CVS Caremark hiked CEO Larry J. Merlo’s compensation 51 percent in 2012, the executive’s first full year leading the nation’s second-largest drugstore chain.
Merlo, 57, received compensation valued at $18.1 million in 2012, according to an Associated Press analysis of the Woonsocket, R.I., company’s annual proxy statement. That’s from his compensation in the prior year: Merlo, a long-time company executive who became CEO on March 1, 2011 after Thomas M. Ryan retired, received about $12 million in 2011.
In 2012, Merlo received a 7 percent increase in salary to $1.3 million and much bigger hikes in other parts of his compensation package. Merlo’s performance-related bonus rose 66 percent to $6.4 million. And he received stock and options awards totaling nearly $10.3 million, up 52 percent from the previous year.
Merlo’s compensation also included $31,296 for personal use of company aircraft and $162,375 in company contributions to pension plans.
The growth in Merlo’s compensation package came during a year of “very strong performance,” CVS Caremark said in its proxy filing.
“Under Mr. Merlo’s leadership, (the company) has achieved significant growth in 2012 and is well positioned for continued success in 2013 and beyond,” the statement said.
With more than 7,400 drugstores, CVS Caremark is the No. 1 drugstore-chain in the U.S. after Walgreen Co. And its Caremark unit is among the nation’s largest pharmacy benefits managers or PBMs. Those businesses run prescription drug plans for employers, insurers and other customers. And the company ranks 18th on the 2012 Fortune 500 list of biggest U.S. companies based on annual revenue
Last year, CVS reported that earnings grew about 12 percent last year to $3.88 billion. The company’s revenue also climbed 15 percent to $123.13 billion.
CVS Caremark recorded strong revenue gains from its pharmacy services segment, which was helped by the addition of large clients like home improvement retailer Lowe’s Cos. CVS also gained drugstore customers due to split between Walgreen and Express Scripts Holding Co., which is the nation’s largest PBM. Walgreens fills prescriptions for Express Scripts, but the two companies didn’t do business for most of last year, causing many Walgreen’s customers to migrate to CVS during the split.
Investors also seemed to like the company. CVS stock price rose 19 percent to close 2012 at $48.35, outpacing the 13.4 percent increase registered by the Standard & Poor’s 500 index.
CVS returned some of its gains to shareholders. It announced late last year that it was raising its quarterly cash dividend by more than 6 cents, or 38 percent, to 22.5 cents. It also completed more than $4 billion in share repurchases.
The Associated Press formula calculates an executive’s total compensation during the last fiscal year by adding salary, bonuses, perks, and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.
The value that a company assigned to an executive’s stock and option awards for 2012 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value.
However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company’s stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.
