CVS Health: An Example of Ineffective Executive Compensation Management
CVS Health (ticker: CVS) provides an example of ineffective executive compensation management. Compensation should reward past performance and encourage behavior that drives desired future results.
CEO total compensation growth should not outpace revenue growth nor operating cash flow growthover time. We prefer operating cash flow as a performance metric over Adjusted EBITDA as some companies are aggressive in their use of Adjusted EBITDA “add backs” – particularly within the Technology industry.
CVS Health CEO Larry Merlo’s Total Compensation growth far outpaces Revenue and Operating Cash Flow growth.(Table & chart below, click each to expand or download. Figures include CVS’ 2019 Aetna acquisition.)
CVS Health should align executive compensation with operating performance. We encourage CVS Health’s compensation committee to better align CEO variable compensation to operating performance – specifically Revenue growth and Operating Cash Flow growth.