December 8, 2016

Dear Fellow Stockholders:

You are invited to attend the Walgreens Boots Alliance, Inc. 2017 Annual Meeting of Stockholders, which will be held on Thursday, January 26, 2017, at 8:30 a.m., Eastern Standard Time, at Park Hyatt New York, 153 West 57th Street, New York, New York 10019. Doors will open at 7:45 a.m.

At the meeting, stockholders will be asked to:

 

·

Elect the ten director nominees named in the proxy statement;

 

·

Approve, on an advisory basis, the Company’s named executive officer compensation;

 

·

Ratify the appointment of Deloitte & Touche LLP as the Company’s independent auditor for 2017;

 

·

Approve the material terms of the performance measures under the Company’s 2011 Cash-Based Incentive Plan;

 

·

Vote on the two stockholder proposals contained in the proxy statement, if properly presented at the meeting; and

 

·

Transact such other business as may properly come before the meeting and any adjournment or postponement thereof.

You are eligible to vote if you were a stockholder of record as of the close of business on November 28, 2016.

Your vote is important. Please vote by Internet, telephone, or mail as soon as possible to ensure your vote is recorded promptly. Your vote before the annual meeting will ensure representation of your shares.

Please also note that, beginning this year, if you want to attend the annual meeting in person, you must pre-register and obtain an admission ticket in advance. To obtain an admission ticket, please follow the instructions on page 73 of the proxy statement.

By order of the Board of Directors,

 

 

Collin G. Smyser

Vice President, Corporate Secretary

 

 

 

 

		Page
Proxy Statement Summary			1
Questions and Answers About the Annual Meeting			5
Proposal No. 1: Election of Directors			11
Board Composition and the Director Selection Process			11
Director Biographies			13
Corporate Governance			19
Board and Stockholder Meetings			19
Director Independence			19
Committees			20
Governance Policies			22
Consideration of Director Candidates			22
Communications with the Board			22
Board Leadership Structure			23
Board Oversight of Risk Management			23
Director Compensation			24
Certain Relationships and Related Transactions			26
Proposal No. 2: Advisory Vote to Approve the Compensation of the Named Executive Officers			30
Executive Compensation			31
Compensation Discussion and Analysis			31
Compensation Committee Report			46
Executive Compensation Tables and Supporting Information			47
Security Ownership of Certain Beneficial Owners and Management			55
Equity Compensation Plans			58
Proposal No. 3: Ratification of the Appointment of Deloitte & Touche LLP as the Independent Registered Public Accounting Firm			60
Independent Registered Public Accounting Firm Fees and Services			60
Audit Committee Report			61
Proposal No. 4: Approval of the Material Terms of the Performance Measures under the Walgreens Boots Alliance, Inc. Amended and Restated 2011 Cash Based Incentive Plan			64
Proposal No. 5: Stockholder Proposal			68
Proposal No. 6: Stockholder Proposal			71
Other Matters			73
Exhibit A: Walgreens Boots Alliance, Inc. 2011 Cash-Based Incentive Plan			A-1

 

 

Walgreens Boots Alliance, Inc., a Delaware corporation, is the successor to Walgreen Co., an Illinois corporation (“Walgreens”), following the completion of the holding company reorganization approved by Walgreens shareholders on December 29, 2014 (the “Reorganization”). Unless otherwise stated, references herein to the “Company” refer to Walgreens Boots Alliance, Inc. from and after the effective time of the Reorganization on December 31, 2014 and, prior to that time, to its predecessor Walgreens. Unless otherwise stated, all information presented in this proxy statement of the Company (this “Proxy Statement”) is based on the Company’s fiscal calendar, which ends on August 31 (e.g., references to “2016” refer to the year ended August 31, 2016).

This Proxy Statement contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “guidance,” “target,” “aim,” “continue,” “sustain,” “synergy,” “on track,” “headwind,” “tailwind,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, which could cause actual results to vary materially from those indicated or anticipated. These and other risks, assumptions and uncertainties are described in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2016 (the “Annual Report”) and in other documents that the Company may file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, the Company does not undertake, and expressly disclaims, any duty or obligation to update publicly any forward-looking statement after the date of this Proxy Statement, whether as a result of new information, future events, changes in assumptions or otherwise.

 

 

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read this Proxy Statement and the Annual Report before voting.

 

 

2017 Annual Meeting of Stockholders

 

Date and Time:		Thursday, January 26, 2017, 8:30 a.m. Eastern Standard Time
Location:		Park Hyatt New York, 153 West 57th Street, New York, New York 10019
Voting:		You are entitled to vote at the meeting if you were a holder of the Company’s common stock as of the close of business on November 28, 2016.
Admission:		You must pre-register and have an admission ticket, along with valid, government-issued photo identification, to attend the meeting in person. To obtain an admission ticket, please follow the instructions on page 73 of the Proxy Statement.

 

 

Voting Matters

The following table summarizes the proposals to be considered at the Annual Meeting and the Board’s voting recommendations with respect to each proposal.

 

Proposals				Board Recommendation				Page Reference
1.		Election of Directors		FOR each nominee				11
2.		Advisory Vote to Approve the Compensation of the Named Executive Officers (“say-on-pay”)		FOR				30
3.		Ratification of the Appointment of Deloitte & Touche LLP as the Independent Registered Public Accounting Firm		FOR				60
4.		Approval of the Material Terms of the Performance Measures Under the 2011 Cash-Based Incentive Plan		FOR				64
5.		Stockholder Proposal Requesting Certain Proxy Access By-law Amendments		AGAINST				68
6.		Stockholder Proposal Relating to Executive Pay & Sustainability Performance		AGAINST				71

 

 

 

 

Board of Directors

The Board consists of highly experienced and accomplished directors who are uniquely qualified to oversee the Company’s business. The following table provides summary information about each director nominee. Each director stands for election annually. Detailed information about each director’s background, skill set, and areas of experience can be found beginning on page 13 of the Proxy Statement.

 

Board Member Details

Name and Principal Occupation

Age

Director Since

Other Public Boards

Independent

Committee Memberships

Janice M. Babiak     Former Partner,     Ernst & Young LLP

58

2012

Bank of Montreal

✓

• Audit (Chair) • Finance

David J. Brailer     Chairman,     Health Evolution Partners

57

2010

✓

• Audit • Finance (Chair)

William C. Foote     Former Chair and CEO,     USG Corporation

65

1997

✓

• Compensation • Nominating and   Governance (Chair)

Ginger L. Graham     President and CEO,     Two Trees Consulting, Inc.

61

2010

Clovis Oncology, Inc. Genomic Health, Inc.

✓

• Audit • Nominating and   Governance

John A. Lederer     Former President and CEO,     US Foods

61

2015

Maple Leaf Foods US Foods

✓

• Compensation • Finance

Dominic P. Murphy     Partner, Kohlberg Kravis     Roberts & Co. L.P.

49

2012

• Finance

Stefano Pessina     Executive Vice Chairman and CEO,     Walgreens Boots Alliance, Inc.

75

2012

Galenica AG

Leonard D. Schaeffer     Judge Robert Maclay Widney     Chair and Professor,     Univ. of Southern California

71

2015

✓

• Compensation • Nominating and   Governance

Nancy M. Schlichting     President and CEO,     Henry Ford Health System

62

2006

✓

• Audit • Compensation (Chair)

James A. Skinner     Executive Chairman,     Walgreens Boots Alliance, Inc.

72

2005

Illinois Tool Works Inc.

 

 

 

Director Nominee Facts

 

 

 

 

Corporate Governance Highlights

The Company is committed to corporate governance policies and practices that serve the interests of its stockholders. The following table summarizes certain highlights of the Company’s corporate governance policies and practices:

 

·  Annual Election of Directors		·  Independent Lead Director
·  Majority Voting for All Directors		·  Regular Executive Sessions of Independent Directors
·  Cumulative Voting for Election of Directors		·  Annual Board and Committee Evaluation Process
·  No Supermajority Voting Provisions		·  Strategic and Risk Oversight by Board and Committees
·  No Stockholder Rights Plan (“Poison Pill”)		·  Commitment to Sustainability and Corporate Social Responsibility
·  3%, 3-Year Proxy Access By-law		·  Stock Ownership Guidelines for Executives and Directors
·  Stockholder Right to Call Special Meetings		·  Policies Restricting Hedging and Short Sales of Stock
·  Stockholder Right to Act by Written Consent		·  Annual “Say on Pay” Advisory Votes
·  Active Stockholder Engagement		·  Strong Alignment Between Pay and Performance in Incentive Plans

 

 

 

 

Executive Compensation Highlights

 

 

The Company enhances its strong pay-for-performance philosophy by maintaining the following balance of pay practices, which the Company believes further aligns its executives’ interests with those of its stockholders.

 

		The Company DOES Have This Practice						The Company DOES NOT Have This Practice
✓		Incentive award metrics that are objective and tied to key company performance metrics		û				Multi-year guarantees for salary increases, non-performance based bonuses, or equity compensation
✓		A majority of compensation delivered in the form of equity-based awards		û				Excise tax gross-ups upon change in control for existing named executive officers
✓		Stock ownership requirements		û				Repricing of options without stockholder approval
✓		Policies restricting hedging and short sales of stock		û				Excessive perquisites
✓		Compensation recoupment (“clawback”) policy		û				Excessive severance and/or change in control provisions
✓		Double-trigger change in control severance for existing named executive officers		û				Payout of dividends or dividend equivalents on unearned or unvested equity
✓		Equity awards generally vest after three years to promote retention		û				Excessive pension or defined benefit supplemental executive retirement plan (SERP)
✓		Significant portion of executive compensation tied to stockholder return in the form of at-risk compensation		û				A high percentage of fixed compensation

 

 

 

 

Please note that the Internet and telephone voting facilities for stockholders of record will close at 11:59 p.m. Eastern Standard Time on Wednesday, January 25, 2017. The individuals named as proxies on the proxy card will vote your shares in accordance with your instructions.

“Street Name” Stockholders. If your shares are held by a broker, bank or other nominee, you should have received instructions on how to vote or instruct the broker to vote your shares from your broker, bank or other nominee. Please follow their instructions carefully. If you give the broker voting instructions, your shares will be voted as you direct. Please note that brokers may not vote your shares on the election of directors, on compensation matters or on stockholder proposals in the absence of your specific instructions as to how to vote. Please provide your voting instructions so your vote can be counted.

Street name stockholders may generally vote by one of the following methods:

 

·

By Mail. If you received a printed copy of the proxy materials, you may vote by signing, dating and returning the voting instruction card sent to you by your broker, bank or other nominee in the pre-addressed envelope provided;

 

·

By Methods Listed on Voting Instruction Card. Please refer to your voting instruction card or other information provided by your broker, bank or other nominee to determine whether you may vote by telephone or electronically on the Internet, and follow the instructions on the voting instruction card or other information provided by the record holder; or

 

·

In Person with a Proxy from the Record Holder. A street name stockholder who wishes to vote at the Annual Meeting will need to obtain a legal proxy from his or her brokerage firm, bank or other nominee and present that proxy and proof of identification at the Annual Meeting to vote. Please consult the voting instruction card provided to you by your broker, bank or other nominee to determine how to obtain a legal proxy in order to vote in person at the Annual Meeting.

If you are a stockholder of record and choose to cumulate your votes in the election of directors, you must notify the Company’s Corporate Secretary in writing prior to the Annual Meeting or, if you vote in person at the

Annual Meeting, notify the chair of the meeting prior to the commencement of voting. If you hold shares beneficially through a broker, bank or other nominee and wish to cumulate votes, you should contact your broker, bank or nominee.

 

 

If my shares are held in street name, how will my shares be voted if I do not return voting instructions to my broker?

If you hold your shares in street name through a brokerage account and you do not submit voting instructions to your broker, your broker may vote your shares in its discretion on matters designated as routine under applicable rules and regulations. However, a broker cannot vote shares held in street name on matters designated as non-routine, unless the broker receives voting instructions from the beneficial owner. If you hold your shares in street name and do not provide voting instructions to your broker, your broker will have discretion to vote your shares only on Proposal No. 3, because the ratification of the Company’s independent registered public accounting firm is considered a routine matter. Each of the other items to be submitted to a stockholder vote at the Annual Meeting is considered non-routine under applicable rules and regulations. “Broker non-votes” occur when brokerage firms return proxies for which no voting instructions have been received from beneficial owners and the broker does not have discretionary authority to vote on the proposal.

 

 

What constitutes a quorum at the Annual Meeting?

A majority of the outstanding shares entitled to vote, represented at the Annual Meeting in person or by proxy, constitutes a quorum. Abstentions and broker non-votes are counted as shares represented at the meeting for purposes of determining a quorum. Once a share is represented for any purpose at the Annual Meeting, it will be deemed present for quorum purposes for the remainder of the meeting (including any meeting resulting from an adjournment of the Annual Meeting, unless a new record date is set).

 

 

 

 

Can I change my vote after I return the proxy card, or after voting by telephone or electronically?

If you are a stockholder of record, you can revoke your proxy at any time before it is voted at the meeting by taking one of the following three actions:

 

·

by giving timely written notice of the revocation to the Company’s Corporate Secretary;

 

·

by submitting another timely proxy by telephone, Internet or mail in accordance with the instructions provided with the proxy card or Notice of Internet Availability you received; or

 

·

by voting in person at the Annual Meeting.

If you are a beneficial owner of shares, you may submit new voting instructions by timely contacting your bank, broker or other holder of record in accordance with that entity’s procedures. You may also vote in person at the Annual Meeting if you obtain a legal proxy.

All shares that have been properly voted and not revoked will be voted at the Annual Meeting. The proxy confers discretionary authority to the persons named in the proxy, or their substitutes, to vote on any other business that may properly come before the meeting.

 

 

What is “householding?”

The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name receive only one Notice of Internet Availability or, if applicable, only one copy of this Proxy Statement and the Annual Report, unless one or more of these stockholders notifies the Company that they would like to continue to receive individual copies. This reduces the environmental impact of the Company’s annual meetings and reduces its printing costs and postage fees. If, because of multiple accounts, you are still receiving multiple copies of the Notice of Internet Availability or, if applicable, this Proxy Statement and the Annual Report at a single address and wish to receive a single copy, or if you participate in householding and wish to receive a separate copy of this Proxy Statement or the Annual Report, or prefer to receive separate copies of future materials, and your shares are registered directly through the Company’s transfer agent,

please contact Wells Fargo Bank, N.A., at (888) 368-7346, or inform them in writing at 1110 Centre Pointe Curve, Suite 101, Mendota Heights, Minnesota 55120-4100. If your shares are held through a brokerage account, please contact your broker directly.

Stockholders who participate in householding will continue to receive separate proxy cards to vote their shares. Stockholders that receive the Notice of Internet Availability will receive instructions on how to vote their shares via the Internet. Householding does not in any way affect dividend check mailings.

 

 

Where can I find additional copies of the proxy materials?

The Notice of Internet Availability, this Proxy Statement, and the Annual Report are available at www.proxyvote.com. The Company has also made available on its website at investor.walgreensbootsalliance.com/annuals-proxies.cfm the Annual Report, as filed with the SEC, including the financial statements and schedules. The Company will furnish, on written request and without charge, a printed copy of the Annual Report to each person whose proxy is solicited and to each person representing that, as of the Record Date, he or she was a beneficial owner of shares entitled to be voted at the Annual Meeting. Such written request should be directed to Walgreens Boots Alliance, Inc., 108 Wilmot Road, MS #1833, Deerfield, Illinois 60015, Attention: Investor Relations.

 

 

Is my vote confidential?

Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either to the Company or to third parties, except to allow for the tabulation and certification of votes and as necessary to meet applicable legal requirements or to assert or defend claims for or against the Company. If you write comments on your proxy card or ballot, the proxy card or ballot may be forwarded to the Company’s management and/or the Board to review your comments.

 

 

 

The Board has nominated ten directors for election at the Annual Meeting to hold office until the next annual meeting of stockholders or until their successors are elected and qualified or any such director’s earlier death, resignation or removal. Each has agreed to be named in this Proxy Statement and to serve if elected.

The Company knows of no reason why any of the nominees would be unable or unwilling to serve if elected. However, if any of the nominees is unavailable for election, the proxyholders intend to vote all proxies received by them for any substitute nominee proposed by the Board (consistent with the terms of the Shareholders’ Agreement, if applicable), unless the Board instead chooses to reduce the number of directors serving on the Board.

 

 

 

Board Composition and the Director Selection Process

Decisions regarding the structure and composition of the Board are of utmost importance in assuring a strong Board that is best suited to guide the Company in the future. The Nominating and Governance Committee periodically reviews and makes recommendations to the Board regarding the size, function, composition, structure and operation of the Board. In doing so, the Nominating and Governance Committee considers the results of the most recent Board and director evaluations as well as the Company’s changing needs.

Based on the Nominating and Governance Committee’s most recent assessment and recommendation, the Board determined that a size of ten was appropriate at this time; however, the Board reserves the right to increase or decrease the size of the Board at any time.

The Nominating and Governance Committee is also charged with making a recommendation to the Board with respect to the director nominees for each annual meeting

of stockholders, including re-nomination of current directors and identifying new director candidates. The Nominating and Governance Committee seeks to construct a Board consisting of directors with the following qualities:

Experience:

 

·

high-level leadership experience in business or administrative activities, and significant accomplishments;

 

·

expertise in key facets of corporate management;

 

·

breadth of knowledge about issues affecting the Company; and

 

·

proven ability and willingness to contribute special competencies to the Board’s activities.

Personal attributes:

 

·

personal integrity;

 

·

loyalty to stockholders and concern for the Company’s success and welfare;

 

·

willingness to apply sound and independent business judgment;

 

·

awareness of a director’s vital role in good corporate governance and citizenship;

 

·

independence under the listing standards of The NASDAQ Global Select Market (“NASDAQ”) and other applicable law and as perceived by stockholders and other stakeholders;

 

·

willingness and energy to devote the time necessary for meetings and for consultation on relevant matters;

 

·

willingness to assume broad fiduciary responsibility; and enthusiasm about the prospect of serving.

When recommending to the full Board the specific directors to be nominated for election at the Annual Meeting, the Nominating and Governance Committee reviewed the qualifications and backgrounds of each nominee, as well as the overall composition of the Board, to ensure that Board

 

composition is aligned with the changing needs of the Company. The Nominating and Governance Committee evaluated each individual in the context of the Board as a whole, with the objective of recommending for nomination a group of individuals that can best perpetuate the Company’s success and represent its stockholders’ interests through the exercise of sound business judgment.

As part of this evaluation, the Nominating and Governance Committee assessed whether the group of nominees is comprised of individuals with a diversity of perspectives, backgrounds and professional experiences that would enhance the Board’s success at achieving these goals. With regard to diversity among the group of nominees, the Board, in accordance with the Company’s Corporate Governance Guidelines (the “Corporate Governance Guidelines”), considered diversity in broad terms, including consideration of competencies, experience, geography, gender, ethnicity, race and age, with the goal of obtaining diverse perspectives, backgrounds and professional experiences. With respect to continuing non-employee directors, the Nominating and Governance Committee also focused on continued independence, transactions that may present conflicts of interest, changes in principal business activities, and overall contribution to the Board.

Director succession is also a focus of the Nominating and Governance Committee and the Board. The Nominating and Governance Committee seeks to balance the need for fresh perspective and insights against the benefits associated with a degree of continuity on the Board and the depth of knowledge about the Company that experienced directors develop over time. To further this goal, the Company maintains a director retirement policy that requires any director to offer not to stand for re-election in each calendar year following a year in which the director will be 75 or older. The Board (other than the affected director) then determines whether to accept the offer. The Board believes that, while refreshment is an important consideration in assessing Board composition, the best interests of the Company are served by being able to take advantage of all available talent and the Board should not make determinations with regard to membership based solely on age.

Nominees may be suggested by directors, members of management, stockholders or a third-party firm engaged to recommend director candidates. As part of planning

for director succession, the Nominating and Governance Committee may engage a consulting firm to help identify candidates who meet applicable qualifications. Generally, the firm screens candidates against specific qualifications, develops profiles and prepares biographies of each candidate. The firm may also assist in the interview process and perform background checks. The Chair of the Nominating and Governance Committee and/or the Chairman of the Board, acting on behalf of the full Board, extends the formal invitation to become a Board nominee.

The Company has amended its by-laws (the “By-laws”) to include a proxy access provision whereby a stockholder, or a group of up to 20 stockholders, owning 3% or more of the outstanding Company common stock continuously for at least three years, may nominate and include in the Company’s proxy materials director nominees constituting up to 20% of the Board (rounding down), provided that such stockholder(s) and nominee(s) satisfy the requirements set forth in the By-laws.

Pursuant to the Shareholders’ Agreement, for so long as the SP Investors continue to meet certain common stock beneficial ownership thresholds and subject to certain other conditions, the SP Investors are collectively entitled to designate one nominee for election to the Board at the Annual Meeting. Mr. Pessina is the designee of the SP Investors. This designee, like all of the other director nominees in this Proxy Statement, is subject to election at each annual meeting of stockholders. The SP Investors are collectively entitled to designate a replacement director to fill a vacancy resulting from the death, disability, removal or resignation of their prior designee, subject to the terms and conditions of the Shareholders’ Agreement. For additional information, see “Certain Relationships and Related Transactions—Shareholders’ Agreement” below.

 

 

Director Biographies

Set forth below are the names, ages, principal occupations and other information about each of the nominees. Also included is a description of the specific experience, qualifications, attributes, and skills of each nominee that led the Board to conclude that each nominee is well-qualified to serve as a member of the Board. All biographical information listed below is as of the date of this Proxy Statement.

 

 

 

· Director since 2012   · Independent   · Chair of Audit Committee   · Finance Committee		Janice M. Babiak, 58 Former Partner at Ernst & Young LLP (EY), where she held a variety of roles with the firm based in the United States and the United Kingdom between 1982 and 2009. After joining the firm’s audit practice in 1982 specializing in the audit of information systems, she was a founder of EY’s technology security and risk services practice in 1996, building and leading cyber and IT security, data analytics and technology risk practices in the Northern Europe, Middle East and India and Africa (NEMIA) region. Ms. Babiak served as a Board Member and Managing Partner of Regulatory & Public Policy for the NEMIA region from July 2006 to July 2008, and as a founder and Global Leader of EY’s Climate Change and Sustainability Services practice from July 2008 to December 2009. Ms. Babiak				has served as a director of Bank of Montreal since October 2012, where she serves on the audit and conduct review committee and risk review committee. Previously, she served as a non-executive director of Royal Mail Holdings plc from March 2013 to April 2014 as it transitioned from government ownership to a FTSE 100 listed company; Experian plc from April 2014 to January 2016; and Logica plc, from January 2010 until its sale in August 2012. She is a U.S.-qualified Certified Public Accountant (CPA), Certified Information Systems Auditor (CISA), and Certified Information Security Manager (CISM). She is also a Chartered Accountant (CA), and a member of the Institute of Chartered Accountants in England and Wales (ICAEW), of which she has served as a Council Member since 2011.
		Overview of Board Qualifications Ms. Babiak brings to the Board her general management expertise and great depth of experience in the areas of audit, accounting and finance as a Council Member of the ICAEW and having spent her career as a partner at EY, including service as partner for a number of retail and healthcare-related industry clients. With her extensive accounting knowledge and experience, she is well-qualified to serve on the Finance Committee and as a designated financial expert on, and chair of, the Audit Committee. Through her career experience and current CISM and CISA qualifications, she provides the Company with meaningful insight and knowledge related to information technology, cybersecurity best practices and the relationship between information security programs and broader business goals and objectives. Her international experience, leadership in the areas of climate change and sustainability, and experience working with and serving on the audit committees of other publicly-traded companies further contribute to the perspective and judgment that she brings to service on the Board.
		Significant Experience/Competencies
		· General Management & Business Operations   · Retail Industry		· Consumer-facing Industry   · Regulated Industry   · Corporate/Institutional Relationship Management		· Mergers & Acquisitions   · International   · Strategy Development		· Risk Management   · Finance   · IT/E-commerce

 

 

·  Director since 2010   · Independent   ·  Chair of Finance Committee   · Audit Committee		David J. Brailer, M.D., Ph.D., 57
		Chairman of Health Evolution Partners, a private equity firm focused on the healthcare industry, since 2006. He served as National Coordinator for Health Information Technology within the Department of Health and Human Services of the U.S. federal government from May 2004 to April 2006. He was a Senior Fellow at the Health Technology Center from 2002 to 2004. Previously, he served as Chairman and Chief Executive Officer				and a director of CareScience, Inc., a provider of care management services and Internet-based healthcare solutions, from 1992 to 2002. Prior to that, he was Adjunct Assistant Professor of Health Care Systems at The Wharton School of Business at the University of Pennsylvania. He serves on the boards of directors of several private companies in the healthcare sector.
		Overview of Board Qualifications With his experience as Chairman and Chief Executive Officer of CareScience, Inc. for more than 10 years and his subsequent experience with the U.S. federal government, where he was commonly referred to as the “health information technology czar,” Dr. Brailer provides the Board with strong technology and e-commerce experience coupled with business leadership and expertise in particular with respect to strategy formulation and the healthcare industry. In addition, he brings to the Board insight and knowledge of investment and market conditions in the healthcare industry.
		Significant Experience/Competencies
		·  Former Public Company CEO   · General Management & Business Operations   ·  Healthcare Industry		·  Regulated Industry   · Corporate/Institutional Relationship Management   ·  Mergers & Acquisitions		·  International   ·  Strategy Development   ·  Risk Management		·  Finance   · Public Relations/ Communications   ·  IT/E-commerce

 

 

 

·  Director since 1997   · Lead Independent Director   ·  Chair of Nominating and Governance Committee   ·  Compensation Committee		William C. Foote, 65
		Lead Independent Director of the Company since January 2015 and an independent business advisor. He served USG Corporation, a manufacturer and distributor of building materials, as its Chairman of the Board from April 1996 to December 2011, as its Chief Executive Officer from January 1996 to December 2010, and as its President from				September 1999 to January 2006. He also serves as a director of Kohler Co. and is a trustee of Williams College. He is the former Chairman of the Board of The Federal Reserve Bank of Chicago and a life trustee of Northwestern Memorial HealthCare in Chicago.
		Overview of Board Qualifications With many roles as a corporate director over the years and his experience as Chairman and Chief Executive Officer of USG Corporation for 15 years, Mr. Foote provides the Board with strong business leadership, expertise in strategy formulation, financial acumen and substantial experience with respect to corporate governance matters. These roles, in addition to his service as Chairman of The Federal Reserve Bank of Chicago, enable him to have valuable insights and perspectives with regard to business and market conditions. In addition, he brings strength in the area of corporate governance to his role as chair of the Nominating and Governance Committee.
		Significant Experience/Competencies
		· Former Public Company CEO   · General Management & Business Operations		· Supply Chain & Logistics   · Hospital Board   · Corporate/Institutional Relationship Management		· Mergers & Acquisitions   · Strategy Development   · Finance		· Public Relations/ Communications

 

·  Director since 2010   · Independent   ·  Audit Committee   · Nominating and Governance Committee		Ginger L. Graham, 61
		President and Chief Executive Officer of Two Trees Consulting, Inc., a healthcare and executive leadership consulting firm, since November 2007, and Senior Lecturer at Harvard Business School from October 2009 to June 2012. Previously, she was President (from September 2003 to June 2006) and Chief Executive Officer (from September 2003 to March 2007) of Amylin Pharmaceuticals, a biopharmaceutical company, and served as a director of that company from 1995 to 2009. From 1994 to 2003, she held various positions with				Guidant Corporation, a cardiovascular medical device manufacturer, including Group Chairman, Office of the President, President of the Vascular Intervention Group, and Vice President. She has served as a director of Genomic Health, Inc. since December 2008, where she serves as a member of its audit and nominating and corporate governance committees; and as a director of Clovis Oncology, Inc. since 2013, where she serves as a member of the compensation committee. She also serves as a director of a number of private companies.
		Overview of Board Qualifications Ms. Graham brings to the Board her extensive experience in senior management and leadership roles in the healthcare industry, including experience leading companies in drug, device and product development and commercialization. The Board values her insights and experience, including her service on the faculty of Harvard Business School teaching classes in entrepreneurship. She also brings to her service on the Board valuable experience as a director of public and private life sciences companies and as a consultant to healthcare companies regarding strategy, leadership, team building and capability building.
		Significant Experience/Competencies
		· Former Public Company CEO   · General Management & Business Operations		· Healthcare Industry   · Regulated Industry   · Mergers & Acquisitions		· International   · Strategy Development   · Finance		· Public Relations/ Communications   · Human Capital

 

 

 

·  Director since 2015   · Independent   ·  Compensation Committee   · Finance Committee		John A. Lederer, 61
		Former President and Chief Executive Officer of US Foods, a leading foodservice distributor in the United States, from September 2010 to July 2015. He has served as a director of US Foods since 2010. From April 2008 to August 2010, he served as Chairman of the Board and Chief Executive Officer of Duane Reade, a New York-based pharmacy retailer acquired by Walgreens in April 2010. Prior to Duane Reade, he spent 30 years at Loblaw Companies Limited, Canada’s largest grocery retailer				and wholesale food distributor. He held a number of leadership roles at Loblaw, including its President from 2000 to 2006. He also has served as a director of Maple Leaf Foods, a Canadian consumer packaged meats company, since May 2016. He served as a director of Restaurant Brands International from December 2014 until June 2016 and as a director of Tim Hortons Inc. from 2007 until December 2014, when it was acquired by Restaurant Brands International.
		Overview of Board Qualifications Mr. Lederer brings to the Board significant management and business experience in the retail industry, including valuable insight into the healthcare industry as a result of his experience as CEO of a retail pharmacy. The Board values his understanding of the business operations of and issues facing large retail companies, including marketing, merchandising and supply chain logistics. Mr. Lederer also has extensive experience with respect to mergers & acquisitions. His prior service as a director of several public companies also provide him with insight into public company operations.
		Significant Experience/Competencies
		· Former Public Company CEO   · General Management & Business Operations   · Retail Industry   · Consumer-facing Industry		· Consumer Marketing   · Supply Chain & Logistics   · Healthcare Industry   · Regulated Industry		· Corporate/Institutional Relationship Management   · Mergers & Acquisitions   · International		· Strategy Development   · Finance   · Public Relations/ Communications   · Human Capital

 

·  Director since 2012   · Finance Committee		Dominic P. Murphy, 49
		Partner of Kohlberg Kravis Roberts & Co. L.P. (KKR). He is responsible for the development of KKR’s activities in the United Kingdom and Ireland, is the head of its healthcare industry team in Europe, and is a member of the firm’s European investment and portfolio management committees. From 2007 until 2015, he served as a member of the board of Alliance Boots GmbH and certain of its affiliates. He has served as a director of Ambea				Holding AB & Mehiläinen Oy since 2010, Acteon Group Ltd. since 2012, and The Hut Group Limited and OEG Offshore Group since 2014. He was formerly a Partner at Cinven Partners LLP, a European based private equity firm, from 1996 to 2004 and an investment manager with 3i Group plc, an international investment management firm, from 1994 to 1996.
		Overview of Board Qualifications Mr. Murphy brings to the Board his considerable international and private equity business experience gained through his role in KKR private equity investments. The Board values his insights and experience, including his substantial mergers & acquisition, corporate finance and retail and healthcare industry experience, as well as his in-depth familiarity with many of the markets in which the Company operates. He also brings to his service on the Board valuable experience as a director of publicly and privately held healthcare companies.
		Significant Experience/Competencies
		· General Management & Business Operations   ·  Healthcare Industry		·  Regulated Industry   ·  Mergers & Acquisitions		·  International   ·  Strategy Development   ·  Finance		· Public Relations/ Communications   ·  Human Capital

 

 

 

· Director since 2012   · Executive Vice Chairman and CEO		Stefano Pessina, 75
		Executive Vice Chairman of the Company since January 2015 and Chief Executive Officer of the Company since July 2015, having served as Acting Chief Executive Officer from January 2015 to July 2015. Previously, he served as Executive Chairman of Alliance Boots from July 2007 to December 2014. Prior to that, he served as Executive Deputy Chairman of Alliance Boots. Prior to the merger of Alliance UniChem and Boots Group, he was Executive Deputy Chairman of Alliance UniChem,				previously having been its Chief Executive for three years through December 2004. He was appointed to the Alliance UniChem Board in 1997 when UniChem merged with Alliance Santé, the Franco-Italian pharmaceutical wholesale group which he established in Italy in 1977. He also serves on the board of directors of Galenica AG, a publicly-traded Swiss healthcare group, and a number of private companies, including Sprint Acquisitions Holdings Limited.
		Overview of Board Qualifications As Chief Executive Officer, Mr. Pessina leads the Company’s senior management team and brings to the Board an in-depth knowledge of the Company, including through his previous service as Executive Chairman of Alliance Boots, and the retail and healthcare industries. His substantial international business experience and business acumen provide the Board with valued strategic, financial and operational insights and perspectives. The Board also values his significant mergers & acquisitions experience as well as his experience gained serving on the boards of public and private healthcare and retail companies. He brings valued perspective and judgment to the Board’s discussions regarding the Company’s competitive landscape and strategic opportunities and challenges.
		Significant Experience/Competencies
		·  Current Public Company CEO   ·  Former Public Company CEO   · General Management & Business Operations		·  Retail Industry   · Consumer-facing Industry   ·  Supply Chain & Logistics   ·  Healthcare Industry		·  Regulated Industry   ·  Mergers & Acquisitions   ·  International   ·  Strategy Development		·  Finance   · Public Relations/ Communications   ·  Human Capital

 

·  Director since 2015   · Independent   ·  Compensation Committee   · Nominating and Governance Committee		Leonard D. Schaeffer, 71
		Judge Robert Maclay Widney Chair and Professor at the University of Southern California since 2008. He has also served as a senior advisor to TPG Capital since 2006. From 2007 to 2011, he served as the Chairman of the Board of Surgical Care Affiliates, LLC. He formerly served as Chairman of the Board of WellPoint, Inc. (now Anthem, Inc.), then the largest health insurance company in the United States, from 2004 to 2005, Chairman and Chief Executive Officer of WellPoint Health Networks Inc. from 1992 to 2004, and Chairman and Chief Executive Officer of Blue Cross of California. Earlier in his career, he worked for the federal government as Administrator of the Health Care Financing Administration (now the Centers for		Medicare and Medicaid Services) in the U.S. Department of Health and Human Services, with responsibility for the federal Medicare and Medicaid programs. He currently serves as a director of scPharmaceuticals, a private company. Previously, he served as a director of Allergan, Inc. from 1993 to 2011, of Amgen, Inc. from 2004 to 2013, and of Quintiles IMS Holdings, Inc. from 2008 to 2016. Mr. Schaeffer serves on the board of the Brookings Institution, the RAND Corporation and the University of Southern California, and on the Board of Fellows of Harvard Medical School. He is a member of the National Academy of Medicine of the National Academies.
		Overview of Board Qualifications Mr. Schaeffer brings to the Board considerable experience in healthcare and health insurance, including his experience as former chairman of WellPoint, Inc. and chairman and chief executive officer of WellPoint Health Networks Inc. and Blue Cross of California. His over 40 years of experience in health insurance, healthcare policy and government-funded healthcare programs provide him with valuable perspectives on the overall healthcare industry. Further, his service as a director of other public companies in the healthcare and medical industries provide him with additional perspective on the issues facing public companies in the markets in which the Company operates.

 

 

 

·  Director since 2006   · Independent   ·  Chair of Compensation Committee   · Audit Committee		Nancy M. Schlichting, 62
		President and Chief Executive Officer of the Henry Ford Health System since June 2003. She was Executive Vice President and Chief Operating Officer of the Henry Ford Health System from June 1999 to June 2003, and President and Chief Executive Officer of Henry Ford Hospital from		August 2001 to June 2003. She also serves as a director of the Kresge Foundation, where she chairs the board’s compensation committee, and served as past Chair of the Detroit Regional Chamber.
		Overview of Board Qualifications As a result of her leadership of hospitals and health systems, Ms. Schlichting brings to her service on the Board and its Audit and Compensation Committees a deep knowledge and understanding of the healthcare industry. The Board also highly values her experience and insights gained at Henry Ford Health System, where she has been responsible for the strategic and operational performance of a leading integrated health system, including an academic medical center, community hospitals, a health plan, a multi-specialty medical group, and an ambulatory and health retail network. Henry Ford Health System was a 2011 Malcolm Baldridge National Quality Award recipient.

 

 

Board and Stockholder Meetings

During 2016, the Board met 12 times, and each member of the Board then-serving attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board held during the period for which such person had been a director, and (ii) the total number of meetings held by each committee of the Board on which such person served during the periods that such person served.

The independent directors meet in executive sessions in conjunction with each regular quarterly Board meeting. Mr. Foote presided at these executive sessions as the Lead Independent Director.

The Company expects all of its directors to attend the Annual Meeting. All of the Company’s then-serving directors attended the 2016 Annual Meeting of Stockholders.

 

 

Director Independence

The Board believes that, as set forth in the Corporate Governance Guidelines, at least two-thirds of the Company’s directors should be independent. Accordingly, the Board conducts an annual review to determine whether each of the directors qualifies as independent. The Board has determined categorically that any relationship within the parameters set forth below will not impair the independence of a director:

The director or a member of the director’s immediate family is, or has been during the entity’s last fiscal year, an executive officer, controlling stockholder, partner or director of an entity with which the Company has ordinary course business dealings and such entity has, directly or indirectly, made payments to, or received payments from, the Company in the current or during any of the entity’s last three fiscal years that account for less than the greater of $200,000 or 5% of the recipient’s consolidated gross revenues for that entity’s fiscal year. Payments arising solely from investments in the Company’s securities are not included in received payments for this purpose.

The director or a member of the director’s immediate family is, or has been during the entity’s last fiscal year, an executive officer, director or trustee of a charitable or other not-for-profit entity and the Company’s contributions to the entity in the current or during any of the entity’s last three fiscal years are: (a) less than the greater of $200,000 or 5% of the entity’s total annual charitable receipts for that fiscal year; and (b) less than 5% of the Company’s total annual contributions to charitable or other not-for-profit entities. The Company’s matching of employee charitable contributions is not included in annual charitable contributions for this purpose, nor are any payments arising solely from investments in the Company’s securities.

In making independence determinations, the Board considers relationships involving directors and their immediate family members that may implicate the listing standards of NASDAQ or other applicable law, and relies on information derived from the Company’s records, questionnaires completed by directors, and inquiries of other relevant parties.

For the directors identified herein as independent, the relationships reviewed by the Board as part of its most recent independence determinations included the Company’s commercial relationships with entities: (i) at which directors then served as officers, including Health Evolution Partners (Dr. Brailer) and Henry Ford Health System (Ms. Schlichting); (ii) of which directors or their immediate family members are controlling shareholders; and (iii) at which directors then served as outside director, trustee or special advisor, including Experian plc (Ms. Babiak), Northwestern Memorial HealthCare (Mr. Foote), and Restaurant Brands International (Mr. Lederer). The relationships with the entities noted above involved the Company’s purchase or sale of products and services in the ordinary course of business on arm’s-length terms and under circumstances that did not impair the relevant director’s independence under applicable law or listing standards. The aggregate amount in each case was within the Company’s categorical standard for commercial transactions described above. In each instance noted

 

 

Mercer provides the Compensation Committee with information regarding market compensation and practices, assists the Compensation Committee in the review and evaluation of such compensation and practices, and advises the Compensation Committee on compensation decisions, particularly with respect to the compensation of the Company’s Chief Executive Officer. Mercer also assists the

Compensation Committee in the review and evaluation of non-employee director compensation and practices.

Mercer’s fees for executive and director compensation consulting services provided to the Compensation Committee and management in 2016 were approximately $315,000. In addition, in 2016, the Company paid Mercer approximately $100,000 for manuals and compensation survey data, approximately $50,000 for talent management consulting services, and approximately $1,200 for diversity and inclusion consulting services. Mercer does not currently provide any additional services to the Company.

Mercer is a wholly-owned subsidiary of Marsh & McLennan Companies (“MMC”). MMC and its affiliates (excluding Mercer) provided certain services not related to executive and director compensation, primarily insurance brokerage and professional fees, to the Company and its affiliates in 2016 and received compensation totaling approximately $3,792,675, excluding insurance premiums that are paid through MMC to insurance carriers on behalf of the Company and its affiliates. These non-compensation related services and fees are not subject to the Compensation Committee’s review or approval.

The Compensation Committee has reviewed and considered (1) the services Mercer performed for the Compensation Committee and management during 2016, (2) the non-compensation related services performed by MMC and its affiliates for the Company and its affiliates in 2016, (3) the relationships among the Company, Mercer and MMC, and (4) the quality and objectivity of the services Mercer consultants provided to the Compensation Committee. The Compensation Committee noted that the Mercer consultants providing service to the Compensation Committee do not market or sell to the Company or its affiliates the non-compensation related services performed by MMC, and those consultants receive no incentive or other compensation based on the fees paid by the Company and its affiliates for these other services. In addition, Mercer’s professional standards prohibit its

consultants from considering any other relationships Mercer or any of its affiliates may have with the Company and its affiliates in rendering advice and recommendations to the

Compensation Committee.

Based on its review, the Compensation Committee has concluded that the advice it receives from Mercer is objective and not influenced by MMC’s other relationships with the Company or its affiliates.

For additional information regarding the operation of the Compensation Committee and the role of outside compensation consultants, see “Executive Compensation—Compensation Discussion and Analysis” below.

Finance Committee

The Finance Committee met six times during 2016. The Finance Committee is comprised of Dr. Brailer (Chair), Ms. Babiak, Mr. Lederer, and Mr. Murphy. Mr. Rosenstein served on the Finance Committee until May 16, 2016, the effective date of his resignation from the Board.

The Finance Committee reviews the Company’s financial policies, requirements and practices and makes recommendations to the Board concerning such matters.

Specific responsibilities include reviewing the Company’s capital allocation, capital structure, dividend policy, capital expenditures and liquidity.

Nominating and Governance Committee

The Nominating and Governance Committee met four times during 2016. The Nominating and Governance Committee is comprised of Mr. Foote (Chair), Ms. Graham, and Mr. Schaeffer. Mr. Rosenstein served on the Nominating and Governance Committee until May 16, 2016, the effective date of his resignation from the Board.

The Nominating and Governance Committee considers matters related to corporate governance, makes recommendations to the Board regarding the Corporate Governance Guidelines, develops general criteria regarding the qualifications and selection of Board members, and recommends candidates for election to the Board. The Nominating and Governance Committee also oversees the periodic evaluation of the effectiveness of the Board and its committees and management and reviews the succession plans of the Board and its committees.

The Nominating and Governance Committee also oversees and reviews the Company’s policies and activities regarding corporate social responsibility. These activities

 

 

regarding the submission of comments or complaints relating to the Company’s accounting, internal accounting controls, or auditing matters is available at investor. walgreensbootsalliance.com/corporate-governance.cfm.

 

 

Board Leadership Structure

As stated in the Corporate Governance Guidelines, the Board believes that its leadership structure is part of the Company’s overall governance process and is a matter to be considered based upon circumstances. The By-laws provide that the Chairman of the Board may, but need not be, the Company’s Chief Executive Officer. The Board believes it is important to retain its flexibility to allocate the responsibilities of the offices of the Chairman of the Board and Chief Executive Officer in any way that is in the best interests of the Company at a given point in time based upon then-prevailing circumstances. The Board believes that the decision as to who should serve in those roles, and whether the offices should be combined or separate, should be assessed periodically by the Board, and that the Board should not be constrained by a policy mandate when making these determinations.

Currently, the positions of Chief Executive Officer and Chairman of the Board are held by separate persons, with Mr. Pessina serving as Chief Executive Officer and Mr. Skinner serving as Executive Chairman. Because Mr. Skinner was appointed in January 2015 to serve in an executive capacity, Mr. Foote was elected by the then-serving independent directors to serve as Lead Independent Director in January 2015. As Lead Independent Director, Mr. Foote’s responsibilities include:

 

·

Presiding over all meetings of the independent directors in executive session, which in 2016 occurred in conjunction with each regular quarterly Board meeting;

 

·

Serving as a liaison between the Chairman of the Board and the independent directors;

 

·

Approving significant information delivered to the Board in advance of its meetings;

 

·

Approving schedules and agendas for each Board meeting, so as to ensure that there is sufficient time for discussion of all agenda items;

·

If required, calling meetings of the independent directors or, where the Chairman is not present, presiding over full Board meetings; and

 

·

If requested by major stockholders, ensuring that he is available for consultation and direct communication with such stockholders.

The Board believes this structure is optimal at this time because it allows Mr. Pessina to focus on leading the Company’s business and operations. At the same time, Mr. Skinner can focus on leadership of the Board, including calling and presiding over its meetings and preparing meeting agendas in collaboration with Messrs. Pessina and Foote, while working collaboratively with senior management. Similarly, Mr. Foote can lead executive sessions of the independent directors, serve as a liaison and supplemental channel of communication between independent directors and Messrs. Pessina and Skinner, and serve as a sounding board and advisor to Messrs. Pessina and Skinner.

 

 

Board Oversight of Risk Management

The Company faces a broad array of risks, including market, operational, strategic, legal, regulatory, reputational and financial risks. The Company’s management is responsible for establishing and maintaining systems to manage these risks. The Board exercises oversight over the Company’s strategic, operational and financial matters, including the elements and dimensions of major risks facing the Company. The Board administers its risk oversight function as a whole and through its committees, and uses the processes described below to help assess and monitor the risks the Company faces.

Throughout the year, the Board and its committees provide oversight and guidance to management regarding the Company’s strategy, operating plans and operating performance. Through these discussions, management identifies current and emerging risks for consideration by the Board and/or its committees.

The Company has established a global Enterprise Risk Management (“ERM”) program led by the Company’s Global Chief Risk Officer. The Company’s Risk Committee, which is comprised of key members of executive management, oversees and monitors the activities of the ERM program and reviews, on a quarterly basis, the top Company-related

 

         

 

 

 

Director Compensation

 

 

All amounts deferred into the deferred cash compensation account accrue interest at a monthly compounding rate equal to 120% of the applicable federal midterm rate. The Omnibus Incentive Plan provides directors election options relating to the timing and form of payment of account balances following termination of service as a director, subject to certain restrictions.

 

 

Other

A Non-Employee Director who joins the Board during a fiscal year receives pro-rated amounts for all elements of his or her compensation for such fiscal year. A Non-Employee Director who leaves the Board during a fiscal year is entitled to retain any portion of his or her cash retainer already received for his or her service during such fiscal year, but is not entitled to receive a pro-rated equity grant on the following November 1 for such service.

All directors are reimbursed for expenses incurred in connection with meetings of the Board and its committees. On a very limited basis, the Company may determine that it is appropriate for a Non-Employee Director to be accompanied by his or her spouse or partner in connection with these meetings and/or at other events related to his or her service on the Board. In these circumstances, the Company also reimburses the spouse’s or partner’s travel expenses. In addition, in accordance with the Corporate Governance Guidelines, directors are reimbursed for reasonable expenses related to continuing education programs.

For 2017, the Compensation Committee did not recommend, and the Board did not approve, any change in the compensation program for Non-Employee Directors from 2016.

 

 

Stock Ownership Guidelines

The Company has adopted stock ownership guidelines for Non-Employee Directors. Under these guidelines, each Non-Employee Director is expected to accumulate at least the lesser of (a) 20,000 shares of the Company’s common stock and (b) the number of shares valued at three times such director’s total annual cash and equity compensation. Each Non-Employee Director is required to satisfy the stock

ownership guidelines applicable to him or her within five years after first becoming subject to the guidelines. DSUs are considered shares owned for purposes of the director stock ownership guidelines.

As of the Record Date, each Non-Employee Director then serving had either met these guidelines or, using reasonable assumptions regarding future director compensation and stock appreciation, was progressing towards meeting these guidelines within the prescribed time frame.

 

 

2016 Director Compensation

The following table shows information regarding the compensation earned or paid during 2016 to Non-Employee Directors who served on the Board during the year. The compensation paid to Messrs. Pessina and Skinner is shown under the “Executive Compensation—Executive Compensation Tables and Supporting Information” section below in the “2016 Summary Compensation Table” and the related tables therein. As noted above, neither Mr. Pessina nor Mr. Skinner received any additional compensation for his service as a member of the Board during 2016.

 

 

Director Compensation
Name		Fees Earned or Paid in Cash ($)				Stock Awards ($)				All Other                 Compensation ($)				Total ($)
Janice M. Babiak			120,000				190,000				14,437				324,437
David J. Brailer			115,000				190,000				28,537				333,537
William C. Foote			155,000				190,000				62,644				407,644
Ginger L. Graham			95,000				190,000				29,342				314,342
John A. Lederer			95,000				95,000				2,418				192,418
Dominic P. Murphy			95,000				190,000				14,460				299,460
Barry Rosenstein			71,250				189,937				10,000				271,187
Leonard D. Schaeffer			95,000				79,167				1,014				175,181
Nancy M. Schlichting			115,000				189,937				74,062				378,999

Includes the annual retainer and other cash retainers outlined above (in all cases including deferred amounts). Directors who join the Board during a specific year receive a prorated amount for his or her service during that year. During 2016, the following directors deferred all of their retainers into DSUs: Dr. Brailer, Mr. Lederer, Mr. Murphy, and Ms. Schlichting.

Represents the grant date (November 1, 2015) fair value determined in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 of the stock grant under the Omnibus Incentive Plan to each Non-Employee Director who received this stock award (including any deferred amounts). The number of shares granted was calculated by dividing $190,000 by $84.68, the closing stock price on November 1, 2015. All stock awards are fully vested at the grant date. See “Securities Ownership of Certain Beneficial Owners and Management” in this Proxy Statement for information regarding the number of DSUs held by Non-Employee Directors as of the Record Date.

Represents dividends credited to DSUs. In addition to the amounts reported, directors also are eligible to receive the same discount on merchandise purchased from the Company as is made available to employees generally. For Mr. Rosenstein, also includes a $10,000 donation made by the Company to a charitable organization in connection with his resignation from the Board and in appreciation for his service.

Mr. Rosenstein resigned from the Board effective May 16, 2016.

 

 

Certain Relationships and Related Transactions

 

 

has an interest in a related party transaction, the transaction must be approved or ratified by the disinterested members of the Nominating and Governance Committee. In deciding whether to approve or ratify a related party transaction, the Nominating and Governance Committee considers, among other things, the following factors:

 

·

The purpose of, and the potential benefits to the Company of, the transaction;

 

·

The extent of the related person’s interest in the transaction;

 

·

Whether the transaction is fair to the Company and on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances;

 

·

Whether the transaction would impair the independence of a non-executive director; and

 

·

Whether the transaction would present an improper conflict of interest for any director, director nominee, or executive officer of the Company, taking into account the size of the transaction, the overall financial position of the applicable related person, the direct or indirect nature of the applicable related person’s interest in the transaction, and the ongoing nature of any proposed relationship.

 

 

Sprint Acquisitions

On June 18, 2012, Walgreens entered into a Purchase and Option Agreement (the “Purchase and Option Agreement”) with Alliance Boots and Sprint Acquisitions Holdings Limited (“Sprint Acquisitions”), whereby it acquired, on August 2, 2012, 45% of the issued and outstanding share capital of Alliance Boots in exchange for $4.025 billion in cash and approximately 83.4 million shares of Walgreens common stock (the “First Step Transaction”). Pursuant to the Purchase and Option Agreement, Walgreens also had the right, but not the obligation, under certain circumstances, to acquire the remaining 55% interest in Alliance Boots (the “call option”) in exchange for £3.133 billion in cash and approximately 144.3 million shares of Walgreens common stock. Walgreens exercised the call option through a wholly-owned subsidiary on August 5, 2014, and completed the acquisition of the remaining issued and outstanding share

capital of Alliance Boots on December 31, 2014 (the “Second Step Transaction”). A summary and copy of the Purchase and Option Agreement is included in a Current Report on Form 8-K filed with the SEC by Walgreens on June 19, 2012; a summary and copy of an amendment to the Purchase and Option Agreement is included in a Current Report on Form 8-K filed with the SEC by Walgreens on August 6, 2014; and a copy of an amendment to the Purchase and Option Agreement is incorporated by reference in the Annual Report.

During the period between the completion of the First Step Transaction and the completion of the Second Step Transaction, Alliance Boots was owned 45% by Walgreens and 55% by Sprint Acquisitions. Sprint Acquisitions is jointly controlled by (or by affiliates of) (i) Stefano Pessina, the Company’s Executive Vice Chairman and Chief Executive Officer, a director of the Company, and an indirect holder of more than 5% of the Company’s outstanding stock, and (ii) funds advised by KKR, of which Dominic P. Murphy, a director of the Company, is a partner. Each of Mr. Pessina and Mr. Murphy, as well as Ornella Barra, the Company’s Co-Chief Operating Officer, and Marco Pagni, the Company’s Executive Vice President, Chief Administrative Officer and General Counsel, serves on the board of directors of Sprint Acquisitions.

From time to time, the Company has entered into, or may be deemed to have entered into by virtue of its ownership of Alliance Boots, other equity-related transactions with Sprint Acquisitions or other affiliates of Mr. Pessina. For instance, on January 1, 2015, WBAD Holdings Limited (“WBAD Holdings”), a wholly-owned subsidiary of the Company, transferred 320 common shares of Walgreens Boots Alliance Development GmbH (“WBAD”), the Company’s global sourcing enterprise, to Alliance Healthcare Italia Distribuzione S.p.A. (“AHID”) in exchange for 32,000 Swiss francs. 91% of the capital stock of AHID is indirectly held by Sprint Acquisitions, with the remaining 9% held by the Company. WBAD Holdings retained the remainder of the equity interests in WBAD, which consist of 6,000 preferred shares. As the holder of common shares, AHID is only entitled to its pro rata share (approximately 5%) of any dividends paid by WBAD in excess of $3 billion per annum. Upon the liquidation of WBAD, AHID is entitled to receive its pro rata share (approximately 5%) of 10% of the net proceeds of such liquidation. Under certain

 

 

 

Mr. Pessina and Ms. Barra are partners and share a private residence. As noted in “Executive Compensation – Compensation Discussion and Analysis” below, Ms. Barra reports to Mr. Skinner, the Company’s Executive Chairman, and Mr. Skinner is the only member of management who makes recommendations concerning Ms. Barra’s compensation to the Compensation Committee. For a description of Ms. Barra’s 2016 compensation and benefits, see “Executive Compensation” below.

Mr. Pessina has a son who is employed by the Company in a non-executive officer capacity. Jacopo Pessina serves as Director, Healthcare Innovation International and M&A of the Company and received compensation in 2016 of more than $120,000. His compensation was comparable to other Company employees at a similar level.

On September 5, 2014, Walgreens and JANA Partners LLC (“JANA”) entered into a Nomination and Support Agreement pursuant to which, among other things, Barry Rosenstein of JANA was appointed to the Board. On April 8, 2015, John A. Lederer was appointed to the Board as the “Additional Independent Director” under the Nomination and Support Agreement; and on May 29, 2015, Leonard D. Schaeffer was elected to the Board with the mutual agreement of the Company and JANA as set forth in the Nomination and Support Agreement. In accordance with the terms of the Nomination and Support Agreement, all three directors were re-nominated and were re-elected at the Company’s 2016 Annual Meeting of Stockholders held on January 27, 2016. On May 16, 2016, Mr. Rosenstein resigned from the Board.

 

 

 

 

 

Compensation Discussion and Analysis

This section describes the material elements of the Company’s executive compensation practices, programs, and processes and explains its executive compensation decisions made with respect to 2016. This Compensation Discussion and Analysis focuses on the compensation of the following named executive officers for 2016:

 

·

Stefano Pessina, Executive Vice Chairman and Chief Executive Officer;

 

·

George R. Fairweather, Executive Vice President and Global Chief Financial Officer;

 

·

Alexander W. Gourlay, Co-Chief Operating Officer;

 

·

Ornella Barra, Co-Chief Operating Officer; and

 

·

James A. Skinner, Executive Chairman.

The Company has a strong pay-for-performance philosophy, which seeks to link the interests of its executives with those of its stockholders. In 2016, the Company delivered good financial results, notwithstanding strong currency headwinds and some challenging market conditions. This performance was achieved through a combination of operational progress and corporate efficiencies by the Company and its management team. More information regarding the Company’s 2016 financial results can be found in the Annual Report and in the Company’s earnings release for the fourth quarter and full year 2016, which was included in a Current Report on Form 8-K filed with the SEC by the Company on October 20, 2016.

 

 

 

Overview of Key Compensation Decisions and Results

Each year, the Compensation Committee reviews the design of the Company’s executive compensation program to evaluate whether they are achieving the desired link to stockholder return and are aligned with driving long-term business strategies. The Compensation Committee considers market practice in reviewing the design of such programs. The Compensation Committee also determines the final payouts, if any, for annual and long-term incentive awards and makes annual pay decisions, including those related to executive base salaries and grants of annual and long-term incentive opportunities in the current fiscal year.

As part of that review, in 2015, the Compensation Committee implemented significant changes to the executive compensation program, roles of executives, and structure of awards for 2016. Key elements of these changes are summarized below.

 

Plan Impacted		Key Changes		Additional Detail
WBA Annual Incentive (MIP)		Redesigned the short-term incentive program to better align with the Company’s objectives and market practice by adopting the following:   ·   Performance metric of Adjusted Operating Income; and   ·   Performance curve of 95% of performance goal (which pays at 50% of target) to 110% of performance goal (which pays at 200% of target).		Page 35
Long-Term Incentive Awards		Redesigned the long-term incentive program to be more closely aligned with stockholder returns and market practices and to provide awards solely based on the Company’s performance by adopting the following:   ·   Flat dollar amount (rather than a percentage of salary) used to calculate awards; and   ·   Mix of annual equity awards favoring performance-based awards, delivered in the form of 50% stock options and 50% performance shares, eliminating the restricted stock unit (“RSU”) component of the annual long-term incentive program for employees other than the Executive Chairman.		Page 37
CEO Compensation		Approved compensation for Mr. Pessina solely in the form of stock-based awards delivered 50% as stock options and 50% as performance shares, scheduled to vest at the end of three years and subject to acceleration or forfeiture in certain circumstances.		Page 39

 

 

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reward Company-wide and individual performance; and

 

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link the interests of the Company’s senior executives to those of its stockholders.

In July 2016, the Compensation Committee reviewed and expressly noted in its compensation philosophy its intent that the Company’s executive compensation program:

 

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be competitive with the pay practices of other companies of comparable size, scope and industry, targeting the market median total compensation;

 

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result in the attraction and retention of executives who can contribute to the Company’s future success as a global organization; and

 

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create a strong linkage between pay and performance through the use of variable performance-based bonuses and long-term incentive awards, such that executives will receive higher compensation in more successful periods for the Company and lower compensation in less successful periods.

Overall, the Compensation Committee believes that the Company’s executive compensation program is achieving its intended results.

Role of the Compensation Committee

The Compensation Committee is responsible for overseeing the Company’s executive compensation program, executive succession, and retirement and equity-based compensation and benefit programs and practices. In the exercise of its duties, the Compensation Committee considers all elements of the compensation program in total, as well as individual performance, Company-wide performance, and internal equity and market compensation considerations. The Compensation Committee reviews and approves all components of the compensation of the named executive officers, reports its decisions to the Board, and oversees the administration of the compensation program for each of the Company’s senior executives (i.e., Senior Vice President level and above).

To this end, the Compensation Committee conducts an annual review of executive officer compensation practices and market pay levels, approves the design and evaluates the risk associated with the Company’s executive compensation program, approves the total annual awards under the Company’s short-term and long-term incentive programs, and reviews and approves offer letters and

severance arrangements between the Company and any of its senior executives.

Role of Management in Executive Compensation Disclosures

The Company’s Executive Chairman and Chief Executive Officer review annually the performance and pay level of each senior executive, develop recommendations concerning the compensation of each senior executive, and present those recommendations to the Compensation Committee. Neither the Company’s Executive Chairman nor its Chief Executive Officer makes recommendations concerning his own compensation. In addition, only the Executive Chairman makes recommendations concerning the compensation of Ms. Barra. The Company’s Human Resources management provides information, analysis and other support to management and the Compensation Committee during these processes.

Role of Outside Compensation Consultants

The Compensation Committee engages Mercer as its independent compensation consultant. Among other matters, the Compensation Committee uses Mercer to provide information regarding market compensation practices and trends and to advise the Compensation Committee on compensation decisions, particularly with respect to the Company’s Chief Executive Officer and non-employee directors.

Beginning in January 2016, the Company also engaged Mercer to serve as the executive compensation consultant to its management team. Prior to that time, Aon Hewitt served as the executive compensation consultant to management. The Compensation Committee has reviewed and considered all of the relevant factors regarding the Company’s relationship with Mercer and, for the period prior to January 2016, Aon Hewitt. Based on its review, the Compensation Committee has concluded that the advice it receives from Mercer, and any advice it received from Aon Hewitt, is and was objective and is and was not influenced by their other relationships with the Board, the Company or its subsidiaries.

Elements of Compensation

The Company’s compensation program includes principal elements that are designed to support its compensation objectives. The following chart contains a brief description of each principal element:

 

 

Compensation Element		Characteristics		Primary Purpose
Base Salary		·  Annual fixed cash compensation		·  Provides a competitive fixed amount of cash compensation based on individual performance, level of responsibility, experience, internal equity, and competitive pay levels   ·   Supports the attraction and retention of talented executives
Management     Incentive Plan		·  Annual variable cash compensation based on the achievement of Adjusted Operating Income goals   ·   Payouts are subject to individual performance adjustments		·  Rewards Company-level and individual performance   ·   Supports the attraction and retention of talented executives
Long-Term Incentives		·  Long-term variable equity awards granted annually as a combination of stock options and performance shares or, in the case of Mr. Skinner, RSUs   ·   Awards are subject to individual performance adjustments		·  Rewards long-term Company-level performance   ·   Links the interests of executives to the interests of stockholders through increases in share price over time   ·  Supports the attraction and retention of talented executives

 

 

The Compensation Committee reviewed the peer group in July 2016 and made no changes to the peer group to be used for evaluating 2017 executive compensation decisions.

 

 

Elements of 2016 Compensation

Substantially all compensation paid to Messrs. Pessina and Skinner is in the form of stock-based awards in order to align their pay to the value created for stockholders. As a significant owner of the Company, the Committee felt that providing Mr. Pessina with pay in the form of stock-based compensation, using the same mix of stock options and performance shares as provided to the other executives, was appropriate and consistent with market practice for similarly-situated executives. The Compensation Committee approved Mr. Skinner’s pay in the form of time-based RSUs, which, as advised by the Compensation Committee’s compensation consultant, was consistent with market practice for stock-based compensation of an executive chairman.

Base Salary

As noted above, neither Mr. Pessina nor Mr. Skinner currently receives a base salary.

For the other named executive officers, base salary is a key component of compensation, both on its own and because annual incentive awards are calculated based on salary. Base salaries for the named executive officers are established and adjusted following an annual performance review process that coincides with the Compensation Committee’s annual review of peer group compensation. Base salary may also be adjusted during the year upon promotion or based upon internal equity or external market considerations.

In October 2015, the Compensation Committee completed its annual review of market data and individual performance in connection with its consideration of salary adjustments for 2016. In light of the Company’s improved performance in 2015, management recommended, and the Compensation Committee approved, salary increases for certain of the Company’s senior executives, including 2.5% increases for Messrs. Fairweather and Gourlay and Ms. Barra, which, as advised by the Compensation Committee’s compensation consultant, was consistent with market practice.

Additionally, in June 2016, Mr. Gourlay and Ms. Barra were awarded increases of 11% and 9%, respectively, in conjunction with their respective promotions to Co-Chief Operating Officer. The Compensation Committee’s compensation consultant advised the Compensation Committee that this was consistent with market practice for their new roles.

Annual Incentives

The MIP promotes the Company’s pay-for-performance philosophy by providing nearly all of the executives and other management-level corporate employees of the Company with direct financial incentives in the form of annual cash awards for achieving Company-wide goals and based on individual performance relating to his or her business unit or area of responsibility. As noted above, neither Mr. Pessina nor Mr. Skinner participated in the MIP in 2016, and therefore did not receive an annual cash incentive payment (“bonus”) for 2016.

The Compensation Committee uses a two-step approach to determine the amount of the bonus payment:

 

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The first step is to fund the overall bonus pool, which is funded if the Company meets a pre-established performance metric established by the Compensation Committee pursuant to the Walgreens Boots Alliance, Inc. 2011 Cash-Based Incentive Plan. For 2016, this performance metric was the level of Adjusted Operating Income under the MIP that equates to 50% of the threshold payout level.

 

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The second step is accomplished when the Compensation Committee exercises “negative discretion” by making adjustments to the formula awarded by the overall pool. Negative discretion is used to reduce the amount funded by the pool to an amount equal to the target bonus adjusted for final Company performance and individual performance as described below pursuant to the MIP.

Company Performance. Performance-based incentive payments under the MIP for 2016 were contingent, in part, upon the Company’s 2016 Adjusted Operating Income as compared to a budgeted target.

Adjusted Operating Income is a non-GAAP financial measure that refers to the Company’s operating income in accordance with GAAP, as adjusted to reflect certain adjustments approved by the Compensation Committee in

 

 

 

For 2017, the Compensation Committee has determined that payouts under the MIP will continue to be tied to the Company’s Adjusted Operating Income, as may be further adjusted to reflect individual performance. In addition, the Compensation Committee approved an increase to Mr. Fairweather’s target bonus percentage of salary to 125% of his eligible earnings, consistent with that approved for Mr. Gourlay and Ms. Barra in 2016. Neither Mr. Pessina nor Mr. Skinner is expected to receive a bonus in 2017 as substantially all of their compensation is expected to be in the form of stock-based awards.

Long-Term Incentives

During 2016, the Company used two long-term incentive vehicles for its annual equity grants: stock options and performance shares, targeting a mix of 50% stock options and 50% performance shares. The 2016 grants approved and implemented by the Compensation Committee are shown in the “Grants of Plan-Based Awards – 2016” table contained in the “Executive Compensation Tables and Supporting Information” section below. As described further below, Mr. Skinner’s long-term incentive award was delivered entirely in the form of RSUs.

Awards are based on a fixed dollar amount of target economic value rather than a percent of salary target. This approach provides for the same value of awards for executives at the same level regardless of salary. Consistent with prior years, the number of shares subject to each award type was based on the average per-share closing price of the Company’s common stock over the last 30 trading days of the fourth quarter of 2015, so as to diminish the impact of fluctuations, positive or negative, in stock price on grant sizes.

Because the dollar values shown in the “Stock Awards and Option Awards” columns of the “2016 Summary Compensation Table” contained in the “Executive Compensation Tables and Supporting Information” section below reflect the grant date fair value of such equity awards (determined in accordance with the applicable accounting standards using the stock price and other information as of the date of grant), fluctuations, positive or negative, in the Company’s stock price as of the grant date relative to the average per-share closing price over the last 30 trading days of the fiscal year can increase or decrease the grant date values of such awards presented in the “2016 Summary Compensation Table.”

As part of the Company’s effort to further increase the role of individual performance in compensation decisions, it applied an individual performance adjustment factor that may result in an incremental increase or decrease in the amount of stock options granted to each eligible participant based on the individual’s performance for the prior year. In October 2015, Mr. Pessina and Mr. Skinner each conducted an evaluation of the contribution of each member of his respective senior executive team in the areas of strategy, leadership and operating performance as it relates to the Company’s long-term goals. Based on his assessment of each executive’s contribution, for 2016, Mr. Pessina recommended to the Compensation Committee for Messrs. Fairweather and Gourlay, and Mr. Skinner recommended to the Compensation Committee for Ms. Barra, individual increases of 10% over the target number of stock options granted in 2016. These adjustments were reviewed and approved by the Compensation Committee and were made, in part, to recognize the future potential of the executives.