2018 Guide to Effective Proxies

2.17.1 CD&A table of contents | 251 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES EXECUTIVE COMPENSATION A Letter From Our Compensation Committee 31 Addressing the 2017 Say-on-Pay Vote 32 Overview 34 FY 2018 Performance Highlights 34 Best Practices in Compensation Governance 34 Five-Year Total Shareholder Return of 35%, CEO Pay Down 30% 35 CEO Realizable Pay 35 Target Direct Compensation Mix 36 FY 2018 Pay Strategy Aligns with Shareholder Value Creation 36 Performance-Based Program with Rigorous Targets 37 Performance Targets Designed to Reward Stretch Performance 37 Each Compensation Element Serves Unique Purpose 38 Annual Compensation 38 Base Salary 38 Management Incentive Plan (Annual Cash Incentive) 38 Long-Term Incentive Compensation 40 Cash Long-Term Incentive Plan (Long-Term Cash Incentive) 40 Performance Stock Unit Program (Long-Term Equity Incentive) 42 Stock Options (Long-Term Equity Incentive) 43 Performance Restricted Stock Unit Program (Long-Term Equity Incentive) 44 Chief Financial Officer Transition 44 Other Compensation and Benefits 45 Compensation Peer Group 46 Independent Review Process 48 Information on Other Compensation-Related Topics 49 Compensation Committee Report on Executive Compensation 53 Compensation Committee Interlocks and Insider Participation 53 Executive Compensation Tables and Narratives 54 2018 Summary Compensation Table 54 2018 Grants of Plan-Based Awards Table 56 2018 Outstanding Equity Awards Table 58 2018 Option Exercises and Stock Vested Table 59 2018 Pension Benefits Table 60 2018 Nonqualified Deferred Compensation Table 62 Executive Employment Agreements 64 Potential Payments upon Termination or Change in Control 69 CEO Pay Ratio 75 30 - 2018 Proxy Statement MCKESSON CORPORATION