CVS Emerges As Pandemic Winner, But What About Employees?
May 11, 2022
CVS CEO Karen Lynch’s total compensation for 2021 was $20,388,412, an increase of 80 percent from the prior year. This total included a salary of $1,450,000 – higher than typical – as well as a cash bonus of $5,616,000. One reason the bonus was so high was because the Compensation Committee set the MIP Adjusted Operating Income for 2021 below the actual achieved MIP Adjusted Operating Income for 2020.
Lynch became CEO of CVS in February 2021 so her extraordinary increase in pay is explained in part due to her change in position. Yet even that explanation opens the question about the value a person contributes to the company. As Executive Vice President of CVS Health and President of Aetna did she work fewer hours, give less of an effort? Was she somehow less smart? Certainly some increase is reasonable for a position change, but at that level? Appropriate compensation and human capital are particularly key issues at CVS which has been called out for the relative lack of support it gave staff during COVID.
A Brookings Institute Report, Profits and the pandemic: As shareholder wealth soared, workers were left behind, analyzed the pay practices at 22 of the nation’s best known companies, and found that, “Workers experienced the brunt of companies’ losses, while executives and shareholders generally avoided them.” The report divided companies into categories based on financial performance, deeming CVS a winning company. In general, the report found that, “Corporate profits at the five winning companies rose eight times faster than worker pay.”
The study divided the companies into three categories based on performance and CVS was considered a “pandemic winner.” Several other “winning companies” did offer temporary pay bumps – Covid pay -- during the worst days of the pandemic, and the report highlights Costco and Home Depot in particular. But the report notes that, “At the other end of the spectrum, FedEx, CVS, and UPS stand out for offering comparatively little (or no) additional Covid pay, despite their elevated earnings and CVS’s role as a leading health care company on the frontlines of COVID-19 testing and immunizations.”
Another item of note from the proxy statement is that the median annual pay actually decreased to $45,010 from the prior year’s $55,716. However, the number is highly questionable since the company annualizes pay of both part-time and full-time workers who did not work for a full year. Personally, I think this annualization makes a mockery of pay ratio. If you walked into your local CVS I guarantee you that you would not find that half the employees made more than $45,010.
Annual ratio of median employee to Lynch’s (which was higher in this calculation than reported elsewhere in the proxy because it was annualized and included certain medical benefits.) 458-to-1.
Shareholders at CVS will also have the opportunity to vote on a number of shareholder proposals, including one that calls on the company to provide paid sick leave for all employees.