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 growth over 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.

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