Document:

Exhibit 10.41

 

	

    	
 
    	
LONG-TERM INCENTIVE PLAN
    

 

1.              Purpose

 

The purpose of the CVS Caremark Long-Term Incentive Plan (the “Plan”) is to motivate select executives to focus on the long-term financial goals of CVS Caremark Corporation (the “Company”) that enhance shareholder value, while simultaneously promoting executive retention and maintaining competitive levels of compensation.

 

2.                    Administration

 

The Plan shall be administered by the Management Planning and Development Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company under the provisions of the 2010 Incentive Compensation Plan, as amended (the “2010 ICP”), where applicable.  The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to determine Eligible Persons, grant Awards, and determine the amount, terms and conditions and all other matters relating to Awards.  In addition, the Committee shall have full and final authority, in each case, subject to and consistent with the provision of the Plan to construe and interpret rules and regulations for the administration of the Plan, correct defects, supply omissions or reconcile inconsistencies therein, and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan.

 

Capitalized terms not otherwise defined herein shall have the meaning assigned to such term(s) in the 2010 ICP.

 

3.                    Eligibility

 

Executives employed by the Company or its subsidiaries who are selected by the Committee shall be eligible to receive an award under this Plan (an “Eligible Person”).

 

The Committee may grant Awards under the Plan which are intended to qualify as performance-based compensation within the meaning of the rules under Section 162(m) of the Code (“the Section 162(m) performance-based compensation rules”) and Awards that are not intended to qualify as performance-based compensation within the meaning of Section 162(m) performance-based compensation rules.

 

An Award granted under the Plan shall be intended to qualify as performance-based compensation under the Section 162(m) performance-based compensation rules to the extent that (1) the initial grant and terms of such Award comply with the Section 162(m) performance-based compensation rules; (2) the Award recipient is a member of the Company’s Business Planning Committee at the time the Award is granted; and (3) the Award recipient is expected to be a “covered employee” within the meaning of the rules under Section 162(m) of the Code for the calendar year in which the Award is settled.  The terms of each Award intended to qualify as performance-based compensation under the Section 162(m) performance-based compensation rules shall be established and approved by the Committee.

 

An Award granted under the Plan shall not be intended to qualify as performance-based compensation under the Section 162(m) performance-based compensation rules to the extent that the Award or the recipient of the Award does not meet the conditions set forth in the paragraph above unless the Committee, in its discretion, elects to administer the Award in compliance with the Section 162(m) performance-based compensation rules.  The terms of each Award that is not intended to qualify as performance-based compensation under the Section 162(m) performance-based compensation rules may be established pursuant to such procedures and methods as may be approved by the Committee or its designate.

 

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4.                    Awards

 

(a)   At the beginning of any performance period and, if the award is Section 162(m) performance-based compensation, not later than the earlier of 90 days after the start of the performance period and 25% of the performance period, the Committee shall determine the Eligible Persons to whom Awards shall be granted and the terms and conditions relating to the Awards, including but not limited to the target amount of each Eligible Person’s Award, the range of each Eligible Person’s Award that may be earned based on the Company’s performance, the performance period relating to such Awards, the performance criteria that will be used to determine if and to what extent such Awards may be earned by Eligible Persons participating in the Plan and any other provisions as the Committee deems appropriate; provided, however, that performance criteria with respect to Section 162(m) performance-based compensation shall be consistent with the 2010 ICP.

 

(i)            If the Eligible Person is not a member of the Business Planning Committee of the Company, the Eligible Person may become a participant in the Plan prior to the earlier of 90 days after the start of the performance period and 25% of the performance period, provided the Eligible Person is designated an Eligible Person by the Committee or its designate prior to the end of the Performance Period.

 

(b)           A “performance period” shall be defined by the Committee at the time the performance cycle for the Award is established but shall generally begin on a January 1st of a calendar year and end on a December 31st of a succeeding calendar year (the “Performance Period”).

 

(i)            The Committee may establish, in its sole discretion, one or more periodic performance measurement periods within a Performance Period (an “Interim Performance Period”).

 

(ii)           Any Interim Performance Period(s) commencement and end date(s), corresponding performance criteria and other relevant factors will be established to allow the Company to deduct to the full extent possible under Section 162(m) of the Code any compensation paid as a performance award against such pre-determined goals.

 

(c)           An Award is considered “earned” when such Award has been approved by the Committee (an “Earned Award”) which, with respect to Section 162(m) performance-based compensation, shall be consistent with the Section 162(m) performance-based compensation rules.

 

(d)           Settlement of Earned Awards.  At the end of a Performance Period, the Committee shall determine, in its sole discretion, the portion of the Earned Award that shall be distributed to each Eligible Person in cash and in shares of CVS Caremark common stock (the “Shares”) based on the level of achievement of the relevant performance criteria.

 

Any Shares to be issued in connection with an Earned Award shall be issued pursuant to the CVS Caremark Corporation 2010 Incentive Compensation Plan (the “2010 ICP”). The portion of the Earned Award payable in Shares shall be determined by dividing such portion of the Earned Award by the closing price of CVS Caremark stock (“FMV”) on the date the Award is approved by the Committee, which shall be rounded down to the nearest whole share.

 

Subject to an Eligible Person’s prior election to defer any or all of the Earned Award pursuant to Section 5, the cash and Shares payable in respect of an Earned Award will be paid to the Eligible Person as soon as practicable after the Earned Award is approved by the Committee and in no event later than two and a half months following the completion of the relevant performance period.  The Shares portion of the Earned Award will be settled through the issuance to each Eligible Person of a certificate for Shares or such other method of transfer of Shares as may be made in accordance with prevailing Company practice.

 

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5.  Deferral Elections

 

In accordance with the rules promulgated by the Committee, an Eligible Person may elect to defer any or all of such Earned Award.

 

6.              Termination of Employment

 

(a)  In the event an Eligible Person ceases to be employed by the Company, or any subsidiary of the Company, prior to the completion of a Performance Period, due to an Eligible Person’s voluntary termination of employment, or the termination of an Eligible Person by the Company for Cause (as defined below), any Award granted but not yet earned for a Performance Period shall be forfeited.

 

(i)            “Cause” is defined as (x) an Eligible Person’s willful material breach of those provisions of the Eligible Person’s Employment Agreement that pertain to confidentiality, cooperation with regard to litigation, non-disparagement; non-competition; and non-solicitation if such Eligible Person is party to an Employment Agreement with the Company; or Section 1(b) of the CVS Caremark Corporation Change in Control Agreement if such Eligible Person is party to a Change in Control Agreement with the Company.  If there is no such Agreement between the Company and the Eligible Person, then Cause shall have the same meaning for the Eligible Person as is defined for a similarly-situated Eligible Person in his or her Change in Control Agreement..

 

(b)  In the event an Eligible Person ceases to be employed by the Company, or any subsidiary of the Company, prior to the completion of a Performance Period, by reason of death, any Award not yet earned in accordance with Section 4 shall be pro rated pursuant to Paragraph 6(f) below.

 

(c)   In the event an Eligible Person ceases to be actively employed by the Company, or any subsidiary of the Company, prior to the completion of a Performance Period due to an Eligible Person becoming totally and permanently disabled (as defined in the Company’s Long-Term Disability Plan, or, if not defined in such plan, as defined by the Social Security Administration) while actively employed by Company or a subsidiary of the Company, an Award granted but not yet earned for a Performance Period shall be pro rated pursuant to Paragraph 6(f) below.

 

(d)  In the event an Eligible Person ceases to be employed by the Company, or any subsidiary of the Company, due to a Termination by the Company without Cause (as defined above in Paragraph 6(a)(i)) or a “Constructive Termination without Cause” (defined below), any Award granted but not yet earned for a Performance Period shall be pro rated pursuant to Paragraph 6(f) below.

 

(i)            “Constructive Termination without Cause” shall mean a termination of the Eligible Person’s employment at his or her initiative as provided under the definition of either “Constructive Termination without Cause” or “Termination by Executive for Good Reason” set forth in the most recent Employment Agreement, as amended, Change in Control Agreement, or other comparable agreement, between the Company and the Eligible Person.  If there is no such Agreement between the Company and the Eligible Person, then Constructive Termination without Cause shall have the same meaning for the Eligible Person as is defined for a similarly-situated Eligible Person in his or her Employment or Change in Control Agreement.

 

(e)  In the event an Eligible Person ceases to be employed by the Company, or any subsidiary of the Company, due to an Eligible Person’s Normal Retirement or Approved Early Retirement, prior to the completion of a Performance Period, and Award granted but not yet earned for a Performance Period shall be pro rated pursuant to Paragraph 6(f) below.

 

(i)            “Normal Retirement” and “Approved Early Retirement” each shall have the meaning ascribed to it in an Eligible Person’s Employment Agreement, as amended, or if

 

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such Eligible Person is not party to an Employment Agreement with the Company in which retirement is defined, “Normal Retirement” shall mean (A) an Eligible Person’s voluntary termination of employment with the Company at or after attaining age sixty (60); and “Approved Early Retirement” shall mean (B) an Eligible Person’s voluntary termination of employment with the Company at or after attaining age fifty-five (55), but prior to attaining age (60), if such termination is approved in advance by the Committee.

 

(f)  Pro Rating.

 

(i)            Subject to Paragraph 6(f)(ii), in the case of Paragraphs 6(b) and 6(c), the Award payable will be determined based on the Eligible Person’s target award and, in the case of Paragraphs 6(d) and 6(e), the Award payable will be determined based on the Company’s actual performance during the applicable Performance Period.  The amount of the Award will be calculated by multiplying the Award amount (based on target or actual performance, as the case may be) by the following fraction:  (A) the numerator shall be the number of whole months elapsed since the beginning of the Performance Period and (B) the denominator shall be the total number of months in the Performance Period.  For purposes of this calculation, the number of months in the numerator in sub-section (A) shall include any partial month in which an Eligible Person has worked.  Any payment to an Eligible Person under Paragraphs 6(b) and 6(c) shall be made within two and a half months days of such death or disability, as the case may be, and any payment made under Paragraphs 6(d) and 6(e) will be made following completion of the performance period at the same time payment is made to other Eligible Persons in accordance with Paragraph 4(d).

 

(ii)           Notwithstanding the foregoing and subject to compliance with Section 409A of the Code, the Committee may provide, in its sole discretion, that the amount payable following terminations described in Paragraphs 6(b) and 6(c) with respect to Awards subject to the 162(m) performance-based compensation rules will be determined based on the Company’s actual performance during the applicable Performance Period and payable on the earlier of (i) the time payment is made to other Eligible Persons in accordance with Paragraph 4(d) and (ii) the Company’s first taxable year when payment would not reasonably be anticipated to result in a loss of a tax deduction under the Section 162(m) performance-based compensation rules.

 

7.              Tax Withholding

 

The Company will withhold from an Eligible Person’s Earned Award, subject to an Eligible Person’s election to defer all or a portion of the Earned Award, all required federal, state and local payroll taxes, including Medicare taxes.  If an Eligible Person’s Social Security wages have not reached the Social Security maximum taxable wage base at the time the Earned Award is paid or Shares are delivered, Social Security taxes will also be withheld from the Award.

 

Except as may be elected by an Eligible Person, at the settlement date for any Shares, the number of Shares to be delivered by the Company to an Eligible Person shall be reduced by the smallest number of Shares having a FMV at least equal to the dollar amount of federal, state or local tax withholding required to be withheld by the Company with respect to such Shares on the Settlement Date.  In lieu of having the number of Shares delivered reduced, an Eligible Person may elect to pay the Company by personal check or by such other means satisfactory to the Company for any amounts required to be withheld by the Company in connection with the settlement of the Shares.

 

If an Eligible Person elects to defer an Earned Award, the Company may require the Eligible Person to remit to the Company in advance of the actual deferral of such Earned Award, the required FICA withholding taxes, including Social Security and Medicare taxes, in order to ensure compliance with the Sarbanes-Oxley Act of 2002.

 

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8.     Change in Control of the Company

 

Upon the occurrence of a change in control of the Company, as defined in Section 10(c) of the 2010 ICP (a “Change in Control”), the performance criteria for any outstanding Performance Period shall be deemed to have been fully satisfied at target and all outstanding Awards under the Plan shall be come immediately non-forfeitable Earned Awards.  Each Eligible Person shall receive the Target Award for each outstanding Performance Period to be paid as soon as administratively possible within two and a half months days of the Change in Control, subject all applicable Plan provisions and federal regulations governing payment of such Award(s), including but not limited to the Eligible Person’s deferral elections, and Sections 162(m), 4999 and 409A of the Code.

 

9.     Recoupment of Awards Due to Fraud or Financial Misconduct

 

If the Board determines that financial fraud or misconduct has occurred in a manner that subjects an Eligible Person to recoupment of any Earned Award under the Company’s recoupment policy, as in effect from time to time, the Eligible Person shall immediately repay to the Company (a) the entire pre-tax cash portion of the Earned Award that is subject to recoupment, or a portion thereof as determined by the Board (the “Cash Recoupment Amount”), and (b) the value, or a portion thereof as determined by the Board, of any pre-tax economic benefit that the Eligible Person derived from any Shares issued in connection with an Earned Award that is subject to recoupment (the “Share Recoupment Value”).  The amount to be repaid by the Eligible Person shall also include any dividends (including any economic benefit thereof) or distributions received by the Eligible Person with respect to any Shares and, in calculating the value to be repaid, adjustments may be made for stock splits or other capital changes or corporate transactions, as determined by the Board.

 

If an Eligible Person has deferred payment of any portion of the Cash Recoupment Amount, the amount of the Eligible Person’s deferred compensation accrual shall be reduced by the amount subject to repayment, plus all Company matching amounts and earnings on such amount.  If an Eligible Person has deferred receipt of any portion of the Shares that are subject to repayment hereunder, the amount of the Eligible Person’s deferred stock compensation accrual shall be reduced by the amount subject to repayment, plus all Company matching amounts and earnings on such amount.

 

If the Eligible Person fails to repay the required Cash Recoupment Amount and/or the Share Recoupment Value immediately upon request by the Board, the Company may seek reimbursement of such amounts from the Eligible Person by reducing salary or any other payments that may be due to the Eligible Person, to the extent legally permissible, and/or through initiating a legal action to recover such amount, which recovery shall include any reasonable attorneys fees incurred by the Company in bringing such action.

 

10.  Miscellaneous

 

(a)           Not a Contract of Employment.  The adoption and maintenance of the Plan shall not be deemed to be a contract of between the Company and an Eligible Person and shall not be consideration for the employment of an Eligible Person.  Nothing contained herein shall be deemed to give an Eligible Person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge an Eligible Person at any time nor shall the Plan be deemed to give the Company the right to require an Eligible Person to remain in the employ of the Company or to restrict an Eligible Person’s right to terminate their employment at any time.

 

(b)           Non-Assignability of Benefits.  No Eligible Person, Beneficiary or distributees of benefits under the Plan shall have any power or right to transfer, assign, anticipate, hypothecate or

 

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otherwise encumber any part or all of the amounts payable hereunder, which are expressly declared to be unassignable and nontransferable.  Any such attempted assignment or transfer shall be void.  No amount payable hereunder shall, prior to actual payment hereof, be subject to seizure by any creditor or any such Eligible Person, Beneficiary or other distributees for the payment of any debt judgment or other obligation, by a proceeding at law or in equity, nor transferable by operation of law in the event of the bankruptcy, insolvency or death of such Eligible Person, Beneficiary or other distributes hereunder.

 

(c)           Amendment and Termination.  The Board may amend, alter, suspend, discontinue or terminate the Plan or the Committee’s authority to grant Awards under the Plan without the consent of Eligible Persons, except that without the consent of an affected Eligible Person, no such Board action may materially and adversely affect the rights of such Eligible Person under any previously granted and outstanding Awards. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award(s) previously granted, except as otherwise provided in the Plan, provided that, without the consent of an affected Eligible Person, no such Committee action may materially and adversely affect the rights of such Eligible Person under such Award(s).

 

(d)           Compliance with Legal and Other Requirements.   Notwithstanding any Plan provision to the contrary, the Committee may at any time impose such restrictions on the Plan and participation therein as the Committee may deem advisable from time to time in order to comply with or preserve compliance with any applicable laws, including any applicable federal and state securities laws and exemptions from registrations thereunder.

 

Further, to the extent it would not violate an applicable provision of Section 409A of the Code the Company may, to the extent deemed necessary or advisable by the Committee, postpone the issuance or delivery of CVS Caremark stock or payment of other benefits under any Earned Award until completion of such registration or qualification of such stock or other required action under any federal or state law, rule or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which such stock are listed or quoted, or compliance with any other obligation of the Company, as the Committee may consider appropriate, and may require any Eligible Person to make such representations, furnish such information and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery of stock or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other obligations.

 

(e)           Section 409A.  The company intends that this Plan not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A of the Code, and that to the extent any provisions of the LTIP do not comply with Code Section 409A the Company will make such changes in order to comply with Code Section 409A.  In all events, the provisions of CVS Caremark Corporation’s Universal Definitions Document are hereby incorporated by this reference and to the extent required to avoid a violation of the applicable rules under all Section 409A by reason of Section 409A(a)(2)(B)(i) of the Code (requiring certain delays for “specified employees”), payment of any amounts subject to Section 409A of the Code shall be delayed until the relevant date of payment that will result in compliance with the rules of Section 409A(a)(2)(B)(i) of the Code.  Notwithstanding any provision of this Plan to the contrary, for purposes of any provision of this Plan providing for the payment of any amounts or benefits upon or following a termination of employment, references to a Eligible Person’s “termination of employment” (and corollary terms) with the Company shall be construed to refer to the Eligible Person’s “separation from service” with the Company.

 

(f)            Adjustments.  In the event that any dividend or other distribution (whether in the form of cash, stock, or other property), re-capitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or event affects the stock such that an

 

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adjustment is appropriate under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust the number and kind of Shares of stock subject to or deliverable in respect of outstanding Awards.

 

(g)           Limitation on Rights Conferred by Awards Granted under Plan.  Neither the Plan nor any action taken under the Plan shall be construed as conferring on an Eligible Person any of the rights of a shareholder of CVS Caremark until the Eligible Person is duly issued or transferred Shares in accordance with the terms of an Earned Award.

 

(h)           Unfunded Status of Awards; Creation of Trusts.  The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to an Eligible Person or obligation to deliver stock pursuant to an Award, nothing contained in any Award shall give any such Eligible Person any rights that are greater than those of a general creditor of CVS Caremark, provided that the Committee may authorize the creation of trusts and deposit therein cash, stock, other awards or other property, or make other arrangements to meet CVS Caremark’s obligations under the Plan. Such trusts or other arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee otherwise determines with the consent of each affected Eligible Person.

 

11.  Governing Law

 

The validity, construction and effect of the Plan, and any rules and regulations under the Plan shall be determined in accordance with the Rhode Island law, without giving effect to principles of conflicts of laws, and applicable federal law.

 

7Exhibit 10.42

 

	

    	
 
    	
2012 Management Incentive Plan
    

 

I.             Objectives and Summary

 

CVS Caremark Corporation’s Management Incentive Plan (the “MIP”) is designed to reward incentive-eligible employees (“Eligible Participants”) of CVS Caremark Corporation and its subsidiaries (together, “the Company”) for their role in driving performance and to encourage Eligible Participants’ continued employment with the Company.  Funding for the payment of incentive awards will be based on actual results measured against pre-established financial goals.  The amount of each incentive award will be based on the performance of the Company, the business unit in which the Eligible Participant works, and the performance of the individual Eligible Participant.

 

The Management Planning and Development Committee (the “Committee”) of the Board of Directors (the “Board”) may delegate to officers of CVS Caremark the authority to perform administrative functions of the MIP as the Committee may determine and may appoint officers and others to assist it in administering the MIP.

 

II.            Plan Year

 

The MIP is a calendar year plan, which runs from January 1 to December 31, 2012 (“Plan Year”).  All dates in this document occur during the Plan Year unless otherwise stated.

 

III.          Eligibility

 

A.  Eligibility for Participation

 

The Chief Executive Officer of CVS Caremark Corporation (“CEO”) will determine those employees who are eligible for participation in the MIP, provided that the Committee shall determine the eligibility of employees who are subject to Section 162(m) of the Internal Revenue Code (“Section 162(m)”) or who have been identified by the Committee as individuals who may be subject to Section 162(m) (collectively, “162(m) Eligible Participants” and each of whom will also be included in the term “Eligible Participants” unless otherwise noted).  In general, Eligible Participants include all exempt employees who are not covered by any other incentive plans.

 

Eligibility for participation in the MIP is contingent upon the Eligible Participant being employed in an incentive-eligible position on the last day of the Plan Year.  The CEO (or, as to 162(m) Eligible Participants, the Committee) may, for any reason and in his or her sole discretion, at any time prior to the end of the Plan Year, determine an employee’s eligibility for participation in the Plan.  Eligible Participants are subject to the terms and conditions relating to incentive awards set forth in the MIP.

 

B.  162(m) Eligible Participants

 

162(m) Eligible Participants shall be subject to the limitations required to comply with the provisions of Section 162(m).  Subject to the requirements of Section 162(m), the Committee shall retain sole discretion to determine a 162(m) Eligible Participant’s eligibility for an award, the target award, and the amount of the actual award.  In no event shall a 162(m) Eligible Participant’s award exceed the amount permitted by Section 162(m).

 

 

C.  Newly-Eligible Employees

 

An employee will be eligible for a prorated incentive award if he or she becomes an Eligible Participant on or before November 1 of the Plan Year; provided, however, that a 162(m) Eligible Participant shall be eligible for an award for the Plan Year in which he or she was hired or otherwise becomes a 162(m) participant only to the extent that such award does not violate the requirements of Section 162(m).

 

D.  Transfers

 

Participants who become newly eligible during the Plan Year may be eligible for a prorated MIP award.  If a change in assignments results in an Eligible Participant being eligible for the MIP for part of the Plan Year and other incentives during other parts of the Plan Year, the participant may be eligible to receive a prorated award for the amount of time in each incentive eligible position, subject to the terms of the other applicable incentive plans.  Change in assignments from one MIP-eligible position to another during the Plan Year does not result in pro rata award but rather an award funded on the base salary of the Eligible Participant on December 31 and the individual award opportunity as of that date.

 

E.  Demotions

 

If a previously Eligible Participant is demoted to a non-incentive eligible position due to his or her violation of CVS Caremark policy or his/her performance, or if he or she voluntarily transfers to a non-incentive eligible position during the Plan Year, and is in the non-incentive eligible position on the last day of the Plan Year, he or she will not be eligible to earn an incentive award for the Plan Year under this plan.

 

F.  Terminations

 

To be eligible for an incentive, an Eligible Participant must be employed as of the end of the Plan Year (December 31st) and at the time that the award is paid (which will be on or before March 15 of the year following the Plan Year).  Employees who terminate employment prior to payment of the award shall not be eligible to receive an award.

 

G.  Rehires

 

Eligible Participants who are rehired on or before November 1 of the Plan Year may be eligible for a prorated incentive award.  For purposes of proration, credit will only be given for time worked during the Plan Year in incentive-eligible positions.

 

IV.          Administration

 

A.  Consolidated Company Funding

 

MIP funding is based on consolidated Company Performance, measured by operating profit, Retail Customer Service and Pharmacy Benefit Management (“PBM”) Customer Satisfaction.  Achievement of the Company’s consolidated operating profit target will determine 80% of the total corporate funding; achievement of the Retail Customer Service target, as measured by ‘Triple S’ scores, will determine 10% of the total corporate funding; and achievement of PBM Customer Satisfaction targets will determine the remaining 10% of the total corporate funding.

 

1.  Operating Profit

 

Operating profit may be adjusted by the permitted financial adjustments as approved by the Committee prior to the end of the first fiscal quarter of the applicable Plan Year (the “Permitted Financial Adjustments”).

 

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If Operating Profit is below the minimum threshhold, (see Exhibit A) no formulaic funding will be made available for incentive awards, regardless of Business Unit performance, and there is no requirement that incentive awards be paid under the MIP.

 

2.  Pharmacy Services Customer Satisfaction

 

Achievement of the PBM Customer Satisfaction segment of the incentive will be determined by the aggregate actual performance against target of the weighted composite of the following surveys:

 

·      Client Relationship and Loyalty Survey (weight = 50%)

·      Mail Service Pharmacy and Customer Care Survey (weight = 30%)

·      Specialty Pharmacy Satisfaction Survey (weight = 20%)

 

Pharmacy Services Customer Satisfaction funding is subject to adjustment based on the Operating Profit.

 

3.  Retail Customer Service

 

The Retail Customer Service segment of the incentive will be measured using the Total Triple ‘S’ actual performance against the target.  The Triple ‘S’ Score Card consists of performance in three elements of customer satisfaction:  Stock, Shop and Service.

 

Retail Customer Service funding is subject to adjustment based on the Operating Profit.

 

	
Measurement
    	
 
    	
Percent
   Weight
    	
 
    	
Measurement
   Tool
    	
 
    	
Achievement
   Measured Against
    	
 
    	
Modifier
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Consolidated Operating Profit
    	
 
    	
80%
    	
 
    	
Earnings Before Interest and Taxes (“EBIT”)
    	
 
    	
2012 EBIT Goal
    	
 
    	
CEO & Committee Discretion (1) Permitted   Financial Adjustments
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pharmacy Services Customer Satisfaction
    	
 
    	
10%
    	
 
    	
Client Relationship and Loyalty, Customer Care, Mail   Service and Specialty Surveys
    	
 
    	
2012 PBM Customer Satisfaction Target
    	
 
    	
Operating Profit Funding
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Retail Customer Service
    	
 
    	
10%
    	
 
    	
Triple “S” Scorecard
    	
 
    	
2012 Triple “S” Target
    	
 
    	
Operating Profit Funding
    

 

(1)  May not modify pool for 162(m) Eligible Participants

 

B.  Business Unit Funding

 

After the achievement of consolidated corporate performance level is determined, performance will be calculated for each of the business units (i.e., Retail, Pharmacy Benefit Management and Shared Services) based on the achievement of the respective business unit’s actual EBIT compared to the EBIT target for the performance period.

 

The total funding for the Retail and PBM Business Units will be based on is a combination of the respective Business Unit’s EBIT results compared to target, which funds seventy-five percent (75%) of the respective Business Unit’s total pool, and the consolidated Company Operating Profit/Customer Service and Satisfaction performance, which funds the remaining twenty-five percent (25%) of the Business Unit’s total pool.  The total funding for the Shared Services Business Units will fully based (100%) on corporate EBIT performance.

 

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The CEO may adjust Business Unit and Shared Services pool funding at his discretion resulting from (a) input from the Business Unit Presidents and Finance regarding the performance of the Business Unit to assist the CEO and the Committee in their assessment of the overall performance; and (b) the CEO’s (or, in the case of 162(m) Eligible Participants’s, the Committee’s) assessment of the achievement of Plan Year performance goals by the business unit.

 

C.  Management Discretion

 

The Total Pool will be available for managers to award to Eligible Participants, taking into account the aggregate contributions made by the Eligible Participants. The amount, if any, of the calculated incentive award for an Eligible Participant shall be detemined in the sole discretion of CVS Caremark management.  The amount, if any, of the calculated incentive award for a 162(m) Eligible Participant shall be determined in the sole discretion of the Committee.

 

V.            MIP Earnings and Payout

 

A.  Timing

 

Incentive awards will be paid to Eligible Participants as soon as administratively feasible following the date the Total Pool is funded and calculation of incentive payments may be ascertained, which will be in the year following the Plan year, on or before March 15.  Payments may be subject to garnishments and other state or federal requirements.

 

B.  Calculations

 

Calculations for full and partial awards will be based on each Eligible Participant’s annual base salary and individual target opportunity on the last day of the Plan Year.

 

For purposes of proration, the 15th of the month will be used to determine if the month is included or excluded from the incentive calculation, as follows:

 

1.     If an Eligible Participant is hired or returns to work from an authorized leave of absence on or before the 15th of the month, the month will be included in the incentive calculations.

 

2.     If an Eligible Participant is hired or returns to work from an authorized leave of absence after the 15th of the month, then such month will be excluded from the incentive calculations.

 

3.     If an Eligible Participant’s employment is terminated on or before the 15th of the month and the Eligible Employee remains eligible for an award pursuant to this plan, then the month will be excluded from incentive calculations.

 

4.     If an Eligible Participant’s employment is terminated after the 15th of the month and the Eligible Participant remains eligible for an award pursuant to this plan, then the month will be included in the incentive calculations.

 

Examples:

 

a.             An Eligible Participant is hired on September 14th.  Because the Eligible Participant is actively employed prior to the 15th of September, the month of September will be included in his/her prorated incentive award and the Eligible Participant will receive a prorated incentive award covering a total of four months.  The award will be calculated using the Eligible Participant’s individual award opportunity target and base salary as of December 31st.

 

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b              An Eligible Participant begins a personal leave of absence on June 3rd and returns to active status on July 22nd.  Assuming the Eligible Participant was incentive eligible for the entire year, the months of June and July will be excluded from the Eligible Participant’s incentive award and the Eligible Participant will receive a prorated incentive award covering a total of 10 months.  The award will be calculated using the Eligible Participant’s individual award opportunity target and base salary as of December 31st.

 

C.  Award Opportunity

 

Individual target awards will be determined by position and may vary based on the Eligible Participant’s level in the organization.

 

D.  Obligation to Pay Total Pool

 

Eligible Participants, as a group, have a right to receive an amount at least equal to the Total Pool, but no individual Eligible Participant shall be entitled to receive an award or any specific amount of the Total Pool.  In no event will the aggregate of the total awards paid from the MIP be less than the amount of the Total Pool.

 

VI           Company-Wide Pool

 

Notwithstanding anything to the contrary, as of the end of each Plan Year an aggregate annual plan pool shall be deemed to be established under the Plan for such Plan Year (the “Plan Year Aggregate Pool”).  The Plan Year Aggregate Pool for a Plan Year shall be the product of (A) the sum of the amounts that would be payable under the Plan to each Eligible Participant in strict accordance with the store-by-store and participant-by-participant calculation methodologies set forth in the Plan if full incentive payment checks were issued to each Eligible Participant as of the last day of such Plan Year, multiplied by (B) the Applicable Percentage.  The “Applicable Percentage” with respect to a Plan Year shall be the percentage established in writing and confirmed by the affirmative or negative assent of the senior officers of the CVS Caremark Compensation Department; provided, however, that if there is any irresolvable uncertainty regarding the Applicable Percentage with respect to any Plan Year, the Applicable Percentage for that Plan Year shall be 92.5%.

 

The aggregate amount of the annual incentives paid under the Plan in respect of a Plan Year will not be less than the Plan Year Aggregate Pool for such Plan Year. Eligible Participants who are active employees in an incentive eligible position as of the end of the Plan Year and as of the actual check distribution date for incentives under the Plan in respect of such Plan Year shall, as a group, have a legal right to receive incentives the sum of which is at least equal to the Plan Year Aggregate Pool for such Plan Year, but no individual Eligible Participant shall be entitled to receive an incentive payment or any specific amount or portion of the Plan Year Aggregate Pool for such Plan Year, and the incentive amount payable to any Eligible Participants who terminate active employment in an incentive eligible position prior to the check distribution date for such Plan Year will be reallocated to Eligible Participants who are active employees in an incentive eligible position as of the check distribution date for such Plan Year using a reallocation methodology determined in the sole discretion of the Company.

 

If the Company fails to honor the above provisions in this section VI of the Plan, injured Eligible Participants as a class shall have legal standing to enforce this section VI against the Company, and the Company waives any objection to such standing.  To discourage unmerited litigation, any party or class asserting a challenge or claim against the Company under any provision of the Plan, including this section VI, shall bear their own costs relating to such challenge or claim, and if the challenge or claim is unsuccessful, such party or class shall reimburse the Company for all reasonable costs incurred by the Company in responding to such challenge or claim.

 

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Any amendment of the provisions of this Section VI by the Company shall only be effective with respect to a Plan Year if such amendment is made prior to the end of such Plan Year.

 

VII.         Corrections to Incentive Awards

 

Any corrections to incentive calculations must be submitted through the Human Resources Business Partner to Compensation by April 15 of the year following the Plan Year.

 

VIII.       Eligible Participant Status

 

A.  Performance

 

An Eligible Participant’s eligibility for a MIP award is discretionary and his or her individual performance throughout the Plan Year will be considered by a manager in the final determination of the Eligible Participant’s incentive award.

 

B.  Leaves of Absence

 

An Eligible Participant on a Company-approved leave of absence at any time during the Plan Year who remains employed in an eligible position as of the last day of the Plan Year will earn a prorated incentive award based on the number of months actively worked (including time compensated as vacation or Paid Time Off (“PTO”)) during the Plan Year, provided he or she meets all other eligibility criteria for an incentive award.  For purposes of proration, the 15th of the month will be used to determine if the month is included or excluded from the incentive calculation, as set forth above.

 

C.  Reduction in Force, Retirement and Death

 

1.  Reduction in Force

 

If an Eligible Participant is separated from employment by the Company on or before the last day of the Plan Year due to a reduction in force, he or she will earn a prorated incentive award based on the number of months worked during the Plan Year, provided the Eligible Participant meets all other eligibility criteria for an incentive award.  For purposes of proration, the 15th of the month will be used to determine if the month is included or excluded from the incentive calculation, as set forth above.

 

2.  Retirement

 

If an Eligible Participant is at least age 55 and has a minimum of 10 years of service with CVS Caremark or a predecessor company/subsidiary or is at least age 60 and has a minimum of 5 years of service with CVS Caremark or a predecessor company/subsidiary and the Eligible Participant retires before the end of the Plan Year, he/she will earn a prorated incentive based on the number of months worked during the Plan Year, provided he/she meets all other eligibility criteria for an incentive award.  Earned incentives will be paid at the same time as other incentives are paid under this Plan.  Eligible Participants who do not meet the minimum retirement requirements at the time of retirement and who retire before the end of the Plan Year will not be eligible to earn an incentive award.

 

3.  Death

 

In case of the death of an Eligible Participant, a pro rated incentive award shall be paid to the Eligible Participant’s spouse, if living; otherwise, in equal shares to surviving children of the Eligible Participant.  If there are no surviving children, the benefit shall be paid to the Eligible Participant’s parents in equal shares; and in the event none of the above-named individuals survives the Eligible Participant, the death benefit shall be paid to the executor or administrator of the Eligible Participant’s estate.  The incentive award will be prorated based on the number of months the Eligible Participant worked during the Plan Year and shall be paid as soon as administratively

 

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practicable following the death of the Eligible Participant but no later than March 15 of the year following the Plan Year.  If final performance numbers are not available at the time of the employee’s death, the incentive award will be calculated using the incentive target and the number of months worked.

 

IX.     Employment Rights

 

The MIP does not create an express or implied contract of employment between CVS Caremark and an Eligible Participant.  Both CVS Caremark and the Eligible Participant retain the right to terminate the employment relationship at will, at any time and for any reason.

 

A.  Rights are Non-Assignable

 

Neither the Eligible Participant, nor any beneficiary, nor any other person shall have any right to assign, in whole or in part, the right to receive payments under the MIP.  Payments are non-assignable and non-transferable, whether voluntarily or involuntarily.

 

B.  Compliance with Applicable Regulations

 

An Eligible Participant must comply with all applicable state and federal regulations and CVS Caremark policies to be eligible to receive an incentive award under the MIP.

 

C.  Change in Control

 

In the event of a change in control of CVS Caremark, as defined in the 2010 Incentive Compensation Plan (“ICP”), the MIP shall remain in full force and effect.  Any amendments, modifications, termination or dissolution of the MIP by the acquiring entity may only occur prospectively and will not affect incentive earnings or eligibility before the date of the change in control, or such date as it may be modified or dissolved by the acquiring entity.

 

Provisions regarding the payment of annual incentive awards that are set forth in Change in Control agreements shall supersede those appearing in the MIP.

 

D.  2010 Incentive Compensation Plan

 

Capitalized terms not otherwise defined herein shall have the meaning assigned to such defined term(s) in the ICP.  In the event of any conflict between the ICP and the MIP, the terms of the ICP shall govern.

 

E.  Withholding

 

All required deductions will be withheld from the incentive awards prior to distribution. This includes all applicable federal, state, or local taxes, as well as any eligible 401(k) deductions and deferred compensation contributions as defined by the applicable plans.  Incentive awards that are deferred will be taxed according to applicable federal and state tax law.

 

F.  MIP Amendment/Modification/Termination

 

CVS Caremark retains the right to amend, modify, or terminate the MIP at any time on or before the last day of the Plan Year for any reason, with or without notice to Eligible Participants, provided that no changes shall be made with respect to a 162(m) Eligible Participant that would not comply with the requirements of Section 162(m).

 

G.  MIP Interpretation

 

All requests for interpretation of any provision in the MIP must be submitted to the appropriate Human Resources Business Partner.  Failure to submit a request for resolution of a dispute or question within 30 days of distribution of the incentive award may result in a waiver of the Eligible Participant’s rights to dispute the MIP provision or amount of the incentive award.

 

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CVS Caremark will comply with all applicable laws concerning incentive awards; the MIP and its administration are not intended to conflict with any applicable state or federal law.

 

H.  Recoupment of Incentive Awards Due to Fraud or Financial Misconduct

 

If the Board determines that fraud or financial misconduct has occurred in a manner which subjects a recipient of a MIP award to recoupment under the Company’s recoupment policy, as in effect from time to time, the MIP award recipient shall immediately repay to the Company the entire incentive award received by the MIP award recipient, or a portion thereof as determined by the Board.  If a MIP award recipient fails to repay his or her incentive award (or portion thereof) immediately upon request by the Board, the Company may seek reimbursement of such amount from the MIP award recipient by reducing salary or any other payments that may be due to the MIP award recipient, to the extent legally permissible, and/or through initiating a legal action to recover such amount, which recovery shall include any reasonable attorneys fees incurred by the Company in bringing such action.  If a MIP award recipient has deferred payment of any portion of an incentive award that is subject to repayment hereunder, the amount of the MIP award recipient’s deferred compensation accrual shall be reduced by the amount subject to repayment, plus all Company matching amounts and earnings on such amount.

 

I.  Section 409A of the Internal Revenue Code

 

The Company intends that this Plan not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A of the Internal Revenue Code of 1986 (the “Code”), as amended, and that to the extent any provisions of the Plan do not comply with Code Section 409A the Company will make such changes in order to comply with Code Section 409A.  Payments hereunder are intended to qualify as short-term deferral payments under Code Section 409A.  In all events, to the extent required to avoid a violation of the applicable rules under Section 409A by reason of Section 409A(a)(2)(B)(i) of the Code, payment of any amounts subject to Section 409A of the Code shall be delayed until the relevant date of payment that will result in compliance with the rules of Section 409A(a)(2)(B)(i) of the Code.

 

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