for Mr. Hammergren, Mr. Campbell, Mr. Julian, Ms. Seeger and Mr. Blake, respectively.

STOCK OPTIONS
	Motivates executives to deliver sustained long-term growth in Company share price and serves as a retention tool
	Reduced grant date value by an average of 5% from last year

Stock option awards directly align the interests of our executives with our investors, since our NEOs recognize value only if the market value of the Company’s stock price appreciates over time. The determination of the size of stock option grants is made in the Compensation Committee’s discretion and judgment. The committee considers what is appropriate in light of the balance of cash and equity in our annual and long-term incentive plans, our strategic and operational objectives, our stock price, the responsibilities of our NEOs, a review of similar grants made at companies in our Compensation Peer Group and other factors the committee deems relevant. Stock options granted to our NEOs generally vest 25% on the first four anniversaries of the grant date and have a seven-year term.

At its May 2012 meeting, the Compensation Committee awarded stock option grants to Mr. Hammergren, Mr. Campbell, Mr. Julian, Ms. Seeger and Mr. Blake for 298,000, 110,000, 165,000, 69,000 and 56,000 shares, respectively. At its May 2013 meeting, the Compensation Committee awarded stock option grants to Mr. Hammergren, Mr. Campbell, Mr. Julian, Ms. Seeger and Mr. Blake for 210,300, 78,100, 116,400, 49,000 and 39,900 shares, respectively.

Other Compensation and Benefits

The Company provides a broad array of benefits to all employees that is comparable to those offered by other employers in our industry and geographic footprint, including a competitive suite of health and life insurance and retirement benefits. In providing such benefits, both management and the Compensation Committee determined that these items are appropriate for the attraction and retention of executive talent. In addition to the discussion of benefits below, the compensation associated with these items is described in footnote (6) to the 2013 Summary Compensation Table.

The Company offers two voluntary nonqualified, unfunded deferred compensation plans: (i) the Supplemental Profit-Sharing Investment Plan II (“SPSIP II”) and (ii) the Deferred Compensation Administration Plan III (“DCAP III”). They operate as unsecured, tax-advantaged personal savings accounts administered by the Company. The SPSIP II is offered to all employees, including our executive officers, who may be impacted by the compensation limits that restrict participation in the Company’s tax-qualified 401(k) plan, the Profit-Sharing Investment Plan (“PSIP”). The DCAP III is offered to all employees eligible for MIP bonus targets of at least 15% of base salary, including executive officers and other selected highly compensated employees.

In addition, all employees are eligible to participate in the McKesson Foundation’s Matching Gifts Program. Under this program, gifts to schools, educational associations or funds and other public charitable organizations are eligible for a Company match of up to $2,500 per employee for each fiscal year.

The Company has two benefit plans that are generally restricted to executive officers: (i) the Executive Survivor Benefits Plan, which provides a supplemental death benefit in addition to the voluntary life insurance plan provided to all employees; and (ii) the Executive Benefit Retirement Plan, a nonqualified average final pay defined benefit pension plan. These plans were frozen to new participants in 2010 and 2007, respectively. The Compensation Committee discontinued the Company’s Executive Medical Plan and Executive Salary Continuation Program, effective January 1, 2008. In place of the Executive Medical Plan, we provide annual physical examinations to our executive officers and their spouses.

A limited number of other benefits are provided to our executive officers, because it is customary to provide such benefits or it is in the best interest of the Company and its investors to do so. We provide perquisites which enable our executive officers to perform their responsibilities more efficiently while minimizing distractions. We believe the benefits the Company receives from providing these perquisites significantly outweigh the costs.

Since McKesson operates in locations throughout the world, the use of corporate aircraft allows our employees, including our executive officers, to be more productive than if traveling by commercial flights, because they are able to travel without the scheduling constraints imposed by commercial airlines. Our Executive Officer Security Policy requires our CEO to use corporate aircraft for both business and personal use, when practicable. Our CEO authorized Mr. Julian to use the corporate aircraft for personal use during FY 2013. The Company provides security services for Mr. Hammergren and reimburses him for reasonable expenses related to the installation and maintenance of home security. A car and driver are available to Mr. Hammergren, Mr. Julian and other executive officers when necessary for security and/or productivity reasons.

– 2013 Proxy Statement   35

Severance and Change in Control Benefits

Our Severance Policy for Executive Employees (“Executive Severance Policy”) affords benefits to selected management employees, including our executive officers, who do not have employment agreements. We provide severance benefits to give executives a measure of financial security following the loss of employment, to protect the Company from competitive activities after the departure of certain executives and because we believe these benefits are important to attract and retain our executives in a highly competitive industry. The policy applies if an executive officer is terminated by the Company for reasons other than for cause and the termination is not covered by the Company’s Change in Control Policy for Selected Executive Employees (“CIC Policy”). The Executive Severance Policy does not apply to Mr. Hammergren or Mr. Julian, whose severance pay is governed by an employment agreement. A detailed description of the Executive Severance Policy is provided below at “Executive Employment Agreements – Executive Severance Policy.”

Our stock plan and award agreements include change in control provisions which provide for “double-trigger” vesting upon an involuntary or constructive termination of employment following a change in control. Our CIC Policy provides for severance benefits in the event of an involuntary or constructive termination of employment occurring in connection with a change in control. We believe our CIC Policy is in our investors’ best interest, so that senior management remain focused on important business decisions without regard to how a potential transaction may affect them personally. The CIC Policy is administered by the Compensation Committee and benefits are consistent with current market practice. The CIC Policy does not apply to Mr. Hammergren or Mr. Julian, whose severance pay is governed by an employment agreement. A detailed description of the CIC Policy is provided below at “Executive Employment Agreements – Change in Control Policy.”

Mr. Hammergren’s employment agreement, in substantially its current form, was executed when he assumed the position of co-chief executive officer in 1999. The agreement provides for severance benefits in the case of voluntary, involuntary and constructive termination with or without a change in control. The agreement’s severance provisions, including provisions regarding pension rights, have been in place for many years and are not materially different from the terms provided to his predecessor, with one significant exception.

On March 27, 2012 Mr. Hammergren, in consultation with the Chairman of the Compensation Committee, voluntarily relinquished his right to be paid a golden parachute tax gross-up and the right to have his change in control-related cash severance calculated as the product of 2.99 times the “base amount” as defined under IRC Section 280G. The employment agreement continues to provide for the alternative severance formulation of a cash lump sum equal to three years’ salary continuation and three years’ MIP participation.

The relinquishment of these rights represents a substantial reduction in Mr. Hammergren’s potential benefits under a qualifying termination in connection with a change in control. A detailed description of Mr. Hammergren’s employment agreement is provided below at “Executive Employment Agreements – Mr. John H. Hammergren.”

Information on Other Compensation-Related Topics

Executive Employment Agreements

While we have discontinued the practice of entering into employment agreements with our executive officers, we continue to honor our legacy contractual commitments. Mr. Hammergren and Mr. Julian entered into employment agreements with the Company upon their appointment to executive officer positions in 1996 and 1999, respectively. These are the only employment agreements in place among our executive officers.

Stock Ownership Policy

The Company has robust guidelines for stock ownership by executive officers. The Company reserves the right to restrict sales of the underlying shares of vesting equity awards if executives fail to meet the ownership requirements specified in our Stock Ownership Policy. Stock options and PeRSUs do not count toward meeting the stock ownership requirement.

Our CEO’s holding requirement is 10 times base salary. The holding requirement for each of the Company’s other executive officers is six times base salary. The Company’s directors are also subject to stock ownership guidelines, which are summarized above at “Director Stock Ownership Guidelines.”

– 2013 Proxy Statement   36

As of June 3, 2013 each of our NEOs satisfied his or her stock ownership holding requirement.

Name	Stock Ownership Policy
	Target Ownership			Actual Ownership
	Multiple of Base Salary	Multiple Expressed         in Dollars		Multiple of Base Salary(1)	Value of Shares Held         by Executives in Dollars(2)
John H. Hammergren	10		16,800,000	72		120,283,884
Jeffrey C. Campbell	6		5,178,000	31		26,830,880
Paul C. Julian	6		6,390,000	28		29,471,927
Laureen E. Seeger	6		4,116,000	18		12,069,719
Patrick J. Blake	6		4,104,000	16		10,641,416
(1) NEO ownership is stated as of June 3, 2013. The ownership requirement may be met through any combination of the following: • Direct stock holdings of the Company’s common stock, including shares held in a living trust, a family partnership or corporation controlled by the officer, unless the officer expressly disclaims beneficial ownership of such shares; • Shares of the Company’s common stock held in the PSIP (i.e., the Company’s 401(k) plan); • Shares of the Company’s common stock underlying outstanding restricted stock and restricted stock unit awards; and/or • Shares of the Company’s common stock underlying restricted stock units that are vested and deferred under a Company-sponsored deferral program. (2) Based on the closing price of the Company’s common stock as of June 3, 2013 which was $112.74 as reported by the NYSE.

Insider Trading Policy

The Company maintains an insider trading policy applicable to all directors and employees. The policy provides that Company personnel may not: buy, sell or engage in other transactions in the Company’s stock while in possession of material non-public information; buy or sell securities of other companies while in possession of material non-public information about those companies they become aware of as a result of business dealings between the Company and those companies; disclose material non-public information to any unauthorized persons outside of the Company; or engage in hedging transactions through the use of certain derivatives, such as put and call options involving the Company’s securities. The policy also restricts trading for a limited group of Company employees (including all directors and NEOs) to defined window periods which follow our quarterly earnings releases.

Hedging and Pledging Policy

The Company adopted a new hedging and pledging policy in April 2013 which applies to all directors and executive officers. The policy prohibits these individuals from engaging in any hedging transaction with respect to Company securities. These individuals are also prohibited from holding Company securities in a margin account or otherwise pledging Company securities as collateral for a loan. Finally, pledges of Company securities arising from certain types of hedging transactions are also prohibited under our insider trading policy, as described above.

Equity Grant Practices

The Company has a written Equity Grant Policy which states that stock options will be awarded at an exercise price equal to the closing price of the Company’s common stock on the date of grant. The policy also generally prohibits the granting of an equity award when the Company may be in possession of material non-public information. When the Compensation Committee meeting occurs shortly following our public announcement of earnings, the grant date is the same day as the committee meeting. Otherwise, in most situations, the grant date is postponed until the third trading day following the release of our earnings results.

Under the terms of our 2005 Stock Plan, stock option re-pricing is not permitted without stockholder approval. Stock option awards vest ratably over four years with a contractual term of seven years. PeRSU target awards have a one-year performance period and generally convert to RSU awards that cliff-vest upon completion of the third year. RSU awards that are not granted pursuant to PeRSU awards generally cliff-vest in four years.

Tax Deductibility

IRC Section 162(m) generally provides that publicly held corporations may not deduct in any taxable year specified compensation in excess of $1,000,000 paid to the CEO and the next three most highly compensated executive officers, excluding the chief financial officer. However, performance-based compensation in excess of $1,000,000 is deductible if specified criteria are met, including stockholder approval of the material terms of applicable plans.

The Compensation Committee’s intention is, and always has been, to comply with the requirements for deductibility under IRC Section 162(m), unless the committee concludes that adherence to the limitations imposed by these provisions would not be in the best interest of the Company or its stockholders. While base salaries in excess of $1,000,000 are not deductible, payments made under our MIP and LTIP plans, the grants of RSUs made under our PeRSU program and the grants of stock options are intended to qualify for deductibility under IRC Section 162(m) as performance-based compensation.

– 2013 Proxy Statement   37

For purposes of compliance with the IRC, awards under these programs will not be made to individuals subject to IRC Section 162(m) unless attainment of performance goals is certified by the Compensation Committee. In the event of attainment of minimum performance goals under these programs, the Compensation Committee will exercise negative discretion to adjust awards downward from a potential maximum amount in order to satisfy requirements under IRC Section 162(m), while still providing for awards based on Company and individual performance in accordance with our MIP, LTIP and PeRSU programs.

Compensation Recoupment Policy

The Board is dedicated to maintaining and enhancing a culture focused on integrity and accountability which discourages conduct detrimental to the Company’s sustainable growth. On January 20, 2010 the Board approved an updated Compensation Recoupment Policy (“Recoupment Policy”) which expanded and clarified the previous clawback policies embedded in the Company’s annual and long-term incentive compensation programs. The updated Recoupment Policy applies to any employee who receives a cash or equity incentive award after January 20, 2010.

Under the Recoupment Policy, the Company may claw back incentive compensation if an employee: (i) engages in intentional misconduct pertaining to a financial reporting requirement under the federal securities laws which requires the Company to file an accounting restatement with the SEC as a result of the misconduct, other than restatements due to changes in accounting policy; (ii) receives incentive compensation based on a financial or operating measure that later requires material negative revision; or (iii) engages in fraud, theft, misappropriation, embezzlement or dishonesty to the material detriment of the Company’s financial results as filed with the SEC.

If triggered, then to the fullest extent permitted by law, the Company may require the employee to reimburse the Company for all or a portion of any incentive compensation received in cash within the last 12 months and remit to the Company any profits realized from the sale of the Company’s common stock within the last 12 months.

Our executive incentive plans provide that the Compensation Committee may also seek to recoup economic gain from any employee who engages in conduct that is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Company.

Supplemental Death Benefits

In January 2010, the Board froze the Company’s Executive Survivor Benefits Plan to the then-current roster of participants, which includes all of our NEOs. The Company will not enter into a new plan, program or agreement (“Benefit Agreement”) with any executive officer or a material amendment of an existing Benefit Agreement with any executive officer that provides for a death benefit, including salary continuation upon death, if that benefit is not generally available to all employees, unless such Benefit Agreement or material amendment is approved by the Company’s stockholders pursuant to an advisory vote.

This plan continues to provide a supplemental death benefit for its participants, which is in addition to the voluntary and Company-provided life insurance plan afforded to all employees. A detailed description of this plan is available below at “Potential Payments upon Termination or Change in Control.”

Excise Tax Gross-Up Policy

In response to investor feedback, the Compensation Committee at its May 2012 meeting determined that our policy prohibiting new excise tax gross-up provisions should extend to agreements other than employment agreements with our executive officers. As amended, the Company may not enter into any new agreement with an executive officer, or a material amendment of an existing executive officer agreement, that provides for payment or reimbursement of excise taxes that are payable by such executive officer under IRC Section 4999 as a result of a change in control of the Company. The Compensation Committee also clarified that this policy would not adversely affect any Company plan, policy or arrangement generally available to management employees that provides for the payment or reimbursement of taxes.

On March 27, 2012 Mr. Hammergren, in consultation with the Chairman of the Compensation Committee, voluntarily relinquished his right to be paid a golden parachute tax gross-up and the right to have his change in control-related cash severance calculated as the product of 2.99 times the “base amount” as defined under IRC Section 280G. The employment agreement leaves in place the alternative severance formulation of a cash lump sum equal to three years’ salary continuation and three years’ MIP participation.

Compensation Review and Determination Process

Each executive is evaluated on his or her commitment to the Company’s “ICARE” principles, which serves as a guide to all our employees enterprise-wide. These principles are:
Integrity	Customer first	Accountability	Respect	Excellence
ICARE is the cultural foundation of the Company. ICARE principles unify the Company and guide individuals’ behavior toward each other, customers, vendors and other stakeholders.

– 2013 Proxy Statement   38

The Compensation Committee sets performance targets and payout scales for each of our executive officers. The committee also determines incentive payouts for the prior fiscal year and establishes goals for current performance periods. While performance targets and payout scales are initially developed by senior management and informed by the one-year operating plan and three-year strategic plan reviewed with the Board, the Compensation Committee in its sole discretion approves, modifies or amends management’s target and payout scale recommendations. Performance targets are selected to be consistent with the operating and strategic plans reviewed with the Board and information routinely communicated to our employees or investors by management.

APRIL
	CEO, in consultation with the Compensation Committee’s independent compensation consultant and our Executive Vice President, Human Resources, develops compensation recommendations for each executive officer, excluding CEO.
	CEO presents his assessment of his individual performance results to the Board, recommends his goals for the new fiscal year to the Board and answers questions.
	The Board conducts CEO’s performance review and discusses in executive session his performance for the prior fiscal year and approves, modifies or amends his goals for the new fiscal year.

MAY
	The Compensation Committee reviews and evaluates compensation matters for all executive officers, including CEO.
	Determinations of CEO compensation are made in executive session with input from the Compensation Committee’s independent compensation consultant.
	The committee’s independent compensation consultant uses Compensation Peer Group compensation data from Aon Hewitt’s Total Compensation Measurement survey and data published by public companies to inform the Compensation Committee of competitive pay levels for our executive officers.
	To adjust for differences in revenues and market capitalization, regression analysis is used to determine a size-adjusted market compensation level.

OCTOBER
	The Compensation Committee examines the design and purpose of all elements of our executive compensation program, including a review of updated tally sheets for all executive officers.
	The updated tally sheets include a holistic display of current compensation and estimated benefits on separation from service due to voluntary and involuntary termination and termination in connection with a change in control.
	The Compensation Committee also reviews a compilation of the outstanding earned equity awards, unearned cash awards and unvested equity awards for each executive officer.
	Management updates the Compensation Committee on actual performance against pre-established goals for all of our incentive compensation programs.

Role of Independent Compensation Consultant and Legal Counsel

Pursuant to its charter, the Compensation Committee may retain and terminate any consultant or other advisor, as well as approve the advisor’s fees and other terms of the engagement. The committee evaluates the qualifications, performance and independence of its independent compensation consultant and legal counsel annually. To ensure it receives independent and unbiased advice and analysis, the Compensation Committee adopted a formal independence policy that is certified annually by its compensation consultant and legal counsel.

The Compensation Committee has the authority to obtain advice and assistance from internal or external legal counsel. In FY 2013, the Compensation Committee employed its own independent compensation consultant, Compensation Strategies, Inc., and its own independent legal counsel, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (“Gunderson Dettmer”). Representatives of both firms attend all Compensation Committee meetings, participate in executive sessions and communicate directly with the Compensation Committee. Neither firm performs any services for management. However, Compensation Strategies, Inc. advises the Governance Committee in the area of director compensation.

– 2013 Proxy Statement   39

Compensation Strategies performs the following services:

•

Reviews our total compensation philosophy, reviews our Compensation Peer Group and targets competitive positioning for reasonableness and appropriateness;

•

Reviews our overall executive compensation program and advises the Compensation Committee on evolving best practices, compensation design and program alternatives that may improve plan effectiveness;

•

Provides independent analyses and recommendations on executive officers’ compensation;

•

Advises on compensation proposals submitted by management to the Compensation Committee for its approval; and

•

Reviews the Compensation Discussion and Analysis for our proxy statement.

As legal counsel to the committee, Gunderson Dettmer assists with the interpretation of rules and regulations that affect our executive compensation program and reviews the Compensation Discussion and Analysis for our proxy statement.

At the start of FY 2014, the Compensation Committee reviewed information regarding the independence and potential conflicts of interest of Compensation Strategies and Gunderson Dettmer. The committee members took into account, among other things, the factors set forth in Exchange Act Rule 10C-1 and the NYSE listing standards, and concluded that its compensation consultant and legal counsel are both independent and that no conflict of interest exists with respect to the work performed by either firm.

Compensation Committee Report on Executive Compensation

We have reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference to McKesson Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

Compensation Committee of the Board of Directors

Alton F. Irby III, Chair

M. Christine Jacobs

David M. Lawrence, M.D.

Edward A. Mueller

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is comprised entirely of the four independent directors listed above. No member of the Compensation Committee is, or was during FY 2013, a current or former officer or employee of the Company or any of its subsidiaries. Additionally, during FY 2013, none of our executive officers served on the board of directors or compensation committee of any entity that had one or more of its executive officers serving on the Board or the Compensation Committee of the Company.

– 2013 Proxy Statement   40

2013 Summary Compensation Table

The table below provides information regarding compensation and benefits earned by: (i) our Chairman of the Board, President and Chief Executive Officer; (ii) our Executive Vice President and Chief Financial Officer; and (iii) the three other most highly compensated executive officers as of March 31, 2013 (collectively, our “NEOs”):

Name and Principal Position	Fiscal Year	Salary ($)(2)	Stock Awards ($)(3)	Option Awards ($)(3)	Non-Equity Incentive Plan Compensation ($)(4)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5)	All Other Compensation ($)(6)	Total ($)
John H. Hammergren Chairman, President and Chief Executive Officer	2013	1,680,000	8,200,560	5,819,523	11,464,200	24,211,297	369,419	51,744,999
	2012	1,680,000	8,601,530	6,133,206	12,827,520	10,075,558	362,508	39,680,322
	2011	1,664,615	12,185,796	7,370,750	9,860,400	14,072,640	511,951	45,666,152
Jeffrey C. Campbell Executive Vice President and Chief Financial Officer	2013	863,000	3,053,400	2,148,146	3,026,230	3,087,444	113,360	12,291,580
	2012	861,039	3,173,380	2,261,747	3,453,179	1,506,558	127,322	11,383,225
	2011	838,615	4,509,704	2,731,945	2,613,750	1,265,881	126,411	12,086,306
Paul C. Julian Executive Vice President and Group President	2013	1,065,000	4,536,480	3,222,219	5,672,178	6,145,204	251,963	20,893,044
	2012	1,062,692	4,760,070	3,402,809	6,322,734	3,048,268	219,073	18,815,646
	2011	1,035,923	6,716,581	4,107,085	4,774,750	2,926,436	289,151	19,849,926
Laureen E. Seeger Executive Vice President, General Counsel and Chief Compliance Officer	2013	686,000	1,919,280	1,347,473	1,877,471	2,873,749	87,561	8,791,534
	2012	682,769	2,004,240	1,405,951	2,192,779	1,300,328	80,766	7,666,833
	2011	651,385	2,878,535	1,668,503	1,591,000	1,212,772	79,096	8,081,291
Patrick J. Blake(1) Executive Vice President and Group President	2013	684,000	1,570,320	1,093,602	1,844,861	68,899	92,994	5,354,676
(1) Mr. Blake was not an NEO in FY 2012 or FY 2011. (2) Mr. Hammergren’s base salary has remained unchanged since May 2010. Base salaries for our other NEOs have remained unchanged since May 2011. (3) Amounts shown represent the aggregate grant date fair value of stock-based awards, including the value of dividend equivalents, calculated in accordance with ASC Topic 718. These values do not include estimated forfeitures and may not reflect compensation actually received by our officers. The assumptions used to calculate the value of these awards can be found in Financial Note 5 of the Company’s consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as filed with the SEC on May 7, 2013. For awards that are not subject to performance conditions, such as stock options, the maximum award levels would not result in awards greater than disclosed in the table above. For awards that are subject to performance conditions, such as PeRSUs, we report the value at grant date based upon the probable outcome of such conditions consistent with our estimate of aggregate compensation cost to be recognized over the service period determined under ASC Topic 718, excluding the effect of estimated forfeitures. The following represents the aggregate value based on the maximum number of shares that may be earned for PeRSU awards computed in accordance with ASC Topic 718 for each of the fiscal years presented above: Mr. Hammergren, $16,401,120, $18,923,366 and $19,376,708; Mr. Campbell, $6,106,800, $6,981,436 and $7,170,908; Mr. Julian, $9,072,960, $10,472,154 and $10,680,075; Ms. Seeger, $3,838,560, $4,409,328 and $4,577,175; and Mr. Blake, $3,140,640. (4) Amounts shown represent the payouts under the MIP and the LTIP: • MIP for FY 2013: Mr. Hammergren, $3,742,200; Mr. Campbell, $1,095,730; Mr. Julian, $1,739,678; Ms. Seeger, $733,471; and Mr. Blake, $700,861. • LTIP for FY 2011 — FY 2013: Mr. Hammergren, $7,722,000; Mr. Campbell, $1,930,500; Mr. Julian, $3,932,500; Ms. Seeger, $1,144,000; and Mr. Blake, $1,144,000. (5) Amounts shown represent the year-over-year change in actuarial present value of pension benefits, above-market interest earned from amounts deferred in the Company’s nonqualified deferred compensation plans and above-market interest credited on undistributed dividend equivalents. Above-market interest is defined by the SEC as any amount over 120% of the long-term applicable federal rate published by the IRS. • Pension: Mr. Hammergren, $23,180,024; Mr. Campbell, $3,027,021; Mr. Julian, $5,754,616; and Ms. Seeger, $2,802,240. Mr. Blake is not eligible to participate in the pension plan, since he was not an executive officer in 2007 when participation in the plan was frozen. • Nonqualified deferred compensation: Mr. Hammergren, $973,576; Mr. Campbell, $40,131; Mr. Julian, $359,050; Ms. Seeger, $59,667; and Mr. Blake, $58,388. • Dividend equivalents: Mr. Hammergren, $57,697; Mr. Campbell, $20,292; Mr. Julian, $31,538; Ms. Seeger, $11,842; and Mr. Blake, $10,511. Amounts shown for changes in pension values may not represent values that NEOs will actually receive under the Company’s pension plan. Rather, these amounts reflect actuarial amounts calculated under SEC requirements. Pension values are calculated using assumptions used to prepare the Company’s audited financial statements for the applicable fiscal year. The assumptions used to calculate changes in pension values are set forth in the 2013 Pension Benefits Table below, in the subsection titled “Actuarial Assumptions.” As more fully explained following the 2013 Pension Benefits Table, a key assumption we use in calculating our pension liability is the interest rate we must apply to convert the future pension benefit into a lump sum – the “lump-sum interest rate.” The Company lowered the lump-sum interest rate from 4.0% to 2.3% in FY 2013 as part of its routine administration of the plan, in response to a prolonged, unprecedented period of low interest rates. The effect of lowering this interest rate even a small amount created a meaningful increase in the estimated lump-sum value of the pension benefit. Of the $23 million increase in pension accrual for Mr. Hammergren, $21 million is attributable to this adjustment to the lump-sum interest rate. The remainder is the value of one year’s service credit in accordance with the terms of the pension plan.

– 2013 Proxy Statement   41

(6)

Amounts shown represent the following with respect to FY 2013:

Defined Contribution Benefits and Nonqualified Plan Earnings

The Company made a matching contribution of $10,000 to each NEO’s PSIP (401(k)) retirement account.

As described below in the subsection titled “Narrative Disclosure to the 2013 Nonqualified Deferred Compensation Table,” the SPSIP II and the DCAP III provide for matching contributions. The amount contributed by the Company to each NEO’s SPSIP II account was as follows: Mr. Hammergren, $246,301; Mr. Campbell, $81,647; Mr. Julian, $120,510; Ms. Seeger, $57,151; and Mr. Blake, $54,605. For FY 2013, the Company also contributed $4,000 to Mr. Blake’s DCAP III account.

Perquisites and Other Personal Benefits

The value provided to each NEO under the Company’s Executive Officer Security Policy was as follows: Mr. Hammergren, $88,796; Mr. Campbell, $0; Mr. Julian, $87,837; Ms. Seeger, $0; and Mr. Blake, $0. These amounts represent reimbursement of reasonable expenses related to the installation and maintenance of home security equipment, the incremental cost of personal use of Company-provided aircraft and the incremental cost of personal use of a Company-provided car and driver. The Company does not reimburse our NEOs for taxes due on personal income imputed with regard to items or services provided under the Executive Officer Security Policy.

•

Company Aircraft: When practicable, Mr. Hammergren and Mr. Julian are directed to use the Company’s aircraft for security, productivity and privacy reasons. The aggregate incremental cost of personal use of Company-provided aircraft for Mr. Hammergren and Mr. Julian was $78,141 and $85,358, respectively. To calculate this cost, the Company determines the total variable annual operating cost for each aircraft that generally includes fuel, trip-related maintenance, landing and parking fees, crew expenses, supplies and catering. The total variable operating cost is then averaged for all flight hours flown and multiplied by the total number of personal flight hours for each NEO. Fixed annual costs that do not change based on usage, such as pilots’ salaries, home hanger expenses, general taxes, routine maintenance and insurance, are excluded from the incremental cost calculation. If an aircraft flies empty before picking up or after dropping off a passenger flying for personal reasons, and the empty flight is not related to any other business-related travel, this “deadhead” segment is included in the incremental cost calculation for determining personal use.

•

Car and Driver: The aggregate incremental cost of personal use of Company-provided car and driver for Mr. Hammergren and Mr. Julian was $5,650 and $2,479, respectively. This cost is determined by multiplying (i) the amount paid for the driver’s services and various vehicle operating costs by (ii) a fraction, the numerator of which is the number of hours of personal travel by each NEO and the denominator of which is the total hours of available car service.

•

Home Security: Mr. Hammergren was reimbursed $5,005 for the installation of home security devices and/or security monitoring services.

The value of financial counseling services provided to each NEO was as follows: Mr. Hammergren, $18,309; Mr. Campbell, $18,556; Mr. Julian, $18,309; Ms. Seeger, $18,309; and Mr. Blake, $18,309.

The Company provided a housing allowance of $1,817 to Mr. Campbell, in accordance with the terms of his employment offer letter.

The value of items or services provided in connection with the annual Board retreat and employee award programs attended by our NEOs and their spouses was as follows: Mr. Hammergren, $6,013; Mr. Campbell, $1,340; Mr. Julian, $15,307; Ms. Seeger, $2,101; and Mr. Blake, $6,080.

– 2013 Proxy Statement   42

2013 Grants of Plan-Based Awards Table

The table below provides information on plan-based awards, stock awards and stock options granted to our NEOs during the fiscal year ended March 31, 2013:

Name	Grant Date								All Other Option Awards: Number of Securities Underlying Options (#)(4)	Exercise or Base Price of Option Awards (($)/Sh)	Grant Date Fair Value of Stock and Option Awards ($)(5)
		Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)				Estimated Future Payouts Under Equity Incentive Plan Awards(2)
		Threshold ($)(3)	Target ($)	Maximum ($)		Threshold (#)	Target (#)	Maximum (#)
John H. Hammergren	5/22/2012								298,000	87.24	5,819,523
LTIP		-0-	2,565,000	5,130,000
PeRSU						-0-	94,000	188,000			8,200,560
MIP		1,260,000	2,520,000	6,000,000	(6)
Jeffrey C. Campbell	5/22/2012								110,000	87.24	2,148,146
LTIP		-0-	641,000	1,282,000
PeRSU						-0-	35,000	70,000			3,053,400
MIP		409,925	819,850	2,459,550
Paul C. Julian	5/22/2012								165,000	87.24	3,222,219
LTIP		-0-	1,306,000	2,612,000
PeRSU						-0-	52,000	104,000			4,536,480
MIP		585,750	1,171,500	3,514,500
Laureen E. Seeger	5/22/2012								69,000	87.24	1,347,473
LTIP		-0-	380,000	760,000
PeRSU						-0-	22,000	44,000			1,919,280
MIP		274,400	548,800	1,646,400
Patrick J. Blake	5/22/2012								56,000	87.24	1,093,602
LTIP		-0-	380,000	760,000
PeRSU						-0-	18,000	36,000			1,570,320
MIP		307,800	615,600	1,846,800
(1) Amounts shown represent the range of possible cash payouts for each NEO under (i) the LTIP for the FY 2013 — FY 2015 performance period and (ii) the MIP for the FY 2013 performance period. Amounts actually earned under FY 2013 MIP are included in the 2013 Summary Compensation Table under the column titled “Non-Equity Incentive Plan Compensation.” Information regarding the operation of the LTIP and the MIP is provided above in the subsection titled “Executive Officer Compensation Elements.” (2) Amounts shown represent the range of possible PeRSU awards for the FY 2013 performance period that the Compensation Committee determined at its May 2012 meeting. Based on the Company’s accomplishment against pre-determined performance goals, the actual RSUs awarded to each NEO at the committee’s May 2013 meeting were as follows: Mr. Hammergren, 94,000 units; Mr. Campbell, 35,000 units; Mr. Julian, 52,000 units; Ms. Seeger, 22,000 units; and Mr. Blake, 18,000 units. PeRSUs, including their vesting schedule, are described above in the subsection titled “Long-term Compensation — Performance Restricted Stock Units.” (3) Amounts shown for MIP represent 50% of the target cash payout for the FY 2013 performance period, which is the minimum threshold award payment. (4) Stock options have a seven-year term and vest 25% on the first four anniversaries of the grant date, subject to the NEO’s continued employment with the Company. (5) Amounts shown reflect the aggregate grant date fair values of option and PeRSU awards computed in accordance with ASC Topic 718. Amounts do not reflect whether our NEOs have actually realized a financial benefit from the award. (6) The maximum payout allowed under the MIP is $6,000,000.

– 2013 Proxy Statement   43

2013 Outstanding Equity Awards Table

The table below provides information on option awards and stock awards held by the NEOs as of March 31, 2013:

Name	Option Awards				Stock Awards
	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#)(1) Unexercisable	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)(2)	Market Value of Shares or Units of Stock That Have Not Vested ($)(3)
John H. Hammergren	75,000	—	62.21	5/22/2014	795,450	85,876,782
	400,000	—	57.89	5/20/2015
	458,250	152,750	40.46	5/26/2016
	201,000	201,000	67.81	5/25/2017
	75,250	225,750	83.51	5/24/2018
	—	298,000	87.24	5/22/2019
Jeffrey C. Campbell	75,000	—	62.21	5/22/2014	285,668	30,840,717
	159,000	—	57.89	5/20/2015
	160,500	53,500	40.46	5/26/2016
	74,500	74,500	67.81	5/25/2017
	27,750	83,250	83.51	5/24/2018
	—	110,000	87.24	5/22/2019
Paul C. Julian	252,000	—	57.89	5/20/2015	440,130	47,516,435
	84,750	84,750	40.46	5/26/2016
	112,000	112,000	67.81	5/25/2017
	41,750	125,250	83.51	5/24/2018
	—	165,000	87.24	5/22/2019
Laureen E. Seeger	—	35,000	40.46	5/26/2016	171,180	18,480,593
	—	45,500	67.81	5/25/2017
	—	51,750	83.51	5/24/2018
	—	69,000	87.24	5/22/2019
Patrick J. Blake	3,750	—	57.89	5/20/2015	116,862	12,616,422
	6,250	6,250	40.46	5/26/2016
	18,750	18,750	41.51	6/15/2016
	19,000	38,000	67.81	5/25/2017
	14,250	42,750	83.51	5/24/2018
	—	56,000	87.24	5/22/2019
(1) Stock options have a seven-year term and vest 25% on the first four anniversaries of the grant date, subject to the NEO’s continued employment with the Company. (2) Stock awards vest as follows: May 26, 2013 — Mr. Hammergren, 416,880 shares; Mr. Campbell, 151,200 shares; Mr. Julian, 231,120 shares; Ms. Seeger, 87,480 shares; and Mr. Blake, 52,992 shares; May 24, 2014 — Mr. Hammergren, 220,980 shares; Mr. Campbell, 76,328 shares; Mr. Julian, 121,800 shares; Ms. Seeger, 46,980 shares; and Mr. Blake, 34,800 shares; and May 24, 2015 — Mr. Hammergren, 157,590 shares; Mr. Campbell, 58,140 shares; Mr. Julian, 87,210 shares; Ms. Seeger, 36,720 shares; and Mr. Blake, 29,070 shares. (3) Based on the $107.96 closing price of the Company’s common stock as reported by the NYSE on March 28, 2013, the last trading day of our fiscal year.

– 2013 Proxy Statement   44

2013 Option Exercises and Stock Vested Table

The table below provides information on stock option exercises and vestings of stock awards for our NEOs during the fiscal year ended March 31, 2013:

Name	Option Awards		Stock Awards
	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)(1)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)(2)
John H. Hammergren	225,000	9,931,920	277,425	24,260,816
Jeffrey C. Campbell	63,000	2,572,555	78,638	6,876,893
Paul C. Julian	314,500	14,936,544	133,575	11,681,134
Laureen E. Seeger	120,000	3,592,269	40,963	3,582,214
Patrick J. Blake	-0-	-0-	6,038	528,023
(1) Amounts shown represent values realized based on the difference between the market price of the Company’s common stock on the date of exercise and the exercise price. (2) Amounts shown represent the aggregate fair market values of the Company’s common stock realized upon the vesting of RSUs, accrued dividend equivalents and accrued interest. The amounts distributed to our NEOs for accrued dividend equivalents and accrued interest were as follows: Mr. Hammergren, $620,184; Mr. Campbell, $175,795; Mr. Julian, $298,607; Ms. Seeger, $91,573; and Mr. Blake, $13,498.

2013 Pension Benefits Table

The Executive Benefit Retirement Plan (“EBRP”) is a nonqualified average final pay defined benefit pension plan that was established in 1984. Participation was frozen effective June 1, 2007 to the then-current roster of executive officers. The following table provides information on the actuarial present values of the benefits accumulated by our NEOs under the EBRP calculated as of March 31, 2013:

Name	Plan Name	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)(1)	Payments During Last Fiscal Year ($)
John H. Hammergren	EBRP	17	115,822,288	—
Jeffrey C. Campbell	EBRP	9	10,529,765	—
Paul C. Julian	EBRP	16	22,969,648	—
Laureen E. Seeger	EBRP	13	8,315,255	—
Patrick J. Blake(2)	—	—	—	—
(1) Amounts shown do not reflect potential future salary growth, because amounts are required to be calculated based on compensation and service as of March 31, 2013. Present values are based on assumptions used to determine our annual pension expense. Certain assumptions, such as future salary increases, are different for proxy disclosure purposes that assume no future pay increases, versus financial reporting purposes that assume future pay increases. (2) Mr. Blake is not eligible to participate in the EBRP, since he was not an executive officer when participation in the plan was frozen in 2007.

The 2013 Pension Benefits Table values are based on the following:

Actuarial Assumption	March 31, 2013	March 31, 2012
Discount rate	2.12%	3.03%
Lump-sum interest rate	2.30%	4.00%
Retirement ages
• EBRP	62	62
• Employment Agreement — Mr. Hammergren	56 and one month	55 and one month
Withdrawal, disability or mortality before retirement	None	None
Post-retirement mortality rate	1994 Group Annuity Reserving Table	1994 Group Annuity Reserving Table
Future salary increases	None	None
MIP cash bonus payout	100% of target amount	100% of target amount
Form of payment — EBRP and Employment Agreement for Mr. Hammergren	Lump sum	Lump sum

For additional information on the Company’s pension obligations, refer to Financial Note 16 of the Company’s consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended March 31, 2013 as filed with the SEC on May 7, 2013.

– 2013 Proxy Statement   45

Actuarial Assumptions

The amounts shown in the 2013 Summary Compensation Table and the 2013 Pension Benefits Table reflect actuarial present values of the benefits accumulated through the end of FY 2013. Proxy pension values are generally calculated using the same assumptions used to calculate pension values for the Company’s audited financial statements, except retirement age is assumed to be the normal retirement age as defined in the EBRP for voluntary retirement or in the executive officer’s employment agreement, which is the earliest age at which the executive could retire without any benefit reduction due to age.

Pension values may fluctuate significantly from year to year depending on a number of factors, including age, years of service, annual earnings and the assumptions used to determine the present value of the pension benefit amount. For example, the Company is required to calculate the present value of future pension liabilities using a discount rate based on corporate bond yields. As discount rates decrease, potential pension liabilities may increase. As discount rates increase, potential pension liabilities may decrease.

Under the EBRP, lump-sum distributions under Approved or Early Retirement are calculated using the lump-sum interest rate published monthly by the Pension Benefit Guarantee Corporation (“PBGC”). Participants who separate from the plan with vested benefits who do not qualify for Approved or Early Retirement have lump-sum benefits determined using the General Agreement on Tariffs and Trade (“GATT”) lump-sum interest rate, which reflects the 30-year Treasury bond interest rate.

The Company reviews numerous assumptions used to calculate the actuarial amounts reported in the pension benefits table at the end of each fiscal year. The Company must make a key assumption for what the PBGC lump-sum interest rate will be when a plan participant reaches assumed retirement (generally, age 62). The Company has historically assumed a stable, long-term PBGC lump-sum interest rate for pension valuation purposes, since pension liabilities are long-term obligations. PBGC lump-sum interest rates, however, have remained unusually low for several years and the Federal Reserve recently announced its intention to keep interest rates low through 2015.

Due to the prolonged, unprecedented low interest rate environment and the continued decline in the PBGC lump-sum interest rate, a decision was made to change the assumed PBGC lump-sum interest rate from a long-term interest rate to a more current rate to calculate the estimated reportable benefit amounts under the EBRP for FY 2013. The average remaining service period for the active EBRP participants is approximately five years. We selected a PBGC lump-sum interest rate assumption of 2.3%, which reflects the historical five year average PBGC lump-sum interest rate as of March 31, 2013.

As part of the regular review of the plan that occurs annually, the Company also updated our CEO’s assumed retirement age for accounting purposes and the mortality assumptions used to calculate our pension liability.

Narrative Disclosure to the 2013 Pension Benefits Table

For Retirement at Age 62 or Older, or Involuntary Separation from Service After Attaining Age 55 with at least 15 Years of Service:

A participant vests in EBRP benefits after completing five years of service as an executive officer. The following is a brief summary of the benefits that would be provided to a participant in the EBRP if he or she retires at age 62 or older, or involuntarily separates from service after attaining age 55 with at least 15 or more years of credited service.

A vested participant is eligible to receive “Approved Retirement” benefits if one of the following criteria is met:

•

Separates from service on or after reaching age 62;

•

Separates from service involuntarily after attaining age 55 with at least 15 years of credited service;

•

Separates from service at any time with approval of the Compensation Committee; or

•

As provided for in the participant’s employment agreement.

Approved Retirement benefits are calculated by applying the following benefit formula: (i) a service-based percentage of his or her “average final compensation” as defined below, minus (ii) the annuity payment due under the Company’s “Retirement Plan” and the hypothetical annuity payment that is the actuarial equivalent of the amount earned under the “Retirement Share Plan” (together, “Basic Retirement Benefit”).

The Retirement Plan is a tax-qualified defined benefit pension plan which was effective January 1, 1972 and frozen as of December 31, 1996. None of our NEOs participates in the Retirement Plan. The Retirement Share Plan, introduced in January 1997 and discontinued after March 31, 2004, was an element offered under the PSIP, the Company’s 401(k) plan. As of March 31, 2013, only Mr. Hammergren and Mr. Julian maintain a balance under the Retirement Share Plan which would offset their EBRP benefits.

– 2013 Proxy Statement   46

Calculation of Average Final Compensation

Approved Retirement benefits under the EBRP are based on the participant’s “average final compensation,” excluding long-term incentives such as LTIP and equity grants. Average final compensation is the annual compensation received during the participant’s most highly paid five consecutive years of full-time employment in the final 15 years of service. Average annual compensation includes annual base salary and MIP payments, including amounts voluntarily deferred under a Company-sponsored deferred compensation plan. Pursuant to Mr. Hammergren’s employment agreement, 150% of his MIP payments are included in the calculation of his average final compensation.

Percentage of Average Final Compensation

The gross EBRP benefit, expressed as a percentage of the participant’s average final compensation, is equal to an initial base benefit of 20%, increased by 1.77% for each completed year of service (0.148% for each completed month if the executive completes less than a full year of service in the year in which he or she separates from service). The maximum benefit is generally 60% of average final compensation. However, the Compensation Committee has the authority to approve, or a participant’s written employment agreement may provide for, a benefit formula higher than 60% of average final compensation. Mr. Hammergren’s employment agreement provides for an EBRP benefit equal to at least 60% of his average final compensation, increased by 1.5% for each completed year of service after April 1, 2004, with a maximum benefit of 75% of his average final compensation.

Service Credit

For purposes other than vesting, the EBRP measures service from the commencement of an executive’s employment until the participant separates from service. Service prior to being named a participant is included in the determination of service credit. Separation from service generally has the same meaning as provided in IRC Section 409A, which is described in further detail below at “Executive Employment Agreements.” The EBRP allows service credit for certain rehire situations, leaves of absence and periods in which a participant is receiving severance pay.

Basic Retirement Benefit

For purposes of calculating a participant’s Basic Retirement Benefit under the EBRP, the offset for the hypothetical annuity benefit payable under the Retirement Share Plan is calculated by first determining the value of each share credited to the participant’s account as of the date it was credited, then applying an annual 12% rate to that value from the date the share was credited to the account to the date the participant’s EBRP benefit is scheduled to begin. The aggregate value of the shares credited to the participant’s Retirement Share Plan is then converted to a straight-life annuity. The resulting annuity is converted to a lump-sum amount using the interest rate prescribed by the PBGC for purposes of determining the present value of a lump-sum distribution for the month in which the participant retires and a table based upon the 1994 Group Annuity Reserving Table (1994 GAR) (“Present Value Calculation”).

Distribution of Benefits

The amount of a participant’s EBRP benefit is based on a straight-life annuity paid out on a monthly basis over the participant’s lifetime, which is then converted to a lump-sum actuarial equivalent using the above-described Present Value Calculation. Lump-sum payments are made in the seventh month following the month in which a participant separates from service.

For Voluntary Separation from Service Prior to Age 62, but After Attaining Age 55 with a Minimum of 15 Years of Service:

The following is a brief summary of the EBRP benefit provided to a participant who is not eligible for Approved Retirement and voluntarily separates from service after attaining 55 years of age with at least 15 years of credited service.

The EBRP provides for an “Early Retirement” benefit prior to reaching age 62 if the participant voluntarily separates from service:

•

After age 55 and completion of at least 15 years of service;

•

At any other time with approval of the Compensation Committee; or

•

As provided in the participant’s employment agreement.

A participant who is eligible for Early Retirement will receive the same EBRP benefit he or she would have received upon retirement after attaining age 62 (as described above), with the following adjustments:

•

The percentage of average final compensation used in the benefit formula is reduced by 0.3% for each month the actual separation precedes the date the participant reaches age 62; and

•

The participant’s Basic Retirement Benefit is calculated as of the participant’s age at the time he or she separates from service.

Mr. Hammergren will be provided with an Approved Retirement EBRP benefit in accordance with the provisions of the EBRP and his employment agreement should his employment terminate for any reason other than for Cause. At March 31, 2013 of the other NEOs who are EBRP participants, Mr. Julian met the age and service requirements to qualify for Approved Retirement upon involuntary termination or Early Retirement upon voluntary termination. Recognition of additional age and service under the CIC Policy described below would not make the other two NEOs participating in the EBRP eligible for Approved Retirement.

– 2013 Proxy Statement   47

Other Separations from Service Prior to Age 62:

Participants with five years of service (“Vested Participants”) who separate from service for reasons other than for Cause, but separate prior to being eligible for Approved or Early Retirement, are also entitled to a lump-sum benefit. However, their lump-sum benefits are determined using the GATT lump-sum interest rate.

The EBRP allows a Vested Participant who separates from service to receive the same EBRP benefits he or she would have received upon termination due to an Approved Retirement prior to attaining age 62. However, the percentage of average final compensation used in the benefit formula is multiplied by a pro-rata percentage described below, then calculated as the present value of a benefit payable at age 65.

The pro-rata percentage is the higher of the following two percentages, but not greater than 100%:

•

The percentage determined by dividing the number of the participant’s whole months of service with the Company by the number of whole months from the date the participant was first hired by the Company to the date the participant reaches age 65, then multiplying by 100; or

•

The percentage determined by multiplying 4.44% by the number of the participant’s whole and partial years of completed service with the Company.

2013 Nonqualified Deferred Compensation Table

The table below provides information on the contributions, earnings and account balances for the NEOs participating in a Company-sponsored nonqualified deferred compensation program:

Name	Executive Contributions in Last Fiscal Year ($)(1)(2)	Registrant Contributions in Last Fiscal Year ($)(3)	Aggregate Earnings in Last Fiscal Year ($)(4)	Aggregate Withdrawals/ Distributions ($)		Aggregate Balance at Last Fiscal Year-End ($)
John H. Hammergren
SPSIP Plans	307,876	246,301	362,686	-0-		7,718,547
DCAP Plans	-0-	-0-	1,403,884	-0-		19,314,261
Dividend Equivalents	-0-	660,327	97,049	620,184	(5)	1,423,396
Jeffrey C. Campbell
SPSIP Plans	102,059	81,647	85,238	-0-		1,537,022
DCAP Plans	-0-	-0-	-0-	-0-		-0-
Dividend Equivalents	-0-	232,634	34,102	175,795	(5)	511,091
Paul C. Julian
SPSIP Plans	150,637	120,510	159,291	-0-		3,221,317
DCAP Plans	-0-	-0-	488,504	-0-		6,608,583
Dividend Equivalents	-0-	361,377	53,020	298,607	(5)	787,960
Laureen E. Seeger
SPSIP Plans	71,439	57,151	12,659	-0-		453,807
DCAP Plans	-0-	-0-	100,014	-0-		1,353,006
Dividend Equivalents	-0-	137,793	19,893	91,573	(5)	301,887
Patrick J. Blake
SPSIP Plans	68,256	54,605	43,006	-0-		993,246
DCAP Plans	200,000	4,000	87,246	-0-		1,507,885
Dividend Equivalents	-0-	97,286	15,393	13,498	(5)	244,295
Deferred RSUs	-0-	-0-	-0-	-0-		1,134,012	(6)
(1) Amounts shown reflect amounts deferred by our NEOs and are reported as compensation in the 2013 Summary Compensation Table above. (2) Amounts shown represent amounts deferred by our NEOs into their SPSIP II and DCAP III accounts. (3) Amounts shown represent Company contributions to the NEOs’ SPSIP II and DCAP III accounts, as well as amounts credited on undistributed dividend equivalents. (4) Amounts shown include earnings on compensation previously deferred by our NEOs into their SPSIP Plans and DCAP Plans. The SPSIP II is a successor plan to the Company’s Supplemental Profit-Sharing Investment Plan (“SPSIP,” together with SPSIP II, “SPSIP Plans”), which was frozen as of December 31, 2004. The DCAP III is a successor plan to the Company’s Deferred Compensation Administration Plan II (“DCAP II,” together with DCAP III, “DCAP Plans”), which was frozen as of December 31, 2004. (5) Amounts shown represent dividend equivalents and interest paid on accumulated dividends upon vesting of the underlying RSUs. For Mr. Blake, the amount shown also includes dividend equivalents earned on deferred RSUs. Until April 2011, recipients of RSUs were permitted to defer payment of earned RSUs. (6) Represents the value of 10,504 deferred RSUs based on the $107.96 closing price of the Company’s common stock as reported by the NYSE on March 28, 2013, the last trading day of our fiscal year.

– 2013 Proxy Statement   48

The Company sponsors two nonqualified deferred compensation plans. The Supplemental Profit-Sharing Investment Plan II (“SPSIP II”), is specifically for employees impacted by IRC Section 401(a)(17), which limits participation of highly paid employees in tax-qualified 401(k) plans. Compensation eligible for deferral into the SPSIP II includes base salary and MIP payments. The Deferred Compensation Administration Plan III (“DCAP III”) is a voluntary nonqualified deferred compensation plan. Compensation eligible for deferral in DCAP III includes base salary, MIP and LTIP payments.

Until December 31, 2008, amounts deferred into the SPSIP II were credited with interest at the same rate as the Standish Mellon Stable Value Fund, an investment option that was generally available to all Company employees under our PSIP. Effective January 1, 2009, accounts in the SPSIP II and the DCAP III are credited with interest at a rate set by the Compensation Committee each July. Currently, the interest rate for deferrals under the DCAP III and the SPSIP II are as follows: (i) for deferrals made prior to January 1, 2010, 8.0% per year; and (ii) for deferrals made after January 1, 2010, 120% of the long-term applicable federal rate published each December by the IRS.

A third type of nonqualified deferred compensation is dividend equivalents and the related interest income. All recipients of RSUs, including our NEOs, receive dividend equivalents at the same dividend rate received by the Company’s common stock investors, which is currently $0.20 per share per quarter. The dividend equivalents are credited quarterly to an interest-bearing account and are distributed in cash upon vesting of the RSUs. Under the terms of our 2005 Stock Plan, interest accrues on employees’ credited dividend equivalents at a rate set by the Compensation Committee, which is currently 8.0% per year.

Narrative Disclosure to the 2013 Nonqualified Deferred Compensation Table

Supplemental Profit-Sharing Investment Plan II

The SPSIP II was adopted by the Board on January 1, 2005 and is the successor plan to the Supplemental Profit-Sharing Investment Plan (“SPSIP”), which was frozen effective December 31, 2004. The SPSIP II includes deferral and distribution provisions intended to comply with IRC Section 409A.

U.S. employees, including our NEOs, may elect to participate in the SPSIP II. Participants may elect to defer, in whole percentages, from 1.0% to 5.0% of covered compensation in excess of the IRC Section 401(a)(17) limit (currently $255,000 per year). An election to participate in SPSIP II remains in effect until the participant informs the plan administrator that he or she wishes to cease participation. In that case, the election to cease participation becomes effective at the beginning of the next calendar year. Certain of our NEOs have elected to participate in the plan at the 5.0% level. At an employee participation level of 5.0%, the Company contributes an additional 4.0% of the participant’s pay as a matching contribution, consistent with the terms of the PSIP (“Company Match”). Participants are always 100% vested in both the Company Match and their own contributions in the SPSIP II.

Participants in the SPSIP and the SPSIP II also elect how distributions of deferred amounts are to be made upon separation from service. Upon separation of service, distributions may be made in a lump sum or over up to 10 years. A different distribution election may be made for a separation from service due to death. Distributions under both plans are subject to ordinary income taxes.

Accounts in the legacy SPSIP are credited with earnings at a rate equal to the amount earned during the same period by the Standish Mellon Stable Value Fund investment option in the Company’s PSIP. Because earnings on SPSIP II accounts are based on a publicly available mutual fund, credited earnings are not considered above-market earnings by the IRS. Therefore, these earnings are not subject to federal Social Security and Medicare taxes in the year credited.

Accounts in the SPSIP II are credited with interest at the same rate as determined by the Compensation Committee for deferrals under the DCAP III, which is currently (i) 8.0% per year for amounts deferred prior to January 1, 2010; and (ii) 120% of the long-term applicable federal rate published each December by the IRS for amounts deferred on or after January 1, 2010. Since the crediting rate is discretionary, a portion of the earnings accumulated each year in the SPSIP II may be subject to federal Social Security and Medicare taxes in the year credited.

Unlike tax-qualified retirement accounts, assets for the payment of benefits under the SPSIP and SPSIP II are not held in trust. Distributions under these plans are paid from the Company’s general corporate funds. Participants and their beneficiaries are unsecured general creditors of the Company with no special or prior right to any Company assets for payment of any obligation under the plans.

Deferred Compensation Administration Plan III

The DCAP III was adopted by the Board on January 1, 2005 and is the successor plan to the Deferred Compensation Administration Plan II, which was frozen effective December 31, 2004. The DCAP III includes deferral and distribution provisions intended to comply with IRC Section 409A.

Participation in the DCAP III is open to all employees eligible for participation in the MIP with a bonus target of at least 15% and other highly compensated employees. For calendar year 2012, approximately 4,700 employees were eligible to participate in the DCAP III, including all of our NEOs.

– 2013 Proxy Statement   49

Participants may elect to defer into the DCAP III up to 75% of their annual base salary, up to 90% of their annual MIP payment and for those who also participate in the LTIP, up to 90% of any LTIP payment. Unlike the SPSIP II, an employee’s election to participate in the DCAP III is in effect for only one calendar year. Amounts deferred under the DCAP III are credited to an interest-bearing account. The Compensation Committee annually sets the crediting rate, which is currently (i) 8.0% per year for amounts deferred prior to January 1, 2010; and (ii) 120% of the long-term applicable federal rate published each December by the IRS for amounts deferred on or after January 1, 2010. Since the crediting rate is discretionary, a portion of the earnings accumulated each year may be subject to federal Social Security and Medicare taxes in the year credited.

Participants in the DCAP III make a distribution election at the time they elect to defer compensation. Distributions may be made at one or more specified dates in the future or upon separation of service in either a lump sum or over up to 10 years. A different distribution election may be made for a separation from service due to retirement, disability or death. However, if the separation from service is not due to retirement, disability or death, the entire account balance is distributed as a lump sum at a time such payment would comply with IRC Section 409A. Distributions under both plans are subject to ordinary income taxes.

Earnings that are deferred into the DCAP III are not considered “covered compensation” for PSIP or SPSIP II purposes as defined by those plans. No PSIP or SPSIP II employee deductions are taken from compensation deferred into the DCAP III. To keep the DCAP III participants whole with respect to their Company Match, an amount is credited to a participant’s DCAP III account equal to the additional Company Match that would have been credited to the PSIP and/or the SPSIP II had a participant not participated in the DCAP III.

As with the SPSIP and the SPSIP II, assets for the payment of benefits under the DCAP plans are not held in trust. Distributions are paid from the Company’s general corporate funds. Participants and their beneficiaries are unsecured general creditors of the Company with no special or prior right to any Company assets for payment of any obligation under the plans.

Executive Employment Agreements

The Company entered into employment agreements with Mr. Hammergren and Mr. Julian which provide for the employment term, compensation and benefits payable during the agreement term, as well as specified payments in the case of employment termination. Both agreements provide that the executives will participate in all compensation and fringe benefit programs made available to all executive officers. These employment agreements were most recently amended in November 2008, primarily to ensure that post-employment payments and benefits under the agreements comply with IRC Section 409A.

The descriptions that follow are qualified in their entirety by the agreements themselves, which have been included as exhibits to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2008, as filed with the SEC on October 29, 2008.

Mr. John H. Hammergren

The Company first entered into a three-year employment agreement with John H. Hammergren, effective January 31, 1996, as corporate vice president and president of McKesson Health Systems (“1996 Employment Agreement”). The terms of that agreement were based in part on certain compensation elements provided to Mr. Hammergren by his previous employer and offered to him as inducement to accept our offer of employment.

The Company later entered into an Amended and Restated Employment Agreement with Mr. Hammergren, initially effective June 21, 1999, and as amended on April 1, 2004, November 1, 2006 and November 1, 2008 (“Hammergren Agreement”), which continues to be operative in his current role as Chairman, President and Chief Executive Officer. These subsequent versions of the Hammergren Agreement consist in large measure of compensation elements and terms that existed in the 1996 Employment Agreement, or terms provided to his predecessor as Chairman, President and Chief Executive Officer.

On March 27, 2012, Mr. Hammergren delivered to Alton F. Irby III, the Chairman of the Compensation Committee, a letter relinquishing his right under his employment agreement to be paid a golden parachute tax gross-up and the right to have his change in control-related cash severance calculated as the product of 2.99 times his “base amount” (as defined in IRC Section 280G), leaving in place the alternative cash severance formulation of a lump sum equal to three years’ salary continuation and MIP participation. The relinquishment of these rights represents a substantial reduction in the benefits to which Mr. Hammergren would be entitled if he incurred a qualifying termination of employment in connection with a change in control.

The Hammergren Agreement renews automatically, so the remaining term is always three years. The Hammergren Agreement provides for an annual base salary of at least $1,580,000 effective November 1, 2008 and such additional incentive compensation, if any, as may be determined by the Board or any duly authorized committee. Incentive compensation awarded to Mr. Hammergren under the MIP is calculated using an individual target award of not less than 150% of his base salary. Mr. Hammergren is entitled to receive all other benefits generally available to other members of the Company’s management, and those benefits for which key executives are or become eligible.

– 2013 Proxy Statement   50

The agreement provides that if the Company terminates Mr. Hammergren without “Cause” or he terminates for “Good Reason” (both as defined in the Hammergren Agreement, and described below under “Definition of Cause” and “Definition of Good Reason”) and he remains in compliance with his post-employment non-disclosure and non-solicitation restrictions, he will be entitled to receive the following: (A) payment of his final monthly base salary for, and MIP awards whose performance periods end during, the remainder of the term of the Hammergren Agreement (“Severance Period”), with the MIP individual modifier equal to his average MIP individual modifier over the prior three years; (B) lifetime medical benefits and financial counseling program, as well as lifetime office space and secretarial support; (C) continued accrual and vesting of his rights and benefits under the Executive Survivor Benefits Plan (“ESBP”) and the EBRP for the Severance Period, calculated: (i) as though he was eligible for Approved Retirement benefits, commencing on the expiration of the Hammergren Agreement; and (ii) for the EBRP benefit only, on the basis of his receiving a benefit equal to 60% of his “Average Final Compensation,” as specified in the Hammergren Agreement, increased by 1.5% for each year of completed service from April 1, 2004 through the end of the Severance Period (subject to a maximum of 75%), without any reduction for early retirement; (D) accelerated vesting of stock options and restricted stock, subject to certain forfeiture and repayment provisions; (E) continued participation in pro-rata awards under the LTIP for the remainder of the Severance Period; and (F) for purposes of DCAP III and the 1994 Stock Option and Restricted Stock Plan (or any similar plan or arrangement), his termination will be deemed to have occurred as if he qualified as a retiree.

Payments that are required to be delayed for “specified employees” under IRC Section 409A will be delayed following a separation from service. Any payments delayed as a result of such compliance will accrue interest at a rate determined in advance by the Compensation Committee, as in effect on the date of separation. The current rate for this purpose is the interest rate applicable to amounts deferred prior to January 1, 2010 under DCAP III (“DCAP Rate”).

If Mr. Hammergren’s employment is terminated within six months preceding, or within two years following, a “Change in Control” as defined in his employment agreement and described below under “Definition of Change in Control,” he will receive a lump-sum payment calculated in accordance with the provision described in clause (A) of the preceding paragraph and he will continue to receive all of the other severance benefits described in the preceding paragraph. Mr. Hammergren’s EBRP payment will be calculated as provided in clause (C) above. However, the EBRP benefit is subject to a minimum threshold of the amount that he would have received for an Approved Retirement EBRP benefit under the plan in existence on April 1, 2004 and as provided in his prior employment agreement (“Minimum Lump-Sum Payment”). The Change in Control severance payment and payment of his benefit under the EBRP may be delayed following his separation from service to comply with IRC Section 409A. Any payments delayed as a result of such compliance will accrue interest at the DCAP Rate.

If Mr. Hammergren voluntarily terminates employment for other than “Good Reason” after the close of the fiscal year in which he has attained at least age 55 and has completed 15 years of continuous service in one or more of the following positions: Executive Chairman of the Board, Chief Executive Officer and/or co-Chief Executive Officer, upon retirement he will be entitled to receive the following: (i)  the benefits set forth in clauses (B) and (F) above; (ii) an Approved Retirement under the EBRP commencing on the expiration of the Hammergren Agreement, calculated on the basis of his receiving a benefit equal to 60% of his Average Final Compensation and increased by 1.5% for each year of completed service from April 1, 2004, through the end of his resignation (subject to a maximum of 75%), without any reduction for early retirement and subject to the Minimum Lump-Sum Payment under the EBRP; and (iii) the continued vesting of his equity compensation, the full term to exercise his outstanding stock options, continued participation in the LTIP and the MIP with the individual modifier equal to the average individual modifier over the prior three years and the cash equivalent of PeRSUs granted under the Company’s 2005 Stock Plan (or successor plans) for the performance periods that begin prior to, but end after, his retirement. Receipt of these added benefits is conditioned on Mr. Hammergren providing advance notice of his intent to retire and the Board either electing or approving by resolution his successor as Chief Executive Officer or approving a plan of succession. Mr. Hammergren will forfeit the aforementioned benefits if he breaches his obligations to the Company after his retirement, as set forth in Section 6 of the Hammergren Agreement, which includes confidentiality and non-solicitation obligations.

If Mr. Hammergren voluntarily terminates his employment with the Company other than for Good Reason (other than under the circumstances described above), he will be entitled to receive the benefits set forth in clauses (B) and (F) above and the EBRP benefit described in the previous paragraph.

If Mr. Hammergren is prevented from carrying out his duties and responsibilities due to disability, he will continue to receive his then-current salary for the period of his disability or, if less, a period of twelve months. At the end of that period, Mr. Hammergren will be eligible to receive his benefits under the EBRP, calculated on the basis of his achieving Approved Retirement at the rate of 60% of his Average Final Compensation and increased by 1.5% for each year of completed service from April 1, 2004 through the time of his disability (subject to a maximum of 75%), without any reduction for early retirement and subject to the Minimum Lump-Sum Payment under the EBRP.

If Mr. Hammergren’s employment is terminated for Cause, the Company’s obligations under the Hammergren Agreement cease and terminate. Any rights he may have under the Company’s benefit plans will be determined solely in accordance with the express terms of those plans.

If Mr. Hammergren dies during the term of his agreement, the Company will continue to pay his salary to his surviving spouse or designee for a period of six months. The Company will also pay to his spouse or designee his benefits under the EBRP, calculated on the basis of his receiving an Approved Retirement, at the rate of 60% of his Average Final Compensation and increased by 1.5% for each year of completed service from April 1, 2004 until his death (subject to a maximum of 75%), without any reduction for early retirement and subject to the Minimum Lump-Sum Payment under the EBRP.

– 2013 Proxy Statement   51

The Hammergren Agreement provides that, for a period of at least two years following the termination of his employment with the Company, Mr. Hammergren may not solicit or hire employees or solicit competitive business from any person or entity that was a customer of the Company within the two years prior to his termination. In addition, he is forever prohibited from using or disclosing any of the Company’s Confidential Information, as defined in the Hammergren Agreement.

Mr. Paul C. Julian

The Company entered into an employment agreement with Paul C. Julian effective August 1, 1999, which was amended and restated effective April 1, 2004, November 1, 2006 and November 1, 2008 (“Julian Agreement”). The Julian Agreement provides that the Company will continue to employ Mr. Julian as Executive Vice President and Group President, or in such other executive capacities as may be specified by our CEO, for an initial three-year term with automatic one-year extensions commencing on November 1, 2012 and on each November 1 thereafter.

The Julian Agreement provides for an annual base salary of at least $986,000 effective November 1, 2008 and such additional incentive compensation, if any, as may be determined by the Compensation Committee. Any incentive compensation awarded to Mr. Julian under the MIP shall be calculated using an individual target award of 110% of his base salary. Mr. Julian also shall receive all other benefits generally available to other members of the Company’s management and those benefits for which key executives are or become eligible.

The agreement provides that if the Company terminates Mr. Julian without “Cause,” or he terminates for “Good Reason” (both as defined in the Julian Agreement and described below under “Definition of Cause” and “Definition of Good Reason”), the Company shall: (A) continue his then monthly base salary, reduced by any compensation he receives from a subsequent employer, for the remainder of the term; (B) consider him for a prorated bonus under the MIP for the fiscal year in which termination occurs; (C) continue his medical benefits or provide comparable coverage until the expiration of the term; and (D) continue the accrual and vesting of his rights, benefits and existing awards for the remainder of the term of his agreement for purposes of the ESBP and the Company’s equity compensation plans; and (E) calculate his EBRP benefit as if he continued employment until the end of the term. Any of these payments or benefits that are required to be delayed for “specified employees” under IRC Section 409A will be delayed following his separation from service. Certain payments delayed as a result of such compliance will accrue interest at the DCAP Rate.

If Mr. Julian’s employment is terminated within six months preceding, or within two years following, a Change in Control (as defined in his agreement and described below under “Definition of Change in Control”), he will receive a lump-sum payment in lieu of the salary and incentive payments described in subsections (A) and (B) above and will continue to receive all of the other severance benefits described in the preceding paragraph. This lump-sum payment will be equal to 2.99 multiplied by his “Earnings,” as described below in the “Change in Control Policy” narrative.

If the benefits received by Mr. Julian under his agreement are subject to the excise tax provision set forth in Section 4999 of the IRC, the Company will provide him with a full gross-up payment to cover any excise taxes and interest imposed on “excess parachute payments” as defined in IRC Section 280G. The Change in Control severance payment, payment of his benefit under the EBRP and his tax gross-up payment may be delayed following his separation from service to comply with IRC Section 409A. Any payments delayed as a result of such compliance will accrue interest at the DCAP Rate.

If Mr. Julian is prevented from carrying out his duties and responsibilities due to disability, he will continue to receive his then-current salary for the period of his disability or, if less, twelve months. If Mr. Julian’s employment with the Company is terminated by his death, the Company will continue to pay his salary to his surviving spouse or designee for a period of six months.

If Mr. Julian’s employment is terminated for Cause, the Company’s obligations under his agreement cease and terminate. Any rights he may have under the Company’s benefit plans will be determined solely in accordance with the express terms of those plans.

The Julian Agreement provides that, for a period of at least two years following the termination of his employment with the Company, Mr. Julian may not solicit or hire employees or solicit competitive business from any person or entity that was a customer of the Company within the three years prior to his termination. In addition, he is forever prohibited from using or disclosing any of the Company’s Confidential Information as defined in the Julian Agreement.

Executive Severance Policy

The Severance Policy for Executive Employees, as amended and restated on April 23, 2013 (“Executive Severance Policy”), applies in the event an executive officer is terminated by the Company for reasons other than for “Cause,” as described below in “Definition of Cause,” and the termination is not covered by the Company’s CIC Policy as described below.

The benefit payable to participants under the Executive Severance Policy is the sum of 12 months’ base salary plus one month’s base salary per year of service, up to the lesser of (i) 24 months and (ii) the number of months until the participant turns age 62. Benefits under this plan are paid over time and are reduced or eliminated by any income the executive receives from subsequent employers during the severance payment period. Participants must execute a general release of the Company and its affiliates in order to receive severance benefits. A terminated executive who is receiving payments under the terms of an employment agreement he or she may have with the Company is not entitled to receive additional payments under the Executive Severance Policy.

– 2013 Proxy Statement   52

Commencement of payments under the Executive Severance Policy may be delayed following a participant’s separation from service to comply with IRC Section 409A. Any payments delayed as a result of such compliance will accrue interest at the DCAP Rate until paid. Pursuant to the Executive Severance Policy, the Company will seek stockholder approval for any future arrangement with a participant in the plan that would provide for severance pay and benefits having a present value exceeding 2.99 times the sum of the executive’s base salary and target bonus.

Change in Control Policy

The Change in Control Policy for Selected Executive Employees, amended and restated on October 26, 2010 (“CIC Policy”), provides severance payments to employees of the Company (including executive officers) selected annually for participation in the Compensation Committee’s discretion. Payments under the CIC Policy are paid only upon a qualifying separation from service that occurs within six months prior to, or 24 months following, a “Change in Control” (as defined in the policy and described below in “Definition of a Change in Control”). Under the CIC Policy, a qualifying separation from service is one that is by the Company without “Cause” (as defined in the policy) and either proximate to or instigated by the party involved in, or otherwise in connection with, the Change in Control, or one that is initiated by the participant for “Good Reason” (as defined in the policy).

The CIC Policy expands eligibility for benefits to a larger employee group than is eligible under the Executive Severance Policy, but like the Executive Severance Policy, it excludes participation by an executive who has an individual agreement with the Company providing for change in control benefits. Participants in the CIC Policy are designated by the Compensation Committee to participate in one of three tiers. Tier one participants (which would include any NEO participating in the CIC Policy) are entitled to a cash benefit equal to 2.99 times the participant’s “Earnings,” defined by the policy as the sum of (i) annual base salary plus (ii) the greater of (A) the participant’s target bonus under the MIP or (B) the average of the participant’s MIP award for the latest three years for which the participant was eligible to receive an award (or such lesser period of time during which the participant was eligible to receive an award).

CIC Policy participants are eligible for a full gross-up payment if benefits payable under the policy are subject to an excise tax under IRC Section 4999. If a tier one participant is covered by the EBRP, the participant’s straight-life annuity benefits under that plan will be calculated by adding three additional years of age and three additional years of service to the participant’s actual age and service. Tier one participants are eligible for three years of continued coverage under the Company’s medical plans (or plans providing comparable coverage) at no greater cost to the executive and Company-paid life insurance for three years. CIC Policy severance payments may be delayed following a participant’s separation from service to comply with IRC Section 409A. Any payments delayed as a result of such compliance will accrue interest at the DCAP Rate until paid.

Definition of a “Change in Control”

For purposes of the CIC Policy and Mr. Julian’s employment agreement, a “Change in Control” is defined as the occurrence of any change in ownership of the Company, a change in the effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as defined in IRC Section 409A.

For purposes of Mr. Hammergren’s Agreement, a “Change in Control” of the Company is deemed to have occurred if any of the following events occur: (A) during any period of not more than 12 consecutive months, any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) excluding the Company or any of its affiliates, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company) is or becomes the “beneficial owner” (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities; (B) during any period of not more than 12 consecutive months, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this paragraph) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (x) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (y) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company’s then outstanding securities; or (D) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

– 2013 Proxy Statement   53

Notwithstanding the foregoing, under the terms of Mr. Hammergren’s Agreement, no Change in Control is deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which, in the judgment of the Compensation Committee, the holders of the Company’s common stock immediately prior to such transaction or series of transactions continue to have the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately prior to such transaction or series of transactions.

Definition of “Good Reason”

Both Mr. Hammergren and Mr. Julian have “Good Reason” to resign if any of the following actions are taken without their express written consent: (A) any material change by the Company in the executive officer’s functions, duties or responsibilities if that change would cause their position with the Company to become of less dignity, responsibility, or importance; (B) any reduction in the executive officer’s base salary, other than one in conjunction with an across-the-board reduction for all executive employees of the Company; (C) any material failure by the Company to comply with any of the provisions of the executive’s employment agreement; (D) relocation to an office more than 25 miles from the office at which the executive officer was based as of the effective date of the executive’s employment agreement; or (E) in the case of the Julian Agreement, in the event of a Change in Control, any change in the level of the officer within the Company to whom Mr. Julian reports as such level existed immediately prior to the Change in Control.

Under the Hammergren Agreement, the following additional actions constitute Good Reason: (i) termination of his obligation and right to report directly to the Board, but not if he ceases to serve as Chairman, unless such action is taken in conjunction with a Change in Control; (ii) the Board removes him as Chairman at or after a Change in Control (or prior to a Change in Control if at the request of any third party participating in or causing the Change in Control), unless such removal is required by then applicable law; (iii) a change in the majority of the members of the Board as it was construed immediately prior to the Change in Control; (iv) failure by the Company to obtain the express assumption of his agreement by any successor or assign of the Company; or (v) cancellation of the automatic renewal provision in his agreement. Any incapacity he may develop due to physical or mental illness will not affect his ability to resign for Good Reason.

Definition of “Cause”

Generally under the Company’s plans and programs, “Cause” means the executive’s willful misconduct and in some cases the executive’s negligent misconduct which in any case is injurious to the Company. The specific consequences of such behavior are reflected in the agreement or plan documents.

The Hammergren Agreement provides that the Company may generally terminate Mr. Hammergren’s employment if he: (i) willfully engages in misconduct that is demonstrably and materially injurious to the Company and its subsidiaries taken as a whole; (ii) engages in willful and material dishonesty involving the Company’s assets or those of any of its affiliated companies; or (iii) materially fails to comply with any of the provisions of his agreement. Before a termination for Cause may take effect, the Company must provide Mr. Hammergren with formal written notice after giving him the opportunity to be heard before the Board, give him a 15 day opportunity to cure his conduct, if appropriate, and have his termination confirmed by arbitration.

The Julian Agreement provides that the Company may terminate Mr. Julian’s employment for “Cause” under a definition that is similar, but not identical, to the Hammergren Agreement and provides Mr. Julian with the same procedural protections in the event of a termination for Cause.

Potential Payments upon Termination or Change in Control

The narrative and tables that follow describe potential payments and benefits our NEOs or their respective beneficiaries may receive under existing employment agreements, plans or arrangements for separation scenarios, including termination of employment or Change in Control. Unless otherwise noted, the amounts shown assume a March 31, 2013 separation date, reflect the total present value of the obligation and, where applicable, are calculated using the $107.96 closing price of the Company’s common stock on March 28, 2013, the last trading day of our fiscal year. Where the Company’s obligation is to provide services (i.e., provision for office and secretarial support), the discounted present value of the obligation is shown. These amounts are estimates only, as the actual obligation can only be determined at the time of actual separation from the Company.

The following tables show six termination events where an NEO, or the NEO’s beneficiary, may receive benefits: (i) death; (ii) disability; (iii) termination for Cause; (iv) voluntary termination; (v) involuntary termination not involving a change in control; and (vi) involuntary termination following a change in control. For both death and disability, the narrative and tabular disclosures include all benefits that may be provided to each NEO. Starting with involuntary termination, to avoid repetition, the narrative and tabular disclosures reflect only the incremental value that may be conveyed to each NEO. We are required to report the values below as if the NEO separated from service on March 31, 2013. For the Pension Benefits Table, we are required to report the values payable on a future date (the assumed retirement date) discounted to the pension benefit measurement date of March 31, 2013. This is why the $159 million EBRP value shown below for Mr. Hammergren in the hypothetical voluntary termination table differs from the $116 million reported in the 2013 Pension Benefits Table.

– 2013 Proxy Statement   54

The difference between these two amounts is attributable to a combination of factors. First, valuing his pension as a future benefit payable at age 56 and one month discounted to a present value as displayed in the 2013 Pension Benefits Table, rather than an immediate benefit payable on March 31, 2013 at age 54 and one month as displayed below, accounts for approximately $11 million of the difference. Second, valuing his pension as a future benefit using a 2.3% lump-sum interest rate and 2.12% discount rate as displayed in the 2013 Pension Benefits Table, rather than the 1% lump-sum interest rate used to calculate a current pension value below, accounts for approximately $26 million of the difference. Finally, the 2013 Pension Benefits Table does not include accrued interest on amounts delayed for six months as a result of compliance with IRC Section 409A, which accounts for $6 million of the remaining difference. These are estimated values which will vary significantly based on subsequent events, such as changes in our actuarial assumptions, PBGC and GATT lump-sum interest rate changes and changes in compensation used to calculate the pension benefits for our NEOs.

Additionally, the Pension Benefits Table amounts reflect current service, actual plan compensation through FY 2013 (FY 2013 MIP amounts are assumed to equal target amounts) and an assumed 2.3% lump-sum interest rate. The payment amounts below reflect current service, actual plan compensation through FY 2013 (FY 2013 MIP amounts on March 31, 2013 were estimated to pay out at 100% of target amounts), the NEO’s age on March 31, 2013 and the lump-sum conversion rate prescribed in the EBRP for a March 31, 2013 termination date.

Under the terms of his employment agreement, Mr. Hammergren is entitled to receive an unreduced pension benefit for a termination on March 31, 2013 other than for Cause. For purposes of the tables that follow, in accordance with the terms of the EBRP, Mr. Hammergren’s lump-sum pension benefit was computed as of March 31, 2013 using a 1% interest rate to determine the present value of a lump-sum distribution. Mr. Julian, due to his age and service, is also entitled to a lump-sum pension benefit computed using the same 1% rate. Since they are not retirement eligible but have vested EBRP benefits, the GATT lump-sum interest rate of 3.17% was used to determine the EBRP benefit for all other NEOs who participate in the EBRP. The determination of these benefits is more fully explained in the narrative following the 2013 Pension Benefits Table.

On January 20, 2010 the Company froze the Executive Survivor Benefits Plan (“ESBP”) to new participants. All of our NEOs participate in the ESBP, which provides a supplemental cash death benefit to the executive’s named beneficiary on a tax-neutral basis. Under the terms of the ESBP, beneficiaries will receive a cash death benefit of 300% of the executive’s annual base salary, up to a maximum of $2,000,000, if the executive dies while an active employee.

Participants in the ESBP are also entitled to post-employment coverage if they are granted “Approved Retirement.” A participant is eligible for Approved Retirement and is an “Approved Retiree” under the ESBP: (i) upon termination after age 62; (ii) for any involuntary termination after age 55 and completion of 15 years of service; (iii) with the approval of the Compensation Committee for any termination prior to (i) or (ii) above if the participant is at least age 55 and has completed five years of service; or (iv) as provided in a written employment agreement or at the Board’s discretion. However, the post-termination benefit conveyed to an Approved Retiree under the ESBP is reduced to 150% of the participant’s final annual base salary up to a maximum of $1,000,000. Under the terms of his employment agreement, Mr. Hammergren is entitled to Approved Retirement under the ESBP should his employment terminate for any reason other than for Cause.

In each of the tables below, a “-0-” indicates no monetary value is associated with the benefit, while a “—” indicates the NEO is not entitled to the benefit.

Benefits and Payments upon Death

In the event of death, employees receive accelerated vesting of their outstanding equity awards, prorated MIP awards and prorated LTIP awards for any LTIP performance period that is at least 50% complete. Prorated MIP and LTIP payments are made at the end of the performance period when payments are made to other plan participants. Vested stock options remain exercisable for three years, subject to expiration of the option term.

– 2013 Proxy Statement   55

The table below reflects the benefits payable in the event of death of our NEOs effective March 31, 2013:

Name	Salary Continuation to Spouse or Designee ($)(1)	Value of Option Acceleration ($)(2)	Value of Stock Acceleration ($)(2)	MIP ($)(3)	LTIP ($)(4)	Cash Death Benefit (ESBP) ($)(5)	Executive Pension (EBRP) ($)(6)
John H. Hammergren	840,000	30,074,923	85,876,782	3,742,200	9,522,000	3,311,258	129,334,742
Jeffrey C. Campbell	—	10,917,088	30,840,717	1,095,730	2,380,500	3,819,214	11,200,392
Paul C. Julian	532,500	16,698,588	47,516,435	1,739,678	4,849,167	3,494,732	23,924,018
Laureen E. Seeger	—	6,884,293	18,480,593	733,471	1,410,667	3,819,214	8,933,851
Patrick J. Blake	—	5,399,070	12,616,422	700,861	1,410,667	3,819,214	—
(1) Amounts shown represent six months of base salary as of March 31, 2013, payable in accordance with the terms of the NEO’s employment agreement. (2) Amounts shown represent the value of unvested stock options and RSUs as of March 31, 2013. The value shown for option acceleration is the difference between the option exercise price and $107.96, the closing price of the Company’s common stock on March 28, 2013, the last trading day of our fiscal year. Beneficiaries have the earlier of three years or the option expiration date to exercise vested stock options. For more information on unvested equity awards held by our NEOs, refer to the 2013 Outstanding Equity Awards Table above. (3) Amounts shown represent actual MIP payouts for FY 2013 as reported in the 2013 Summary Compensation Table. However, in the event of death, each NEO would receive a prorated MIP award reflecting the amount earned through the month of death. (4) Amounts shown represent actual LTIP payouts for FY 2011 — FY 2013 as reported in the 2013 Summary Compensation Table and a pro-rata portion (66.7%) of the FY 2012 – FY 2014 LTIP target award. However, in the event of death, each NEO would receive a prorated LTIP target award reflecting the amount earned through the month of death for any performance period that is at least 50% complete. (5) Amounts shown represent 300% of the NEO’s annual base salary, up to a maximum of $2,000,000, on a tax-neutral basis. (6) Amounts shown represent the present value of lump-sum pension benefits payable to surviving spouses or designees. The following assumptions were used to determine the present value of benefit amounts: (i) the surviving spouse or designee is the same age as the NEO; (ii) participant was granted Approved Retirement on the day before death; and (iii) if married, participant elected to receive benefits in the actuarially reduced form of a joint and 100% survivor annuity.

Benefits and Payments upon Termination Due to Disability

In the event that employment terminates due to permanent and total disability, employees receive accelerated vesting of their outstanding equity awards, prorated MIP awards and prorated LTIP awards for any LTIP performance period that is at least 50% complete. MIP and LTIP payments are made at the end of the performance period when payments are made to other plan participants. With respect to our NEOs, a termination due to disability does not occur until the first anniversary of the date the executive is unable to perform services.

The table below reflects the benefits payable in the event of termination due to disability effective March 31, 2013, which for purposes of this presentation is considered to be a “voluntary termination” under Mr. Hammergren’s and Mr. Julian’s employment agreements and the Executive Severance Policy for Mr. Campbell, Ms. Seeger and Mr. Blake:

Name	Medical ($)(1)	Office and Secretary ($)(1)	Financial Counseling ($)(1)	Value of Option Acceleration ($)(2)	Value of Stock Acceleration ($)(2)	MIP ($)(3)	LTIP ($)(4)	Cash Death Benefit (ESBP) ($)(5)	Executive Pension (EBRP) ($)(6)
John H. Hammergren	1,410,549	2,212,794	323,659	30,074,923	85,876,782	3,742,200	9,522,000	1,655,629	152,551,210
Jeffrey C. Campbell	—	—	—	10,917,088	30,840,717	1,095,730	2,380,500	—	2,920,106
Paul C. Julian	—	—	—	16,698,588