McKesson Corp.'s chief executive agreed to cut his record-setting $159 million pension benefit by $45 million and the medical-products company revamped its incentive-compensation program for top executives, in the wake of complaints from activist investors.
Even with the pension benefit reduction, CEO John Hammergren is due a lump-sum pension of $114 million, still among the richest pensions in the history of corporate America, according to analysts. The 55-year-old executive is eligible to retire this year with full pension rights.
John Hammergren
McKesson said the changes to pay structure announced Friday are intended to address feedback from shareholders, who voted "no" by more than a 3-to-1 margin last year on a nonbinding resolution to approve McKesson's executive-compensation package. Mr. Hammergren received $51.7 million in compensation for fiscal 2013, which ended March 31 of last year.
Mr. Hammergren's then-pension entitlement of $159 million was the focus of an article in The Wall Street Journal in June 2013, and subsequently came under fire from activist shareholders who also were agitating for changes in the company's board.
In a letter to the chairwoman of McKesson's compensation committee, Mr. Hammergren said he was voluntarily reducing his pension benefit because it had become "a source of distraction" for the company. The revised $114 million pension benefit will be a fixed amount in cash, the company said, not subject to big potential moves that can result from factors like changes in interest rates.
McKesson also said it had made "adjustments" to the financial measurements it uses in determining incentive pay. The Journal reported this past week that an increasing number of companies such as McKesson have used their own customized earnings measures when making incentive-pay decisions, drawing criticism from some activist investors. The company said Friday that it would disclose further details in its proxy statement but that it planned to continue using its own nonstandard earnings measures to help set incentive pay.
McKesson also made an assortment of other changes to its pay structure, including basing restricted-stock grants to executives solely on its total shareholder return compared with other large health-care companies. It also lengthened the performance period under that program from one year to three. In January, McKesson made some changes to its corporate governance and broadened the circumstances under which it can claw back executives' pay.
Friday's moves are "welcome, but they've still got a long way to go," said Michael Pryce-Jones, a senior governance analyst at CtW Investment Group, which works with union pension funds on shareholder initiatives and was involved in the shareholder campaign against McKesson. The company's executive pension plan is still "the richest in corporate America," he said.
McKesson has said that Mr. Hammergren's pension grew so large, in part, because it was based on terms agreed to in 1999 and because of outstanding company performance.
An analysis of Mr. Hammergren's pension by the Journal showed that McKesson had greatly boosted the benefit by giving him credit for extra years of service and for pay that he didn't receive. The company also waived a penalty for early retirement and used a favorable formula for converting the pension to a lump sum. Without those advantages, Mr. Hammergren's pension would have been valued at about $36 million as of March 2013, the analysis showed, less than one-third his now-revised pension of $114 million.
A McKesson spokesman said Friday that Mr. Hammergren voluntarily decided to relinquish part of his pension benefit, which only he could initiate because McKesson was contractually obligated to pay it.
Separately, McKesson said it has launched a voluntary takeover offer for the remaining shares outstanding of Celesio AG for €23.50 ($32.22) a share. The company, which currently owns more than 75% of Celesio's shares, received in January the necessary support to acquire its German rival after facing earlier opposition.
—Mark Maremont contributed to this article.
Write to Everdeen Mason at everdeen.mason@wsj.com and Michael Rapoport at Michael.Rapoport@wsj.com