UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

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Exchange Act of 1934 (Amendment No.  )

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Express Scripts, Inc.

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EXPRESS SCRIPTS, INC.

One Express Way

Saint Louis, Missouri 63121

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 5, 2010

 

The 2010 Annual Meeting of Stockholders of EXPRESS SCRIPTS, INC., a Delaware corporation (the “Company”), will be held at the Company’s new pharmacy fulfillment facility located at 4600 North Hanley Road, Saint Louis, Missouri 63134, on Wednesday, May 5, 2010, at 8:00 a.m. Central Time (the “meeting”), to consider and act upon the following matters:

 

 

Only stockholders of record at the close of business on March 8, 2010, are entitled to notice of and to vote at the meeting. At least ten days prior to the meeting, a complete list of stockholders entitled to vote will be available for inspection by any stockholder for any purpose germane to the meeting, during ordinary business hours, at the office of the Secretary of the Company at One Express Way, Saint Louis, Missouri 63121. As a stockholder of record, you are cordially invited to attend the meeting in person. Regardless of whether you expect to be present at the meeting, please either complete, sign and date the enclosed proxy and mail it promptly in the enclosed envelope, or vote electronically via the Internet or telephone as described in greater detail in the proxy statement. Returning the enclosed proxy, or voting electronically or telephonically, will not affect your right to vote in person if you attend the meeting.

 

By Order of the Board of Directors

 

Keith J. Ebling

Executive Vice President, General Counsel and

Corporate Secretary

 

One Express Way

Saint Louis, Missouri 63121

March 24, 2010

 

Even though you may plan to attend the meeting in person, please vote by telephone or the Internet, or execute the enclosed proxy card and mail it promptly. A return envelope (which requires no postage if mailed in the United States) is enclosed for your convenience. Telephone and Internet voting information is provided on your proxy card. Should you attend the meeting in person, you may revoke your proxy and vote in person.

Table of Contents

EXPRESS SCRIPTS, INC.

One Express Way

Saint Louis, Missouri 63121

 

 

 

 

2010 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT

 

 

 

 

This proxy statement is furnished in connection with the solicitation of proxies by the board of directors of Express Scripts, Inc., a Delaware corporation, which we refer to as the “Company” or “Express Scripts,” to be voted at our 2010 Annual Meeting of Stockholders, which we refer to as the “annual meeting” or the “meeting,” and any adjournment or postponement of the meeting. The meeting will be held at the Company’s new pharmacy fulfillment facility located at 4600 North Hanley Road, Saint Louis, Missouri 63134, on Wednesday, May 5, 2010, at 8:00 a.m. Central Time, for the purposes contained in the accompanying Notice of Annual Meeting of Stockholders and in this proxy statement. On March 24, 2010, we mailed to our stockholders a notice containing instructions on how to access this proxy statement and an annual report online and made this proxy statement and form of proxy available online.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on May 5, 2010. The Annual Report and Notice & Proxy Statement are available at www.proxyvote.com. (All website addresses given in this document are for information only and are not intended to be an active link or to incorporate any website information into this document.)

 

Why Did I Receive This Proxy Statement?

 

Because you were a stockholder of our Company as of March 8, 2010, or the “record date,” and are entitled to vote at the annual meeting, our board of directors is soliciting your proxy to vote at the meeting. This proxy statement summarizes the information you need to know to vote at the meeting.

 

What Am I Voting On?

 

You are voting on four items:

 

1. Election of directors (see page 5);

 

2. Ratification of PricewaterhouseCoopers LLP as independent registered public accountants for 2010 (see page 46); and

 

3. Two stockholder proposals (see pages 48 and 50).

 

How Do I Vote?

 

Stockholders of Record:  If you are a stockholder of record, there are four ways to vote:

 

 

* The deadline to vote by telephone or Internet is 11:59 P.M. Eastern Time on May 4, 2010.

Street Name Holders:  Shares that are held in a brokerage account in the name of the broker are said to be held in “street name.” If your shares are held in street name, you should follow the voting instructions provided by your broker. You may complete and return a voting instruction card to your broker or vote via the telephone or internet. Check your proxy card for more information. If you hold your shares in street name and wish to vote at the meeting, you must obtain a legal proxy from your broker and bring that proxy to the meeting.

 

Regardless of how your shares are registered, if you complete and properly sign the accompanying proxy card and return it to the address indicated, or vote via the telephone or Internet, your shares will be voted as you direct.

 

What Are The Voting Recommendations Of The Board Of Directors?

 

Our board of directors recommends the following votes:

 

1. FOR each of the nominees as directors; and

 

2. FOR the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accountants for 2010.

 

3. AGAINST each of the stockholder proposals.

 

Unless you give instructions on your proxy card, the persons named as proxy holders will vote your shares in accordance with the recommendations of our board of directors.

 

Will Any Other Matters Be Voted On?

 

We do not know of any other matters that will be brought before the stockholders for a vote at the annual meeting. If any other matter is properly brought before the meeting, your signed or electronic proxy card gives authority to George Paz and Keith J. Ebling, or either of them, to vote on such matters in their discretion.

 

Who Is Entitled To Vote At The Meeting?

 

Only stockholders of record at the close of business on the record date are entitled to receive notice of and to participate in the annual meeting. If you were a stockholder of record on that date, you will be entitled to vote all of the shares that you held on that date at the meeting, or any postponements or adjournments of the meeting.

 

How Many Votes Do I Have?

 

You will have one vote for every share of our common stock you owned at the close of business on the record date.

 

How Many Votes Can Be Cast By All Stockholders?

 

Approximately 274,888,321, consisting of one vote for each share of our common stock outstanding on the record date. There is no cumulative voting.

 

How Many Votes Must Be Present To Hold The Meeting?

 

The holders of a majority of the aggregate voting power of our common stock outstanding on the record date, or approximately 137,444,161 votes, must be present in person, or by proxy, at the meeting in order to constitute a quorum necessary to conduct the meeting.

 

If you vote, your shares will be part of the quorum. Abstentions and broker non-votes will be counted in determining the quorum. A broker non-vote occurs when a bank or broker holding shares in street name submits a proxy that states that the broker does not vote for some or all of the proposals because the broker has not received instructions from the beneficial owners on how to vote on the proposals and does not have discretionary authority to vote in the absence of instructions.

 

We urge you to vote by proxy even if you plan to attend the meeting so that we will know as soon as possible that a quorum has been achieved.

What Vote Is Required To Approve Each Proposal?

 

In the election of directors, the affirmative vote of the majority of the votes cast when a quorum is present, because this election of directors is not a contested election. A “majority of the votes cast” means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. “Votes cast” excludes abstentions and any broker non-votes. Accordingly, abstentions and broker non-votes will have no effect on the election of directors. Under Delaware law, if an incumbent director-nominee is not elected at the meeting, the director will continue to serve on the board as a “holdover director.” As required by the bylaws, each director-nominee has submitted an irrevocable contingent letter of resignation that becomes effective if he or she is not elected by a majority of the votes cast by stockholders and the board of directors accepts the resignation. If a director-nominee is not elected by a majority of the votes cast, the Corporate Governance Committee will consider the director’s resignation and recommend to the board whether to accept or reject the resignation. The board of directors will decide whether to accept or reject the resignation and publicly disclose its decision within 90 days after the date of the certification of the election results. A proxy that has properly withheld authority with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for the purposes of determining whether there is a quorum.

 

For the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accountants and the two stockholder proposals, the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote on the proposal will be required for approval. An abstention with respect to this proposal will not be voted, although it will be counted for the purpose of determining whether there is a quorum. Accordingly, an abstention will have the effect of a negative vote. Broker non-votes on a proposal (shares held by brokers that do not have discretionary authority to vote on the matter and have not received voting instructions from their clients) are not counted or deemed present or represented for determining whether stockholders have approved the proposal.

 

Can I Change My Vote Or Revoke My Proxy?

 

Yes. Just send in a new proxy card with a later date, or cast a new vote by telephone or Internet (not later than the deadline of 11:59 P.M. Eastern Time on May 4, 2010), or send a written notice of revocation to our Corporate Secretary at the address on the cover of this proxy statement. Also, if you attend the meeting and wish to vote in person, you may request that your previously submitted proxy not be used.

 

Why Haven’t I Received a Printed Copy of the Proxy Statement or Annual Report?

 

We are taking advantage of the Securities and Exchange Commission (“SEC”) rules that allow companies to furnish proxy materials to stockholders via the Internet. This allows us to avoid printing and mailing proxy materials to stockholders who prefer to review the materials online. If you received a Notice of Internet Availability of Proxy Materials, or “Notice,” by mail, you will not receive a printed copy of the proxy materials, unless you specifically request one. The Notice instructs you on how to access and review all of the important information contained in the proxy statement and annual report as well as how to submit your proxy over the Internet. If you received the Notice and would still like to receive a printed copy of our proxy materials, you should follow the instructions for requesting these materials included in the Notice. We plan to mail the Notice to stockholders by March 24, 2010.

Who Can Attend The Annual Meeting?

 

Any Express Scripts stockholder as of March 8, 2010, may attend the meeting. If you own shares in street name, you should ask your broker or bank for a legal proxy to bring with you to the meeting. If you do not receive the legal proxy in time, bring your most recent brokerage statement so that we can verify your ownership of our stock and admit you to the meeting. However, you will not be able to vote your shares at the meeting without a legal proxy.

 

If you submit a proxy card without indicating your vote, your shares will be voted as follows:

 

I.  ELECTION OF DIRECTORS

 

The current term of office of all of our directors expires at the meeting or when their successors are duly elected and qualified. The Corporate Governance Committee of our board of directors has nominated the twelve current directors to be elected to serve until the next Annual Meeting of Stockholders or until their successors are duly elected and qualified. Unless otherwise specified, all proxies will be voted in favor of the twelve nominees listed below for election as directors of our Company.

 

Our board of directors has no reason to expect that any of the nominees will be unable to stand for election on the date of the meeting or will not serve. If a vacancy occurs among the original nominees prior to the meeting, the proxies will be voted for a substitute nominee named by our board of directors and for the remaining nominees. Directors are elected by a majority of the votes cast when a quorum is present, because this election of directors is not a contested election. A “majority of the votes cast” means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. “Votes cast” excludes abstentions and any broker non-votes. Our board of directors has determined that, in its judgment, with the exception of Mr. Paz, who is also an executive officer of our Company, all of the members of our board of directors are independent, as defined by the listing standards of The Nasdaq Global Select Market, as of the date of this proxy statement.

 

Our Corporate Governance Guidelines provide that our Corporate Governance Committee and board of directors will nominate candidates for our board of directors who possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of stockholders. In addition to these qualities, the selection criteria for nomination include the skills and characteristics possessed by each candidate in the context of the perceived needs of the board of directors at that point in time in an effort to ensure that there is a blend of skills and experience that will enhance the effectiveness of the board of directors (see “Selection of Nominees for the Board of Directors” beginning on page 14).

 

As described in more detail below, our board believes that each of our directors meets such criteria and has attributes and experience that make him or her well qualified to serve on our board of directors. In order to find the most valuable talent available to meet these criteria, our board considers, among other factors, character, judgment, and personal and professional integrity of members and candidates for the board as well as relevant professional skills, depth of business experience and the makeup and diversity of our existing board, pursuant to our Corporate Governance Guidelines. For example, our board of directors includes several individuals with experience as a chief executive officer with many of them having experience serving as a director of another publicly-traded or substantial mutual company. Most of our directors have financial or accounting experience, including several who have held the position of chief financial officer at a publicly-traded company. In addition, as discussed below, our directors have experience in a variety of industries, including healthcare. Our goal is to include board members with the skills and characteristics that taken together will assure a strong board of directors.

 

The following information is furnished as of March 1, 2010, for each of the nominees for our board of directors:

 

Name, Position and Principal Occupation

 

Gary G. Benanav, 64, was elected a director of Express Scripts in January 2000. Mr. Benanav brings extensive legal and management experience to our board of directors, including over 9 years as a chief executive officer in the life insurance and financial services industry. He has served as Vice Chairman and a Director of New York Life Insurance Company or “New York Life,” a life insurance and financial services company, from November 1999 until his retirement in March 2005 and as Chairman and Chief Executive Officer of New York Life International from December 1997 until his retirement in March 2006. Mr. Benanav has served or serves on the boards of numerous public companies, and has held leadership roles in industry trade groups. Mr. Benanav is a director of Barnes Group, Inc.

 

Frank J. Borelli, 74, was elected a director of Express Scripts in January 2000. Mr. Borelli brings extensive management, financial reporting, accounting and controls, and corporate finance experience to our board of directors, including over 15 years as a chief financial officer and over 20 years as a public accountant. Mr. Borelli served as Chief Financial Officer and a director of Marsh & McLennan Companies, Inc. or “M&MC” from 1984 until reaching his normal retirement date in 2000. Mr. Borelli also served Senior Vice President of Finance and

Administration at M&MC. Mr. Borelli has also served or serves on the boards of several public and private companies. Mr. Borelli was a Senior Advisor to Stone Point Capital, an investment management company and formerly a wholly-owned subsidiary of M&MC, from his retirement from M&MC in January 2001 through December 2008. Mr. Borelli is a director and Audit Committee Chairman of Genworth Financial, Inc. and is also a director of the Interpublic Group of Companies.

 

Maura C. Breen, 54, was elected a director of Express Scripts in July 2004. Ms. Breen brings extensive marketing and management experience to the board of directors, including over 8 years as an executive corporate officer. Ms. Breen served as Senior Vice President and General Manager for the New York Region for Verizon Communications, Inc. or “Verizon,” a provider of communications services, from March 2006 until her retirement in September 2008. Previously, Ms. Breen was Senior Vice President/Support Services, Network Services Group for Verizon, from December 2003 through March 2006. Ms. Breen also served as Senior Vice President & Chief Marketing Officer, Retail Market Groups for Verizon from July 2001 through December 2003.

 

Nicholas J. LaHowchic, 62, was elected a director of Express Scripts in July 2001. Mr. LaHowchic brings extensive management experience, including over 16 years as an executive corporate officer. Mr. LaHowchic is currently President of Diannic, LLC, a management consulting firm. Previously, he served as President and Chief Executive Officer of Limited Logistics Services, Inc. or “LLS,” from October 1997, and as Executive Vice President for Limited Brands, Inc., a retail apparel company and the parent of LLS, from April 2004 until his retirement from LLS in February 2007. LLS provides supply chain, compliance and procurement services to retailers including Limited Brands, Inc.

 

Thomas P. Mac Mahon, 63, was elected a director of Express Scripts in March 2001. Mr. Mac Mahon brings extensive management and industry experience, including over 9 years as a chief executive officer. Mr. Mac Mahon served as President and Chief Executive Officer and a member of the Executive and Management Committees of Laboratory Corporation of America Holdings or “LabCorp,” the second largest independent clinical laboratory company in the U.S., from January 1997 until his retirement in December 2006. Mr. Mac Mahon has also served or serves on the boards of numerous public and private companies. Mr. Mac Mahon is currently a director of LabCorp and currently serves as Chairman of the Board of PharMerica Corporation and as a member of its compensation committee.

 

Frank Mergenthaler, 49, was elected a director of Express Scripts in January 2009. Mr. Mergenthaler brings extensive management, financial reporting, accounting and controls, corporate finance and marketing experience to our board of directors, including over 10 years as a chief financial officer. He is currently Executive Vice President and Chief Financial Officer of Interpublic Group of Companies, Inc., an advertising and marketing services company, and has served in this capacity since July 2005. From April 2002 to July 2005, Mr. Mergenthaler was Executive Vice President and Chief Financial Officer of Columbia House Company, a direct marketer of entertainment content.

 

Woodrow A. Myers Jr., M.D., 56, was elected a director of Express Scripts in May 2007. Dr. Myers brings extensive medical and management experience in the healthcare industry to the board of directors, including over 10 years as an executive officer. Dr. Myers has served as the Managing Director of Myers Ventures, LLC, a healthcare consulting company, since December 2005. Dr. Myers served as Executive Vice President and Chief Medical Officer of WellPoint, Inc., a health benefits company, from September 2000 through December 2005. Dr. Myers has also served or serves on the boards of numerous public and private companies, including ThermoGenesis, Corp., Cardionet, Inc., Mozambique Healthcare Consortium, Stanford University Hospital & Clinics, and as former Commissioner of Health for New York City and also for the State of Indiana. He is currently a director of Genomic Health, Inc.

 

John O. Parker, Jr., 65, was elected a director of Express Scripts in July 2001. Mr. Parker brings extensive corporate finance and management experiences to the board of directors, having served as a Venture Partner with Rho Ventures LLC, a venture capital firm, since January 2002. Mr. Parker has also served as chief information officer of several public companies including SmithKline Beecham, Sea-land Corporation, Squibb Corporation and Baxter Healthcare. He is currently serving as a member of the boards of directors of PHT Corporation and Medical Present Value, Inc., both privately held companies.

 

George Paz, 54, was elected a director of Express Scripts in January 2004 and has served as Chairman of the Board since May 2006. Mr. Paz has extensive knowledge about Express Scripts and the opportunities and challenges we face,

and brings over 30 years of experience to our board of directors, including 5 years as our chief executive officer and over 10 years as a chief financial officer. Mr. Paz is a Certified Public Accountant and has experience in relevant areas such as tax, financial reporting, accounting and controls, corporate finance, insurance and risk management, government regulation, and employee health benefits. He was elected President of Express Scripts in October 2003 and also assumed the role of Chief Executive Officer of Express Scripts on April 1, 2005. Mr. Paz joined Express Scripts and was elected Senior Vice President and Chief Financial Officer in January 1998 and continued to serve as Express Scripts’ Chief Financial Officer following his election to the office of President until his successor joined Express Scripts in April 2004. Mr. Paz is currently a member of the board of directors of Honeywell International, Inc.

 

Samuel K. Skinner, 71, was elected a director of Express Scripts in February 2004. Mr. Skinner brings extensive legal, regulatory, governmental affairs and management experience to our board of directors, including having served as a chief executive officer. Mr. Skinner has been Of Counsel with the law firm of Greenberg Traurig, LLP since 2004. Mr. Skinner previously served as Chairman, President, and Chief Executive Officer of USF Corporation (formerly USFreightways Corporation) or “USF,” a transportation, freight forwarding and supply chain management company, from 2000 until his retirement in 2003. Mr. Skinner also served as Chief of Staff to former President George H.W. Bush, and, prior to his White House service, he served in the President’s cabinet as Secretary of Transportation for nearly 3 years, and is currently a member of the Council on Foreign Relations. Mr. Skinner has also served or serves on the boards of numerous public and private companies. Mr. Skinner is currently a director of Navigant Consulting, Inc., APAC Customer Services, MedAssets, and Echo Global Logistics.

 

Seymour Sternberg, 66, was elected a director of Express Scripts in March 1992. Mr. Sternberg brings extensive management experience to the board of directors, including over 30 years as an executive corporate officer and more than 11 years as a chief executive officer in the life insurance and financial services industry. Mr. Sternberg became Chief Executive Officer and Chairman of the Board of New York Life in April 1997, and served as Chief Executive Officer until his retirement in June 2008. Mr. Sternberg continued to serve as non-executive Chairman of the Board of New York Life until May 2009. Mr. Sternberg was appointed by former President Clinton as one of three U.S. representatives to the Business Advisory Council of the Asia-Pacific Economic Cooperation. Mr. Sternberg has also served or serves on the boards of several public or private companies and charitable organizations. Mr. Sternberg is currently a director of CIT Group, Inc. and the Chairman of the Board of Trustees of Northeastern University.

 

Barrett A. Toan, 62, was elected a director of Express Scripts in October 1990 and served as Chairman of the Board from November 2000 until May 2006. Mr. Toan has extensive knowledge about Express Scripts, and brings over 20 years of experience as an executive corporate officer in the healthcare industry to our board of directors, including 13 years as a chief executive officer. Mr. Toan was Express Scripts’ Chief Executive Officer from March 1992 until his retirement in March 2005. Mr. Toan was an executive employee of Express Scripts from May 1989 until his retirement. Mr. Toan has also served or serves on the boards of several public and private companies and charitable organizations. Mr. Toan is currently a director of Sigma-Aldrich Corporation and Genworth Financial, Inc.

 

The board of directors unanimously recommends a vote FOR the election of each of the nominees listed above.

 

Director Emeritus

 

Our bylaws authorize the board of directors to elect one or more directors emeritus to serve at the pleasure of the board. Each director emeritus serves as an advisor and consultant to the board, and may also be appointed by the board to serve as an advisor and consultant to one or more committees of the board. A director emeritus is invited to attend meetings of the board of directors and any such committees, and may participate in discussions during such meetings. However, no director emeritus is entitled to vote on any business that comes before the board of directors or any committee.

 

Howard L. Waltman, 77, has served as a non-voting emeritus member of the board of directors since May 2008. Mr. Waltman has extensive knowledge about Express Scripts having previously served as a director of Express Scripts since its inception in September 1986 until his retirement in May 2008. He also served as Presiding Director of our board from October 2006 to May 2008. Mr. Waltman served as Chairman of the Board of Express Scripts from March 1992 until November 2000. Mr. Waltman has also served or serves on the boards of several public and private companies. Mr. Waltman is currently a director of Emergent Group, Inc.

 

Our board of directors is responsible for establishing broad corporate policies and for overseeing the overall management of the Company. In addition to considering various matters which require its approval, our board of directors provides advice and counsel to, and ultimately monitors the performance of, our senior management.

 

Committees of the Board of Directors.  Our board of directors has four standing committees: the Audit Committee, the Compensation Committee, the Corporate Governance Committee, and the Compliance Committee. Each committee has a written charter which is reviewed at least annually to reflect the activities of each of the respective committees, changes in applicable law or other relevant considerations, with any changes approved by the full board of directors. Each committee is composed entirely of directors deemed to be, in the judgment of our board of directors, independent in accordance with listing standards of The Nasdaq Global Select Market. Our board of directors met 10 times in 2009. Each director attended at least 75% of the total number of meetings of the board of directors and the board committees of which he or she was a member in 2009. While we do not have a formal policy requiring members of the board of directors to attend the annual meeting of stockholders, we encourage all directors to attend. All twelve members of our board of directors attended the annual meeting in 2009. The following table lists the members, primary functions and number of meetings held for each of the committees:

 

 

Board Leadership Structure.  Mr. Paz has served as both the chairman of the board of directors and our chief executive officer since May 2006. We believe that the current board leadership structure is appropriate because Mr. Paz has a unique depth of knowledge about Express Scripts and the opportunities and challenges we face and we believe that the current board leadership structure provides for more effective leadership because it recognizes that in most cases one person should speak for and lead both the Company and the board of directors.

 

Our Corporate Governance Guidelines provide for the selection of a Presiding Director of the board at such times as the position of chairman of the board is held by a non-independent director. Currently, Mr. Mac Mahon serves as the Presiding Director. The duties of the Presiding Director include:

 

 

We believe our governance structure provides effective oversight of the board of directors because:

 

 

Enterprise Risk Management.  Pursuant to Delaware law, our certificate of incorporation, as amended, and our bylaws, the board of directors has general oversight responsibility for our affairs, including risk management, while management is responsible for our day-to-day operations. In order to assist the board of directors in overseeing our risk management, we use enterprise risk management (“ERM”), a company-wide initiative that involves the board of directors, management and other personnel in an integrated effort to identify, assess and manage risks that may affect our ability to execute on our corporate strategy and fulfill our business objectives.

These activities entail the identification, prioritization and assessment of a broad range of risks (e.g., financial, operational, business, reputational, governance and managerial), and the formulation of plans to manage these risks or mitigate their effects.

 

At least annually, the board of directors discusses with management the appropriate level of risk relative to our corporate strategy and business objectives and reviews with management our existing risk management processes and their effectiveness. Additionally, management updates our board of directors periodically with respect to key risk indicators in order for the board to formulate plans to manage these risks or mitigate their effects. Further, at least annually, our Audit Committee discusses with management and internal audit our major financial risk exposures and the steps that have been taken to monitor and control such exposures, including our risk assessment and risk management policies.

 

The compensation of our directors is determined by the Corporate Governance Committee subject to approval by the entire board. The objectives for our non-employee director compensation program are to attract highly-qualified individuals to serve on the board of directors and align directors’ interests with the interests of stockholders. The Corporate Governance Committee reviews the program periodically to ensure that it continues to meet the objectives. To determine whether the director compensation program is competitive, the Corporate Governance Committee considers general market information on program design. In recommending director compensation levels, the Corporate Governance Committee also considers the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill level required by the Company of members of the board. Excluding Mr. Paz, executives of the Company do not have a substantive role in setting director compensation. The Corporate Governance Committee recommends any change it considers appropriate to the full board of directors for its review and approval, and includes the relevant information and data for the board to use in its considerations.

 

Directors who are employed by our Company or its subsidiaries do not receive compensation for serving as directors. Directors who are not employees of our Company or its subsidiaries are entitled to receive:

 

 

 

 

We also reimburse non-employee directors for out-of-pocket expenses incurred in connection with attending board and committee meetings.

 

Our non-employee directors also receive equity awards under our 2000 Long-Term Incentive Plan, as amended, or the “2000 LTIP,” as follows:

 

 

These equity awards are granted consistent with our policies with respect to establishing the grant date for approved equity awards. As such, if the subject meeting occurs during an “open window” trading period, then the grant date is the date of such meeting. If the subject meeting does not occur during an “open window” trading period, then the grant date is the third trading day following our next subsequent release of quarterly (or annual) financial results. Beginning in 2009, the equity grants are divided between non-qualified stock options and restricted stock units as follows:

 

 

All of the stock options granted to the non-employee directors under the 2000 LTIP have an exercise price of 100% of the fair market value of the shares on the grant date, and a seven-year term. The stock options and restricted stock units vest ratably over three years. Beginning with equity grants in May 2009, the vesting of all unvested stock options and restricted stock units will accelerate upon the director’s retirement, death or disability as follows:

 

 

Compensation for any director emeritus is established by the board of directors at the time such director emeritus is elected to serve. The following table provides information regarding our compensation of non-employee directors for 2009:

 

 

 

 

Our Company is committed to the values of effective corporate governance and high ethical standards. Our board believes that these values are conducive to long-term performance and the board reevaluates our policies on an ongoing basis to ensure they sufficiently meet the Company’s needs. Most recently, the board adopted certain amendments to its Corporate Governance Guidelines and other governance documents, including the following:

 

 

We have described below certain key corporate governance and ethics policies which we believe enable us to manage our business in accordance with the highest standards of business practices and in the best interest of our stockholders.

 

Corporate Governance Guidelines and Committee Charters.  We have adopted Corporate Governance Guidelines to outline our corporate governance structure and address significant corporate governance issues, which Guidelines are reviewed annually by the Corporate Governance Committee. Copies of these Guidelines as well as the Charters for each of the committees of our board of directors can be found on the Corporate Governance page in the Investor Information section of our website at www.express-scripts.com.

 

Code of Ethics.  We have adopted a Code of Ethics which applies to all of our directors, officers, and employees including our senior financial officers. A copy of the Code of Ethics is available in the Investor Information section of our website at www.express-scripts.com. We will post any amendments to the Code of Ethics, or any waivers of the Code of Ethics for any of our directors, executive officers or senior financial officers, in the same section of our website.

 

Communicating with the Directors.  Stockholders wishing to communicate with our board of directors or with an individual board member with respect to our Company may do so by writing to the board of directors or the specific board member, and mailing the correspondence to: Attention: Corporate Secretary, Express Scripts, Inc., One Express Way, Saint Louis, Missouri 63121. The outside of the envelope should clearly indicate that it contains a stockholder communication. Our board of directors has approved a process pursuant to which the office of the Corporate Secretary will review and forward the correspondence to the appropriate person or persons for response, with the exception of correspondence which is inappropriate or unrelated to the duties and responsibilities of the board of directors.

 

Selection of Nominees for the Board of Directors.  The Corporate Governance Committee is responsible for evaluating potential candidates to serve on our board of directors, and for recommending nominees to be presented for election to the board of directors at our annual meeting of stockholders. In evaluating potential director candidates, including incumbent directors, the Corporate Governance Committee considers the skills and characteristics possessed by each candidate in the context of the perceived needs of the board of directors at that point in time in an effort to ensure that there is a blend of skills and experience that will enhance the effectiveness of the board of directors. Among the factors considered by the Corporate Governance Committee in considering a potential nominee are the following:

 

 

 

In identifying potential candidates for the board of directors, the Corporate Governance Committee relies on recommendations from a number of possible sources, including current directors and officers. The Corporate Governance Committee may also retain outside consultants or search firms to help in identifying potential candidates for membership on the board of directors. In the past, the Corporate Governance Committee has engaged the firm of Spencer Stuart to assist with director searches. Spencer Stuart and a non-management director recommended Mr. Mergenthaler to fill a director vacancy in January 2009. The Corporate Governance Committee will also consider candidates recommended by stockholders on the same basis as other candidates.

 

Any stockholder wishing to recommend a candidate for consideration by the Corporate Governance Committee to become a nominee for election to the board of directors may do so by submitting a written recommendation to the committee in accordance with our procedures for the submission of “Future Stockholder Proposals,” as set out in our bylaws (see “Future Stockholder Proposals” beginning on page 53). For a nominee to be considered, the nominee must provide the questionnaire, representation and agreement described under that caption, and must describe various matters regarding the nominee and the recommending stockholder and the underlying beneficial owner, if any, including, among other things, the following information:

 

 

The request for nomination must also be accompanied by a written consent of the proposed nominee to being named as a nominee and to serve as a director if elected. Our Corporate Secretary will review all such stockholder

recommendations, and will forward those that comply with the above-described requirements to the Corporate Governance Committee for evaluation and consideration.

 

Stock Ownership Guidelines for Directors.  Our Corporate Governance Guidelines establishes minimum level of stock ownership sufficient, in the judgment of the Corporate Governance Committee, to closely align the interests of directors with those of stockholders. Directors are expected to maintain stock ownership with a value of at least 1.5 times the notional value of our annual equity grant to non-employee directors. Only stock owned “free and clear” are included in determining compliance with this threshold (i.e., unexercised stock options/stock-settled stock appreciation rights or unvested restricted stock/restricted stock units are not included). Directors are given five years to meet this threshold. In addition, once a director has met the threshold, if the value of the stock held by such director falls below required ownership level due to a decrease in the trading price of our stock, such director shall have two years to remedy such shortfall. Even though these guidelines are not mandatory, each director’s status with respect to stock ownership is annually reviewed and communicated. Each of our directors is currently in compliance with these guidelines.

 

 

Overview

 

This Compensation Discussion and Analysis provides a narrative commentary on our compensation policies, programs and practices for our chief executive officer, chief financial officer and other members of our executive management team. Throughout this proxy statement we will refer to our chief executive officer, our chief financial officer, and the three other officers named in the Summary Compensation Table on page 28 as the “named executives” or the “named executive officers.”

 

The broad topics discussed in this analysis include:

 

 

Compensation Philosophy and Objectives

 

Aligning Compensation with Stockholder Interests.  The primary goal of our compensation structure is to align the interests of our executives, including our named executive officers, with our stockholders through compensation vehicles that reward the achievement of established annual and long-term goals with the ultimate objective of increasing long-term stockholder value. The elements utilized to help achieve this goal of alignment include the following:

 

 

Rewarding Annual and Long-Term Performance.  Our compensation structure is also intended to reward the achievement of certain annual and long-term performance objectives by the individual executives, the Company’s business units, and the Company overall. This objective, in many ways, overlaps with the alignment objective and is achieved through the same compensation vehicles. The elements intended to reward annual and/or long-term performance include the following:

 

 

 

Attracting and Retaining Talented Executives.  In a constantly growing and changing business, it is vital that we are able to continually attract and retain superior employees in key executive positions. The key compensation elements aimed at attracting and retaining executives include the following:

 

 

Implementing our Compensation Objectives

 

Committee Members.  The Committee is responsible for establishing, overseeing and reviewing executive compensation policies and for approving, validating and benchmarking the compensation and benefits for named executive officers. In 2010, the Committee revised its charter to define the role of both the Committee and the independent members of the full board of directors. Effective in 2010, the Committee will continue to be responsible for establishing, overseeing and reviewing executive compensation policies, however any decisions by the Committee related to compensation for the named executive officers will be submitted for ratification by the independent members of the full board of directors. The Committee’s charter is available on the Corporate Governance page in the Investor Information section of our website at www.express-scripts.com. The Committee includes three independent Directors — Maura C. Breen (Chair), Gary G. Benanav and Nicholas J. LaHowchic. Each of these Directors is independent, as defined by the listing standards of The Nasdaq Global Select Market.

 

Role of Management in Establishing Compensation.  At the direction of the Chair of the Committee, management generally prepares the meeting materials for the Committee in advance of its meetings. A compensation consultant retained by the Committee may also prepare materials depending on the topics to be covered at the meeting. In the meetings, the Committee will consider for approval compensation matters for senior executives and equity grants for newly hired or promoted senior executives. Management may also ask that additional issues involving compensation policies or design be considered. During the annual evaluation process, the chief executive officer is given the opportunity to evaluate senior executives for purposes of annual merit increases, annual incentive payments and long-term equity awards. The Committee makes all compensation decisions for the named executives and other members of our senior management team, subject to ratification by the independent members of the full board of directors. However, the chief executive officer and certain other members of management may provide recommendations to the Committee on these matters.

 

Management may be asked to assist in conducting the meetings and to provide applicable data, information and other resources. The Committee’s independent compensation consultant also participates as requested by the Committee. As part of their regular meetings, Committee members generally meet in executive session during which members of management are not present.

 

In consultation with the Committee, management establishes compensation parameters below the senior executive level that generally reflect the compensation philosophy and direction established by the Committee in setting compensation for senior management.

 

Role of the Compensation Consultant.  The Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Committee. In accordance with this authority, the Committee engaged Watson Wyatt Worldwide for guidance on executive compensation issues in 2008 and early 2009. In 2009, in connection with an annual review of the Company’s compensation practices, the Committee

issued a “request for proposal” to several outside compensation advisors, and after a thorough review, the Committee changed its outside compensation advisor to Pearl Meyer & Partners for all compensation matters related to the senior executive officers, including the chief executive officer.

 

The Committee is solely responsible for commissioning the work of the Compensation Consultant. The Compensation Consultant is independent of management and does no other executive compensation work for the Company. The Committee has adopted a policy requiring the approval of the Committee Chair, or, at the Chair’s discretion, the entire Committee, before the Compensation Consultant can be utilized to perform any other services for the Company other than those required under its engagement by the Committee. In 2009, neither Watson Wyatt Worldwide nor Pearl Meyer & Partners were retained to perform any other services for the Company. The Committee has authority to hire and dismiss the Compensation Consultant and budgetary authority to establish engagements with the consultant. Management is copied on the work by the Compensation Consultant and discusses work in progress at the discretion of the Committee. As requested, a representative of the Compensation Consultant may attend the meetings of the Committee in person or by telephone.

 

The role of the Compensation Consultant is to provide independent, expert advice to the Committee on the design and level of compensation paid to our senior executives. The Compensation Consultant compares the compensation elements for the senior executive officers, including the chief executive officer, with the compensation received by executives in comparable positions at a group of peer companies. The Committee considers these peer group pay levels as one of the factors utilized in arriving at its final compensation decisions. It is the Committee’s current intention to conduct a benchmark study annually to assure that the senior executives are compensated appropriately from a competitive and design perspective. Following its analysis, the Compensation Consultant makes recommendations for consideration by the Committee.

 

Management does not currently engage a separate executive compensation consultant and did not in 2009.

 

Benchmarking of Executive Compensation Programs.  Our compensation approach is to combine base pay, annual incentive pay, and long-term incentive awards to create a total package that is, in general, approximately at the median compensation level for executive officers of a peer group of companies if financial and non-financial objectives are achieved, and that can be at or above the 80th percentile of such compensation level if “stretch” goals are achieved. Stretch goals are designed to achieve 80th percentile performance relative to the peer group.

 

In 2009, Pearl Meyer & Partners worked with the Compensation Committee and management to revise our peer comparison group to be better reflective of the Company’s size and scope of business. Analysis by the Compensation Consultant identified a group of 16 companies judged to be comparable to the Company (the “Peer Group Companies”) based on their revenue, EBITDA, market capitalization, industry, similarity to the Company and complexity. The table below identifies companies in our 2009 peer group and our 2010 peer group:

 

2009 Peer Group

 

2010 Peer Group

 

 

The Peer Group Companies recommended by the Compensation Consultant and approved by the Committee include companies that are different from those in the peer group index in the Stock Performance Graph included in our annual report to stockholders. All of the Peer Group Companies are public companies in the healthcare industry, though not all are in the Pharmacy Benefit Management (PBM) sector, due to the limited number of publicly-traded companies in the PBM space. The Committee expects that it will be necessary to review and update the Peer Group Companies from time to time, whether to account for mergers, acquisitions or other changes to the Peer Group Companies, or based on a determination by the Committee that some or all of the Peer Group Companies are no longer appropriate for comparison purposes.

 

The Committee annually reviews and assesses the compensation levels provided by the Compensation Consultant for executive officers at the Peer Group Companies, and also evaluates the financial and market performance of the Peer Group Companies in making compensation decisions. In addition, the Committee also reviews public compensation information available through SEC filings and published survey information. This review constitutes one of the factors utilized by the Committee in determining the appropriate pay levels for the senior executives. The review involves compensation received by executives in comparable positions and looks at the various elements of the compensation package and how these elements support corporate objectives.

 

Assessment of Risk

 

While a significant portion of our executive compensation plan is performance-based, we do not believe that our program encourages excessive or unnecessary risk-taking. While risk-taking is a necessary part of growing a business, the Compensation Committee has focused on aligning our compensation policies with our long-term interests and avoiding short-term rewards for management decisions that could pose undue long-term risks to us, as follows:

 

 

 

In summary, we have structured our program so that a considerable amount of the wealth of our executives is tied to the long-term health of our Company, we avoid the type of disproportionately large short-term incentives that could encourage executives to take risks that may not be in our long-term interests, and we provide incentives to manage for long-term performance. We believe this combination of factors encourages our executives to manage our Company in a prudent manner.

 

Components of Executive Compensation

 

The Committee has structured an executive compensation program comprised of three primary components: base pay, annual incentive pay, and long-term incentive pay. Segmenting and stratifying the elements of executive compensation helps focus compensation resources where they are expected to be most effective. In developing the mix of components, the Committee has sought to balance the need for fixed compensation provided in base pay with variable compensation provided in the annual and long-term incentive plans.

 

Base Pay.  Adequate and competitive base pay allows for the recruitment and retention of high caliber executives. The Committee uses median base pay of the Peer Group Companies as a reference point for equivalent or similar positions with the Company. The Committee determines the salary for each of the executive officers by considering the value and performance of the executive, recommendations by management (for executives other than the chief executive officer) and the Compensation Consultant, the level and scope of responsibilities of the position, and the pay levels of similarly positioned executive officers in the Peer Group Companies. Competitive pay levels are represented in median pay for the positions at the Peer Group Companies and other sources as well as recommended pay range alternatives provided by the Compensation Consultant. At the senior executive level, results applicable to the business unit or functional division headed by the executive are also factored into decisions related to changes in the base pay of the executive.

 

Salary levels are typically reviewed annually as part of our performance review process or upon a promotion or significant change in an executive’s responsibilities. Salary increases are based on both individual performance and changes in our overall budget for compensation. Changes in salary for the named executives and other members of senior management are approved by the Committee and annual changes are generally effective each year as of April 1.

 

Annual Bonus Plan.  The Annual Bonus Plan provides the Company with a tool to assist in focusing the executive on accomplishing current operational and financial objectives over a one-year period. Each executive has a bonus target, which is stated as a percentage of his or her annual base salary. The targets are set by the Committee taking into consideration the median annual incentive pay levels existing at the Peer Group Companies for similar positions and other factors. Payouts under the annual incentive program are determined as follows:

 

 

 

 

 

Annual Bonus Plan awards to our senior executives are made under the 2000 LTIP. This permits the Company to preserve the tax deductibility of its Annual Bonus Plan (see Deductibility of Compensation on page 26). Annual bonus awards for 2009 made under the 2000 LTIP have a maximum achievable level, are conditioned upon the achievement of a minimum EPS target, and are subject to the downward discretion of the Committee.

 

2009 Annual Bonus Plan Results.  For 2009, the level of awards payable represented 200% of an officer’s target award, based on an adjusted EPS of $3.80 versus a budgeted EPS of $3.68 and an adjusted EBITDA of $1,686.0 million against a budgeted EBITDA of $1,581.6 million.

 

Long-Term Incentive Awards.  The Committee believes that our long-term compensation program should orient and align senior executives with the interests of stockholders and focus the executives’ efforts on our long-term success. The long-term incentive awards are designed to retain executives and motivate them toward results that exceed those of the Peer Group Companies. The long-term compensation program consists of grants of stock options, performance shares and either restricted stock or restricted stock units. These equity grants increase in value if the market value of the stock appreciates over time. For that reason, the executives are motivated to engage in behaviors that will increase the long-term value of the stock and thereby benefit all stockholders.

 

Each executive officer receives an equity grant upon employment (or upon promotion to senior executive status) and, in the past, typically has received an additional annual equity grant each succeeding year. The Committee believes that providing equity compensation opportunities provides a clear and powerful motivation to the executive team to achieve financial and operational objectives that will, over time, increase the market price of the stock. The purpose of grants for newly-hired executives is to provide incentive for high potential individuals to join the Company and/or to compensate them for compensation they may have forfeited when leaving their prior employers.

 

Factors considered by the Company in determining the appropriate equity vehicles to use include consideration of the prevalence of equity grants and mix in the Peer Group Companies and general industry, rewarding share price improvement, retention, and relative stock and financial performance. Senior executives receive annual grants of long-term equity compensation allocated among three different types of equity grants. The annual awards

are approved by the Committee based on the dollar value of the entire equity package, which is allocated among the forms of equity as follows for each of the named executive officers except Mr. Paz:

 

 

The Committee believed it was appropriate to bring the chief executive officer’s total direct compensation (base pay, annual incentive bonus pay and long-term incentives) up to or near the 50th percentile among the Peer Group Companies. However, in keeping with the Company’s increased emphasis on pay-for-performance, the Committee concluded that a larger portion of the chief executive officer’s long-term incentive compensation (35%) should be represented by performance shares, as compared to the 25% for the Company’s other executive officers. As a result, beginning in 2008 and continuing for 2009, Mr. Paz’s long-term incentive awards were allocated as follows: 40% stock options, 25% restricted stock units, and 35% performance shares.

 

The Committee grants the three types of awards in order to meet several objectives. The Committee believes that measuring performance against the Company’s competitors with respect to important financial metrics adds a significant dimension to the long-term program design. By including performance shares, the program provides motivation both to achieve results that will be responded favorably to in the marketplace and to produce results that exceed equivalent measures among the competitors. The weighting of the equity components that comprise the long-term plan package is subject to change based on the Committee’s evaluation and discretion.

 

The Committee has discretion to determine the vesting schedule for each time-based equity grant and generally makes grants that become exercisable in equal amounts over three years. Except in the cases of retirement, disability or death, executives generally must be employed by the Company at the scheduled vesting time for their equity awards in order for such vesting to occur.

The size of a named executive’s equity compensation award is based upon the evaluation by the Committee regarding the contribution that the executive officer is expected to make to the overall growth and profitability during the vesting period. The Committee also considers long-term incentive compensation levels at the Peer Group Companies. While the Company maintains stock ownership guidelines, the Committee does not take into account existing stock ownership levels of individual executives in determining the amount of equity awards.

 

If a business transaction occurs that would change the basis for determining the results for incentive compensation payments, the Committee may adjust the metrics to reflect the new business circumstances in a manner that provides equivalent opportunity and results requirements. The Committee may also make similar adjustments to account for changes in accounting principles or practices, changes in the number of shares outstanding, and similar changes, and may determine whether adjustments should be made for one-time or extraordinary items, prior period adjustments, discontinued operations and similar items. Such adjustments could occur for the metrics in the Annual Bonus Plan or the performance share portion of the equity grants.

 

2009 Performance Share Award Results.  The performance shares for the performance period January 1, 2006 through January 1, 2009 vested at 250% based on the achievement of the following criteria:

 

 

The peer companies included for this performance period were consistent with those listed in the 2009 Peer Group with Medco Health Solutions, Inc. weighted as three companies. The vesting of these shares is reflected in the Options Exercises and Stock Vested Table on page 33.

 

Perquisites.  In accordance with the compensation philosophy to pay for performance, no perquisites are provided to the senior executive officers that we would be required to report under the rules applicable to this proxy statement.

 

Deferred Compensation.  The Company provides an opportunity for executives to participate in the Executive Deferred Compensation Plan (“EDCP”), a deferred compensation program that is intended to comply with the rules provided under Section 409A of the Internal Revenue Code. Under the EDCP, participating executives can elect to defer up to 50% of their annual base pay and up to 100% of their annual bonus. In addition, we have historically made contributions to each executive’s account under the EDCP equal to 6% of the executive’s annual cash compensation, with the contributions subject to a cliff vesting at the end of the third calendar year following the year for which they are awarded. At such time as an executive becomes eligible for retirement under the EDCP (which occurs upon reaching a minimum of age 55 and having a combined age plus years of service with the Company of 65), all contributions made to such executive’s account under the EDCP immediately become vested. Other than the 6% annual cash contribution to the EDCP and the opportunity to participate in the Company’s qualified 401(k) plan, the Company provides no retirement benefits to its executives.

 

Deferred compensation gives executives a tax favored method of accumulating assets for current or retirement living expenses. The three-year vesting schedule that applies to the Company contributions is intended to serve as a retention device for the executives. Amounts contributed to the EDCP by either the participant or the Company are assumed to have been invested in one or more of a number of publicly available mutual funds and a Company Common Stock Fund. The plan is not formally funded and the returns that are paid on the participants’ accounts are equal to the gain or loss on the hypothetical market investments. As a result, the Committee believes that the Company has not promised to pay above-market returns on any participant’s account under the EDCP.

Summary of 2009 Direct Compensation Decisions

 

Based on the compensation philosophy and objectives discussed above, the Committee, in consultation with the Compensation Consultant, evaluated our executive officers and determined for each named executive the following direct compensation in 2009. In addition to detailing the compensation decisions for 2009, the chart also highlights the performance-based nature of our program by illustrating that the amount of actual direct compensation was higher than target due to the above-target cash bonus awards earned under the Annual Bonus Plan for 2009 performance.

 

 

 

 

Other Compensation Related Matters

 

Additional Benefits.  Except as specifically described in this Compensation Discussion and Analysis, the executive officers participate in employee benefit plans generally available to all employees on the same terms as similarly situated employees, including our 401(k) plan and health and welfare plans. The Company provides equivalent health insurance to all of our employees, and the employee paid portions of the premiums on such insurance are tiered such that more highly compensated employees pay higher premiums in order to subsidize the premiums for lower paid employees. As a result, the employee contributions paid by our executives are more than 300% higher than those paid by our lowest paid employees. All of the executives have offices that are no larger than those of the regular offices in our headquarters building and reserved parking is not provided for employees at any level, and no financial counseling programs are provided for executives.

 

Employment Agreements.  We have entered into employment agreements with our chief executive officer and each of our executive vice presidents, which also contain severance and change in control provisions. The Committee believes these agreements are appropriate for a number of reasons, including the following:

 

 

These agreements do not materially affect the Committee’s annual compensation determinations, as they only restrict its ability to reduce base salary.

Additional information about the severance and change in control provisions of the agreements, can be found under the caption “Employment Agreements and Potential Payments Upon Termination or Change in Control” on page 34.

 

Deductibility of Compensation.  The goal for the deductibility of compensation is to comply with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended, to the extent deemed practicable or appropriate by the Committee. Section 162(m) places a limit of $1 million on the amount of compensation that a publicly-traded company may deduct in any one year for any of its “named executive officers.” This limitation does not apply to performance-based compensation meeting certain requirements (including the requirement that such compensation be paid under a stockholder-approved plan). For 2009, the grants of stock options and performance shares were designed to satisfy the deductibility requirements of Section 162(m).

 

As discussed above, the annual bonus awards are awarded and paid under the 2000 LTIP, thus satisfying the requirement under Section 162(m) that performance-based compensation be paid pursuant to a stockholder-approved plan. Accordingly, the Committee intends for these awards under the annual incentive program to be deductible for 2009 and future years.

 

Stock Ownership Guidelines for Executives.  In 2001, the Committee established guidelines for stock ownership among its executive group. The purpose of the guidelines is to have each executive show his or her commitment to the Company and to its stockholders by holding a prescribed number of full value shares or restricted stock. While restricted stock, performance shares and phantom stock equivalents under the EDCP are included in determining compliance with these thresholds, stock options, SSARs, whether vested or unvested are not included. Even though these guidelines are not mandatory, each executive’s status with respect to stock ownership is annually reviewed and communicated. Each executive has five years from the time of becoming an executive officer to attain the recommended ownership level. The guidelines require each individual to hold a number of eligible shares with a value at least equal to a multiple of his or her base annual salary as follows: 4.0x for the chief executive officer, 3.5x for the chief operating officer, 3.0x for all executive vice presidents, 2.5x for all senior vice presidents, and 1.5x-2.0x for our vice presidents.

 

As of December 31, 2009, each of the named executive officers had met his stock ownership requirements through holdings of shares of the stock, including restricted stock, performance shares or share equivalents beneficially owned under the deferred compensation plan.

 

Option Granting Policy.  Effective in November 2006, the Committee adopted a Policy for Grant Approvals and for Establishing Grant Date for Equity Grants. Under this policy:

 

 

By making grants during the first quarter, the Committee is able to consider the previous year’s financial performance in determining the size and structure of such grants, both in the aggregate and with respect to individual executives. Additionally, by making the awards during the first quarter, such grants are coordinated with the annual bonus awards and annual salary adjustments.

 

Derivatives Trading.  Because a primary goal of equity-based incentive compensation is to align the interests of our executives with our stockholders, our policy prohibits the trading of derivative securities related to shares of our stock.

 

The Compensation Committee of Express Scripts, Inc. has reviewed and discussed the Compensation Discussion and Analysis section of this proxy statement with management. Based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Company’s Annual Report on Form 10-K.

 

March 2, 2010

 

COMPENSATION COMMITTEE

 

Maura Breen, Chairperson
Gary Benanav
Nicholas LaHowchic

 

The Compensation Committee is comprised of Maura Breen (Chair), Gary Benanav, and Nicholas J. LaHowchic, none of whom are employees or current or former officers of our Company, or had any relationship with our Company required to be disclosed under “Certain Relationships and Related Party Transactions.”

 

The following table summarizes the compensation of our named executive officers listed in the table for the year ended December 31, 2009:

 

 

 

 

 

 

The following table provides additional information about awards of restricted stock units, non-qualified stock options and performance shares granted to the named executive officers in 2009:

 

 

 

 

 

The following table provides information on vested and unvested equity awards held by the named executive officers as of December 31, 2009: