Video Case Study

12/28/2020 Print Preview

https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=5835051934529006900868413293&eISBN=9781337614467&id=1034289158&nbId… 1/1

19-6b Shareholders

CVS seeks to protect shareholder interests while maintaining broad stakeholder engagement. As a result, CVS carefully designed a comprehensive corporate governance system ranging from board independence to executive compensation. Following a corporate governance framework, a variety of specialized committees have been established with different functions for shareholders. From an information governance standpoint, the oversight committee makes recommendations to enhance the ability of information security. On behalf of the board of directors, the audit committee is in charge of the risk oversight and is responsible for protecting the reputation and core interests of the company.

In order to balance the interests of different groups, senior management created a reformative executive compensation system. This system is based on financial performance as well as service quality and customer satisfaction. While a pay-for-performance compensation system is still utilized at CVS, a significant portion of annual executive compensation is delivered into long-term equity rather than short-term. In a move to further align the commitment of CVS to link pay with performance, total shareholder return is added on a three-year incentive plan. Each three-year period is known as a cycle that has a predetermined set of goals for the company/executive to accomplish. At the end of each term, performance is evaluated and the executive receives compensation based on these results. For example, if the results surpass the goal by 25 percent, the executive pay will increase by a certain predetermined amount. The details will vary for each cycle, but the purpose of the plan is to pay only when the company and its shareholders are benefited from the performance of the executive.

© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.