Walgreens Boots Alliance, Inc.
Walgreens Boots Alliance, Inc. (Form: DEF 14A, Received: 11/29/2017 06:12:09)
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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

 

 

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Walgreens Boots Alliance, Inc.

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Table of Contents

LOGO

 

Notice of 2018 Annual Meeting of Stockholders and Proxy Statement


Table of Contents

LOGO

William C. Foote                        

Dear Fellow Stockholders:

Our company performed well in fiscal 2017, notwithstanding currency headwinds and some challenging market conditions, with our businesses delivering significant progress while competing in the fast-changing healthcare and retail environments. We continued to maintain a disciplined approach to capital allocation; investing opportunistically to drive growth and generate strong returns while returning excess cash to our stockholders through our 42nd consecutive annual increase in our dividend, as well as the authorization of up to $7 billion in share repurchases since January 2017.

We are pleased to have obtained regulatory clearance in September for our amended and restated asset purchase agreement with Rite Aid Corporation to purchase 1,932 stores, three distribution centers and related inventory from Rite Aid for $4.375 billion in cash and other consideration. This transaction, completion of which is subject to closing conditions set forth in the agreement, will further our company’s commitment to accessible, affordable, quality healthcare in the U.S. and advance consumer access to pharmacy-led health and wellbeing.

My fellow directors and I are committed to strong, independent Board leadership and good corporate governance practices, which continuously evolve with the benefit of input from our stockholders. We believe that maintaining an ongoing and open dialogue with our stockholders is critical to our success and I would highlight that we made a number of changes this year in response to stockholder feedback. Furthermore, we continue to conduct a robust, multi-step Board evaluation process, which we believe is an essential component of Board effectiveness. We also regularly discuss director succession and board refreshment, both in executive sessions and as a full Board. To that end, we are proud to have elected José Almeida, the Chairman and Chief Executive Officer of Baxter International, as an independent director in April. We are confident that Joe’s expertise in managing complex global businesses will prove to be invaluable.

Our company is committed to sustainable business practices, which has been demonstrated by the company’s actions and transparency. The Board shares in the responsibility that comes with this commitment, and our Nominating and Governance Committee, which I chair and which consists solely of independent directors, is charged with reviewing our Corporate Social Responsibility policies and activities. Based in part on stockholder feedback, we amended the Committee’s charter during this past year to clarify the Committee’s role in providing independent oversight and guidance over our company’s sustainability responsibilities and related risk management.

Our 2018 Annual Meeting of Stockholders will be held on Wednesday, January 17, 2018 at 8:30 a.m. Mountain Standard Time at the Foundry Ballroom, Andaz Scottsdale Resort & Spa, 6114 North Scottsdale Road, Scottsdale, Arizona 85253. We look forward to seeing you there. Even if you cannot attend in person, your vote is very important. Please vote at your earliest convenience.

On behalf of my fellow independent directors and the entire Board, thank you for your continued trust and confidence in Walgreens Boots Alliance.

Sincerely,

William C. Foote

Lead Independent Director


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Notice of 2018 Annual Meeting

of Stockholders

 

 

November 29, 2017

Deerfield, Illinois

To the Stockholders of Walgreens Boots Alliance, Inc.:

Notice is hereby given that the 2018 Annual Meeting of Stockholders of Walgreens Boots Alliance, Inc., a Delaware corporation, will be held on Wednesday, January 17, 2018 at 8:30 a.m. Mountain Standard Time at the Foundry Ballroom, Andaz Scottsdale Resort & Spa, 6114 North Scottsdale Road, Scottsdale, Arizona 85253, for the following purposes:

 

  1. To vote on the election of 11 director nominees named in this proxy statement;

 

  2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending August 31, 2018;

 

  3. To approve, on an advisory basis, our named executive officer compensation;

 

  4. To approve, on an advisory basis, the frequency of future advisory votes on named executive officer compensation;

 

  5. To approve the amended and restated Walgreens Boots Alliance, Inc. 2013 Omnibus Incentive Plan;

 

  6. To consider two stockholder proposals, if properly presented at the meeting; and

 

  7. To transact such other business as may properly come before the meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on November 20, 2017 as the record date for identifying stockholders entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof.

Your vote is important. Please vote by Internet, telephone, or mail as soon as possible to ensure your vote is recorded properly.

If you want to attend the Annual Meeting in person, you must pre-register and obtain an admission ticket in advance. To do so, please follow the instructions on page 95 of this proxy statement.

By order of the Board of Directors,

 

 

LOGO

Collin G. Smyser

Vice President, Corporate Secretary

 


 

Proxy Statement    LOGO            


Table of Contents

TABLE OF CONTENTS

 

 

     Page  

Proxy Statement Summary

     1  

 

Proposal 1: Election of Directors

     7  

 

Director Nomination Process

     7  

 

Board Membership Criteria

     10  

 

2018 Director Nominees

     12  

 

Governance

     18  

 

Our Commitment to Strong Corporate Governance

     18  

 

Board Leadership Structure

     19  

 

Director Independence

     20  

 

Related Party Transactions

     23  

 

Board Meetings and Attendance

     25  

 

Board Committees

     25  

 

Board Oversight of Strategy and Risk Management

     28  

 

Director Orientation and Continuing Education

     29  

 

Board Evaluation and Director Peer Review Process

     29  

 

Additional Topics of Interest

     30  

 

Director Compensation

     34  

 

Security Ownership of Certain Beneficial Owners and Management

     36  

 

Section  16(a) Beneficial Ownership Reporting Compliance

     38  

 

Proposal 2: Ratification of the Appointment of Deloitte  & Touche LLP as the Independent Registered Public
Accounting Firm

     39  

 

Independent Registered Public Accounting Firm Fees and Services

     39  

 

Audit Committee Report

     41  

 

Proposal 3: Advisory Vote to Approve Named Executive Officer Compensation

     43  

 

Executive Compensation

     44  

 

Compensation Discussion and Analysis

     44  

 

I. Executive Summary

     45  

 

II. Executive Compensation Philosophy and Process

     48  

 

III. Target Setting for Incentive Compensation

     50  

 

IV. Annual Compensation

     52  

 

V. Long-Term Compensation

     55  

 

VI. CEO and Executive Chairman Compensation

     57  

 

VII. Executive Compensation Program Updates for 2018

     58  

 

VIII. Retirement and Other Benefits

     59  

 

IX. Other Matters

     62  

 

Compensation Committee Report

     64  

 

Executive Compensation Tables and Supporting Information

     65  

 

Proposal 4: Advisory Vote on Frequency of Future Say-on-Pay Votes

     74  

 

Proposal 5: Approval of the Amended and Restated Walgreens Boots Alliance, Inc. 2013 Omnibus Incentive Plan

     75  

 

Equity Compensation Plan Information

     83  

 

Proposals 6–7: Stockholder Proposals

     85  

 

Proposal 6—Stockholder Proposal Regarding the Ownership Threshold for Calling Special Meetings of Stockholders

     85  

 

Proposal 7—Stockholder Proposal Requesting Proxy Access By-Law Amendment

     87  

 

Questions and Answers About the Proxy Materials and the Annual Meeting

     89  

 

Additional Information

     95  

 

Exhibit A—Reconciliation of GAAP and Non-GAAP Financial Measures

     A-1  

 

Exhibit B—Walgreens Boots Alliance, Inc. 2013 Omnibus Incentive Plan

     B-1  
          

 

Walgreens Boots Alliance, Inc., a Delaware corporation, is the successor to Walgreen Co., an Illinois corporation (“Walgreens”), following the completion of the holding company reorganization approved by Walgreens shareholders on December 29, 2014. Unless otherwise stated, references herein to the “Company,” “we,” “us,” and “our” refer to Walgreens Boots Alliance, Inc. from and after the effective time of the holding company reorganization on December 31, 2014 and, prior to that time, to its predecessor Walgreens. Unless otherwise stated, all information presented in this proxy statement (this “Proxy Statement”) is based on our fiscal calendar, which ends on August 31 (e.g., references to “2017” refer to the year ended August 31, 2017).

 

 

           LOGO   Proxy Statement


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Proxy Statement Summary

 

Our Board of Directors (the “Board”) is soliciting your proxy for our 2018 annual meeting of stockholders, which will be held on January 17, 2018 at 8:30 a.m., Mountain Standard Time, or any adjournment thereof (the “Annual Meeting”). This Proxy Statement, and the accompanying Notice of Annual Meeting of Stockholders and proxy card, are being distributed, along with the 2017 Annual Report, beginning on or about November 29, 2017 to holders of our common stock, par value $0.01 per share, as of the close of business on November 20, 2017 (the “Record Date”). This summary highlights selected information that is provided in more detail throughout this Proxy Statement. This summary does not contain all of the information you should consider before voting. You should read the full Proxy Statement before casting your vote.

2018 Annual Meeting of Stockholders

 

 

 

Date and Time:    Wednesday, January 17, 2018 at 8:30 a.m. Mountain Standard Time
Location:    Foundry Ballroom, Andaz Scottsdale Resort & Spa, 6114 North Scottsdale Road, Scottsdale, Arizona 85253
Voting:    You are entitled to vote at the meeting if you were a holder of the Company’s common stock as of the close of business on November 20, 2017.
Admission:    You must pre-register and have an admission ticket, along with valid, government-issued photo identification, to attend the meeting in person. To obtain an admission ticket, please follow the instructions on page 95 of the Proxy Statement.

Voting Matters

 

 

The following table summarizes the proposals to be considered at the Annual Meeting and the Board’s voting recommendations with respect to each proposal.

 

 

    Proposals

 

    

Board Recommendation

 

    

Page Reference    

 

 

 1.  Election of 11 Directors

 

     FOR each nominee

 

     7

 

 

 2.  Ratification of the Appointment of Deloitte & Touche LLP as the Independent Registered Public Accounting Firm

 

     FOR      39

 

 3.  Advisory Vote to Approve Named Executive Officer Compensation (“say-on-pay”)

 

     FOR      43

 

 4.  Advisory Vote on Frequency of Future Say-on-Pay Votes

 

     For “1 Year”      74

 

 5.  Approval of the Amended and Restated Walgreens Boots Alliance, Inc. 2013 Omnibus Incentive Plan

 

     FOR      75

 

 6.  Stockholder Proposal Regarding the Ownership Threshold for Calling Special Meetings of Stockholders

 

     AGAINST      85

 

 7.  Stockholder Proposal Requesting Proxy Access By-Law Amendment

 

     AGAINST      87

 


 

Proxy Statement    LOGO             1


Table of Contents

PROXY STATEMENT SUMMARY

 

 

Company Overview

We are the first global, pharmacy-led health and wellbeing enterprise and had sales of $118.2 billion in 2017. Our purpose is to help people across the world lead healthier and happier lives.

We are the largest retail pharmacy, health and daily living destination across the U.S. and Europe. Together with the companies in which we have equity method investments, we have a presence in more than 25* countries and employ more than 385,000* people. We are a global leader in pharmacy-led, health and wellbeing retail, and together with the companies in which we have equity method investments, we have over 13,200* stores in 11* countries as well as one of the largest global pharmaceutical wholesale and distribution networks, with over 390* distribution centers delivering to more than 230,000** pharmacies, doctors, health centers and hospitals each year in more than 20* countries. In addition, we are one of the world’s largest purchasers of prescription drugs and many other health and wellbeing products. We have several strengths, described below, which help enable the creation of stockholder value.

 

 

 

Supply Chain and Procurement

 

 

Significant pharmaceutical supply chain and procurement expertise, offering customers innovative solutions and optimal efficiencies

 

   

 

 

Strong and Wide-Ranging Brand Portfolio

 

 

A portfolio of retail and business brands, including Walgreens, Duane Reade, Boots, and Alliance Healthcare, as well as increasingly global health and beauty product brands, such as No7, Soap & Glory, Liz Earle, Sleek MakeUP and Botanics

 

   

 

 

Diverse Profit Pools

 

 

Diversified and robust profit pools across the U.S., Europe, and key emerging markets

 

   

 

 

Platform for Growth

 

 

A unique platform for growth in developed and emerging markets

 

   

 

 

WBA creates stockholder value by leveraging our competitive advantages to capitalize on growth

opportunities in existing and emerging markets, while diligently managing costs.

* As of August 31, 2017, using publicly available information for AmerisourceBergen Corporation.

** For 12 months ended August 31, 2017, using publicly available information for AmerisourceBergen Corporation.

 

 

Rite Aid Transaction

On September 19, 2017, we announced that we had secured regulatory clearance for an amended and restated asset purchase agreement to purchase 1,932 stores, three distribution centers and related inventory from Rite Aid Corporation (NYSE: RAD) for $4.375 billion in cash and other consideration. We believe this transaction, completion of which is subject to closing conditions set forth in the agreement, will further our commitment to accessible, affordable, quality healthcare in the U.S. and advance consumer access to pharmacy-led health and wellbeing.

Key benefits of this transaction are expected to include:

 

    Complementary retail footprints: improves our retail pharmacy network, most notably in the Northeast and Southern regions of the U.S.

 

    Expands distribution of exclusive global beauty brands

 

    Stronger base for sustainable growth : investment in former Rite Aid stores enables us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the U.S.

 

    Expected annual synergies in excess of $300 million, to be fully realized within four years of the initial closing, derived primarily from procurement, cost savings and other operational matters

 



 

2             LOGO   Proxy Statement


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PROXY STATEMENT SUMMARY

 

 

Board Composition

Our Board is committed to ensuring that its composition is aligned with our needs and that as our business evolves over time, fresh viewpoints and perspectives are regularly considered. To facilitate this, the Nominating and Governance Committee oversees our director evaluation and nomination process as follows:

 

 

LOGO

In April 2017, the result of this process led to the election of José E. Almeida to the Board. Mr. Almeida is the current Chairman and Chief Executive Officer of Baxter International. Among other reasons, the Board believes his contributions will be valuable based on his substantial knowledge of the healthcare industry and expertise in leading complex, highly regulated, global organizations.

 

 

Board Skills, Qualifications and Experience

 

The Nominating and Governance Committee seeks to cultivate a Board with the appropriate skill sets, balance of tenure, and diversity of experiences to discharge its responsibilities effectively. Each director possesses a unique background and, in the aggregate, we believe the Board encompasses the skills and experiences deemed important to effectively oversee our business.

This chart summarizes the key skills and experiences that the Nominating and Governance Committee currently believes should be represented on the Board, as well as the number of directors who possess each skill. Also included are statistics (as of the Record Date) that underscore our commitment to refreshment and diversity, which we believe are critical elements of a strong Board.

 

 

Board Skills and Experience

 

                           
  Business Development and M&A                           11
                           
  Corporate Governance                           11
                           
  Finance and Accounting                           11
                           
  Healthcare or Regulated Industries                           11
                           
  Global Operations                       9    
                           
  Current or Former Public Company CEO                     8      
                           
  Human Capital                   7        
                           
  Risk Management                   7        
                           
  Retail or Consumer-Facing Industries                 6          
                           
  Technology or E-Commerce           3                
                           
                           

 

 

 

        Average Tenure         

 

       

 

        Female Directors         

 

 
 

 

7.4  Years

 

       

 

27%

 

 
 

 



 

Proxy Statement    LOGO             3

Review output of the Board evaluation Assess how each director impacts the skills and experience represented on the Board in the context of the current and future needs of the Company If deemed necessary, in conjunction with a third-party search firm, identify new director nominee(s) Recommend to the Board a slate of candidates for election


Table of Contents

PROXY STATEMENT SUMMARY

 

 

Board of Directors

The Board consists of highly experienced and accomplished directors who are uniquely qualified to oversee our business. The following table provides summary information about each director nominee as of the Record Date. Each director stands for election annually. Detailed information about each director’s background, skill set, and areas of experience can be found beginning on page 12 of the Proxy Statement.

 

 

    Board Member Details

 

                        

 

     Name and Principal Occupation

 

  

 

    Age    

 

  

 

    Director Since    

 

  

 

Other Public Boards

 

  

 

    Independent    

 

  

 

Committee Memberships                    

 

 

José E. Almeida

Chairman & CEO,
Baxter International Inc.

 

  

 

55

  

 

2017

  

 

Baxter International Inc.

  

 

  

 

•  Compensation

•  Nominating and
Governance

 

 

Janice M. Babiak

Former Partner,
Ernst & Young LLP

 

  

 

59

  

 

2012

  

 

Bank of Montreal

  

 

  

 

•  Audit (Chair)

•  Finance

 

David J. Brailer

Chairman,
Health Evolution Partners

 

  

 

58

  

 

2010

       

 

  

 

•  Audit

•  Finance (Chair)

 

William C. Foote

Former Chairman and CEO,
USG Corporation

 

  

 

66

  

 

1997

       

 

  

 

•  Compensation

•  Nominating and
Governance (Chair)

 

Ginger L. Graham

Former President and CEO,
Amylin Pharmaceuticals

 

  

 

62

  

 

2010

  

 

Clovis Oncology, Inc.

Genomic Health, Inc.

  

 

  

 

•  Audit

•  Nominating and
Governance

 

John A. Lederer

Senior Advisor,
Sycamore Partners

 

  

 

62

  

 

2015

  

 

Maple Leaf Foods
US Foods

  

 

  

 

•  Compensation

•  Finance

 

Dominic P. Murphy

Founder and CEO,
8C Capital, LLP

 

  

 

50

  

 

2012

       

 

  

 

•  Finance

 

Stefano Pessina

Executive Vice Chairman and CEO,
Walgreens Boots Alliance, Inc.

 

  

 

76

  

 

2012

              

 

Leonard D. Schaeffer

Judge Robert Maclay Widney
Chair and Professor,
Univ. of Southern California

 

  

 

72

  

 

2015

  

 

scPharmaceuticals Inc.

  

 

  

 

•  Finance

•  Nominating and
Governance

 

Nancy M. Schlichting

Former CEO,
Henry Ford Health System

 

  

 

62

  

 

2006

  

 

Hill-Rom Holdings, Inc.

  

 

  

 

•  Audit

•  Compensation (Chair) 

 

James A. Skinner

Executive Chairman,
Walgreens Boots Alliance, Inc.

 

  

 

73

  

 

2005

  

 

Illinois Tool Works Inc.

         

 



 

4             LOGO   Proxy Statement


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PROXY STATEMENT SUMMARY

 

 

Corporate Governance Highlights

We are committed to corporate governance policies and practices that serve the interests of our stockholders. The following table summarizes certain highlights of our governance policies and practices:

 

 

  Annual Election of All Directors

 

 

  Independent Lead Director Responsibilities

 

    
 

  Majority Voting for All Directors

 

 

  Regular Executive Sessions of Independent Directors

 

    
 

  Cumulative Voting for Election of Directors

 

 

  Annual Board and Committee Evaluation Process

 

    
 

  No Supermajority Voting Provisions

 

 

  Strategic and Risk Oversight by Board and Committees

 

    
 

  No Stockholder Rights Plan (“Poison Pill”)

 

 

  Commitment to Sustainability at the Senior Executive and Board Levels

 

    
 

  3%, 3-Year Proxy Access By-law

 

 

  Stock Ownership Guidelines for Executives and Directors

 

    
 

  Stockholder Right to Call Special Meetings at 20%

 

 

  Policies Prohibiting Hedging and Short Sales of Stock by Executives

 

    
 

  Stockholder Right to Act by Written Consent

 

 

  Active Stockholder Engagement

 

    

 

 

Stockholder Engagement and Board Responsiveness

We value an open dialogue with our stockholders, and we believe that regular communication with our stockholders and other stakeholders is a critical part of enabling our long-term success. During 2017, members of our management team met with many of our stockholders. This included, in advance of the Annual Meeting, formal governance-related outreach to over 20 of our largest stockholders, representing approximately 36% of our outstanding shares as of August 31, 2017 (approximately 41% when excluding shares held by affiliates of Stefano Pessina, our Executive Vice Chairman and Chief Executive Officer).

Over the past year we took a number of actions, due in part to feedback received from our stockholders, to strengthen our governance and compensation programs and enhance the disclosure of our existing practices.

 

    We amended the charter of the Nominating and Governance Committee to further clarify its role in overseeing our policies and activities regarding CSR, including with respect to sustainability and the environment.

 

    We enhanced our disclosure of our commitment to strong CSR and sustainability practices.

 

    We adopted a new Political Engagement and Contributions Policy.

 

    We enhanced our disclosure of our executive compensation programs and practices in this Proxy Statement.

 

    We revised our 2018 executive compensation “peer group” to increase its healthcare focus.

More information about our stockholder engagement efforts can be found in “Governance—Additional Topics of Interest—Stockholder Engagement” beginning on page 32 of this Proxy Statement.

 



 

Proxy Statement    LOGO             5


Table of Contents

PROXY STATEMENT SUMMARY

 

 

Executive Compensation Program

We have a strong pay-for-performance philosophy, which seeks to link the interests of our executives with those of our stockholders. Accordingly, we emphasize variable, performance-based compensation over fixed or guaranteed pay.

Substantially all CEO compensation is comprised of long-term, performance-based equity incentives.

 

                                

 

Executive Participation

 

                          
               

 

      Metric        

 

     

 

Objective

 

      

 

Stefano Pessina

(CEO)

 

      

 

James Skinner
(Executive Chairman)

 

      

 

Other Named
Executive Officers

 

                          
LOGO     Cash       —      

 

 Competitive fixed
compensation
to attract and retain
talent

 

    

 

û

 

     û     
                          
LOGO     Cash      

Adjusted  

Operating  

Income  

   

 Incentive to achieve
strong Company
performance

    

 

û

 

     û     
                          
LOGO    

 

50%

  Performance    

Shares  

 

   

3-year  

Cumulative  

Adjusted EPS  

     

 Rewards long-term
Company performance

 

 Links interests of
the executives to
the interests of
stockholders through
correlation with share
price over time

 

    

 

 

    

 

100%   

Restricted Stock Units  

 

    
                              
   

 

50%

Stock  

Options  

 

   

Stock  

Price  

          

 

 

    

 Value varies with
stock price

 

 3-year cliff vesting *

    
                              
                

 

*Also subject to first year Company performance vesting criteria

We enhance our strong pay-for-performance philosophy by implementing pay practices that we believe further align our executives’ interests with those of our stockholders.

 

 

       We DO Have This Practice

 

      

 

       We DO NOT Have This Practice

 

    
 

 Incentive award metrics that are objective and tied to key Company performance metrics

 

      

û   Multi-year guarantees for salary increases, non-performance based bonuses, or equity compensation

 

    
 

 A majority of compensation delivered in the form of equity-based awards

 

      

û   Excise tax gross-ups upon change in control for named executive officers

 

    
 

 Stock ownership guidelines

 

      

û   Repricing of options without stockholder approval

 

    
 

 Policies prohibiting hedging and short sales of stock by executives

 

      

û   Excessive perquisites

 

    
 

 Compensation recoupment (“clawback”) policy

 

      

û   Excessive severance and/or change in control provisions

 

    
 

 Double-trigger change in control severance for named executive officers

 

      

û   Payout of dividends or dividend equivalents on unearned or unvested equity

 

    
 

 Performance share awards have a three year performance cycle to promote retention

 

      

û   Excessive pension or defined benefit supplemental executive retirement plan (SERP)

 

    
 

 Significant portion of executive compensation tied to stockholder return in the form of at-risk compensation

 

      

û   A high percentage of fixed compensation

 

    

 



 

6             LOGO   Proxy Statement

Long-Term Incentive Annual Incetive Salary


Table of Contents
     
 

 

 

Proposal 1: Election of Directors

 

 

 

 

What am I voting on?

Stockholders are being asked to elect 11 director nominees for a one-year term.

 

What is the Board’s voting recommendation?

The Board recommends a vote “ FOR ” each of the director nominees. Proxies solicited by the Board will be so voted unless stockholders specify a contrary choice in their voting instructions.

 

What is the required vote?

With respect to the election of directors, the number of votes “FOR” a director’s election must be a majority of the votes cast by the holders of the shares of our common stock voting in person or by proxy at the Annual Meeting with respect to that director’s election. Abstentions with respect to a director will have the same effect as a vote “AGAINST” him or her.

 

 

Upon the recommendation of the Nominating and Governance Committee of the Board (the “Nominating and Governance Committee”), the Board has nominated 11 directors for election at the Annual Meeting, each to hold office until our next annual meeting of stockholders and until his or her successor is duly elected and qualified or upon his or her earlier death, resignation, or removal.

All of the nominees are currently directors. Other than Mr. Almeida, who was not on the Board at the time, each nominee was elected to the Board by our stockholders at our 2017 annual meeting of stockholders (the “2017 Annual Meeting”) with the support of more than 97% of votes cast. All of the nominees are expected to attend the Annual Meeting.

José E. Almeida, the current Chairman and Chief Executive Officer of Baxter International, was elected to the Board upon the recommendation of the Nominating and Governance Committee in April 2017, and was initially identified by a third-party recruitment firm. Among other reasons, the Board elected Mr. Almeida due to his substantial knowledge of the healthcare industry and expertise in leading complex, highly regulated, global organizations. For more information about Mr. Almeida, see “—2018 Director Nominees” below.

Each nominee has agreed to be named in this Proxy Statement and to serve if elected. Consequently, we know of no reason why any of the nominees would be unable or unwilling to serve if elected. However, if any nominee is for any reason unable or unwilling to serve, the proxyholders intend to vote all proxies received by them for any substitute nominee proposed by the Board (consistent with any applicable terms of the Shareholders’ Agreement, as defined and described further in “—Director Nomination Process—Shareholders’ Agreement” below), unless the Board instead chooses to reduce its size.

 

 

Director Nomination Process

 

 

We believe decisions regarding the structure and composition of the Board are critical to ensuring a strong Board that is best suited to guide the Company in the future. As specified in its charter, the Nominating and Governance Committee oversees our director candidate nomination process. The Nominating and Governance Committee recommends to the Board a slate of candidates for election at each annual meeting of stockholders. The Nominating

and Governance Committee’s goal is to put forth a diverse slate of candidates with a combination of skills, experience, and personal qualities that will best serve the Board, the Company, and our stockholders.

The Nominating and Governance Committee considers a wide range of factors when assessing potential director nominees. This assessment includes a review of the

 

 

 

 


 

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potential nominee’s judgment, experience, independence, understanding of our business or other related industries, and such other factors as the Nominating and Governance Committee concludes are pertinent in light of the current needs of the Board. With respect to the potential re-nomination of current directors, the Nominating and Governance Committee assesses their current contributions to the Board. The Nominating and Governance Committee also evaluates whether a potential director nominee meets the qualifications required of all directors and any of the key qualifications and experience to be represented on the Board, as described further in “—Board Membership Criteria” below.

The Nominating and Governance Committee assesses how each potential nominee would impact the skills and experience represented on the Board as a whole in the context of the Board’s overall composition and the current and future needs of the Company and the Board. Among other matters, the Nominating and Governance Committee considers the results of the annual evaluation of the Board and its committees, which the Nominating and Governance Committee also oversees, when assessing potential director nominees. More detail regarding this annual evaluation process can be found in “Governance—Board Evaluation and Director Peer Review Process” below.

 

 

 

Board Refreshment and Committee Rotation

 

The Board believes that refreshment, including periodic committee rotation, is important to help ensure that Board composition is aligned with the needs of the Company and the Board as our business evolves over time, and that fresh viewpoints and perspectives are regularly considered.

As part of planning for director succession, the Nominating and Governance Committee periodically engages in the consideration of potential director candidates, often with the assistance of a third-party advisor or recruitment firm. Of the Board’s nine independent directors, five have joined the Board since January 1, 2012.

The Board also believes that directors develop an understanding of the Company and an ability to work effectively as a group over time that provides significant value, and therefore a significant degree of continuity year-over-year is beneficial to stockholders and generally should be expected.

The Board does not have absolute limits on the length of time that a director may serve, but considers the tenure of directors as one of several factors in re-nomination decisions. The Board has established a retirement age of 75. Subject to our contractual obligations and applicable

law, no individual is eligible for election to the Board after his or her 75th birthday unless the Nominating and Governance Committee makes a finding that the nomination of the individual is in the best interests of the Company notwithstanding the individual’s age, and the nomination is also approved by the full Board.

Stefano Pessina, our Executive Vice Chairman and Chief Executive Officer, will be older than this retirement age as of the date of the Annual Meeting. However, as described further in “—Shareholders’ Agreement” below, Mr. Pessina is the contractual designee of the SP Investors (as defined below) for nomination to the Board, and the Shareholders’ Agreement (as defined below) includes a contractual waiver of any mandatory retirement age policy applicable to his service on the Board.

While the Board believes that age and tenure are important considerations in assessing Board composition, it also believes the best interests of the Company are served by being able to take advantage of all available talent. Therefore, the Board does not intend to make determinations with regard to its membership based solely on age or tenure.

 
 

 

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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

 

Majority Voting Standard

 

Our by-laws state that if a nominee for director who was in office prior to the Annual Meeting is not elected and no successor is elected at such Annual Meeting, the director must promptly tender his or her resignation from the Board. Thereafter, the Nominating and Governance Committee will make a recommendation to the Board about whether

to accept or reject the resignation or whether to take other action. The Board, excluding the director in question, will act on the recommendation of the Nominating and Governance Committee and publicly disclose its decision and its rationale within 90 days from the date the election results are certified.

 

 

 

Stockholder-Recommended Director Candidates

 

Nominees may be suggested by directors, members of management, stockholders, or other third parties. Stockholders who would like the Nominating and Governance Committee to consider their recommendations for director nominees should submit their recommendations

in writing by mail to Walgreens Boots Alliance, Inc., 108 Wilmot Road, MS #1858, Deerfield, Illinois 60015, Attention: Corporate Secretary. The Nominating and Governance Committee considers stockholder-recommended candidates on the same basis as other suggested nominees.

 

 

 

Stockholder-Nominated Director Candidates (“Proxy Access”)

 

In October 2015, after engaging with a number of our stockholders to understand their views on the desirability of proxy access and the appropriate proxy access framework for the Company, we adopted a proxy access by-law. This by-law permits a stockholder, or a group of up to 20 stockholders, owning 3% or more of our outstanding common stock continuously for at least three years to nominate and include in our proxy materials director nominees constituting up to 20% of the Board, provided that the stockholder(s) and the nominee(s) satisfy the requirements specified in Article II, Section 2.20 of our

by-laws. See “Additional Information—Director Nominations for Inclusion in the Proxy Statement for the 2019 Annual Meeting” below for more information.

Stockholders, including those stockholders who are not eligible to nominate director candidates under our proxy access by-law, may also nominate director candidates in accordance with the advance notice provisions described in our by-laws. See “Additional Information—Other Proposals or Director Nominations for Presentation at the 2019 Annual Meeting” below for more information.

 

 

 

Shareholders’ Agreement

 

On August 2, 2012, in connection with Walgreens’ acquisition of 45% of Alliance Boots GmbH (“Alliance Boots”), Walgreens, Kohlberg Kravis Roberts & Co. L.P. (“KKR” and, together with certain of its affiliates, the “KKR Investors”) and, inter alios , Stefano Pessina, our current Executive Vice Chairman and Chief Executive Officer (and together with certain of his affiliates, the “SP Investors”) entered into a Shareholders’ Agreement (the “Shareholders’ Agreement”). Pursuant to the Shareholders’ Agreement, for so long as the SP Investors continue to meet certain common stock

beneficial ownership thresholds and subject to certain other conditions, the SP Investors are entitled to designate a nominee for election to the Board. The SP Investors continue to meet these beneficial ownership thresholds, and Mr. Pessina is the current designee of the SP Investors. For more information about the Shareholders’ Agreement, see “Governance—Related Party Transactions—Shareholders’ Agreement” below.

 

 

 

 


 

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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

 


Board Membership Criteria

 

 

Pursuant to its charter, the Nominating and Governance Committee is charged with establishing criteria to be used by the Board for selecting directors. The Nominating and Governance Committee believes there are general

qualifications that all directors should exhibit and other key qualifications and experience that should be represented on the Board as a whole, but not necessarily by each director.

 

 

 

Qualifications Required of All Directors

The Nominating and Governance Committee seeks to construct a Board consisting of directors with the following qualities:

 

Experience:

 

    High-level leadership experience in business or administrative activities and significant accomplishments;

 

    Expertise in key facets of corporate management;

 

    Breadth of knowledge about issues affecting the Company; and

 

    Proven ability and willingness to contribute special competencies to the Board’s activities.

Personal attributes:

 

    Personal integrity;

 

    Loyalty to the Company and concern for its success and welfare;

 

    Willingness to apply sound and independent business judgment;

 

    Awareness of a director’s vital role in good corporate governance and citizenship;

 

    Willingness and energy to devote the time necessary for meetings and for consultation on relevant matters; and

 

    Willingness to assume broad fiduciary responsibility and enthusiasm about the prospect of serving.
 

 

With respect to directors who are not employees of the Company (“Non-Employee Directors”), the Nominating and Governance Committee also focuses on continued independence under the listing standards of The NASDAQ Global Select Market (“NASDAQ”), transactions that may present conflicts of interest, changes in principal business activities, and overall prior contributions to the Board (with respect to continuing Non-Employee Directors).

 

 

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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

 

Key Qualifications and Experience to be Represented on the Board

 

The Board has identified key qualifications and experience that are important to be represented on the Board as a whole in light of our current business strategy and expected needs. The table below

summarizes the key qualifications and experience of each nominee. This summary is not intended to be an exhaustive list of each nominee’s skills or contributions to the Board.

 

 

 

  Walgreens Boots Alliance, Inc. Board of Directors Expertise Analysis Matrix

 

 

   

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Business Development and M&A

 

 

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

         

       

 

     

       

 

                   

Corporate Governance

 

 

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

         

       

 

     

       

 

                   

Current or Former Public Company CEO

 

 

       

 

             

       

 

     

       

 

     

       

 

     

       

 

             

       

 

     

       

 

                 

       

 

                   

Finance and Accounting

 

 

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

         

       

 

     

       

 

                   

Global Operations

 

 

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

     

       

 

                         

       

 

                   

Healthcare or Regulated Industries

 

 

 

       

 

     

 

       

 

     

 

       

 

     

 

       

 

     

 

       

 

     

 

       

 

     

 

       

 

     

 

       

 

     

 

       

 

         

 

       

 

     

       

 

                   

Human Capital

 

 

       

 

                             

       

 

     

       

 

     

       

 

     

       

 

                 

       

 

     

       

 

                   

Retail or Consumer-Facing Industries

 

         

       

 

                             

       

 

             

       

 

     

       

 

         

       

 

     

       

 

                   

Risk Management

 

 

       

 

     

       

 

     

       

 

     

       

 

                                     

       

 

         

       

 

     

       

 

                   

Technology or E-commerce

 

         

       

 

     

       

 

                                             

       

 

                   

 

 

Consideration of Diversity

 

The Nominating and Governance Committee also assesses whether the group of nominees is comprised of individuals with a diversity of perspectives, backgrounds, and professional experiences that would best serve the Board, the Company, and our stockholders. The Board, in accordance with our Corporate Governance Guidelines

(the “Corporate Governance Guidelines”), considers diversity in broad terms, including consideration of competencies, experience, geography, gender, ethnicity, race, and age, with the goal of obtaining diverse perspectives, backgrounds, and professional experiences.

 

 

 

 


 

Proxy Statement    LOGO             11

José E. Almeida Janice M. Babiak David J. Brailer William C. Foote Ginger L. Graham John A. Lederer Dominic P. Murphy Stefano Pessina Leonard D. Schaeffer Nancy M. Schlichting James A. Skinner


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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

2018 Director Nominees

 

Our by-laws provide that the number of directors shall be determined by the Board, which has currently set the number at 11. The Board reserves the right to increase or decrease its size at any time.

 

Upon the recommendation of the Nominating and Governance Committee, the Board has nominated each of the following 11 nominees for election at the Annual Meeting. All of the nominees, other than Messrs. Pessina and Skinner, are independent under NASDAQ listing standards. See “Governance—Director Independence” below for more information.

  

The Board believes that each nominee has the skills, experience, and personal qualities the Board seeks in its directors, and that the combination of these nominees creates an effective and well-functioning Board, with a diversity of perspectives, backgrounds, and professional experiences that best serves the Board, the Company, and our stockholders.

 

Included in each director nominee’s biography is a description of select key qualifications and experience that led the Board to conclude that each nominee is qualified to serve as a member of the Board. All biographical information below is as of the Record Date.

 

              

 

José E. Almeida

 

 

LOGO

 

Director since: April 2017

 

Age: 55

 

Independent

 

Committee Memberships:

• Compensation

• Nominating and Governance

 

Other Public Company Boards:

• Baxter International Inc.

    

 

Mr. Almeida has served as the Chairman of the Board and Chief Executive Officer of Baxter International Inc. (Baxter), a global medical device company, since January 2016. He began serving as an executive officer of Baxter in October 2015, having served as Senior Advisor with The Carlyle Group, a global alternative asset manager, from May 2015 to October 2015. He served as the Chairman, President and Chief Executive Officer of Covidien plc (Covidien), a global healthcare products company, from March 2012 to January 2015 prior to Medtronic Inc.’s acquisition of Covidien; and as President and Chief Executive Officer of Covidien from July 2011 to March 2012. He served in several executive roles at Covidien (formerly Tyco Healthcare) between April 2004 and June 2011. Mr. Almeida served on the board of directors of State Street Corporation from October 2013 to November 2015; Analog Devices, Inc. from December 2014 to November 2015; and EMC Corporation from January 2015 to November 2015.

 

 

Key Qualifications and Experience

Mr. Almeida has substantial knowledge of the healthcare industry and considerable expertise in leading complex, highly-regulated global organizations, primarily as a result of his roles at Baxter and Covidien. As a native of Brazil, Mr. Almeida brings a diverse perspective alongside his significant international business experience. With his experience as a director of several large, publicly-traded companies, he has an extensive background in public company governance and has dealt with a wide range of issues, including risk management, talent development, executive compensation, and succession planning.

 

 
      
      
      
      
      

 

 

12             LOGO   Proxy Statement


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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

              

 

Janice M. Babiak

 

 

 

LOGO

 

Director since: April 2012

 

Age: 59

 

Independent

 

Committee Memberships:

• Audit (Chair)

• Finance

 

Other Public Company Boards:

• Bank of Montreal

    

 

Ms. Babiak is a former Partner at Ernst & Young LLP (EY), where she held a variety of roles with the firm in the U.S. and the United Kingdom from 1982 to 2009. After joining the firm’s audit practice in 1982 specializing in the audit of information systems, she was a founder of EY’s technology security and risk services practice in 1996, building and leading cyber and IT security, data analytics, and technology risk practices in the Northern Europe, Middle East and India and Africa (NEMIA) region. She served as a Board Member and Managing Partner of Regulatory & Public Policy for the NEMIA region from July 2006 to July 2008, and as a founder and Global Leader of EY’s Climate Change and Sustainability Services practice from July 2008 to December 2009. Ms. Babiak has served on the board of directors of Bank of Montreal since October 2012 and plans to join the board of directors of Euromoney Institutional Investor PLC, an international business-information group listed on the London Stock Exchange, effective December 1, 2017. Previously, she served as a non-executive director of Royal Mail Holdings plc from March 2013 to April 2014 as it transitioned from government ownership to a FTSE 100-listed company; Experian plc from April 2014 to January 2016; and Logica plc from January 2010 until its sale in August 2012. She is a U.S.-qualified Certified Public Accountant (CPA), Certified Information Systems Auditor (CISA), and Certified Information Security Manager (CISM). She is also a Chartered Accountant (FCA), and a member of the Institute of Chartered Accountants in England and Wales (ICAEW), of which she has served as a Council Member since 2011.

 

 

Key Qualifications and Experience

Ms. Babiak brings to the Board her general management expertise and depth of experience in the areas of audit, accounting, and finance, through her experience as a Council Member of the ICAEW and as a partner at EY, including service as partner for a number of retail and healthcare-related industry clients. With her extensive accounting knowledge and experience, she is highly qualified to serve as the chair of the Audit Committee of the Board (the “Audit Committee”) and as a member of the Finance Committee of the Board (the “Finance Committee”). Through her career experience and current CISM and CISA qualifications, she provides the Board with meaningful insight and knowledge related to information technology, cybersecurity best practices, and the relationship between information security programs and broader business goals and objectives. Her international experience, leadership in the areas of climate change and sustainability, and experience working with and serving on the audit committees of other publicly-traded companies further contribute to the perspective and judgment that she brings to service on the Board.

 

   

 

              

 

David J. Brailer, MD, PhD

 

LOGO

 

Director since: October 2010

 

Age: 58

 

Independent

 

Committee Memberships:

• Audit

• Finance (Chair)

    

 

Dr. Brailer has served as the Chairman of Health Evolution Partners, a private equity firm focused on the healthcare industry, since 2006. He served as National Coordinator for Health Information Technology within the Department of Health and Human Services of the U.S. federal government from May 2004 to April 2006. He was a Senior Fellow at the Health Technology Center from 2002 to 2004. Previously, he served as Chairman and Chief Executive Officer and a director of CareScience, Inc., a provider of care management services and Internet-based healthcare solutions, from 1992 to 2002. Prior to that, he was Adjunct Assistant Professor of Health Care Systems at The Wharton School of Business at the University of Pennsylvania. He serves on the boards of directors of several privately-held companies in the healthcare industry.

 

 

Key Qualifications and Experience

With his experience as Chairman and Chief Executive Officer of CareScience, Inc. for more than ten years and his subsequent experience with the U.S. federal government, where he was commonly referred to as the “health information technology czar,” Dr. Brailer provides the Board with strong technology experience coupled with business leadership and expertise. In addition, he brings to the Board insight and knowledge of investment and market conditions in the healthcare industry.

 

   
      
      
      
      
      
      

 

Proxy Statement    LOGO             13


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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

              

 

William C. Foote

 

 

LOGO

 

Director since: January 1997

 

Age: 66

 

Lead Independent Director

 

Committee Memberships:

• Compensation

• Nominating and Governance

  (Chair)

    

 

Mr. Foote currently serves as an independent business advisor and has served as our Lead Independent Director since January 2015. Previously, he served USG Corporation, a manufacturer and distributor of building materials, as its Chairman of the Board (from April 1996 to December 2011), Chief Executive Officer (from January 1996 to December 2010), and President (from September 1999 to January 2006). He also serves as a trustee of Williams College. Mr. Foote is the former Chairman of the Board of The Federal Reserve Bank of Chicago and is a life trustee of Northwestern Memorial HealthCare.

 

 

Key Qualifications and Experience

With many roles as a corporate director over the years and his experience as Chairman and Chief Executive Officer of USG Corporation, Mr. Foote provides the Board with strong business leadership, expertise in strategy formulation, financial acumen, management development and succession planning, and substantial experience with respect to corporate governance matters. These roles, in addition to his service as Chairman of The Federal Reserve Bank of Chicago, enable him to provide valuable insights and perspectives with regard to business and market conditions. In addition, he brings strength in the area of corporate governance to his role as chair of the Nominating and Governance Committee.

 

   
      
      
      
      
      
      

 

              

 

Ginger L. Graham

 

 

LOGO

 

Director since: April 2010

 

Age: 62

 

Independent

 

Committee Memberships:

• Audit

• Nominating and Governance

 

Other Public Company Boards:

• Clovis Oncology, Inc.

• Genomic Health, Inc.

    

 

Ms. Graham is the former President and Chief Executive Officer of Two Trees Consulting, Inc., a healthcare and executive leadership consulting firm, where she served from November 2007 to December 2016. She previously served as Senior Lecturer at Harvard Business School from October 2009 to June 2012. She also previously served as President (from September 2003 to June 2006) and Chief Executive Officer (from September 2003 to March 2007) of Amylin Pharmaceuticals, a biopharmaceutical company, where she also served as a director from 1995 to 2009. From 1994 to 2003, she held various positions at Guidant Corporation, a cardiovascular medical device manufacturer, including Group Chairman, Office of the President, President of the Vascular Intervention Group, and Vice President. Ms. Graham has served on the board of directors of Genomic Health, Inc. since 2008 and the board of directors of Clovis Oncology, Inc. since 2013. She also serves on the board of directors of a number of privately-held companies.

 

 

Key Qualifications and Experience

Ms. Graham brings to the Board her extensive experience in senior management and leadership roles in the healthcare industry, including experience leading companies in drug, device, and product development and commercialization. The Board values her insight and experience, including her service on the faculty of Harvard Business School where she taught classes in entrepreneurship. She also brings to her service on the Board valuable experience as a director of publicly- and privately-held life sciences companies and as a consultant to healthcare companies regarding strategy, leadership, team building, and capability building.

   
      
      
      
      
      

 

 

14             LOGO   Proxy Statement


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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

              

 

John A. Lederer

 

 

LOGO

 

Director since: April 2015

 

Age: 62

 

Independent

 

Committee Memberships:

• Compensation

• Finance

 

 

Other Public Company Boards:

• Maple Leaf Foods

• US Foods

    

 

Mr. Lederer has served as a Senior Advisor to Sycamore Partners, a private equity firm, since September 2017. Since September 2017, he has also served as the Executive Chairman of privately-held Staples, Inc. (and its newly formed and independent U.S. and Canadian retail businesses), a leading provider of office products and services to business customers, which was acquired by Sycamore Partners in 2017. From 2010 to 2015, he served as the President and Chief Executive Officer of US Foods, a leading food service distributor in the U.S. From 2008 to 2010, he served as the Chairman of the Board and Chief Executive Officer of Duane Reade, a New York-based pharmacy retailer, which was acquired by Walgreens in 2010. Prior to Duane Reade, he spent 30 years at Loblaw Companies Limited, Canada’s largest grocery retailer and wholesale food distributor, where he served in a number of leadership roles including as its President from 2000 to 2006. Mr. Lederer has served on the board of directors of US Foods since 2010 and on the board of directors of Maple Leaf Foods since 2016. He served on the board of directors of Restaurant Brands International from 2014 until 2016 and as a director of Tim Hortons Inc. from 2007 until 2014, when it was acquired by Restaurant Brands International.

 

 

Key Qualifications and Experience

Mr. Lederer brings to the Board significant management and business experience in the retail and healthcare industries as a result of his experience as Chief Executive Officer of a retail pharmacy. The Board values his understanding of the business operations of and issues facing large retail companies, including in the areas of marketing, merchandising, and supply chain logistics. Mr. Lederer also has extensive experience with respect to mergers & acquisitions and other corporate development activities. His prior and current service as a director of several public companies also provides him with insight into public company operations, including with respect to talent development, executive compensation, and succession planning.

 

   
      
      
      

 

              

 

Dominic P. Murphy

 

 

LOGO

 

Director since: August 2012

 

Age: 50

 

Independent

 

Committee Memberships:

• Finance

    

 

Mr. Murphy is the Founder & CEO of 8C Capital LLP, a private investment firm. From 2004 until 2017, he was a Partner at KKR, where he was responsible for the development of the firm’s activities in the United Kingdom and Ireland, served as the head of its healthcare industry team in Europe, and served as a member of the firm’s European investment and portfolio management committees. He was formerly a Partner at Cinven, a European-based private equity firm, from 1996 to 2004 and was an investment manager with 3i Group plc, an international investment management firm, from 1994 to 1996. From 2007 until 2015, Mr. Murphy served on the board of directors of Alliance Boots and certain of its affiliates. He serves on the board of directors of The Hut Group Limited, a privately-held company.

 

 

Key Qualifications and Experience

Mr. Murphy brings to the Board his considerable international business experience gained through his prior role in KKR-related private equity investments. The Board values his insights and experience, including his substantial mergers & acquisitions, corporate finance, and retail and healthcare industry experience, as well as his in-depth familiarity with many of the markets in which we operate. He also brings valuable experience as a current and former director of publicly- and privately-held healthcare companies.

 

   
      
      
      
      
      

 

 

Proxy Statement    LOGO             15


Table of Contents

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

              

 

Stefano Pessina

 

 

LOGO

 

Director since: August 2012

 

Age: 76

 

Executive Vice Chairman

    

 

Mr. Pessina has served as our Executive Vice Chairman since January 2015 and as our Chief Executive Officer since July 2015, having served as our Acting Chief Executive Officer from January 2015 to July 2015. Previously, he served as Executive Chairman of Alliance Boots from July 2007 to December 2014. Prior to that, he served as Executive Deputy Chairman of Alliance Boots. Prior to the merger of Alliance UniChem and Boots Group, he was the Executive Deputy Chairman of Alliance UniChem, previously having served as its Chief Executive Officer for three years through December 2004. He was appointed to the board of directors of Alliance UniChem in 1997 when UniChem merged with Alliance Santé, the Franco-Italian pharmaceutical wholesale group he established in Italy in 1977. Mr. Pessina served on the board of directors of Galenica AG, a publicly-traded Swiss healthcare group, from 2000 to 2017. He serves on the board of directors of a number of privately-held companies, including Sprint Acquisitions Holdings Limited (“Sprint Acquisitions”).

 

 

Key Qualifications and Experience

As our Chief Executive Officer, Mr. Pessina leads our senior management team and brings to the Board an in-depth knowledge of the Company, including through his prior service as Executive Chairman of Alliance Boots, as well as the retail and healthcare industries. His substantial international business experience and business acumen provide the Board with valued strategic, financial, and operational insights and perspectives. The Board also values his significant mergers & acquisitions experience as well as his experience serving on the boards of directors of numerous publicly- and privately-held healthcare and retail companies. He brings valued perspective and judgment to the Board’s discussions regarding our competitive landscape and strategic opportunities and challenges.

 

   

 

              

 

Leonard D. Schaeffer

 

 

LOGO

 

Director since: May 2015

 

Age: 72

 

Independent

 

Committee Memberships:

• Finance

• Nominating and Governance

 

Other Public Company Boards:

• scPharmaceuticals Inc.

    

 

Mr. Schaeffer has served as the Judge Robert Maclay Widney Chair and Professor at the University of Southern California since 2008. He has also served as a senior advisor to TPG Capital, a private investment firm, since 2006. From 2007 to 2011, he served as the Chairman of the Board of Surgical Care Affiliates, LLC. He formerly served as the Chairman of the Board of WellPoint, Inc. (now Anthem, Inc.), then the largest health insurance company in the U.S., from 2004 to 2005; Chairman and Chief Executive Officer of WellPoint Health Networks Inc. from 1992 to 2004; and Chairman and Chief Executive Officer of Blue Cross of California. Earlier in his career, he worked for the federal government as Administrator of the Health Care Financing Administration (now the Centers for Medicare and Medicaid Services) in the U.S. Department of Health and Human Services, with responsibility for the federal Medicare and Medicaid programs. Since 2014, Mr. Schaeffer has served on the board of directors of scPharmaceuticals Inc., which completed its initial public offering in November 2017; and he served on the board of directors of Amgen, Inc. from 2004 to 2013 and Quintiles IMS Holdings, Inc. from 2008 to 2016. He also serves on the board of directors of the Brookings Institution, the RAND Corporation and the University of Southern California, as well as on the Board of Fellows of Harvard Medical School. He is a member of the National Academy of Medicine of the National Academies.

 

 

Key Qualifications and Experience

Mr. Schaeffer brings to the Board considerable experience in healthcare and health insurance, including his experience as former Chairman of WellPoint, Inc. and Chairman and Chief Executive Officer of WellPoint Health Networks Inc. and Blue Cross of California. His over 40 years of experience in health insurance, healthcare policy, and government-funded healthcare programs provide him with valuable perspectives on the overall healthcare industry. Further, his service as a director of other public companies in the healthcare industries provides him with additional perspective on the issues facing public companies in the markets in which we operate.

 

   

 

 

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PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

              

 

Nancy M. Schlichting

 

 

LOGO

 

Director since: October 2006

 

Age: 62

 

Independent

 

Committee Memberships:

• Audit

• Compensation (Chair)

 

Other Public Company Boards:

• Hill-Rom Holdings, Inc.

    

 

Ms. Schlichting is the former Chief Executive Officer of the Henry Ford Health System, a leading hospital network and healthcare and medical services provider, having served in that role from June 2003 to December 2016. She was Executive Vice President of the Henry Ford Health System from June 1999 to June 2003, and President and Chief Executive Officer of Henry Ford Hospital from August 2001 to June 2003. Ms. Schlichting has served on the board of directors of Hill-Rom Holdings, Inc. since March 2017. She also serves on the board of directors of The Kresge Foundation and several other non-profit organizations.

 

 

Key Qualifications and Experience

As a result of her leadership of hospitals and health systems, Ms. Schlichting brings to her service on the Board a deep knowledge and understanding of the healthcare industry. The Board highly values her experience and insights gained at Henry Ford Health System, where she was responsible for the strategic and operational performance of a leading integrated health system, including an academic medical center, community hospitals, a health plan, a multi-specialty medical group, and an ambulatory and health retail network.

 

   
      
      
      
      
      
      
      
      

 

              

 

James A. Skinner

 

 

LOGO

 

Director since: July 2005

 

Age: 73

 

Executive Chairman

 

Other Public Company Boards:

• Illinois Tool Works Inc.

    

 

Mr. Skinner has served as Executive Chairman of the Board since January 2015, having served as non-executive Chairman from July 2012 to January 2015. He previously served McDonald’s Corporation as its Vice Chairman (from January 2003 to June 2012), its Chief Executive Officer (from November 2004 to June 2012), and as a director (from 2004 to 2012). Mr. Skinner has served on the board of directors of Illinois Tool Works Inc. since 2005, and he also serves as a trustee of the Ronald McDonald House Charities, a non-profit organization. He served on the board of directors of HP Inc. (f/k/a Hewlett-Packard Company) from 2013 to 2015.

 

 

Key Qualifications and Experience

Mr. Skinner’s prior experience serving in a range of management positions, including as the Chief Executive Officer for more than seven years of McDonald’s Corporation, one of the largest global companies, provides him with great breadth and depth of understanding of the strategic, operational, financial, and human capital issues facing companies. It also gives him valuable insights and perspectives with respect to our retail and consumer-facing operations. His extensive public company directorship experience provides him with valuable perspective on corporate responsibility and governance matters and enables him to draw on various viewpoints in his service on the Board.

 

   
      
      
      
      

 

 

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Governance

 

 

 

 


Our Commitment to Strong Corporate Governance

 

The Board believes that a commitment to strong corporate governance standards is an essential element of enhancing long-term stockholder value in a sustainable manner. The Board believes that its commitment to good governance is demonstrated in part by the following practices:

 

 

  Annual Election of All Directors

 

 

  Independent Lead Director Responsibilities

 

 

  Majority Voting for All Directors

 

 

  Regular Executive Sessions of Independent Directors

 

 

  Cumulative Voting for Election of Directors

 

 

  Annual Board and Committee Evaluation Process

 

 

  No Supermajority Voting Provisions

 

 

  Strategic and Risk Oversight by Board and Committees

 

 

  No Stockholder Rights Plan (“Poison Pill”)

 

 

  Commitment to Sustainability at the Senior Executive and Board Levels

 

 

  3%, 3-Year Proxy Access By-law

 

 

  Stock Ownership Guidelines for Executives and Directors

 

 

  Stockholder Right to Call Special Meetings at 20%

 

 

  Policies Prohibiting Hedging and Short Sales of Stock by Executives

 

 

  Stockholder Right to Act by Written Consent

 

 

  Active Stockholder Engagement

 

 

On the recommendation of the Nominating and Governance Committee, the Board adopted the Corporate Governance Guidelines to assist the Board in the exercise of its responsibilities on behalf of the Company and our stockholders. The Corporate Governance Guidelines are intended to provide guidance as a component of the flexible framework within which the Board, assisted by its committees, oversees and directs the affairs of the Company. The Corporate Governance Guidelines establish policies

and practices with respect to numerous areas of Board operations and responsibilities, including in the areas of Board structure and leadership and director independence. The Board periodically reviews the Corporate Governance Guidelines and updates them in response to changing regulatory requirements and evolving best practices. A copy of the Corporate Governance Guidelines can be found at http://investor.walgreensbootsalliance.com/corporate-governance.cfm.

 
 

 

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Board Leadership Structure

 

The Board selects a Chairman from among its members annually following the election of Board members. Our by-laws provide that the Chairman of the Board may, but need not, be the Chief Executive Officer.

Currently, the roles of Chairman of the Board and the Chief Executive Officer are held by different persons. James A. Skinner serves as the Executive Chairman of the Board, and Stefano Pessina serves as our Chief Executive Officer.

The Corporate Governance Guidelines state that if the Chairman of the Board is the Chief Executive Officer or another director who does not qualify as independent, then the independent directors will select a Lead Independent Director to help ensure robust independent leadership on the Board. William C. Foote was selected by the independent directors to serve as Lead Independent Director.

As Lead Independent Director, Mr. Foote’s responsibilities include:

 

    Presiding at all meetings of the independent directors as well as all meetings of the Board at which the Chairman of the Board is not present;

 

    Encouraging and facilitating the active participation of all directors;

 

    Serving as a communication facilitator between the Chief Executive Officer and other members of senior management, on the one hand, and the independent and non-management directors, on the other hand (without inhibiting direct communication between senior management and other directors), and between individual directors and the Board, including by:

 

  -   providing the Chief Executive Officer and other members of senior management with feedback as determined in executive sessions;

 

  -   being available to discuss with independent and non-management directors any concerns they may have and, as appropriate, relaying those concerns to the full Board and/or the Chief Executive Officer or other members of senior management; and
  -   being a sounding board and advisor to the Chief Executive Officer and/or other members of senior management regarding his or her concerns and those of the independent directors;

 

    Approving, in consultation with the Chairman of the Board and other members of senior management to the extent practicable, the information to be provided to the Board in preparation for and at Board meetings, and consulting with directors as to their information needs;

 

    Approving Board meeting agendas after conferring with the Chairman of the Board, as appropriate, including adding agenda items in his discretion;

 

    Approving Board meeting schedules to help ensure that there is sufficient time for discussion of all agenda items;

 

    Calling meetings of the independent directors in his sole discretion, as and when required;

 

    Leading the Board’s annual evaluation of the Chairman of the Board and Chief Executive Officer;

 

    Making himself available to advise the committee chairs in fulfilling their designated roles and responsibilities to the Board;

 

    Upon the reasonable request of a major stockholder, making himself available for consultation and direct communication with such stockholder where appropriate; and

 

    Performing such other functions as the Board or other directors may request.

The Board believes that this structure is optimal at this time because it allows Mr. Pessina to focus on leading our business and operations. At the same time, Mr. Skinner can focus on leadership of the Board, including calling and presiding over its meetings and preparing meeting agendas in collaboration with Messrs. Pessina and Foote, while working collaboratively with senior management. Similarly, Mr. Foote can lead executive sessions of the independent directors, serve as a liaison and supplemental channel of communication between independent directors and Messrs. Skinner and Pessina, and serve as a sounding board and advisor to Messrs. Skinner and Pessina.

 

 

 

 


 

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Director Independence

 

Under the Corporate Governance Guidelines, the Board must consist of a substantial majority (at least two-thirds) of independent directors. In making independence determinations, the Board will consider all relevant facts and circumstances and observe all applicable requirements, including the relevant listing standards established by NASDAQ.

To be considered “independent” for these purposes, (a) the director must meet the bright-line independence standards under NASDAQ listing standards, and (b) the Board must affirmatively determine that the director otherwise has no material relationship with the Company, either as a director

or as an officer, stockholder, or partner of an organization that has a relationship with the Company. In each case, the Board shall broadly consider all relevant facts and circumstances.

To aid in the director independence assessment process, the Board has adopted categorical standards that identify categories of relationships that the Board has determined would not affect a director’s independence. These categorical standards, which are part of the Corporate Governance Guidelines, stipulate that the following will not be considered material relationships that would impair a director’s independence:

 

 

 

Immaterial Sales/Purchases

 

At the time of the independence determination, the director is an executive officer or employee, or an immediate family member of such director is an executive officer, of another organization that does business with us and the sales by that organization to us, or purchases by that organization from us, in any single fiscal year during the evaluation period, are less than the greater of (i) $200,000 or (ii) 5% of the annual revenues of that organization. For the avoidance of doubt, payments arising solely from investments in our securities are not included in received payments for this purpose.

 

   
 

Immaterial Indebtedness

 

At the time of the independence determination, the director is an executive officer or employee, or an immediate family member of such director is an executive officer, of another organization that is indebted to us, or to which we are indebted, and the total amount of either entity’s indebtedness to the other at the end of the last completed fiscal year is less than 5% of the other entity’s total consolidated assets.

 

   
 

Immaterial Charitable Donations

 

At the time of the independence determination, the director serves as an executive officer, director, or trustee of a charitable organization, and our discretionary charitable contributions to the organization are less than the greater of (i) $200,000 or (ii) 5% of that organization’s annual consolidated gross revenues during its last completed fiscal year. Our automatic matching of employee charitable contributions will not be included in the amount of our contributions for this purpose.

 

   

 

The Board, through the Nominating and Governance Committee, annually reviews all relevant relationships of each director to determine whether such director meets the categorical standards described above. Where an organization does not publish its financial information, the Board will make a good faith determination of whether the amounts exceed any of the thresholds set forth above. The Board may determine that a director who has a relationship that exceeds the limits described in the categorical standards (to the extent that any such relationship would not constitute a bar to independence under NASDAQ listing standards) is nonetheless independent.

Dominic P. Murphy

In prior years, the Board did not determine that Dominic P. Murphy was independent because (a) at that time, Mr. Murphy served as a Partner at KKR, and (b) at times during his service, KKR was a significant investor in Alliance Boots and was a party to Walgreens’ acquisition of a 45% interest in Alliance Boots on August 2, 2012 and Walgreens’ subsequent acquisition of the remaining 55% interest on December 31, 2014 (the “Second Step Transaction”). KKR received significant consideration (on a pro rata basis with other Alliance Boots shareholders) from the sale of its Alliance Boots interest to Walgreens in such transactions, and KKR had received customary monitoring and other

 
 

 

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fees from Sprint Acquisitions prior to the closing of the Second Step Transaction. Additionally, Mr. Murphy served as a KKR-designated director of Alliance Boots from 2007 until January 2015, and he received customary non-executive compensation fees from Alliance Boots in connection with his service.

As described in “—Related Party Transactions—Shareholders’ Agreement” below, on August 1, 2016, KKR and its affiliates no longer met the beneficial ownership thresholds under the Shareholders’ Agreement entitling them to designate a nominee for election to the Board, and consequently this right terminated. Furthermore, on November 1, 2016, KKR sold the remaining shares of our common stock that it acquired as part of the foregoing transactions. To our knowledge, KKR no longer owns any shares of our common stock.

On June 30, 2017, Mr. Murphy resigned as a Partner of KKR. While Mr. Murphy or his affiliates may continue to hold economic interests in KKR funds or other affiliates acquired during his prior employment with KKR, he no longer has any right to control or direct the affairs of KKR, including with respect to its investment decisions and management of its portfolio companies.

The Board considered all of these changes in circumstances as part of its annual director independence review. It also noted that, based upon representations made by Mr. Murphy, he is not a party to any relationship that would automatically disqualify him from being considered independent under NASDAQ listing standards (e.g., Mr. Murphy is not and has never been an employee of the Company or Alliance Boots).

Based on this, and such other facts and circumstances as it deemed appropriate (including advice of legal counsel), the Board has determined that there are no continuing relationships that would interfere with Mr. Murphy’s exercise of independent judgment. Consequently, the Board has determined that Mr. Murphy is now an independent director under NASDAQ listing standards. Notwithstanding this, Mr. Murphy does not currently serve on the Audit Committee, the Compensation Committee of the Board (the “Compensation Committee”), or the Nominating and Governance Committee.

On August 1, 2017, affiliates of KKR entered into a transaction whereby it agreed to acquire PharMerica

Corporation (“PharMerica”), a national provider of institutional pharmacy, specialty infusion, and hospital pharmacy management services, for approximately $1.4 billion including the assumption or repayment of debt. At the closing of such transaction, an affiliate of the Company is expected to become a minority investor in the entity acquiring PharMerica. As this transaction was consummated after Mr. Murphy’s resignation as a Partner of KKR, and Mr. Murphy did not have any control or responsibility in KKR’s decision to acquire PharMerica or the Company’s decision to invest in the entity acquiring PharMerica, the Board does not believe this transaction interferes with the exercise of Mr. Murphy’s independent judgment or otherwise impairs Mr. Murphy’s independence under NASDAQ listing standards.

Independence Determination

As a result of its annual review, the Board has determined that none of the following director nominees has a material relationship with the Company and, as a result, the following director nominees are independent: José E. Almeida, Janice M. Babiak, David J. Brailer, William C. Foote, Ginger L. Graham, John A. Lederer, Dominic P. Murphy, Leonard D. Schaeffer, and Nancy M. Schlichting.

James A. Skinner, the Executive Chairman of the Board, has served in an executive capacity since January 2015 and therefore is not an independent director. Stefano Pessina, the Executive Vice Chairman of the Board and our Chief Executive Officer, is also not an independent director.

Each member of the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee is required to be independent in accordance with applicable rules and regulations. The Board has determined that each member of the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee is independent as defined in our independence standards, the rules of the Securities and Exchange Commission (the “SEC”), and applicable stock exchange listing standards.

The table below summarizes the relationships that were considered in connection with the independence determinations. None of the transactions described below were considered material relationships that impacted the applicable director’s independence.

 

 

 

 


 

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    Director

 

 

    Categorical Standard

 

 

    Description of Relationship

 

    
       

José E. Almeida

 

Immaterial Sales/Purchases

 

The Board examined the Company’s relationship with Baxter International Inc., of which Mr. Almeida is the Chairman and Chief Executive Officer, Ortho-Clinical Diagnostics, Inc., of which Mr. Almeida is a director, and Partners in Health, of which Mr. Almeida serves on the board of trustees. The Board determined that these relationships were not material since (i) the amounts involved did not exceed the categorical standards adopted by the Board; and (ii) the payments made and received were for various products and services in the ordinary course of business.

 

   
 

Janice M. Babiak

 

Immaterial Sales/Purchases

 

The Board examined the Company’s relationship with Institute of Chartered Accountants in England and Wales, of which Ms. Babiak is a Council Member. The Board determined that this relationship was not material since (i) the amount involved was de minimis and did not exceed the categorical standards adopted by the Board; and (ii) the payment made was for various services in the ordinary course of business.

 

   
 

David J. Brailer

 

Immaterial Sales/Purchases

 

The Board examined the Company’s relationship with Health Evolution Partners, of which Mr. Brailer is the Chairman. The Board determined that this relationship was not material since (i) the amount involved did not exceed the categorical standards adopted by the Board; and (ii) the payment received was for various products and services in the ordinary course of business.

 

   
 

William C. Foote

 

Immaterial Sales/Purchases

 

The Board examined the Company’s relationship with Northwestern Memorial HealthCare, of which Mr. Foote is a Life Trustee, and its affiliates. The Board determined that this relationship was not material since (i) the amounts involved did not exceed the categorical standards adopted by the Board; and (ii) the payments made and received were for various products and services in the ordinary course of business.

 

   
 

John A. Lederer

 

Immaterial Sales/Purchases

 

The Board examined the Company’s relationship with Staples, Inc., of which Mr. Lederer is the Executive Chairman, and its affiliates. The Board determined that this relationship was not material since (i) the amounts involved did not exceed the categorical standards adopted by the Board; and (ii) the payments made and received were for various products and services in the ordinary course of business.

 

   
 

Dominic P. Murphy

 

     

See “—Dominic P. Murphy” above.

 

   
 

Leonard D. Schaeffer

 

Immaterial Sales/Purchases

Immaterial Charitable Donations

 

The Board examined the Company’s relationship with the University of Southern California, of which Mr. Schaeffer serves on the Board of Trustees. The Board determined that this relationship was not material since (i) the amounts involved did not exceed the categorical standards adopted by the Board; (ii) the payments made were for various products and services in the ordinary course of business or were made as a charitable donation.

 

   
 

Nancy M. Schlichting

 

Immaterial Sales/Purchases

 

The Board examined the Company’s relationship with Henry Ford Health System, of which Ms. Schlichting was the President and Chief Executive Officer during a portion of 2017, and its affiliates. The Board determined that this relationship was not material since (i) the amounts involved did not exceed the categorical standards adopted by the Board; and (ii) the payments made and received were for various products and services in the ordinary course of business.

 

   
 

 

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Related Party Transactions

 

The Board has adopted a written policy for the review of certain related party transactions, including those that are required to be disclosed in this Proxy Statement. For purposes of this policy, a “related party transaction” includes, subject to certain exceptions, a transaction (or series of transactions) in which (i) the Company or any of its subsidiaries is or will be a participant, (ii) the aggregate amount involved will exceed, or may be reasonably expected to exceed, $120,000 in any fiscal year, and (iii) any related person has or will have a direct or indirect material interest. The policy defines a “related person” to include any of our directors, director nominees, or executive officers; a holder of more than 5% of our common stock; and immediate family members of any of the foregoing.

Pursuant to this policy, all such related party transactions must be reviewed and approved or ratified by the Nominating and Governance Committee. In the event that a member of the Nominating and Governance Committee has an interest in a related party transaction, the transaction must be approved or ratified by the disinterested members of the Nominating and Governance Committee. In deciding whether to approve or ratify a related party transaction, the Nominating and Governance Committee considers, among other factors:

 

    The purpose of, and the potential benefits to the Company of, the transaction;

 

    The extent of the related party’s interest in the transaction;

 

    Whether the transaction is fair to the Company and on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances;

 

    Whether the transaction would impair the independence of a Non-Employee Director; and

 

    Whether the transaction would present an improper conflict of interest for any of our directors, director nominees or executive officers, taking into account the size of the transaction, the overall financial position of the applicable related person, the direct or indirect nature of the applicable related person’s interest in the transaction, and the ongoing nature of any proposed relationship.

Sprint Acquisitions

From time to time, we or our subsidiaries have entered into, or may be deemed to have entered into by virtue of our ownership of Alliance Boots, certain equity-related transactions and agreements with Sprint Acquisitions. Sprint Acquisitions is jointly controlled by (or by affiliates of) (i) Stefano Pessina, our Executive Vice Chairman and Chief Executive Officer, a director of the Company, and an indirect holder of more than 5% of our common stock; and (ii) funds advised by KKR, of which Dominic P. Murphy, a director of the Company, was a partner until his resignation in June 2017. Mr. Pessina, as well as Ornella Barra, our Co-Chief Operating Officer, and Marco Pagni, our Executive Vice President, Global Chief Administrative Officer and General Counsel, serve on the board of directors of Sprint Acquisitions. Mr. Murphy previously served on the board of directors of Sprint Acquisitions, but resigned in June 2017.

On January 1, 2015, WBAD Holdings Limited (“WBAD Holdings”), our wholly-owned subsidiary, transferred 320 common shares of Walgreens Boots Alliance Development GmbH (“WBAD”), our global sourcing enterprise, to Alliance Healthcare Italia Distribuzione S.p.A. (“AHID”) in exchange for 32,000 Swiss francs. 91% of the capital stock of AHID was indirectly held by Sprint Acquisitions until August 2017, when the interest indirectly held by Sprint Acquisitions was sold to an entity affiliated with Mr. Pessina. The remaining 9% is held indirectly by us. WBAD Holdings retained the remainder of the equity interests in WBAD, which consist of 6,000 preferred shares. As the holder of common shares, AHID is only entitled to its pro rata share (approximately 5%) of any dividends paid by WBAD in excess of $3 billion per annum. Upon the liquidation of WBAD, AHID is entitled to receive its pro rata share (approximately 5%) of 10% of the net proceeds of such liquidation. Under certain circumstances, AHID has the right to put, and WBAD Holdings has the right to call, the common shares of WBAD held by AHID for a purchase price of $100,000. In connection with the sale of Sprint Acquisitions’ indirect interest in AHID in August 2017, a dividend was declared by an affiliate of AHID to its shareholders. Our pro rata portion of the dividend for our 9% interest in the affiliate, which was paid after the end of 2017, was approximately $967,000.

 

 

 

 


 

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Certain of our or our subsidiaries’ executive officers or other employees may provide administrative and support services to AHID and its affiliates; and AHID and its affiliates may provide services to us and our subsidiaries. Furthermore, we and our subsidiaries may sell products to AHID and its affiliates, and AHID and its affiliates may sell products to us and our subsidiaries. These services and products are procured on an arm’s-length basis pursuant to written agreements between the relevant parties. In 2017, we and our subsidiaries provided products and services valued at approximately $1.4 million to AHID and its affiliates, of which payment of approximately $0.2 million remained due at the end of 2017. In 2017, AHID and its affiliates provided services and products valued at approximately $1.1 million to us and our subsidiaries, of which payment of approximately $0.3 million remained due at the end of 2017.

Shareholders’ Agreement

Pursuant to the Shareholders’ Agreement, for so long as the SP Investors meet certain common stock beneficial ownership thresholds, and subject to certain other conditions, the SP Investors are entitled to designate a nominee for election to the Board. Mr. Pessina is the current designee of the SP Investors.

The KKR Investors previously had similar rights under the Shareholders’ Agreement, and Mr. Murphy was the designee of the KKR Investors. However, on August 1, 2016, the KKR Investors no longer met the beneficial ownership thresholds under the Shareholders’ Agreement entitling them to designate a nominee for election to the Board, and consequently this right terminated with respect to the KKR Investors. In addition, Mr. Murphy resigned as a partner of KKR effective June 30, 2017. For the reasons outlined elsewhere in this Proxy Statement, Mr. Murphy has been re-nominated for election to the Board independently and not as a designee of the KKR Investors.

The Shareholders’ Agreement also includes, among other things, registration rights, standstill provisions, and restrictions on the SP Investors’ and KKR Investors’ ability to dispose of shares of our common stock or to acquire additional shares of our common stock. On November 4, 2016, certain of the KKR Investors sold 20,461,215 shares of our common stock in an underwritten public offering pursuant to a shelf registration statement we filed with the SEC on February 17, 2016. In connection with such offering, and as required by the terms of the Shareholders’

Agreement, we paid certain legal and related fees and expenses incurred by the KKR Investors of approximately $101,000.

Other Relationships and Transactions

Mr. Pessina co-owns Monavia Limited (“Monavia”) with an individual who has no affiliation with the Company. Monavia owns a private aircraft that is managed and operated by Gama Aviation, a private charter company in which neither we nor Mr. Pessina has an ownership interest. From time to time during 2017, we chartered the aircraft owned by Monavia for business purposes. Monavia pays Gama Aviation management and other fees in connection with the use of this aircraft, including for use by the Company for business travel (including business travel by Mr. Pessina). Monavia also bears the operating costs, including fuel, relating to use of the aircraft. During 2017, Monavia received from and/or billed us £130,050 (approximately $167,000 based on exchange rates as of August 31, 2017) in connection with the use of such aircraft for business travel during 2017. We discontinued this arrangement in December 2016 and do not anticipate further chartering the aircraft owned by Monavia for business purposes. Other than as described in “Executive Compensation—Compensation Discussion and Analysis—VIII. Retirement and Other Benefits—B. Perquisites” below, we have not paid for any personal use of this or any other private aircraft by Mr. Pessina or any of our other employees.

Mr. Pessina and Ms. Barra are partners and share a private residence. As noted in “Executive Compensation—Compensation Discussion and Analysis” below, Ms. Barra reports to James A. Skinner, the Executive Chairman of the Board, and Mr. Skinner is the only member of management who makes recommendations concerning Ms. Barra’s compensation to the Compensation Committee. For a description of Ms. Barra’s 2017 compensation and benefits, see “Executive Compensation—Compensation Discussion and Analysis” and “Executive Compensation—Executive Compensation Tables and Supporting Information” below.

Mr. Pessina has a son who is employed by one of our subsidiaries in a non-executive officer capacity. Jacopo Pessina serves as Director, M&A and Healthcare Innovation—International and received total compensation in 2017 of more than $120,000. His compensation is comparable to other Company employees at a similar level.

 
 

 

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Mr. Pessina has a daughter who became employed by one of our subsidiaries in a non-executive officer capacity in 2017. Elena Pessina serves as Head of International Coordination, Agency Operations and, while she did not

receive total compensation in 2017 of more than $120,000, is expected to receive total compensation exceeding that amount in 2018. Her compensation is comparable to other Company employees at a similar level.

 

 

 

Board Meetings and Attendance

 

During 2017, the Board held 9 meetings. In 2017, no incumbent director attended fewer than 75% of the total number of Board and applicable committee meetings held during the period that such director served.

We encourage our directors to attend each annual meeting of stockholders. All of our then-serving directors attended the 2017 Annual Meeting.

 

Our independent directors hold regularly-scheduled executive sessions without our management present. These executive sessions of independent directors are chaired by our Lead Independent Director. The independent directors met in executive session at all of the regularly-scheduled quarterly Board meetings held in 2017.

 

 

 

Board Committees

The Board has four standing committees: the Audit Committee, the Compensation Committee, the Finance Committee, and the Nominating and Governance Committee.

 

              

 

Audit Committee

 

Number of Meetings in 2017: 9

 

Committee Members:

Janice M. Babiak (Chair)

David J. Brailer

Ginger L. Graham

Nancy M. Schlichting

    

 

Key Responsibilities:

 

  Selecting our independent registered public accounting firm and reviewing its performance;

 

  Reviewing and discussing with our management and independent registered public accounting firm our financial statements;

 

  Reviewing and overseeing the design and operation of our internal accounting controls;

 

  Reviewing policies and procedures with respect to enterprise risk assessment and risk management, including major litigation and financial risks as well as information security and technology risks (including cybersecurity);

 

  Reviewing the overall adequacy and effectiveness of our legal, regulatory, and compliance programs; and

 

  Reviewing the responsibilities, budget, and staffing of our internal audit function.

 

Financial Expertise, Independence, and Financial Literacy

The Board has determined that each member of the Audit Committee satisfies the criteria adopted by the SEC to serve as an “audit committee financial expert.”

 

In addition, the Board has determined that each member of the Audit Committee is an independent director pursuant to the requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and NASDAQ listing standards and meets the current financial literacy requirements of NASDAQ.

 

Charter

The Audit Committee Charter is available on our website at:

http://investor.walgreensbootsalliance.com/corporate-governance.cfm.

 

   

 

 

 


 

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Compensation Committee

 

Number of Meetings in 2017: 4

 

Current Committee Members:

José E. Almeida

(as of April 19, 2017)

William C. Foote

John A. Lederer

Nancy M. Schlichting (Chair)

 

Prior Committee Members:

Leonard D. Schaeffer

(until April 19, 2017)

    

 

Key Responsibilities:

 

  Reviewing and approving our executive compensation philosophy, strategy, principles, and levels;

 

  Developing market-comparable total compensation that enables us to attract and retain talented executives and reward outstanding performance in a manner designed to lead to long-term enhancement of stockholder value;

 

  Evaluating our Chief Executive Officer’s performance and reviewing and approving his or her total compensation;

 

  Reviewing and approving the evaluation process and compensation structure for our senior executives other than the Chief Executive Officer;

 

  Administering our executive compensation programs, including base salaries; equity plans used to provide short-term and long-term incentive awards; and certain executive deferred compensation plans and perquisites; and

 

  Overseeing executive succession planning.

 

Independence

The Board has determined that each member of the Compensation Committee (including Mr. Schaeffer for such time as he served on the Compensation Committee) is independent under NASDAQ listing standards for directors and compensation committee members.

 

The Board has also determined that each member of the Compensation Committee (including Mr. Schaeffer for such time as he served on the Compensation Committee) is an “outside director” for purposes of
Section 162(m) of the Internal Revenue Code (the “Code”) and a “non-employee director” for purposes of Section 16 of the Exchange Act.

 

Charter

The Compensation Committee Charter is available on our website at:

http://investor.walgreensbootsalliance.com/corporate-governance.cfm.

 

   

 

Compensation Advisor

The Compensation Committee is supported in its work by our independent compensation consultant, Mercer LLC (“Mercer”). Mercer provides the Compensation Committee with information regarding market compensation and practices, assists the Compensation Committee in the review and evaluation of such compensation and practices, and advises the Compensation Committee on executive compensation decisions. Mercer also assists the Compensation Committee in the review and evaluation of our Non-Employee Director compensation program.

For 2017, Mercer’s fees for executive and Non-Employee Director compensation consulting services provided to the Compensation Committee and our management were approximately $675,000.

Mercer is a wholly-owned subsidiary of Marsh & McLennan Companies (“MMC”). In 2017, MMC and its affiliates

(excluding Mercer) provided certain services to us and our affiliates unrelated to executive and Non-Employee Director compensation, primarily insurance brokerage and other professional services. For these services, MMC and its affiliates received compensation totaling approximately $2,500,000, excluding insurance premiums that are paid through MMC to insurance carriers on behalf of us and our affiliates. These non-compensation-related services and fees are not subject to the Compensation Committee’s review or approval. The Mercer consultants providing services to the Compensation Committee do not market or sell to us, nor do they receive incentive or other compensation based on, these non-compensation-related services.

The Compensation Committee considered the independence of Mercer under applicable SEC rules and regulations and NASDAQ listing standards. Based on its review, the Compensation Committee determined that the services provided by MMC and its affiliates and the engagement of Mercer did not raise any conflict of interest or other issues that would adversely impact Mercer’s independence.

 
 

 

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Compensation Committee Interlocks and Insider Participation

José E. Almeida, William C. Foote, John A. Lederer, Leonard D. Schaeffer, and Nancy M. Schlichting served on the Compensation Committee during all or a portion of 2017. No such person is now, or was during 2017, an officer or employee of the Company. No such person had any relationship with us or any of our subsidiaries during

2017 pursuant to which disclosure would be required under applicable rules of the SEC pertaining to the disclosure of transactions with related parties. None of our executive officers currently serves, or served during 2017, on the board of directors or compensation committee of another entity at any time during which an executive officer of such other entity served on the Board or the Compensation Committee.

 

 

              

 

Finance Committee

 

Number of Meetings in 2017: 5

 

Current Committee Members:

Janice M. Babiak

David J. Brailer (Chair)

John A. Lederer

Dominic P. Murphy

Leonard D. Schaeffer

(as of April 19, 2017)

    

 

Key Responsibilities:

 

  Reviewing our dividend policy and other financial and investment policies;

 

  Reviewing our capital structure and financing requirements;

 

  Reviewing the principal terms and conditions of significant proposed borrowings and issuances of debt or equity securities by us;

 

  Reviewing our plans for capital expenditures and significant capital investments; and

 

  Reviewing our strategies and plans for significant mergers, acquisitions, divestitures, joint ventures, and investments in third party securities.

 

Charter

The Finance Committee Charter is available on our website at:

http://investor.walgreensbootsalliance.com/corporate-governance.cfm.

 

   

 

              

 

Nominating and Governance Committee

 

Number of Meetings in 2017: 5

 

Committee Members:

José E. Almeida

(as of April 19, 2017)

William C. Foote (Chair)

Ginger L. Graham

Leonard D. Schaeffer

    

 

Key Responsibilities:

 

  Establishing and reviewing criteria to be used by the Board for selecting new directors;

 

  Recommending candidates for election to the Board;

 

  Overseeing succession planning for Board and committee membership;

 

  Making recommendations to the Board regarding the Corporate Governance Guidelines and other significant governance policies;

 

  Overseeing the annual Board evaluation and director peer review process; and

 

  Reviewing our policies and activities regarding Corporate Social Responsibility (including with respect to sustainability and the environment), charitable donations, and political contributions.

 

Independence

The Board has determined that each member of the Nominating and Governance Committee is independent under NASDAQ listing standards.

 

Charter

The Nominating and Governance Committee Charter is available on our website at:

http://investor.walgreensbootsalliance.com/corporate-governance.cfm.

 

   

 

 

 


 

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Board Oversight of Strategy and Risk Management

 

 

 

Strategy

 

Oversight of our business strategy is a key responsibility of the Board. Throughout the year, the Board and its committees provide oversight and guidance to management regarding our strategy, operating plans, and overall performance. While elements of strategy are embedded in every regularly-scheduled meeting of the Board, the Board also dedicates at least one multi-day meeting each year to focus on our long-term business strategic planning.

The Board, primarily through its Finance Committee, also dedicates significant focus to reviewing our capital allocation strategy. Our current Board-approved capital allocation policy, which was approved and announced in 2014, is designed to ensure a balanced and disciplined approach to deploying capital intended to drive business growth and generate strong returns, while returning cash to stockholders through dividends and share repurchases over the long-term. The key elements of this policy include

seeking to maintain a strong balance sheet and financial flexibility, with a commitment to solid investment grade credit ratings to govern future capital allocation.

While the Board and its committees oversee elements of our strategic planning, our management is charged with executing the business strategy. To monitor our performance against our strategic goals, the Board receives regular updates and actively engages in dialogue with our executive management team. Directors may also periodically visit certain of our stores and other locations to see our strategy execution first hand.

The Board’s oversight and our management’s execution of our business strategy are intended to help promote the creation of long-term stockholder value in a sustainable manner, with a focus on assessing both potential opportunities available to us and risks that we might encounter.

 

 

 

Risk Management

 

We face a broad array of risks, including market, operational, strategic, legal, regulatory, reputational, and financial risks. Our management is responsible for establishing and maintaining systems to manage these risks. The Board exercises oversight over the elements and dimensions of major risks that we face. The Board administers its risk oversight function as a whole and through its committees, and uses the processes described below to help assess and monitor the risks we face.

We have established a global enterprise risk management (“ERM”) program, which is led by our Global Chief Risk Officer. Our Risk Committee, which is comprised of key members of executive management, oversees and monitors the activities of our ERM program and reviews, on a regular basis, the top current and emerging enterprise risks we face, and relevant risk mitigation activities. This global ERM approach helps the Board and its committees receive relevant information about risks and understand our risk management process, the participants in the process, and key information gathered through the process.

The purpose of the ERM process is to identify risks that could affect us and the achievement of our objectives; to understand, assess, and prioritize those risks; and to facilitate the implementation of risk management strategies and processes across the Company.

In accordance with its charter, the Audit Committee reviews our policies and processes with respect to enterprise risk assessment and risk management, including major litigation and financial risks. On a regular basis, the Audit Committee reviews and discusses the key risks identified in the ERM process with management, their potential impact on us, and our risk mitigation strategies. In addition, the Audit Committee conducts regular reviews of the efficacy of our information security and technology risks (including cybersecurity) and related policies and procedures, which include receiving reports from our Global Chief Information Officer and other members of senior management who are tasked with monitoring cybersecurity risks.

 
 

 

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The other standing committees of the Board oversee management of risks relating to their respective areas of responsibility. For example, the Compensation Committee reviews risks associated with the design and implementation of our compensation plans and arrangements (see “Executive Compensation—

Compensation Discussion and Analysis—IX. Other Matters—A. Compensation Risk Oversight” below), the Finance Committee oversees key aspects of our financial risk management activities, and the Nominating and Governance Committee reviews risks related to our governance structures and processes.

 

 

Director Orientation and Continuing Education

 

 

The Corporate Governance Guidelines state that the Board shall maintain an orientation process for new directors. As part of this process, each new director receives a series of in-person briefings provided by our corporate officers on our business operations; significant financial, accounting and risk management matters; corporate governance; and key policies and practices. The new director also receives briefings on the responsibilities, duties, and activities of the committees on which the director will initially serve. Finally, the new director has the opportunity to visit and learn more about each of our divisions and select cross-divisional functions, both within and outside of the U.S., where he or she receives additional in-person briefings from

divisional and cross-functional leadership. The Nominating and Governance Committee develops and oversees this orientation program with the assistance of our management.

Our directors are encouraged to participate in director continuing education programs sponsored by third-party organizations. Our executive management team also periodically provides materials and briefing sessions on subjects that assist directors in fulfilling their duties. Directors are encouraged to visit our facilities and operations and to directly communicate and interact with our senior management, which allows them to gain a first-hand view of our business.

 

 

Board Evaluation and Director Peer Review Process

 

 

The Board recognizes that a robust evaluation process is an essential component of strong corporate governance practices and promoting Board effectiveness. The Nominating and Governance Committee oversees an annual evaluation process led by the Lead Independent Director (who also serves as Chair of the Nominating and Governance Committee).

Each director completes an annual self-evaluation of the Board and the committees on which he or she serves. These self-evaluations are designed to help assess the skills, qualifications, and experience represented on the Board and its committees, and to determine whether the Board and its committees are functioning effectively. The results of this annual self-evaluation are discussed by the full Board and each committee, as applicable, and changes to the Board’s and its committees’ practices are implemented as appropriate.

The Lead Independent Director also conducts a confidential director peer review process. As part of this process, the Lead Independent Director speaks with each other director individually to obtain insights regarding the contributions of other directors (and the Executive Chairman of the Board may speak with each other director regarding the contributions of the Lead Independent Director), and to discuss issues in greater depth and obtain more targeted feedback with respect to Board, committee and individual director effectiveness. The results of this peer review process may be considered by the Board and the Nominating and Governance Committee along with other factors in director re-nomination decisions.

The Nominating and Governance Committee reviews the format of the Board evaluation and director peer review process as necessary to help ensure that the solicited feedback remains relevant and appropriate.

 

 

 

 


 

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Additional Topics of Interest

 

 

 

Sustainability and Corporate Social Responsibility

 

Our commitment to Corporate Social Responsibility (“CSR”) is embedded in our drive to operate both a sustainable and profitable enterprise for the long-term. Around the world, every day, millions of people rely on the medicines we distribute and dispense and on the products we provide to support their daily living. Advancing our environmental, social, and governance performance through our CSR initiatives builds trust in our businesses and in our brands, helping us to drive our financial performance and to achieve our vision of being the first choice for pharmacy, wellbeing, and beauty—caring for people and communities around the world.

Since the combination of Walgreens and Alliance Boots in December 2014, we have worked diligently to align our global CSR strategies. In 2016, in part through conversations with our stockholders and other stakeholders (such as non-governmental organizations and government bodies and agencies), we defined 12 CSR goals for the Company, which we continued to use in 2017. We believe these 12 CSR goals represent the areas where we, given our businesses, scale, and global reach, can have the most impact. We group these 12 CSR goals into four key areas as follows:

We have enhanced our disclosure of sustainability and CSR progress, most recently through the publication of our Corporate Social Responsibility Report 2016 (the “2016 CSR Report”). The 2016 CSR Report details our CSR initiatives and accomplishments, including how our 12 CSR goals are mapped to one or multiple Sustainable Development Goals. The 2016 CSR Report also provides disclosure of selected CSR-related indicators that we collected during 2016. We also began aligning the contents of our 2016 CSR Report with the Global Reporting Initiative (GRI) Standards. We expect further alignment between our disclosure and the GRI Standards to be included in our next Corporate Social Responsibility Report, which we expect to publish in January 2018.

In order to help enhance the credibility and transparency of our CSR-related data, we engaged Deloitte & Touche LLP (“Deloitte”), our independent registered public accounting firm, to conduct a review of selected indicators within our 2016 CSR Report in accordance with attestation standards established by the American Institute of Certified Public Accountants. Their assurance report can be found in the 2016 CSR Report.

 

 

  COMMUNITY         WORKPLACE  
                   

 

 Support the health, wellbeing and vitality of the communities we serve

 

 Enable young people to achieve their potential wherever they are in the world

 

 Develop and mobilize our resources and partnerships in the fight against
cancer

 

   

 

 Proactively support the personal health and wellbeing of our employees

 

 To deliver our commitment to equal opportunities for everyone across our employment practices, policies and procedures

 

 Continuously improve our robust approach to health and safety, actively caring for our employees and customers, throughout the Company

 

           
  MARKETPLACE         ENVIRONMENT  
                   

 

 Create a global process that enables transparency of ingredients and their traceability for the exclusive consumer retail product brands that we sell

 

 Continue to drive ethical sourcing practices, protecting human rights across our supply chain

 

 Work collaboratively with a global network of key external organizations engaging in issues that carry the greatest social relevance to the markets and in the communities we serve

 

   

 

 Reduce our energy consumption and emissions on a comparable basis 1 as defined by the Greenhouse Gas Protocol

 

 Reduce the waste we create, on a comparable basis 1 , and contribute to the drive for increasingly circular economies through increased re-use and recycling

 

 Develop plans to help achieve zero net deforestation by 2020, collaborating with other organizations in a global initiative

 

1 Excludes the impact of acquisitions, disposals and any significant changes in existing operations.

 

 

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Having appropriate oversight and governance of our CSR program is critical to its success. Our senior leadership has established a CSR Committee to play a leading role in providing this oversight and governance. The CSR Committee is chaired by our Co-Chief Operating Officer, Ornella Barra, and includes senior executives from our key business functions as well as from our Legal, Finance, Human Resources, and Communications functions. The CSR Committee meets regularly and, among other obligations, is charged with reviewing our CSR program (including the selection and approval of our CSR goals and the oversight of our CSR policy statements) and our progress towards achieving our CSR goals.

At the Board level, the Nominating and Governance Committee reviews, at least annually, our policies and activities regarding sustainability and CSR and assesses our management of risks with respect thereto. While the Nominating and Governance Committee has undertaken this review over the past few years, during 2017 the Board amended the Nominating and Governance Committee’s charter to expressly set forth this responsibility. This change was made, in part, upon stockholder feedback we received in 2017. The Board believes that the Nominating and Governance Committee is the appropriate committee

to discharge this obligation because sustainability and CSR matters represent a critical focus area of our corporate governance and that the members of the Nominating and Governance Committee, who are all independent directors, are able to effectively provide objective oversight of our CSR program and related initiatives.

In addition to the Nominating and Governance Committee’s direct oversight, and as noted in “—Board Oversight of Strategy and Risk Management” above, the Audit Committee regularly reviews and discusses the key risks identified in the ERM process with management, their potential impact on us and our operations, and our risk mitigation strategies. These risks may include risks related to climate change, sustainability, and other CSR-related matters.

We are proud of the impact our CSR activities have on people in our communities and around the world, which were recognized in October 2016 by the United Nations Foundation who honored us with its Global Leadership Award. To learn more about our sustainability and CSR efforts, please view our 2016 CSR Report and other information on our website at http://www.walgreensbootsalliance.com/ corporate-social-responsibility-report.

 

 

 

Public Policy Engagement

 

Primarily through Walgreens, we engage in the political and policymaking processes in the U.S., at the federal, state, and local levels, to participate in democratic self-government and to have a voice in public policy debates that have a direct impact on us. We exercise our responsibility to actively participate in the political process by supporting candidates whose policies and goals are consistent with our purpose to help people across the world lead healthier and happier lives, and that are aligned with the interests of our businesses, customers, communities, and stockholders. Policies on which we focused in 2017 included reimbursement for pharmacist-delivered clinical services, the expansion of the role of pharmacists in the healthcare delivery system, retail business regulation, and taxation.

We work to advance this agenda in part through: (1) contributing to candidates, parties, and political organizations, both directly from corporate funds and

through the Walgreen Co. Political Action Committee; (2) supporting a government relations program that aims to educate elected officials and regulatory agencies on key public policy issues; and (3) our membership in trade associations.

All of our political and advocacy activities are intended to focus on promoting our business and strategic interests without regard to the personal political preferences or affiliations of any of our directors, officers, or employees.

Walgreens’ Government Relations organization is responsible for the day-to-day implementation of our political advocacy and contributions. Walgreens’ Government Relations department relies on inside and outside legal counsel, when appropriate, to help ensure our compliance with laws applicable to these activities.

 

 

 

 


 

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As with sustainability and CSR-related matters, the Nominating and Governance Committee is responsible for the oversight of policies and activities regarding political advocacy and contributions. At least annually, the Nominating and Governance Committee receives a report regarding these activities from senior management in Walgreens’ Government Relations organization.

 

Additional information about our public policy engagement efforts, including our Political Engagement and Contributions Policy and a report of certain trade associations to which Walgreens belonged during calendar year 2017, can be found on our website at http://investor.walgreensbootsalliance.com/corporate-governance.cfm by clicking on “Policy Engagement.”

 

 

 

Code of Conduct and Business Ethics

 

We have adopted a Code of Conduct and Business Ethics that applies to all of our employees, officers, and directors. We have also adopted a Code of Ethics for CEO and Financial Executives that applies to and has been signed by our Chief Executive Officer, Global Chief Financial Officer, and Global Controller and Chief Accounting Officer. These can be found at http://investor.walgreensbootsalliance.com/corporate-governance.cfm.

We intend to promptly disclose on our website, in accordance with applicable rules, any required disclosure of changes to

or waivers, if any, of our Code of Conduct and Business Ethics or our Code of Ethics for CEO and Financial Executives.

Our employees, partners, suppliers, and customers can ask questions about our Code of Conduct and Business Ethics or our Code of Ethics for CEO and Financial Executives, or report suspected violations of these codes, our policies, or the law, through one of the confidential reporting telephone lines or website addresses listed in our Code of Conduct and Business Ethics or by e-mailing wbacompliance@wba.com.

 

 

 

Stockholder Engagement

 

We value an open dialogue with our stockholders, and we believe that regular communication with our stockholders and other stakeholders is a critical part of enabling our long-term success.

The Board believes that, in most circumstances, our Chief Executive Officer and other authorized members of our senior management are best positioned to speak on behalf of the Company with our stockholders. However, the Board or its committees regularly receive reports on our stockholder engagement activities, and are provided with the opportunity to discuss and ask questions about significant stockholder feedback we receive. The Board and its committees also regularly consider stockholder perspectives, among other considerations, when making decisions related to their specific duties and responsibilities. Finally, the Corporate Governance Guidelines state that,

from time to time, upon the reasonable request of one of our major stockholders, the Lead Independent Director will make himself available for consultation and direct communication with such stockholder where appropriate.

During 2017, members of our management team met with a number of our stockholders to discuss, among other topics, our business, financial, and operating performance; capital allocation priorities; corporate governance; executive compensation; and sustainability and CSR initiatives. This included, in advance of the Annual Meeting, formal governance-related outreach to over 20 of our largest stockholders, representing approximately 36% of our outstanding shares as of August 31, 2017 (approximately 41% excluding those shares held by affiliates of Stefano Pessina, our Executive Vice Chairman and Chief Executive Officer), in advance of the Annual Meeting.

 
 

 

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In part as a result of stockholder feedback, over the past year, we took a number of actions to strengthen our governance and executive compensation programs and enhance the disclosure of our existing practices.

 

    We amended the charter of the Nominating and Governance Committee to further clarify its role in overseeing our policies and activities regarding CSR, including with respect to sustainability and the environment.

 

    We enhanced our disclosure of our commitment to strong CSR and sustainability practices, both through additional disclosure in this Proxy Statement in “—Sustainability and Corporate Social Responsibility” above and through the issuance of our 2016 CSR Report, which is available at http://www.walgreensbootsalliance.com/corporate-social-responsibility-report.

 

    We adopted a new Political Engagement and Contributions Policy, which sets forth basic principles concerning political contributions, lobbying activities, and trade association memberships of the Company and its subsidiaries in the U.S., and which superseded the legacy policy previously adopted by Walgreens. We also further included disclosure in this Proxy Statement regarding our efforts to engage in the
   

political process on behalf of our businesses, customers, communities, and stockholders, which can be found in “—Public Policy Engagement” above.

 

    We enhanced our disclosure of our executive compensation programs and practices in this Proxy Statement, specifically with respect to the manner in which the Compensation Committee set the performance targets for our 2017 executive compensation program so as to be rigorous yet achievable. This can be found in “Executive Compensation—Compensation Discussion and Analysis—III. Target Setting for Incentive Compensation” below.

 

    Taking into account the strong support demonstrated by our stockholders through both our direct engagement efforts as well as through the results of the say-on-pay advisory vote at our 2017 annual meeting of stockholders, the Compensation Committee maintained the core structure of our overall executive compensation program while implementing a limited number of changes, including revising our 2018 executive compensation “peer group” to increase its healthcare focus. A description of these changes can be found in “Executive Compensation—Compensation Discussion and Analysis—VII. Executive Compensation Program Updates for 2018” below.
 

 

 

Communication with the Board

 

Stockholders and other interested parties may communicate with the Board. Communications with the Board should be in writing, in the English language, and should be delivered:

 

    By courier or mail, addressed to Walgreens Boots Alliance, Inc., 108 Wilmot Road, MS #1858, Deerfield, Illinois 60015, Attention: Corporate Secretary; or

 

    By e-mail, to WBABoard@wba.com.

Our Corporate Secretary reviews all communications sent to the Board. All such communications will be forwarded to the Board or the appropriate committee or member thereof (or an individual director), except for those items

that our Corporate Secretary deems, in his discretion, to be unrelated to a director’s duties and responsibilities as a director. Communications addressed to the Board may, at our discretion, be shared with members of our management.

Further information regarding the submission of comments or complaints relating to accounting, internal accounting controls, or auditing matters can be found in our Audit Committee Complaint Policy for Accounting and Auditing Matters, which is available at http://investor.walgreensbootsalliance.com/corporate-governance.cfm.

 

 

 

 


 

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Director Compensation

 

 

 

 


Each Non-Employee Director receives compensation for his or her service to the Board. Mr. Pessina, our Executive Vice Chairman and Chief Executive Officer, and Mr. Skinner, our Executive Chairman, are employees of the Company and therefore do not receive any additional compensation for their service to the Board. Information about their compensation can be found in “Executive Compensation—Compensation Discussion and Analysis—VI. CEO and Executive Chairman Compensation” and “Executive Compensation—Executive Compensation Tables and Supporting Information” below.

Pursuant to its charter, the Compensation Committee is charged with reviewing all elements of Non-Employee Director compensation and recommending to the Board any changes. The Board determines the form and amount of Non-Employee Director compensation annually after reviewing the Committee’s recommendation, if any.

Cash Retainers

In 2017, each Non-Employee Director received a $95,000 annual cash retainer. Also in 2017, the Lead Independent Director received an additional annual cash retainer of $40,000, the Chair of the Audit Committee received an additional annual cash retainer of $25,000, and the Chairs of the other standing Board committees received an additional annual cash retainer of $20,000. All cash retainers were paid in quarterly installments.

Equity-Based Awards

A substantial portion of each Non-Employee Director’s annual compensation is in the form of equity, which the Board believes helps align his or her compensation with the interests of our stockholders. Under the Walgreens Boots Alliance, Inc. 2013 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), each Non-Employee Director is granted fully-vested shares of our common stock annually, on a date determined by the Board (currently November 1), for his or her service during the prior twelve months.

In 2017, each then-serving Non-Employee Director received a grant of our common stock with a market value of $190,000 as of the grant date (November 1, 2016). This grant was made under the Omnibus Incentive Plan for service as a director from November 1, 2015 through October 31, 2016.

Deferral Opportunities

Under the Omnibus Incentive Plan, the following deferral opportunities are available to Non-Employee Directors:

 

    All cash retainer payments may be deferred into a deferred cash compensation account or awarded in the form of deferred stock units (“DSUs”); and

 

    The annual stock grant may be awarded in the form of DSUs.

All amounts deferred into the deferred cash compensation account accrue interest at a monthly compounding rate equal to 120% of the applicable federal midterm rate. The Omnibus Incentive Plan provides Non-Employee Directors with election options relating to the timing and form of payment of account balances following termination of his or her service as a director, subject to certain restrictions.

Other

A Non-Employee Director who joins the Board during a fiscal year receives pro-rated amounts for all elements of his or her compensation for such fiscal year. A Non-Employee Director who leaves the Board during a fiscal year is entitled to retain any portion of his or her cash retainer already received for his or her service during such fiscal year, but is not entitled to receive a pro-rated equity award on the following November 1 for such pro-rated service.

All directors are reimbursed for expenses incurred in connection with meetings of the Board and its committees. On a very limited basis, we may determine that it is appropriate for a Non-Employee Director to be accompanied by his or her spouse or partner in connection with these meetings and/or at other events related to such Non-Employee Director’s service on the Board. In these circumstances, we also reimburse the spouse’s or partner’s travel expenses. In addition, in accordance with the Corporate Governance Guidelines, directors are reimbursed for reasonable expenses related to continuing education programs.

Non-Employee Director Stock Ownership Guidelines

We have adopted stock ownership guidelines for Non-Employee Directors. Under these guidelines, each Non-Employee Director is expected to accumulate at least the

 
 

 

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DIRECTOR COMPENSATION

 

 

 

lesser of (a) 20,000 shares of our common stock and (b) the number of shares valued at three times (3x) such director’s total annual cash and equity compensation for Board service. Each Non-Employee Director is required to satisfy the stock ownership guidelines applicable to him or her within five years after first becoming subject to the guidelines. We consider DSUs as shares owned for purposes of compliance with these guidelines.

As of the Record Date, each Non-Employee Director then serving had either met these guidelines or, using reasonable assumptions regarding future director compensation and stock appreciation, was progressing towards meeting these guidelines within the prescribed time frame.

The stock ownership guidelines applicable to Messrs. Pessina and Skinner are described further in “Executive Compensation—Compensation Discussion and Analysis—IX. Other Matters—B. Stock Ownership Guidelines” below.

2017 Non-Employee Director Compensation

The following table shows information regarding the compensation earned or paid during 2017 to Non-Employee Directors who served on the Board during the year. As noted above, Messrs. Skinner and Pessina are employees of the Company and therefore did not receive any additional compensation for their service to the Board.

 

 

 

     Name

 

    

Fees Earned or Paid in Cash ($) 

 

      

Stock Awards ($) 

 

      

All Other Compensation ($) 

 

      

Total ($)

 

 

José E. Almeida

 

      

 

34,851

 

 

 

      

 

---

 

 

 

      

 

---

 

 

 

      

 

34,851

 

 

 

Janice M. Babiak

 

      

 

120,000

 

 

 

      

 

190,000

 

 

 

      

 

18,759

 

 

 

      

 

328,759

 

 

 

David J. Brailer

 

      

 

115,000

 

 

 

      

 

190,000

 

 

 

      

 

35,858

 

 

 

      

 

340,858

 

 

 

William C. Foote

 

      

 

155,000

 

 

 

      

 

190,000

 

 

 

      

 

69,860

 

 

 

      

 

414,860

 

 

 

Ginger L. Graham

 

      

 

95,000

 

 

 

      

 

190,000

 

 

 

      

 

34,559

 

 

 

      

 

319,559

 

 

 

John A. Lederer

 

      

 

95,000

 

 

 

      

 

190,000

 

 

 

      

 

7,371

 

 

 

      

 

292,371

 

 

 

Dominic P. Murphy

 

      

 

95,000

 

 

 

      

 

190,000

 

 

 

      

 

20,562

 

 

 

      

 

305,562

 

 

 

Leonard D. Schaeffer

 

      

 

95,000

 

 

 

      

 

190,000

 

 

 

      

 

4,034

 

 

 

      

 

289,034

 

 

 

Nancy M. Schlichting

 

      

 

115,000

 

 

 

      

 

189,988

 

 

 

      

 

80,660

 

 

 

      

 

385,648

 

 

 

Includes the annual retainer and other cash retainers outlined above (in all cases including deferred amounts). Directors who join the Board during a year receive a pro-rated cash retainer for their service during that year. During 2017, the following directors deferred all of their retainers into DSUs: Dr. Brailer; Mr. Lederer; Mr. Murphy; and Ms. Schlichting.

Represents the grant date (November 1, 2016) fair value determined in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 of the stock grant under the Omnibus Incentive Plan to each Non-Employee Director who received this stock award (including any deferred amounts). The number of shares granted was calculated by dividing $190,000 by $82.46, the closing stock price on November 1, 2016. All stock awards are fully vested at the grant date. See “Security Ownership of Certain Beneficial Owners and Management” below for information regarding the number of DSUs held by Non-Employee Directors as of the Record Date.

Represents dividends credited to DSUs. In addition to the amounts reported, directors are eligible to receive the same discount on merchandise purchased from us as we make available to employees generally.

Mr. Almeida joined the Board on April 19, 2017.

2018 Non-Employee Director Compensation Changes

The Compensation Committee conducted its annual review of our Non-Employee Director compensation program in July 2017. Following that review, the Compensation Committee recommended, and the Board approved, the following changes:

 

    a $5,000 increase of the annual cash retainer from $95,000 to $100,000, effective September 1, 2017; and

 

    a $10,000 increase in the annual equity grant value from $190,000 to $200,000, beginning with the scheduled November 1, 2017 grant.
 

 

No other changes were made to our Non-Employee Director compensation program for 2018.

 

 

 


 

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Security Ownership of Certain

Beneficial Owners and Management

 

 

 

 


The following table sets forth information, as of the Record Date, concerning the ownership of our common stock by each person who is known to us to beneficially own more than 5% of our common stock, by each director and director nominee, by each NEO (as defined below), and by all current directors and executive officers as a group. Beneficial ownership is determined according to the rules of the SEC and generally includes any shares over which a person possesses sole or shared power to vote or to direct the disposition of, as well as any shares that such person has the right to acquire within 60 days, including through the exercise of options or other rights. Under these rules, the same shares may be beneficially owned by more than one person if there is shared power to vote and/or shared power to direct the disposition of the shares. Except as otherwise noted, to our knowledge, the persons named possessed sole voting and investment power over such shares, and such shares are not subject to any pledge.

 

    Name

 

    

Shares of Common
Stock Owned

 

      

 

Options Currently
Exercisable or Exercisable
Within 60 Days

 

      

Total Shares of
Common Stock
Beneficially Owned 

 

      

Percent of
Class

 

 

The Vanguard Group

 

      

 

64,710,517

 

 

 

      

 

---

 

 

 

      

 

64,710,517

 

 

 

      

 

6.5%

 

 

 

BlackRock, Inc.

 

      

 

54,136,702

 

 

 

      

 

---

 

 

 

      

 

54,136,702

 

 

 

      

 

5.5%

 

 

 

José E. Almeida

 

      

 

1,492

 

 

 

      

 

---

 

 

 

      

 

1,492

 

 

 

      

 

*

 

 

 

Janice M. Babiak

 

      

 

1,200

 

 

 

      

 

---

 

 

 

      

 

1,200

 

 

 

      

 

*

 

 

 

Ornella Barra

 

      

 

1,697,438

 

 

 

      

 

56,254

 

 

 

      

 

1,753,692

 

 

 

      

 

*

 

 

 

David J. Brailer

 

      

 

5,167

 

 

 

      

 

---

 

 

 

      

 

5,167

 

 

 

      

 

*

 

 

 

George R. Fairweather

 

      

 

13,867

 

 

 

      

 

56,254

 

 

 

      

 

70,121

 

 

 

      

 

*

 

 

 

William C. Foote

 

      

 

16,415

 

 

 

      

 

---

 

 

 

      

 

16,415

 

 

 

      

 

*

 

 

 

Alexander W. Gourlay

 

      

 

734,389

 

 

 

      

 

56,254

 

 

 

      

 

790,643

 

 

 

      

 

*

 

 

 

Ginger L. Graham

 

      

 

2,150

 

 

 

      

 

---

 

 

 

      

 

2,150

 

 

 

      

 

*

 

 

 

John A. Lederer

 

      

 

50,000

 

 

 

      

 

---

 

 

 

      

 

50,000

 

 

 

      

 

*

 

 

 

Dominic P. Murphy

 

      

 

798

 

 

 

      

 

---

 

 

 

      

 

798

 

 

 

      

 

*

 

 

 

Stefano Pessina

 

      

 

143,091,383

 

 

 

      

 

---

 

 

 

      

 

143,091,383

 

 

 

      

 

14.4%

 

 

 

Leonard D. Schaeffer

 

      

 

1,659

 

 

 

      

 

---

 

 

 

      

 

1,659

 

 

 

      

 

*

 

 

 

Nancy M. Schlichting

 

      

 

10,256

 

 

 

      

 

---

 

 

 

      

 

10,256

 

 

 

      

 

*

 

 

 

James A. Skinner

 

      

 

71,203

 

 

 

      

 

---

 

 

 

      

 

71,203

 

 

 

      

 

*

 

 

 

All current directors and executive

officers as a group (18 individuals)

 

      

 

146,241,884

 

 

 

      

 

332,342

 

 

 

      

 

146,574,226

 

 

 

      

 

14.8%

 

 

 

   *Less than 1% of the Company’s outstanding common stock.

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

 

 

Does not include shares underlying restricted stock units (“RSUs”) and RSUs credited as dividends on RSUs issued under equity incentive plans that do not vest within 60 days of the Record Date. The table below presents such unvested RSUs separately and, in total with beneficially owned stock, as of the Record Date for each NEO then serving, each director, and all current directors and executive officers as a group.

 

    Name

 

    

Restricted

                    Stock Units

 

      

 

Shares of

Common Stock

                    Beneficially Owned

 

      

                                         Total

 

 

Stefano Pessina

 

      

 

---

 

 

 

      

 

143,091,383

 

 

 

      

 

143,091,383

 

 

 

James A. Skinner

 

      

 

262,693

 

 

 

      

 

71,203

 

 

 

      

 

333,896

 

 

 

All current directors and executive officers as a group (18 individuals)

 

      

 

271,130

 

 

 

      

 

146,574,226

 

 

 

      

 

146,845,356

 

 

 

Represents shares beneficially owned as of December 31, 2016, based on a Schedule 13G/A filed on February 13, 2017 by The Vanguard Group. In such filing, The Vanguard Group lists its address as 100 Vanguard Blvd., Malvern, PA 19355, and indicates that it has sole voting power with respect to 1,366,548 shares, shared voting power with respect to 175,001 shares, sole dispositive power with respect to 63,181,357 shares, and shared dispositive power with respect to 1,529,610 shares.

Represents shares beneficially owned as of December 31, 2016, based on a Schedule 13G filed on January 30, 2017 by BlackRock, Inc. In such filing, BlackRock, Inc. lists its address as 55 East 52nd Street, New York, NY 10055, and indicates that it has sole voting power with respect to 45,309,761 shares, shared voting power with respect to 0 shares, sole dispositive power with respect to 54,136,702 shares, and shared dispositive power with respect to 0 shares.

Does not include DSUs issued under the Omnibus Incentive Plan and the former Walgreen Co. Nonemployee Director Stock Plan. The table below shows units held separately, and in total with beneficially owned stock, as of the Record Date by (a) each Non-Employee Director who held DSUs and (b) Mr. Skinner, who was a Non-Employee Director until his appointment as Executive Chairman in January 2015.

 

    Name

 

    

Deferred

                    Stock Units

 

      

 

Shares of

Common Stock

                    Beneficially Owned

 

      

                                 Total

 

 

José E. Almeida

 

      

 

---

 

 

 

      

 

1,492

 

 

 

      

 

1,492

 

 

 

Janice M. Babiak

 

      

 

16,275

 

 

 

      

 

1,200

 

 

 

      

 

17,475

 

 

 

David J. Brailer

 

      

 

29,205

 

 

 

      

 

5,167

 

 

 

      

 

34,372

 

 

 

William C. Foote

 

      

 

50,889

 

 

 

      

 

16,415

 

 

 

      

 

67,304

 

 

 

Ginger L. Graham

 

      

 

26,977

 

 

 

      

 

2,150

 

 

 

      

 

29,127

 

 

 

John A. Lederer

 

      

 

9,677

 

 

 

      

 

50,000

 

 

 

      

 

59,677

 

 

 

Dominic P. Murphy

 

      

 

18,612

 

 

 

      

 

798

 

 

 

      

 

19,410

 

 

 

Leonard D. Schaeffer

 

      

 

6,300

 

 

 

      

 

1,659

 

 

 

      

 

7,959

 

 

 

Nancy M. Schlichting

 

      

 

55,985

 

 

 

      

 

10,256

 

 

 

      

 

66,241

 

 

 

James A. Skinner

 

      

 

78,099

 

 

 

      

 

71,203

 

 

 

      

 

149,302

 

 

 

 

Does not include 513,563 shares beneficially owned by Mr. Fairweather’s wife. Mr. Fairweather disclaims any beneficial interest in these shares.

 

 

 


 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

 

 

 


Based on (i) a Schedule 13D/A jointly filed with the SEC on November 4, 2016 by Alliance Santé Participations S.A. (“ASP”), NEWCIP S.A. (“NEWCIP”), and Stefano Pessina and (ii) in the case of shares underlying RSUs issued in lieu of dividends, Company records. Mr. Pessina beneficially owns an aggregate of 143,091,383 shares, consisting of (i) 98,858 shares underlying RSUs (including shares underlying RSUs issued in lieu of dividends) held directly by Mr. Pessina, which are scheduled to vest within 60 days of the Record Date; and (ii) 142,992,525 shares held directly and of record by ASP. Such filing indicates that ASP has sole voting power and sole dispositive power with respect to the 142,992,525 shares that it holds directly and of record, that NEWCIP is the sole shareholder of ASP, and that Mr. Pessina holds 100% voting control over NEWCIP. Accordingly, each of NEWCIP and Mr. Pessina may be deemed to be the beneficial owner of the 142,992,525 shares held directly and of record by ASP. In such filing, each of ASP and NEWCIP’s address is listed as 14, avenue du X Septembre, L-2550, Luxembourg, Grand Duchy of Luxembourg.

Shares are held by family trusts for which Mr. Schaeffer serves as co-trustee and over which he shares voting and investment control, and, in the case of one of the trusts, was a grantor and is a beneficiary.

Does not include an aggregate of 527,680 shares (which includes the shares disclosed in footnote 5 above) held by family members of current executive officers or directors, the beneficial ownership of which has been disclaimed by such executive officers or directors.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to file initial reports of ownership and changes in ownership with the SEC. The SEC has established specific due dates for these reports, and we are required to disclose in this Proxy Statement any known late filings or failures to file. Based on a review of such forms furnished to us and the written representations from our executive officers and directors, we believe that, during 2017, all such required reports were filed in a timely manner and disclosed all required transactions.

 

 

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Proposal 2:

 

 

Ratification of the Appointment of

Deloitte & Touche LLP as the Independent

Registered Public Accounting Firm

 

 

 

 

What am I voting on?

Stockholders are being asked to ratify the appointment of Deloitte to serve as our independent registered public accounting firm for 2018.

 

What is the Board’s voting recommendation?

The Board recommends a vote “ FOR ” Proposal 2. Proxies solicited by the Board will be so voted unless stockholders specify a contrary choice in their voting instructions.

 

What is the required vote?

Approval of Proposal 2 requires the affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on the matter. If you elect to abstain, the abstention will have the same effect as an “AGAINST” vote on Proposal 2.

 

 

The Audit Committee has the sole responsibility to hire, evaluate and, if appropriate, replace our independent registered public accounting firm. The Audit Committee has re-appointed Deloitte to serve as our independent registered public accounting firm and as auditors of our

consolidated financial statements for 2018. Deloitte has served as our independent registered public accounting firm since 2002.

The Audit Committee annually evaluates the performance of our independent registered public accounting firm and the senior audit engagement team, and determines whether to re-engage the current firm or consider other audit firms. Further information regarding the factors considered in this evaluation are described in “Audit Committee Report” below.

At the Annual Meeting, stockholders are being asked to ratify the appointment of Deloitte as our independent registered public accounting firm for 2018. In the event of a negative vote on this proposal, the Audit Committee will reconsider its selection. Even if this appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and our stockholders.

One or more representatives of Deloitte are expected to be present at the Annual Meeting. The representatives will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

 

 

Independent Registered Public Accounting Firm Fees and Services

Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

 

 

The Audit Committee is responsible for appointing, setting compensation for, and overseeing the work of our independent registered public accounting firm. In addition, it has established a policy concerning the pre-approval of services performed by our independent registered

public accounting firm. Each proposed engagement not specifically identified by the SEC as impairing independence is evaluated for independence implications prior to our entering into a contract with the independent registered public accounting firm for such services.

 

 

 

 


 

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PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP

 

 

 

 


The Audit Committee has approved in advance certain permitted services, the scope of which is consistent with auditor independence. These services are: (i) audits or reviews of subsidiaries that are filed with government and regulatory bodies and similar reports; (ii) services associated with SEC registration statements, other documents filed with the SEC or other documents issued in connection with securities offerings (for example, comfort letters or consents), and assistance in responding to SEC comment letters; (iii) consultations with management as to the accounting or disclosure of transactions or events and/or the actual or potential impact of final or proposed rules, standards, or interpretations by the SEC, the Public Company Accounting Oversight Board (the “PCAOB”), or other regulatory or standard setting bodies; (iv) audits of employee benefit and pension plans; and (v) annual revenue certifications prepared for regulatory or commercial purposes.

If the project is in a permitted category, then it is considered pre-approved by the Audit Committee. All other services require specific pre-approval by the Audit Committee. Such engagements with total fees up to $500,000 require the approval of the Audit Committee Chair. Such engagements with total fees greater than $500,000 require the approval of the full Audit Committee. On a quarterly basis, the Audit Committee reviews a summary listing of service fees and a description of the nature of the engagement.

All audit, audit-related, and tax services performed by Deloitte for the Company and its consolidated subsidiaries in 2017 were pre-approved by the Audit Committee in accordance with the regulations of the SEC. The Audit Committee considered and determined that such provision of non-audit services during 2017 was compatible with maintaining auditor independence.

 

 

Audit Fees and All Other Fees

 

The following table shows the fees for audit and other services provided by Deloitte for 2017 and 2016.

 

     

 

2017

($ in thousands)

 

    

 

2016

($ in thousands)

 

 

Audit Fees

 

    

 

10,972

 

 

 

    

 

9,356

 

 

 

Audit-Related Fees

 

    

 

367

 

 

 

    

 

532

 

 

 

Tax Fees:

     

Compliance

     2,450        485  

Planning and Advice 

 

    

 

3,585

 

 

 

    

 

2,701

 

 

 

All Other Fees

 

    

 

121

 

 

 

    

 

320

 

 

 

  

 

 

    

 

 

 

Total:

 

    

 

17,495

 

 

 

    

 

13,394

 

 

 

  

 

 

    

 

 

 

Audit fees relate to professional services rendered in connection with the audit of our annual financial statements and internal control over financial reporting, review of our quarterly financial statements, and audit services provided in connection with other statutory and regulatory filings.

Audit-related fees relate to professional services that are reasonably related to the performance of the audit or review of our financial statements.

Tax fees relate to professional services rendered in connection with assistance with tax return preparation, tax audits, tax compliance, and tax consulting and planning services. Total tax fees were $6,035,000 in 2017 and $3,186,000 in 2016.

Includes assistance with tax return preparation and related compliance matters, including accounting methods and tax credits.

Includes tax planning advice and assistance with tax audits.

All other fees relate to professional services not included in the categories above, including those related to strategic advisory services.

 
 

 

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Audit Committee Report

 

 

 

The following Audit Committee Report shall not be deemed to be incorporated by reference into any filing we may make under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, notwithstanding any general statement contained in any such filing incorporating this Proxy Statement by reference, except to the extent we incorporate such report by specific reference.

The Audit Committee is comprised of the four members named below. The Board has determined that each member satisfies the independence, financial literacy, and other requirements in the NASDAQ listing standards and applicable securities laws. Each member is also an “audit committee financial expert” as defined by the SEC. As described above under “Governance—Board Committees,” the Audit Committee operates under a written charter adopted by the Board.

The purpose of the Audit Committee includes assisting the Board in the oversight and monitoring of the Company’s:

 

    financial statements and other financial information;

 

    independent registered public accounting firm;

 

    internal audit department;

 

    compliance department;

 

    systems of internal controls (including those specific to technology and cybersecurity) and accounting policies established by the Company’s management and the Board; and

 

    enterprise risk management.

At least annually, the Audit Committee reviews the Company’s independent registered public accounting firm to decide whether to retain such firm on behalf of the Company. Deloitte has been the independent registered public accounting firm of the Company (including its predecessor Walgreens) since May 2002.

When conducting its latest review of Deloitte, the Audit Committee actively engaged with Deloitte’s engagement

partners and senior leadership where appropriate and considered, among other factors:

 

    the professional qualifications of Deloitte and that of the lead audit partner and other key engagement partners relative to the current and ongoing needs of the Company;

 

    Deloitte’s historical and recent performance on the Company’s audits, including the extent and quality of Deloitte’s communications with the Audit Committee related thereto;

 

    the appropriateness of Deloitte’s fees relative to both efficiency and audit quality;

 

    Deloitte’s independence policies and processes for maintaining its independence;

 

    Deloitte’s tenure as the Company’s independent registered public accounting firm and its related depth of understanding of the Company’s businesses, operations, and systems, and the Company’s accounting policies and practices;

 

    Deloitte’s capability, expertise, and efficiency in handling the breadth and complexity of the Company’s operations across the globe;

 

    Deloitte’s demonstrated professional integrity and objectivity, which is furthered by the Audit Committee-led process to rotate and select the lead audit partner and other key engagement partners at least every five years or as otherwise required by applicable law or regulation, and which was done most recently in calendar year 2016; and

 

    the relative benefits, challenges, overall advisability, and potential impact of selecting a different independent public accounting firm.

Deloitte provided the Audit Committee with the written disclosures and the letter required by the applicable requirements of the PCAOB regarding Deloitte’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed and confirmed with Deloitte its independence.

 

 

 

 


 

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AUDIT COMMITTEE REPORT

 

 

 

 


 

As a result of this evaluation, the Audit Committee approved the appointment of Deloitte as the Company’s independent registered public accounting firm for the fiscal year ending August 31, 2018, subject to stockholder ratification.

In addition to its appointment, the Audit Committee is directly responsible for the oversight, compensation (including negotiation of audit fees), and retention of the Company’s independent registered public accounting firm. The Audit Committee regularly monitors the audit, audit-related, tax, and other non-audit services provided by the Company’s independent registered public accounting firm, specifically considering any potential challenges to auditor independence in the short-term and long-term. The applicable Company policy requires the Audit Committee to approve, in advance, certain audit and permissible non-audit services to be performed by the Company’s independent registered public accounting firm in excess of certain amounts. Changes in audit and other permissible fees between years generally reflect significant acquisitions and divestitures, macro-economic factors, changes in systems and business prospects, or other factors that create efficiencies or disruptions for the Company.

The Company’s management is responsible for the Company’s internal control over financial reporting, the financial reporting process, and the preparation of the Company’s financial statements. Deloitte is responsible for performing an independent audit of the Company’s financial statements and of the effectiveness of the Company’s internal control over financial reporting, in accordance with auditing standards promulgated by the PCAOB, and expressing opinions on the conformity of the financial statements with accounting principles generally accepted in the U.S. and the Company’s effectiveness of internal control over financial reporting. The Audit Committee does not itself prepare the Company’s financial statements or perform audits, and its members are not auditors or certifiers of such financial statements.

In performing its monitoring and oversight function, the Audit Committee has established procedures to receive and track the handling of complaints regarding accounting,

internal control, and auditing matters. The Audit Committee regularly meets with the Company’s management, including its General Auditor, and has regular private sessions with the General Auditor without other members of management present. The Audit Committee also regularly meets with Deloitte, with and without members of the Company’s management present.

The Audit Committee reviewed and discussed the Company’s financial statements with management, including its General Auditor, as well as with Deloitte. The Audit Committee discussed with Deloitte the quality of the Company’s accounting principles; the reasonableness of its critical accounting estimates and judgments; and the disclosures in its financial statements, including disclosures relating to significant accounting policies. The Audit Committee also discussed with Deloitte significant disputes with management, if any, as well as the matters required to be disclosed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the PCAOB. The Audit Committee relies, without independent verification, on the information provided to it and on the representations made by the Company’s management, including its General Auditor, as well as by Deloitte.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

Audit Committee

Janice M. Babiak, Chair

David J. Brailer

Ginger L. Graham

Nancy M. Schlichting

 
 

 

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Proposal 3:

 

 

 

Advisory Vote to Approve Named Executive

Officer Compensation

 

 

 

What am I voting on?

Stockholders are being asked to approve, on an advisory basis, the compensation of our NEOs as described in the “Executive Compensation—Compensation Discussion and Analysis” and “Executive Compensation—Executive Compensation Tables and Supporting Information” sections of this Proxy Statement.

 

What is the Board’s voting recommendation?

The Board recommends a vote “ FOR ” Proposal 3. Proxies solicited by the Board will be so voted unless stockholders specify a contrary choice in their voting instructions.

 

What is the required vote?

Approval of Proposal 3 requires the affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on the matter. If you elect to abstain, the abstention will have the same effect as an “AGAINST” vote on Proposal 3.

 

 

In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our stockholders have the opportunity to cast an advisory vote to approve the compensation of our named executive officers (“NEOs”) as disclosed pursuant to the SEC’s compensation disclosure rules, including the “Executive Compensation—Compensation Discussion and Analysis” and “Executive Compensation—Executive Compensation Tables and Supporting Information” sections of this Proxy Statement (a “say-on-pay proposal”).

Our executive compensation program incorporates policies and practices that are designed to ensure that it is strongly aligned with our long-term goals and strategies and promotes responsible pay and governance practices. We believe our executive compensation

program appropriately rewards performance and is aligned with the long-term interests of our stockholders. We encourage our stockholders to read the “Executive Compensation—Compensation Discussion and Analysis” section of this Proxy Statement, which describes the details of our executive compensation program and many of the decisions made by the Compensation Committee in 2017 with respect thereto.

We value the feedback provided by our stockholders, who supported our executive compensation program at the 2017 Annual Meeting with approximately 95% of votes cast. We have had discussions with many of our institutional stockholders on an ongoing basis regarding various corporate governance topics, including executive compensation, and the Compensation Committee and the Board take into account the views of our stockholders regarding the design and effectiveness of our executive compensation program.

Our stockholders are being asked to approve the following resolution at the Annual Meeting:

RESOLVED, that the stockholders approve the compensation of the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure shall include the Compensation Discussion and Analysis, the compensation tables and any related material).

As an advisory vote, this Proposal 3 is not binding on us or on the Compensation Committee or the Board. However, the Compensation Committee and the Board value the opinions expressed by our stockholders in their votes on this proposal, and will consider the outcome of the vote when making future compensation decisions regarding our NEOs.

It is expected that the next vote on a say-on-pay proposal will occur at our 2019 annual meeting of stockholders (the “2019 Annual Meeting”).

 

 

 

 


 

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Executive Compensation

 

 

 

 


Compensation Discussion and Analysis

This “Compensation Discussion and Analysis” section describes the material elements of our executive compensation practices, programs, and processes, focusing in particular on the executive pay decisions for our NEOs in 2017:

 

 

    Stefano Pessina

 

    Executive Vice Chairman and Chief Executive Officer

 

 

    George R. Fairweather    

 

    Global Chief Financial Officer

 

 

    Ornella Barra

 

    Co-Chief Operating Officer

 

 

    Alexander W. Gourlay

 

    Co-Chief Operating Officer

 

 

    James A. Skinner

 

    Executive Chairman

 

This section is organized as follows:

 

I. Executive Summary

     45  

A. Overview

     45  

B. Components of our 2017 Executive Compensation Program

     45  

C. Compensation Program Governance Summary

     47  

II. Executive Compensation Philosophy and Process

     48  

A. Compensation Philosophy

     48  

B. Compensation Decision-Making

     49  

C. Role of the Compensation Consultant

     50  

III. Target Setting for Incentive Compensation

     50  

A. 2017 Annual Cash Incentive Target

     50  

B. 2017 Long-Term Compensation Target

     51  

IV. Annual Compensation

     52  

A. 2017 Base Salary Decisions

     52  

B. 2017 Annual Cash Incentive Payments

     53  

V. Long-Term Compensation

     55  

A. 2017 Grants of Long-Term, Performance-Based Incentives

     55  

B. 2017 Performance Share Award Grants

     55  

C. 2017 Stock Option Grants

     56  

D. Payout of 2015-2017 Long-Term Incentive Awards

     56  

VI. CEO and Executive Chairman Compensation

     57  

A. 2017 CEO Compensation

     57  

B. 2017 Executive Chairman Compensation

     57  

VII. Executive Compensation Program Updates for 2018

     58  

A. 2018 Peer Group

     58  

B. 2018 Stock Option Grants

     59  

VIII. Retirement and Other Benefits

     59  

A. Retirement Plans and Programs

     59  

B. Perquisites

     59  

C. Employment Agreements

     60  

D. Change in Control Agreements

     61  

IX. Other Matters

     62  

A. Compensation Risk Oversight

     62  

B. Stock Ownership Guidelines

     63  

C. Compensation Recovery (Clawback) Policy

     63  

D. Anti-Hedging and Anti-Pledging Policies

     64  
 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

I. Executive Summary

 

 

 

A.  Overview

 

We are the first global, pharmacy-led health and wellbeing enterprise and the largest retail pharmacy, health and daily living destination across the U.S. and Europe. We are also one of the world’s largest purchasers of prescription drugs and many other health and wellbeing products. Together with the companies in which we have equity method investments:

 

    We had a presence in more than 25* countries and employed more than 385,000* people;

 

    We had more than 13,200* stores in 11* countries; and

 

    We had one of the largest global pharmaceutical wholesale and distribution networks, with over 390* distribution centers delivering to more than 230,000** pharmacies, doctors, health centers and hospitals each year in more than 20* countries.

* As of August 31, 2017, using publicly available information for our equity method investment in AmerisourceBergen Corporation.

** For 12 months ending August 31, 2017, using publicly available information for our equity method investment in AmerisourceBergen Corporation.

On September 19, 2017, we announced that we secured regulatory clearance for an amended and restated asset purchase agreement to purchase 1,932 stores, three distribution centers, and related inventory from Rite Aid Corporation for $4.375 billion in cash and other consideration. Ownership of these stores is expected to be transferred to the Company in phases, with the goal being to complete the store transfers in spring 2018.

 

 

 

B.  Components of our 2017 Executive Compensation Program

 

The Compensation Committee oversees our executive compensation program, which includes several elements designed to support our compensation objectives and reward specific aspects of our financial performance that the Board believes are critical to driving long-term stockholder value in a sustainable manner. The Compensation Committee is dedicated to ensuring that a substantial portion of executive compensation is “at-risk” and variable, with nearly 100% of the total direct compensation paid to Messrs. Pessina and Skinner, and more than 80% of the total direct compensation paid to the other NEOs, tied to performance.

At the 2017 Annual Meeting, our say-on-pay proposal received the support of approximately 95% of the votes cast. The Board and the Compensation Committee considered this vote as demonstrating strong support for our executive compensation program as currently designed. In addition, our say-on-pay proposal has received the support of at least 96% of the votes cast at our 2016 and 2015 annual meetings of stockholders.

The key components of our general 2017 executive compensation program and how each supports our compensation objectives are listed on the following page. Our executive compensation program design is substantially consistent with our 2016 executive compensation program design.

 

 

 

 


 

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Annual Compensation

 

   

Compensation Element

 

  

Description

 

  

Primary Objectives

 

   
   
Base Salary   

•  Annual fixed cash compensation

  

•  Provides an appropriate level of fixed compensation based on individual performance, level of responsibility, experience, internal equity, and competitive pay levels

 

•  Supports the attraction and retention of talented executives

 

   
   
Annual Cash Incentive Payments   

•  Annual cash incentive based on Company and individual performance

  

•  Links annual cash compensation to attainment of key short-term performance goals:

 

-  By the Company, as measured by adjusted operating income performance against an annual target

 

-  By the individual, as measured by achievement of specific strategic goals and an assessment of individual performance

 

   

Long-Term Incentive Compensation

 

 

    Compensation Element

 

  

 

Description

 

       

 

Primary Objectives

 

   
   

Performance Shares

(50% for NEOs other than Mr. Skinner)

  

•  Long-term incentive award with payouts tied to achievement of Company performance over a three-year period

 

•  Performance target established on the grant date

 

•  Payable in shares of our common stock

      

•  Links long-term compensation to our adjusted earnings per share over a three-year performance period as well as changes in share price on an absolute basis

 

•  Increases executive stock ownership

 

•  Facilitates retention and aligns our executives’ interests with those of our stockholders

 

   
   

Stock Options

(50% for NEOs other than Mr. Skinner)

  

•  Provides opportunity to purchase stock at the grant date fair market value over a ten-year period from the grant date (subject to applicable vesting conditions)

 

•  Results in value only if stock price increases

 

      

•  Links realized compensation over long-term appreciation in stock price

 

•  Increases executive stock ownership

 

•  Facilitates retention and aligns our executives’ interests with those of our stockholders

 

   
   

Restricted Stock Units (“RSUs”)

(100% for Mr. Skinner)

  

•  Align the interests of the executive with those of our stockholders by focusing the executive on long-term objectives over a multi-year vesting period, with the value of the award fluctuating based on stock price performance

 

      

•  Increases executive stock ownership

   
 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

As noted elsewhere in this “Compensation Discussion and Analysis” section, neither Stefano Pessina, our Executive Vice Chairman and Chief Executive Officer, nor James A. Skinner, our Executive Chairman, participates in our general executive compensation program. Mr. Pessina receives substantially all of his compensation in the form of performance shares and stock options, and Mr. Skinner receives substantially all of his compensation in the form of RSUs. Neither receives a base salary or participates in the annual cash incentive program. Consequently, nearly 100% of the total direct compensation paid to them is “at-risk” and tied exclusively to Company performance and/or changes in our stock price. For more information regarding Messrs. Pessina and Skinner’s at-risk compensation, see “—VI. CEO and Executive Chairman Compensation” below.

In 2017, the Compensation Committee approved the use of adjusted operating income as the sole, absolute metric for measuring Company performance under the Company’s short-term incentive plan, and the use of cumulative adjusted earnings per share (“cumulative adjusted EPS”) as the sole, absolute metric for measuring Company performance under the Company’s long-term performance share awards. These same metrics were used for the same purposes in 2016, promoting consistency year-over-year. The Compensation Committee regularly reviews the selection of these metrics and considers whether to incorporate other metrics, including other financial, non-financial, or relative metrics, into its short- and long-term incentive compensation programs. For more information regarding the Compensation Committee’s selection of these metrics, see “—III. Target Setting for Incentive Compensation” below.

 

 

 

C.  Compensation Program Governance Summary

The Compensation Committee has adopted a number of best practices that are consistent with our compensation philosophy and which it believes serve the long-term interests of our stockholders. These include the following:

 

    

 

   We DO Have This Practice

 

 

   We DO NOT Have This Practice

 

 
    

    Incentive award metrics that are objective and tied to key company performance metrics

 

 

û     Multi-year guarantees for salary increases, non-performance based bonuses, or equity compensation

 

 
    

    A majority of compensation delivered in the form of equity-based awards

 

 

û     Excise tax gross-ups upon change in control forº named executive officers

 

 
    

    Stock ownership guidelines

 

 

û     Repricing of options without stockholder approval

 

 
    

    Policies prohibiting hedging/short sales of stock by executives

 

 

û     Excessive perquisites

 
    

    Compensation recoupment (“clawback”) policy

 

 

û     Excessive severance and/or change in control provisions

 

 
    

    Double-trigger change in control severance for named executive officers

 

 

û     Payout of dividends or dividend equivalents on unearned or unvested equity

 

 
    

    Performance share awards have a three year performance cycle to promote retention

 

 

û     Excessive pension or defined benefit supplemental executive retirement plan (SERP)

 

 
    

    Significant portion of executive compensation tied to stockholder return in the form of at-risk compensation

 

 

û     A high percentage of fixed compensation

 

 

 


 

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II. Executive Compensation Philosophy and Process

 

 

 

A.  Compensation Philosophy

The Compensation Committee is responsible for establishing, implementing, and monitoring our executive compensation philosophy and objectives. The Compensation Committee typically reviews the philosophy on a quarterly basis.

 

 

    The Compensation Committee’s focus is to provide a competitive compensation package that enables us to:  

 

    Attract and retain talented executives;  

 

    Reward Company and individual performance; and  

 

    Link the interest of our senior executives to the interests of our stockholders.  

 

 

 

    Our executive compensation program is designed to:  

 

    Be competitive with the pay practices of other companies of comparable size, scope, and industry;  

 

    Attract and retain executives who can contribute to our future success as a global organization; and  

 

    Create a strong linkage between pay and performance through the use of variable performance-based short-term and long-term incentive awards, such that executives will receive higher compensation in more successful periods for the Company and lower compensation during less successful periods.  

The Compensation Committee believes that it has designed and implemented an executive compensation program that appropriately balances our short-term and long-term strategic objectives and otherwise links executive compensation with stockholder value, with nearly 100% of the total direct compensation paid to Messrs. Pessina and Skinner, and more than 80% of the total direct compensation paid to the other NEOs, tied to performance.

Our executive compensation program, as described for Ms. Barra and Messrs. Fairweather and Gourlay, generally has broader eligibility and, in most cases, applies to our executives outside of those NEOs.

   

 

CEO and Executive Chairman Target Pay Mix

 

 

 

LOGO

 

 

   

 

All other NEO Average Target Pay Mix

 

 

 

LOGO

 

 
 

 

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B.  Compensation Decision-Making

 

The Compensation Committee is responsible for overseeing our executive compensation program, which includes our annual cash incentive and long-term equity compensation programs as well as our retirement and other benefit programs and practices. The Compensation Committee considers all elements of the program in total, as well as individual performance, Company-wide performance, and internal equity and market compensation considerations, when making executive compensation-related decisions.

Our Executive Chairman, Mr. Skinner, and our Executive Vice Chairman and Chief Executive Officer, Mr. Pessina, review annually the performance and pay level of each of our “senior executives” (i.e., Senior Vice President level and above), develop recommendations concerning the compensation of each senior executive, and present those recommendations to the Compensation Committee. Neither Mr. Skinner nor Mr. Pessina makes any recommendations concerning his own compensation. In addition, only Mr. Skinner (and not Mr. Pessina) makes recommendations concerning the compensation of Ms. Barra.

Based on these recommendations, the Compensation Committee, with the assistance of our management team and Mercer, our independent compensation consultant, establishes target pay levels for the NEOs and other senior executives. The Compensation Committee carefully considers historical and current market practices, internal equity issues, and established market trends and attempts, to the extent practicable, to mitigate the effect of short-term market fluctuations in setting senior executive compensation levels.

The Compensation Committee, in consultation with Mercer, also considers the compensation levels and the mix of compensation in our peer group.

In selecting companies for inclusion in our peer group, the Compensation Committee may consider, among other facts, revenue size, industry, and the peer groups of our closest competitors. The Compensation Committee believes that our peer group is representative of the markets in which we compete for executive talent, and it includes companies in both the retail and healthcare industries.

The composition of our peer group is reviewed annually by the Compensation Committee, in consultation with Mercer, and is updated as appropriate. In July 2016, the Compensation Committee selected the following companies as our peer group for use in evaluating 2017 executive compensation decisions. This list of companies was unchanged from the prior year.

 

 

    Archer Daniels

    Midland

 

    AT&T

 

    Best Buy

 

    Cardinal Health

 

    Coca-Cola

 

    Costco

 

    CVS Health

 

  

 

Express Scripts

 

FedEx

 

Home Depot

 

Johnson &

Johnson

 

Kroger

 

Lowe’s

 

McDonald’s

 

McKesson

 

 

  

 

Mondelez

 

PepsiCo

 

Procter & Gamble

 

Target

 

United Parcel

Service

 

Verizon

 

Wal-Mart

 

For the respective companies’ most recently completed fiscal year for which data was available as of July 2017, we are at the 70th percentile of our peer group in terms of revenue reported and the 56th percentile in terms of market value.

As described further in “—VII. Executive Compensation Program Updates for 2018—A. 2018 Peer Group,” in July 2017, the Compensation Committee approved changes to our peer group for purposes of use in 2018 executive compensation decisions. These changes were not effective for purposes of 2017 executive compensation decisions.

After the review of peer group data, the Compensation Committee establishes any base salary adjustments, annual cash incentive awards, and long-term incentive awards (as applicable) for the NEOs and our other senior executives. In each case, the Compensation Committee generally targets total direct compensation at rates that result in median market levels when compared to our peer group. The actual positioning of target total direct compensation relative to the median varies based on each senior executive’s experience and skill set, and generally results

 

 

 

 


 

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in senior executives who are new to their role being placed lower in the range and those with more experience being placed higher in the range. Target total direct compensation

can also be differentiated from the peer group median for, among other reasons, an individual’s performance or other contributions to our long-term performance.

 

 

 

C.  Role of the Compensation Consultant

 

As noted above, the Compensation Committee has engaged Mercer as its independent compensation consultant. Among other matters, the Compensation Committee uses Mercer to provide information regarding market compensation practices and trends and to advise the Compensation Committee on executive compensation decisions, particularly with respect to our Chief Executive Officer, Executive Chairman, and Non-Employee Directors. A representative of Mercer meets regularly with the Compensation Committee and, as needed, has access to the Compensation Committee and its chair during and between regularly-scheduled meetings.

Beginning in January 2016, we also engaged Mercer to serve as the executive compensation consultant to our management team. The Compensation Committee has reviewed and considered all of the relevant factors regarding our relationship with Mercer and, based upon this review, has concluded that the advice it receives from Mercer is and was objective and is and was not influenced by any relationships Mercer or its affiliates may otherwise have with our management team, the Board, the Company or its subsidiaries. See “Governance—Board Committees—Compensation Advisor” above for more information regarding our relationship with Mercer and its affiliates.

 

 

III. Target Setting for Incentive Compensation

 

 

The Compensation Committee set the short-term and long-term performance targets for our 2017 executive compensation program in October 2016. The Compensation Committee believes that the performance targets it established were rigorous yet achievable, and

therefore established the targets so that they would be achieved, at the target performance level, if we successfully executed our operating plan for 2017 and the 2017-2019 performance cycle and therefore creating demonstrable value for our stockholders.

 

 

 

A.  2017 Annual Cash Incentive Target

 

The Compensation Committee approved the use of adjusted operating income as the sole, absolute metric for measuring Company-wide performance for purposes of payment of annual cash incentive awards in 2017.

Adjusted operating income is a non-GAAP financial measure that refers to our operating income, calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”), as adjusted to reflect certain specified adjustments approved by the Compensation Committee. Such adjustments are made in accordance with the Walgreens Boots Alliance, Inc. Management Incentive Plan (the “MIP”), the plan under which we currently pay annual cash incentive awards to our executives. The Compensation

Committee reserves the right to make these adjustments to help ensure that certain items that are non-operating or otherwise out of management’s control do not impact payouts in either a positive or negative manner.

The Compensation Committee considered a variety of key financial metrics for incentive purposes and determined that its use of the adjusted operating income metric is appropriate because it reflects our overall operating performance and ability to manage costs and operate efficiently. Adjusted operating income is also a key metric currently used by our senior executives to assess Company profitability and make decisions regarding the allocation of resources.

 
 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

The Compensation Committee believes that a sole, absolute metric provides simplicity and allows management to focus on driving underlying performance against a metric that is strongly correlated with the ability of our management to drive stockholder value in any given year. For the NEOs (other than Messrs. Pessina and Skinner, who do not receive annual cash incentives) and other corporate-level executives, these results are based on our consolidated performance, with no award tied to specific business unit performance. The Compensation Committee believes this reinforces the need for collaboration among those executives.

For 2017, the adjusted operating income target (excluding the expected contribution from the transactions contemplated by our then-pending merger agreement with Rite Aid Corporation, which was terminated in June 2017) was set at $7.481 billion, which represented an increase over our 2016 results on an actual and constant currency basis. The target was set in relation to our 2017 budget, which was approved by the Board in October 2016, so that results could range between 50% (threshold) and 200% (maximum) of the target award opportunity established for

each participant based on a performance curve of 95% of

performance goal to 110% of performance goal. The failure to achieve the threshold performance level would result in the forfeiture of the entire opportunity. As noted above, the Compensation Committee believed that the target it established was rigorous yet achievable in light of our internal budget as well as the macroeconomic and industry environments in which we operate.

In addition to the Company-wide performance adjustment listed above, the Compensation Committee also approved the use of an individual performance factor, based on such individual’s performance during the prior year, which could result in an incremental increase or decrease in the annual cash incentive paid to such individual. The use of this factor allows such individual’s manager to assess the performance goals each individual can influence and assess their performance against those goals. More information about the application of this individual performance factor to the NEOs (other than Messrs. Pessina and Skinner, who do not receive annual cash incentives) can be found in “—IV. Annual Compensation—B. Annual Cash Incentive Payments—Individual Performance” below.

 

 

 

B.  2017 Long-Term Compensation Target

 

The Compensation Committee approved the use of cumulative adjusted EPS for the 2017-2019 performance period as the sole, absolute metric for measuring Company-wide performance for purposes of the performance share awards.

Cumulative adjusted EPS is a non-GAAP financial measure that refers to our GAAP diluted net earnings per share, as adjusted to reflect certain specified adjustments approved by the Compensation Committee in accordance with the Omnibus Incentive Plan, cumulated over the three-year period. As with adjusted operating income, the Compensation Committee reserves the right to adjust our GAAP earnings per share to help ensure that certain items that are non-operating or otherwise out of management’s control do not impact payouts in either a positive or negative manner.

The Compensation Committee believes that its use of the cumulative adjusted EPS metric is appropriate because

it believes the metric correlates to stockholder value creation over a longer-term performance period and is a key indicator of our long-term profitability. For the NEOs (other than Mr. Skinner, who receives RSUs) and other corporate-level executives, results will be based on our consolidated performance, with no award tied to specific business unit results, which the Compensation Committee believes reinforces the need for collaboration among those executives.

We do not publicly disclose our specific long-term compensation target due to the potential for competitive harm. The 2017-2019 target was set in relation to our three-year financial plan for the period, which was approved by the Board in October 2016. The Compensation Committee believed that the target it established was rigorous yet achievable in light of our internal forecast as well as the macroeconomic and industry environments in which we operate.

 

 

 

 


 

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