Other Governance Practices

Executive Compensation

The Board recognizes that executive compensation is an important issue in corporate governance, which is why our policies and programs are designed to ensure an appropriate link between pay, company performance and stockholder returns.

With the oversight of the Management Planning and Development Committee, our executive compensation policies and programs are designed to attract, retain and motivate talented leaders to drive company performance. Between 70 and 80 percent of executive compensation is based on performance, while 90 percent of the CEO’s compensation is linked to performance. Simply put, when the company performs well, stockholders benefit, as do our executive officers. This committee also evaluates and monitors our executive compensation strategy to ensure our approach is aligned with best practices among our peer group.

CVS Caremark is committed to a “pay-for-peformance” philosophy, in which a significant portion of our executives’ annual compensation is awarded as long-term, multi-year “at risk” equity awards whose ultimate value, if any, will depend on the company’s future financial performance. In 2008, the Company also began including customer service and satisfaction metrics in the determination of executive officer annual incentive awards. In addition, we instituted a new “claw back” provision that allows the company to recoup annual and long-term incentive awards in the case of financial fraud or misconduct. All of these actions further reinforce a strong alignment of our executives’ interests with those of our stockholders.

Corporate Compliance & Ethics

CVS Caremark is committed to complying with the law and promoting high ethical standards that, we believe, are responsibilities shared by everyone in our organization. Having an effective and comprehensive compliance program is key to fostering a culture of integrity and ethical conduct. CVS Caremark has such a program in place, led by our Chief Compliance Officer, who is responsible for its overall operation and deployment.

We rely on a variety of mechanisms for assessing risk, auditing processes and ensuring that our policies and procedures are being properly followed throughout the organization. In the event there is cause for concern, we take immediate steps to investigate and resolve the matter. Two committees of the Board provide oversight for compliance, while the entire Board would be informed of significant compliance issues.

Code of Conduct

The CVS Caremark Code of Conduct defines our high ethical standards for business conduct and applies to all CVS Caremark employees and the Board of Directors. The Code is intended to help resolve ethics and compliance issues by providing the information, tools and resources necessary to make good decisions.

Ethics Hotline

CVS Caremark maintains a formalized compliance program, including a dedicated hotline for employees and suppliers to report any wrongdoing or misconduct. We use an independent third-party vendor to manage the Ethics Line, which was consolidated in 2008 after the merger of CVS and Caremark.

The Ethics Line is available 24 hours a day, seven days a week and 365 days a year. As an alternative to calling, employees may contact the Ethics Line via mail, e-mail or fax, all of which are confidential. Any matter reported through the hotlines can be made anonymously and without fear of retribution.