UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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CARDINAL HEALTH, INC.

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Letter to Cardinal Health Shareholders

Gregory B. Kenny

Chairman of the Board

September [     ], 2020

Over the past year, it is more apparent than ever that Cardinal Health plays a critical role in the healthcare supply chain. I, along with the rest of the Cardinal Health Board of Directors, have been actively engaged as we navigate these unprecedented times, and we remain focused on both strong governance and long-term value creation. I will share the Board’s perspective on the year and the initiatives underway to create value now and in the future.

Our Fiscal 2020 Performance

In fiscal 2020, the company grew non-GAAP operating earnings and exceeded our non-GAAP diluted earnings per share guidance range. We also surpassed our enterprise cost savings target and furthered initiatives that will optimize our operations, drive sustained savings, and enable value creation for years to come. At the same time, we increased investments and partnerships in our Specialty pharmaceutical and Cardinal Health at-Home businesses, among other areas.

Additionally, the Board continued to evaluate the company’s portfolio and take a balanced and disciplined capital approach that prioritizes reinvesting in the business, maintaining a strong balance sheet and returning cash to shareholders through dividends. In fiscal 2020, we paid down $1.4 billion of debt, increased the dividend by 1%, and sold the remainder of our equity interest in naviHealth.

Our COVID-19 Response

As the global pandemic continues to unfold, we continue to be fully dedicated to the health and safety of our employees so we can fulfill our mission of delivering critical products and solutions to frontline healthcare workers around the world. We have implemented additional safety and cleaning measures in all locations, and we have maintained operations in all our distribution facilities, nuclear pharmacies, and global manufacturing plants. The Board, as well as the management team, are humbled by the efforts of our employees. We provided additional compensation to our frontline teams to demonstrate our gratitude for their unwavering commitment to our customers and to public health.

As the company responded to the challenges presented by the pandemic, the Board also transitioned to a remote work model. We are holding virtual Board meetings and this year’s Annual Meeting of Shareholders will be virtual as well.

Our Commitment to Diversity and Inclusion

Our Chief Executive Officer, Mike Kaufmann, and our management team remain deeply committed to fostering a culture where every employee brings 100% of themselves to work every day and this includes actively facilitating conversations regarding diversity and inclusion. In the fall of 2019, management began these discussions through an all employee meeting focused specifically on this topic, and in the winter, the team organized a group tour of the National Memorial for Peace and Justice and Legacy Museum in Montgomery, Alabama. Upon their return, Mike shared his reflections on this deeply moving experience in a message to all employees.

Following this experience, and in the aftermath of events in the U.S. throughout this spring and summer, the management team has elevated attention to racial equity and social injustice. In May, they engaged 400 vice presidents and above across the company in a frank discussion on this topic and encouraged these leaders to do the same with their teams. Mike also formed a Diversity and Inclusion Steering Council of senior leaders throughout the company to identify and discuss diversity and inclusion barriers, opportunities, and successes.

Corporate culture has been, and remains, important to the Board. To further reinforce this commitment, we embedded culture and diversity and inclusion metrics in the company’s incentive plan goals for fiscal 2020, and we are following the progress of these initiatives with regular management reports and a scorecard. The scorecard included the most recent employee engagement survey results, which showed significant improvements.

Our Board Membership

In addition, the Board itself cultivates a culture of open, direct, and respectful dialogue among our members, who bring an array of skills, backgrounds, and expertise. Mike supports this culture with his open and direct engagement, including executive sessions at the beginning and end of each Board meeting. Over the years, our Board evaluation process, which includes individual director evaluations, has made important contributions to Board culture and this year, to continuously evolve this process, we used a new facilitator to gain additional insights regarding our strengths and improvement opportunities.

We also continue to evolve this culture as we refresh our Board membership. This year, we added two new directors to further diversify our expertise and perspectives. Our most recent addition was Sheri Edison, who joins with extensive global experience both as a senior legal executive in the medical device and global packaging industries and as a board member for large for-profit and non-profit organizations. Earlier this summer, we also welcomed Dave Evans, who served as Chief Financial Officer of Scotts Miracle-Gro for many years and brings decades of financial experience.

In addition, Colleen Arnold is leaving the Board after years of valuable service. On behalf of the full Board, I would like to thank her for her many contributions, including her leadership regarding the company’s strategic use of information and technology, and we wish her well.

These changes will bring the total number of directors to 13, 12 of whom are independent.

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Our Ongoing Response to the Opioid Epidemic

I will briefly address our ongoing work regarding the opioid epidemic. The Board and the company continue to recognize the significant challenges that opioid misuse presents to our society, and the company remains vigilant in our work to detect and deter diversion of controlled substances. The Board and our Ad Hoc Committee on opioids is active in overseeing the company’s anti-diversion work as well as the company’s efforts to defend and resolve opioid litigation.

Last October, the company agreed in principle to a global settlement framework with a group of state attorneys general that aims to resolve all pending and future opioid lawsuits by states and political subdivisions. This settlement framework would deliver important resources to the communities that need them most. The company, with oversight of our Ad Hoc Committee and the Board, continues to be active in settlement discussions.

Looking Forward

In fiscal 2020, we demonstrated our adaptability in the face of unprecedented change. Going forward, our engaged Board, our strong management team, and our dedicated employees are well-positioned to build upon our operational momentum. On behalf of our Board, I thank you for your share ownership and for your continued support of the company. Together, we will enable Cardinal Health to perform our essential role in healthcare now and into the future.

Sincerely,

Gregory B. Kenny
Chairman of the Board

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Notice of Annual Meeting of Shareholders

Due to the public health impact of the coronavirus (“COVID-19”) pandemic and to support the health and well-being of our employees and shareholders, this year’s Annual Meeting of Shareholders (“Annual Meeting”) will be conducted exclusively online without an option for physical attendance. You will be able to participate in the virtual meeting online, vote your shares electronically, and submit questions during the meeting by visiting www.virtualshareholdermeeting.com/CAH2020.

By Order of the Board of Directors.

John M. Adams, Jr.
Senior Vice President, Associate General Counsel and Secretary
September [     ], 2020

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Our 2020 Board Nominees

Carrie S. Cox	Calvin Darden	Bruce L. Downey	Sheri H. Edison
Retired EVP and President, Global Pharmaceuticals, Schering-Plough and retired Chairman and CEO, Humacyte, Inc. Age: 62 Director since 2009 Independent Committees: H, AH	Retired SVP of U.S. Operations, UPS Age: 70 Director since 2005 Independent Committees: H, AH	Retired Chairman and CEO, Barr Pharmaceuticals and Partner, NewSpring Health Capital II, L.P. Age: 72 Director since 2009 Independent Committees: N, AH	EVP and General Counsel, Amcor Age: 63 Director since 2020 Independent
David C. Evans	Patricia A. Hemingway Hall	Akhil Johri
Retired CFO, Scotts Miracle-Gro and Battelle Memorial Institute Age: 57 Director since 2020 Independent	Retired President and CEO, Health Care Service Corp. Age: 67 Director since 2013 Independent Committees: H, N	Retired EVP and CFO, United Technologies Age: 59 Director since 2018 Independent Committees: A, S
Michael C. Kaufmann	Gregory B. Kenny	Nancy Killefer
CEO, Cardinal Health Age: 57 Director since 2018	Retired President and CEO, General Cable Age: 67 Director since 2007 Independent Chairman of the Board Committees: N, AH, S	Retired Senior Partner, Public Sector Practice, McKinsey Age: 66 Director since 2015 Independent Committees: H, S
J. Michael Losh	Dean A. Scarborough	John H. Weiland
Retired EVP and CFO, General Motors Age: 74 Director since 2018 Independent Committees: A	Retired Chairman and CEO, Avery Dennison Age: 64 Director since 2019 Independent Committees: A	Retired President and Chief Operating Officer, C. R. Bard Age: 64 Director since 2019 Independent Committees: A, S

 

A: Audit  AH: Ad Hoc  H: Human Resources and Compensation  N: Nominating and Governance  S: Surgical Gown Recall Oversight

 

www.cardinalhealth.com

Cardinal Health | 2020 Proxy Statement    6

 

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Corporate Governance

Our Board currently has 14 members. Thirteen of our directors are standing for election at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their successor is elected and qualified or until their earlier resignation, removal from office or death. Colleen F. Arnold, a director since 2007, has decided not to stand for re-election at the Annual Meeting. The size of the Board will be reduced to 13 at that time.

Each director nominee agreed to be named in this proxy statement and to serve if elected. If, due to death or other unexpected occurrence, one or more of the director nominees is not available for election, proxies will be voted for the election of any substitute nominee the Board selects.

The Board recommends that you vote FOR the election of the nominees listed on pages 10 through 16.

Board Membership Criteria: What we look for

The Nominating and Governance Committee considers and reviews with the Board the appropriate skills and characteristics for Board members in the context of the Board’s current composition and objectives. Criteria for identifying and evaluating candidates for the Board include:

Our Director Nominees

The Board seeks members that possess the experience, skills and diverse backgrounds to perform effectively in overseeing our current and evolving business and strategic direction and to properly perform the Board’s oversight responsibilities. All director nominees bring to the Board a wealth of executive leadership experience derived from their diverse professional backgrounds and areas of expertise. As a group, they have business acumen, healthcare and global business experience and financial expertise, as well as public company board experience. In addition, six of the thirteen director nominees are gender or ethnically diverse. Each director nominee has sound judgment and integrity and is able to commit sufficient time and attention to the activities of the Board. All director nominees other than our Chief Executive Officer are independent.

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Director Skills Matrix

Our director nominees possess relevant skills and experience that contribute to a well-functioning Board that effectively oversees our strategy and management.

Director Nominee Skills and Experience

Cox

Darden

Downey

Edison

Evans

Hemingway Hall

Johri

Kaufmann

Kenny

Killefer

Losh

Scarborough

Weiland

Board leadership as a board chair, lead director or committee chair equips directors to lead our Board and its Committees

Financial expertise as a finance executive or CEO brings valuable experience to the Board and our management team

Healthcare expertise as a leader of a healthcare company or a consulting firm with a healthcare practice provides industry experience

Operations experience increases the Board’s understanding of our distribution and manufacturing operations

Regulatory/legal/public policy experience helps the Board assess and respond to an evolving business and healthcare regulatory environment

International experience brings critical insights into the opportunities and risks of our international businesses

Information technology experience contributes to the Board’s understanding of the information technology aspects of our business

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Our Board’s Composition and Structure

Our Board Leadership Structure

Mr. Kenny has served as the independent, non-executive Chairman of the Board since November 2018, when we separated the Chairman and Chief Executive Officer roles. Prior to that, he served as independent Lead Director (elected annually by the independent directors) since November 2014.

In addition to serving as a liaison between the Board and management, key responsibilities of the Chairman include:

The Board considered a wide range of factors in determining that its current leadership structure is the most appropriate arrangement at the present time, including current market practice and the views of shareholders. The Nominating and Governance Committee periodically reviews, assesses and makes recommendations to the Board regarding the Board’s leadership structure.

Board Diversity

Our Corporate Governance Guidelines provide that the Board should be diverse, engaged and independent. In identifying and evaluating candidates for the Board, the Nominating and Governance Committee considers the diversity of the Board, including diversity of skills, experience and backgrounds, as well as ethnic and gender diversity. We believe that our Board nominees reflect an appropriate mix of skills, experience and backgrounds and strike the right balance of longer serving and newer directors.

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How We Identify, Add and On-Board New Directors

The Nominating and Governance Committee is responsible for identifying, reviewing and recommending director candidates, and our Board is responsible for selecting candidates for election as directors based on the Nominating and Governance Committee’s recommendations.

Ms. Hemingway Hall and Mr. Kenny recommended Mr. Evans, and Mr. Kenny recommended Ms. Edison, as potential candidates for consideration by the Nominating and Governance Committee. Mr. Evans has previous public company chief financial officer experience and served as our interim Chief Financial Officer for nine months through May 2020. Ms. Edison has extensive experience as a senior legal executive at public companies in the medical device and packaging industries. Both have previous public company board experience and are independent directors.

New directors typically participate in a comprehensive, full-day director orientation program, which includes meetings with senior management. This orientation program helps new directors become familiar with our business and strategy, significant financial matters, ethics and compliance program, corporate governance practices and risk management and human resources functions.

Director Attendance

The Board held nine meetings during fiscal 2020. Each director attended 75% or more of the meetings of the Board and Board committees on which he or she served during the fiscal year. Average director attendance at all Board and Board committee meetings was 96%.

All of our directors at the time attended the 2019 Annual Meeting of Shareholders. Absent unusual circumstances, each director is expected to attend the Annual Meeting of Shareholders.

Board Committees

The Board has an Audit Committee, a Nominating and Governance Committee and a Human Resources and Compensation Committee (the “Compensation Committee”). Each member of these committees is independent under our Corporate Governance Guidelines and under applicable committee independence rules.

The charter for each of these committees is available on our website at www.cardinalhealth.com under “About Us — Corporate — Investor Relations — Corporate Governance — Board Committees and Charters.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.

The Board also has an Ad Hoc Committee of independent directors formed in 2018 to assist the Board in its oversight of opioid-related issues and a Surgical Gown Recall Oversight Committee of independent directors formed in 2020 to assist the Board in oversight of a surgical gown recall.

Audit Committee

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Nominating and Governance Committee

Human Resources and Compensation Committee

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Ad Hoc Committee

Surgical Gown Recall Oversight Committee

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Our Board’s Primary Role and Responsibilities and Processes

Our Board’s Primary Role and Responsibilities

Our Corporate Governance Guidelines provide that our Board serves as the representative of, and acts on behalf of, all the shareholders of Cardinal Health. In that regard, some primary functions of the Board include:

How Our Board Oversees Our Strategy and Capital Deployment

The Board receives updates on company performance and regularly discusses our strategy considering the competitive environment, developments in the rapidly changing healthcare industry, and the global business and economic environment. The Board reviews and approves capital deployment, including dividends, financing and share repurchase plans, and significant acquisitions and divestitures.

At least annually, the Board conducts a dedicated strategy session with in-depth discussions of our industry, specific businesses and new business opportunities. At these sessions, the Board discusses risks related to our strategies, including risks resulting from possible actions by competitors, disrupters, customers and suppliers. The Board also considers various elements of strategy at each regular quarterly meeting. The collective backgrounds, skills and experiences of our directors, including broad industry experience, contribute to robust discussions of strategy and the related risks.

The Board has supported our goal to deploy capital in a balanced and disciplined manner that prioritizes reinvesting in the business, maintaining a strong balance sheet, and returning cash to shareholders through dividends. Reinvestment in the business through capital expenditures remains a critical priority. Another priority is maintaining a strong balance sheet through our focus on our credit rating and the corresponding metrics. We paid down $1.4 billion in debt during fiscal 2020. Our board also approved a 1% increase in our dividend during fiscal 2020.

Engagement on COVID-19

During fiscal 2020, the Board was highly engaged with the Chief Executive Officer and other management about the impact of COVID-19 and the company’s response and plans. Management held regular informational calls with Board members throughout the spring and summer covering employees and operations, financial impact, product supply, media engagement, and related legal and regulatory matters. Management also is engaged with the Board on identifying and addressing strategic risks and opportunities arising out of COVID-19. During the pandemic, we adjusted our planned in-person Board meetings to hold them virtually to ensure continued effective functioning of the Board.

How Our Board Engages in Management Succession

The Compensation Committee and the Board are actively engaged in our talent management program. The Compensation Committee oversees the process for succession planning for the Chief Executive Officer and other senior executives, and management provides an organizational update at each quarterly Compensation Committee meeting.

The full Board holds a formal succession planning and talent review session annually, which includes succession planning for the Chief Executive Officer and other senior executives. These sessions include identification of internal candidates and desired leadership skills and key capabilities and experience considering our current and evolving business and strategic direction.

Directors interact with our leaders through Board presentations and discussions, as well as through informal events and planned one-on-one sessions.

The Board maintains an emergency succession plan, as well as a long-term succession plan for the position of Chief Executive Officer.

During fiscal 2020, our succession planning process helped Mr. Kaufmann complete his executive leadership team with Jason Hollar, an experienced new hire for the Chief Financial Officer role. Mr. Hollar joined us from automotive products company Tenneco Inc. and his experience spans multiple industries and geographies. In addition to serving as Chief Financial Officer of Tenneco and Sears Holding Corporation before that, Mr. Hollar has held senior finance roles at other large multinational companies.

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How Our Board Oversees Risk

A summary of the allocation of general risk oversight functions among management, the Board and its Committees is as follows:

Management has day-to-day responsibility for assessing and managing risks, and the Board is responsible for risk oversight. Management has developed and administers an enterprise risk management program, which the Audit Committee oversees. Through this process, management identifies and prioritizes enterprise risks and develops systems to assess, monitor and mitigate those risks. Management reviews and discusses with the Board significant risks identified through this program.

The Audit Committee is responsible for discussing with management major financial risk exposures, our ethics and compliance program and compliance with legal and quality and regulatory requirements. The Board and Audit Committee receive regular updates on our ethics and compliance and cybersecurity programs.

In connection with its risk oversight role, the Audit Committee meets regularly with representatives from our independent auditor and with our Chief Financial Officer, Chief Legal and Compliance Officer and the head of our internal audit function.

The Ad Hoc Committee assists the Board in its oversight of our response to the opioid epidemic. The Ad Hoc Committee receives updates and assesses the implications for Cardinal Health of, among other things, the risks posed by the opioid epidemic and related litigation from a legal, financial and reputational perspective.

The Surgical Gown Recall Oversight Committee assists the Board in its oversight of the company’s surgical gown recall announced in January 2020 and related activities and risks.

COVID-19 Risks

Since the beginning of the COVID-19 pandemic, management has kept the Board apprised of its efforts to assess strategic risks and opportunities arising from structural shifts in the industry resulting from COVID-19. Management has developed and is implementing plans in connection with this assessment and regularly updates the Board on their progress.

Our Ethics and Compliance Program

Our Board has adopted written Standards of Business Conduct that outline our corporate values and standards of integrity and behavior. The Standards of Business Conduct are designed to foster a culture of integrity, drive compliance with legal and regulatory requirements, and protect and promote the reputation of our company. The full text of the Standards of Business Conduct is posted on our website at www.cardinalhealth.com under “About Us — Who we are — Ethics and Compliance.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.

Our Chief Legal and Compliance Officer has the responsibility to implement and maintain an effective ethics and compliance program. She provides quarterly updates on our ethics and compliance program to the Audit Committee and an update to the full Board at least once a year, or more frequently as needed. She reports to the Chairman of the Audit Committee and to the Chief Executive Officer and meets in executive session quarterly with the Audit Committee.

The Board’s Role in Oversight of Corporate Citizenship

The Nominating and Governance Committee is charged with overseeing our environmental sustainability and other corporate citizenship activities, including our policies and practices regarding political and lobbying activities and expenditures. Our corporate citizenship reports are available on our website at www.cardinalhealth.com under “About Us — Corporate Citizenship.”

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Corporate Citizenship during Fiscal 2020

In the past year, management formally chartered a cross-functional ESG Steering Committee to meet regularly to consider environmental, social and governance (“ESG”) issues. We also worked with an external partner to help us identify ESG priorities that are most relevant to our company and our stakeholders and identified the following seven ESG priorities: response to the opioid crisis; ethics and compliance; product quality and safety; human capital management; data privacy and security; environmental emissions and impact; and supply chain management. Each is discussed in our 2019 Corporate Citizenship Report.

Focus on Diversity and Inclusion

As we emphasized in the 2019 Corporate Citizenship Report, diversity and inclusion — in our workplaces and in our communities — is an important priority to us. By respecting and appreciating diversity of thought, experience and background, we are becoming more innovative, increasing employee engagement and improving customer and shareholder value. Managers are required to seek out a slate of candidates that includes women and minorities for any job or promotion. Four of eight leaders reporting to our Chief Executive Officer are women and one is an African American male. Women comprise 41% of our executive management and ethnically diverse persons comprise 18%.

We required unconscious bias training of every incentive eligible leader during fiscal 2020 and, as discussed in Compensation Discussion and Analysis on page 34, we introduced a corporate culture goal for our fiscal 2020 annual cash incentive program for completion of unconscious bias training.

We have an internal D&I Steering Council of senior business leaders charged with helping to lead internal conversations about diversity and inclusion. And last year, our Chief Executive Officer held our first ever D&I Town Hall with a panel of senior leaders.

More recently, our Chief Executive Officer formed a cabinet of African American and Black leaders within the company to help educate our senior leaders on racial equity issues and advise on actions we can take.

The Board’s Role in Oversight of Corporate Culture

The Board continues to assess and monitor corporate culture at Cardinal Health and how it fosters our business strategies. To inform the Board about human capital and cultural health, we have developed and annually share with the Board a cross-functional culture scorecard that includes employee engagement survey data, employee retention and turnover data, diverse employee and management representation, audit and accounting findings, employee cybersecurity awareness results and employee health and safety data.

Our Path Forward

As part of our broader strategic and financial plans, we began fiscal 2020 by launching “Our Path Forward” (see graphic below), which outlines both the plans and initiatives we have underway to advance our objectives and the key competitive advantages and values that will be vital to our success.

As discussed in Compensation Discussion and Analysis beginning on page 34, the Compensation Committee added new culture goals to our annual cash incentive and PSU grants during fiscal 2020 to align with these important strategic initiatives. The culture goals for the annual incentive program focused on performance management, change management and diversity and inclusion, while the culture goal for the PSUs focused on leadership score improvement from our employee engagement survey. We plan to continue to develop these culture goals.

Management Behaviors

For the fiscal 2020 performance management process, we introduced new management “behaviors” in line with Our Path Forward. They are:

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Our Board Evaluation Process

Each year, our Board conducts a rigorous self-evaluation process, which includes individual director evaluations. This process is overseen by the Nominating and Governance Committee, led by our Nominating and Governance Committee Chair, and conducted by an outside facilitator with corporate governance experience. The outside facilitator interviews each director to obtain anonymous feedback regarding Board performance and effectiveness and reviews the feedback during an executive session of the Board. This feedback helps the Board identify follow-up items and provide feedback to management.

The Board evaluation process includes an assessment of both Board process and substance, including:

The outside facilitator also obtains feedback regarding each individual director, which is provided to the director in an individual discussion. The Board believes that this annual evaluation process supports its effectiveness and continuous improvement.

In addition to the full Board’s evaluation process, each of the Audit, Compensation and Nominating and Governance Committees annually review their charters and conduct their own Committee self-evaluation.

Director Independence

The Board has established director independence standards based on the New York Stock Exchange (“NYSE”) rules. These standards can be found in our Corporate Governance Guidelines on our website at www.cardinalhealth.com under “About Us — Corporate — Investor Relations — Corporate Governance — Corporate Governance Documents.” These standards address, among other things, employment and compensation relationships, relationships with our auditor and customer and business relationships.

The Board assesses director independence at least annually, based on the recommendations of the Nominating and Governance Committee. The Board has determined that each of Messrs. Darden, Downey, Evans, Johri,

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Kenny, Losh, Scarborough and Weiland, and each of Mses. Arnold, Cox, Edison, Hemingway Hall and Killefer, is independent.

In reaching the determination that Mr. Evans is independent, the Board considered that, following the unexpected departure of our Chief Financial Officer early in fiscal 2020, Mr. Evans was hired to serve as interim Chief Financial Officer for less than a year while we conducted a search for a permanent Chief Financial Officer, and he received fixed cash compensation in that interim role.

Shareholder Engagement

It has been our long-standing practice to actively engage with our shareholders throughout the year so that management and the Board can better understand shareholder perspectives on governance, executive compensation and other topics. We strive for a collaborative approach to engagement and value shareholders’ perspectives.

During the summer of 2020, we again engaged with governance professionals from our largest shareholders. Our engagement discussions covered, among other topics, our response to the COVID-19 pandemic, Board oversight of our response to the opioid epidemic, including the global settlement framework and related litigation, the surgical gown recall, Board composition and refreshment, and our Chief Financial Officer transition. We also have continued to hold constructive discussions with members of the Investors for Opioid and Pharmaceutical Accountability coalition.

A general overview of our annual engagement process is below.

After considering feedback from shareholders in recent years, we have taken the following actions:

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Director Compensation

Overview

Our non-management director compensation program is approved by our Board based on the recommendation of the Compensation Committee. The Compensation Committee receives comparative market data and recommendations from its compensation consultant with regard to the structure and amounts of our director compensation. Total director compensation is targeted at the median amount among our Comparator Group, which is discussed on page 37.

Following the Compensation Committee’s review of director compensation in May 2019, and based on the recommendation of its compensation consultant, the Compensation Committee recommended to the Board, and the Board approved, increases to the annual retainers and restricted share unit (“RSU”) grants effective in November 2019. The compensation changes aligned with our target of the median director compensation for the Comparator Group. There were no changes made to director compensation for fiscal 2021.

Compensation Arrangements

The table below shows the elements and amount of compensation that we paid to our non-management directors during fiscal 2020.

Directors may receive additional compensation for performing duties assigned by the Board or its committees that are considered beyond the scope of the ordinary responsibilities of directors or committee members. Messrs. Darden and Kenny and Ms. Cox receive $10,000 per year for service on the Ad Hoc Committee and Mr. Downey receives $25,000 per year for chairing the Ad Hoc Committee.

Directors may elect to defer payment of their cash retainers into the Cardinal Health Deferred Compensation Plan (“DCP”). For directors, deferred balances under the DCP are paid in cash upon termination from Board service, death or disability in a single lump sum or annual installment payments over a period of five or ten years. A director also may defer receipt of common shares that otherwise would be issued on the date that RSUs vest until termination from Board service.

Our directors may participate in our matching gift program. Under this program and subject to certain restrictions, the Cardinal Health Foundation (our philanthropic affiliate) will match contributions for eligible non-profit organizations.

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Director Compensation for Fiscal 2020

The non-management directors received the following compensation during fiscal 2020:

Related Person Transactions Policy and Process

Related Person Transactions Policy

We have a written policy that the Audit Committee must approve or ratify any “related person transactions” (transactions exceeding $120,000 in which we are a participant and any related person has a direct or indirect material interest). “Related persons” include our directors, nominees for election as a director, persons controlling over 5% of our common shares, executive officers and the immediate family members of each of these individuals.

Once a related person transaction is identified, the Audit Committee will review all the relevant facts and circumstances and determine whether to approve the transaction. The Audit Committee will take into account such factors as it considers appropriate, including the material terms of the transaction, the nature of the related person’s interest in the transaction, the significance of the transaction to the related person and us, the nature of the related person’s relationship with us and whether the transaction would be likely to impair the judgment of a director or executive officer to act in our best interest.

If advance approval of a transaction is not feasible, the Audit Committee will consider the transaction for ratification at its next regularly scheduled meeting. The Audit Committee Chairman may pre-approve or ratify any related person transactions in which the aggregate amount is expected to be less than $1 million.

Related Person Transactions

Since July 1, 2019, there have been no transactions, and there are no currently proposed transactions, involving an amount exceeding $120,000 in which we were or are to be a participant and in which any related person had or will have a direct or indirect material interest.

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Audit Committee Matters

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of our independent auditor and approves the audit engagement with Ernst & Young LLP and its audit fees. The Audit Committee has appointed Ernst & Young LLP as our independent auditor for fiscal 2021 and believes that the continued retention of Ernst & Young LLP as our independent auditor is in the best interest of Cardinal Health and its shareholders. Ernst & Young LLP has served as our independent auditor since 2002. In accordance with SEC rules, lead audit partners are subject to rotation requirements, which limit the number of consecutive years an individual partner may serve us. The Audit Committee oversees the rotation of the audit partners. The Audit Committee Chairman interviews candidates for audit partner and the Audit Committee discusses them.

While not required by law, we are asking our shareholders to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2021 at the Annual Meeting as a matter of good corporate governance. If shareholders do not ratify this appointment, the Audit Committee will consider whether it is appropriate to appoint another audit firm. Even if the appointment is ratified, the Audit Committee in its discretion may appoint a different audit firm at any time during the fiscal year if it determines that such a change would be in the best interest of Cardinal Health and its shareholders. Our Audit Committee approved, and our shareholders ratified with 99% support, the appointment of Ernst & Young LLP as our independent auditor for fiscal 2020.

We expect representatives of Ernst & Young LLP to attend the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.

The Board recommends that you vote FOR the proposal to ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal 2021.

Audit Committee Report

The Audit Committee is responsible for overseeing: the integrity of Cardinal Health’s financial statements; the independent auditor’s qualifications, independence and performance; Cardinal Health’s internal audit function; Cardinal Health’s ethics and compliance program and its compliance with legal and regulatory requirements; and Cardinal Health’s processes for assessing and managing risk. As of the date of this report, the Audit Committee consists of five members of the Board of Directors. The Board of Directors has determined that each of Messrs. Johri, Losh and Scarborough is an “audit committee financial expert” for purposes of the SEC rules and that each Committee member is independent. The Audit Committee’s activities are governed by a written charter, which is available on Cardinal Health’s website at www.cardinalhealth.com under “About Us — Corporate — Investor Relations — Corporate Governance — Board Committees and Charters.”

Management has primary responsibility for the financial statements and for establishing and maintaining the system of internal control over financial reporting. Management also is responsible for reporting on the effectiveness of Cardinal Health’s internal control over financial reporting. Cardinal Health’s independent auditor, Ernst & Young LLP, is responsible for performing an independent audit of Cardinal Health’s consolidated financial statements and for issuing a report on the financial statements and a report on the effectiveness of Cardinal Health’s internal control over financial reporting based on its audit.

The Audit Committee reviewed and discussed the audited financial statements for the fiscal year ended June 30, 2020 with management and with Ernst & Young LLP. The Audit Committee also reviewed and discussed with management and Ernst & Young LLP the effectiveness of Cardinal Health’s internal control over financial reporting as well as management’s report and Ernst & Young LLP’s report on the subject. The Audit Committee discussed with Ernst & Young LLP the matters related to the conduct of its audit that are required to be communicated by auditors to audit committees under applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) and the SEC and matters related to Cardinal Health’s financial statements, including critical accounting estimates and judgments. The Audit Committee received from Ernst & Young LLP the written disclosures and letter required by the applicable requirements of the PCAOB regarding Ernst & Young LLP’s communications with the Audit Committee concerning independence and discussed with Ernst & Young LLP its independence.

The Audit Committee meets regularly with Ernst & Young LLP, with and without management present, to review the overall scope and plans for Ernst & Young LLP’s audit work and to discuss the results of its examinations, the evaluation of Cardinal Health’s internal control over financial reporting, and the overall quality of Cardinal Health’s accounting and financial reporting. In addition, the Audit Committee annually considers the performance of Ernst & Young LLP.

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In reliance on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended June 30, 2020 be included in Cardinal Health’s Annual Report on Form 10-K for filing with the SEC.

Submitted by the Audit Committee of the Board of Directors on August 12, 2020.

J. Michael Losh, Chairman
Colleen F. Arnold
Akhil Johri
Dean A. Scarborough
John H. Weiland

Fees Paid to Ernst & Young LLP

The following table sets forth the fees billed to us by Ernst & Young LLP for services in fiscal 2020 and 2019.

Policy on Pre-Approval of Services Provided by Ernst & Young LLP

The Audit Committee must pre-approve the audit and permissible non-audit services performed by our independent accountants in order to help ensure that the accountants remain independent of Cardinal Health. The Audit Committee has adopted a policy governing this pre-approval process.

Under the policy, the Audit Committee annually pre-approves certain services and assigns specific dollar thresholds for these types of services. If a proposed service is not included in the annual pre-approval, the Audit Committee must separately pre-approve the service before the engagement begins.

The Audit Committee has delegated pre-approval authority to the Audit Committee Chairman for proposed services up to $500,000. Proposed services exceeding $500,000 require full Audit Committee approval.

All audit and non-audit services provided for us by Ernst & Young LLP for fiscal 2020 and 2019 were pre-approved by the Audit Committee.

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Executive Compensation

In accordance with Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), we are asking our shareholders to approve, on a non-binding advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.

We urge shareholders to read the Compensation Discussion and Analysis beginning on the next page of this proxy statement, which describes in more detail how our executive compensation program operates and is designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables, notes and narrative appearing on pages 40 through 50, which provide detailed information on the compensation of our named executive officers.

Although this advisory vote is not binding on the Board, the Board and the Compensation Committee will review and consider the voting results when evaluating our executive compensation program.

The Board has adopted a policy providing for annual say-on-pay advisory votes. Accordingly, the next say-on-pay advisory vote will be held at our 2021 Annual Meeting of Shareholders.

The Board recommends that you vote FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in this proxy statement.

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Compensation Discussion and Analysis

Executive Summary

This Compensation Discussion and Analysis focuses on the fiscal 2020 compensation of the following current and former executive officers (the “named executive officers” or “named executives”) and describes the executive compensation program and the Compensation Committee’s decisions under it.

Fiscal 2020 Highlights

During fiscal 2020, we grew non-GAAP operating earnings, exceeded our non-GAAP EPS guidance range, surpassed our enterprise cost savings target, and strengthened our balance sheet, all while continuing to execute on our long-term strategic priorities in a rapidly-changing environment.

We achieved fiscal 2020 results as we adapted our operations to address the unique challenges presented by COVID-19. In response to the pandemic, we continued to maintain operations in all our distribution facilities, nuclear pharmacies and global manufacturing plants and successfully transitioned our office employees to a remote work model. Through all of this, our focus remained on delivering critical products and services to our customers, while protecting the health and safety of our employees.

Fiscal 2020 highlights include:

See Annex A for reconciliations to the comparable GAAP financial measures and the reasons why we use non-GAAP financial measures.

Compensation and Benefit Actions in Response to COVID-19

During the pandemic, we took actions to help our employees, including allowing those who are sick with or who have been exposed to COVID-19 to take time off without impacting their paid-time-off days, expanding availability of child and elder back-up care, and increasing communications

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to employees of the variety of well-being resources available to them, with an emphasis on mental health. We also provided additional compensation to frontline employees who continued to work during the pandemic, keeping our distribution centers, manufacturing plants and other sites running and supporting our healthcare provider customers.

For fiscal 2021, considering the performance uncertainties related to COVID-19, we decided that employees at the Vice President level and above (including our named executives) will not receive base salary increases, while non-supervisory (including frontline) employees will receive standard merit base salary increases.

Even with the unexpected negative impact of COVID-19 (approximately $100 million), we did not adjust either our annual incentive or PSU performance goals or results to remove this impact.

CFO Transitions

Jason Hollar became Chief Financial Officer on May 26, 2020. He was formerly Chief Financial Officer of Tenneco Inc. To address compensation forfeited at his former employer, we provided Mr. Hollar with initial long-term incentive grants of $1.0 million in PSUs and $1.0 million in RSUs and a $1.55 million cash sign-on bonus. He also received a $200,000 lump sum payment for relocation.

Mr. Hollar replaced David Evans who had served as our interim Chief Financial Officer from September 1, 2019 to May 25, 2020. In his interim role, Mr. Evans received cash compensation of $220,000 per month during his employment and did not participate in our annual or long-term incentive plans or our Senior Executive Severance Plan.

Former Chief Financial Officer Jorge Gomez left the company in August 2019 to pursue another opportunity. He did not receive severance and forfeited his annual incentive and unvested long-term incentive awards.

Other Executive Transitions

Stephen Mason was promoted to Chief Executive Officer — Medical Segment in August 2019. Mr. Mason, a 21-year veteran of Cardinal Health, previously led the Cardinal Health at-Home business within the Medical segment.

Shareholder Engagement and Consideration of 2019 “Say-on-Pay” Vote

At the 2019 Annual Meeting of Shareholders, our “say-on-pay” advisory vote received 93% support, our eighth straight year of over 90% shareholder support. The Compensation Committee considered this vote as well as shareholder feedback from our shareholder engagement as demonstrating strong support for our executive compensation program.

It has been our long-standing practice to engage with our shareholders throughout the year so that management and the Board can better understand shareholder perspectives on topics like executive compensation. During fiscal 2020, we again engaged with governance professionals from our largest shareholders. (See page 25 for further detail about shareholder engagement.)

Compensation Philosophy and Practices

Our compensation program is designed to support our long-term growth, with accountability for key annual results. It has the following key objectives:

Executive Compensation Governance Features

What We Have			What We Do Not Have
	Significant portion of executive pay consists of performance-based “at risk” elements			No employment agreements with executive team
	Performance goals for cost savings and corporate culture (including diversity and inclusion)			No dividend equivalents on unvested PSUs or RSUs
	Caps on annual cash incentive and PSU payouts			No executive pensions or supplemental retirement plans
	Minimum vesting period for long-term incentive awards			No repricing of underwater options without shareholder approval
	Stock ownership guidelines for directors and executive officers			No hedging or pledging of company stock
	Compensation recoupment (“clawback”) provision			No “single trigger” change of control arrangement
	Long-standing, proactive shareholder engagement program			No excise tax gross-ups upon change of control

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Elements of Compensation for Executive Officers

Our executive officers’ total direct compensation has three elements: base salary; annual incentive; and long-term incentive. In fiscal 2020, long-term incentive awards were granted 60% in PSUs and 40% in RSUs. A significant portion of executive compensation is based on company performance and is at-risk (annual incentive and PSUs). At the beginning of each performance period, the Compensation Committee sets performance goals under our annual incentive program and PSUs. After the performance period ends, the Compensation Committee evaluates the performance and determines payouts. The charts below show the fiscal 2020 target total direct compensation for our Chief Executive Officer and other current named executives.

Base Salary

At the beginning of fiscal 2020, the Compensation Committee increased the base salaries of Mr. Kaufmann by 8%, Mr. Crawford by 4% and Ms. Mayer by 5%.

The Compensation Committee set Mr. Hollar’s base salary at $700,000 when he joined us as Chief Financial Officer and set Mr. Mason’s base salary at $525,000 when he was promoted to Chief Executive Officer — Medical Segment early in the fiscal year.

Later in the fiscal year, the Compensation Committee increased Mr. Mason’s base salary by an additional 19% and Ms. Mayer’s base salary by an additional 5% based on market data for their respective roles. As internal hires, the Compensation Committee initially had set Mr. Mason’s and Ms. Mayer’s target total direct compensation lower in the market range with the expectation of adjusting it based on strong performance.

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Annual Incentive Compensation

Fiscal 2020 Goal Setting and Results

The Compensation Committee made changes to the fiscal 2020 annual incentive performance program, adding new strategic measures for cost savings and culture objectives to determine 30% of the payout. As noted earlier, even with the unexpected negative impact of COVID-19 (approximately $100 million), we did not adjust either our annual incentive performance goals or results to remove this impact.

Operating earnings goal. The Compensation Committee set the adjusted non-GAAP operating earnings target at the beginning of fiscal 2020 to align with the Board-approved budget for non-GAAP operating earnings. While the target was set below fiscal 2019 results, the Committee determined that it was appropriate and consistent with the budget and our public guidance, which reflected headwinds due to customer contract renewals and then-expected generic program performance. In light of these factors, the Compensation Committee established a payout curve that would not exceed 100% until year-over-year growth was achieved.

The earnings goal is based on non-GAAP operating earnings because it is one of our primary measures of operating performance. If we achieve the threshold earnings goal, tangible capital management operates as a modifier of the payout. Tangible capital management focuses on the efficient use of capital.

Strategic goals. The Compensation Committee set the target for cost savings to align with our publicly announced fiscal 2020 cost savings goal. The Committee set targets for corporate culture goals to advance the “Our Path Forward” initiatives discussed beginning on page 23. The culture goals, which were measured quantitatively on an enterprise-wide basis, focused on performance management (employees entering goals and performance conversation acknowledgments into our internal tracking system), change management (designated leaders completing change management playbooks), and diversity and inclusion (employees completing unconscious bias training).

We describe how we calculate these measures under “Performance Measure Calculations” beginning on page 43.

The Compensation Committee decided that the annual incentive performance funding results in the table below were appropriate with no adjustment for the positives and negatives for fiscal 2020. These included strong management performance through the COVID-19 pandemic and organizational accountability for the surgical gown recall.

Fiscal 2020 Annual Incentive Targets and Payouts

The Compensation Committee annually reviews our named executives’ annual incentive targets as a percentage of base salary. After the review at the beginning of fiscal 2020, the Committee determined not to change the targets of Messrs. Kaufmann and Crawford and Ms. Mayer. The Compensation Committee set the targets for Messrs. Hollar and Mason at 100% of their respective base salaries (the same percentages as their predecessors) in connection with the appointment to their new roles.

The Compensation Committee awarded each eligible named executive his or her fiscal 2020 annual incentive award based on the 120% enterprise funding percentage and an individual performance factor.

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Mr. Kaufmann’s annual incentive was based on strong enterprise performance, including growing non-GAAP operating earnings despite the negative impact of COVID-19, and his excellent individual performance. Among the factors the Compensation Committee considered in evaluating his individual performance were his strong leadership of the company’s response to the COVID-19 pandemic, progress made in Our Path Forward culture initiatives, continued integration of his leadership team, his continued excellent working relationship with the Board, and his prioritization of diversity and inclusion.

Mr. Hollar’s prorated annual incentive was based on enterprise performance and his swift and successful onboarding since joining us in April 2020.

Mr. Crawford’s annual incentive was based on enterprise performance and his leadership of the Pharmaceutical segment, whose segment profit exceeded expectations, with above-expectations generic pharmaceutical program performance. Mr. Crawford also showed strong leadership of his segment in the face of COVID-19 and made strong contributions to the company’s progress on diversity and inclusion. He also was instrumental in the progress the Pharmaceutical segment made in Our Path Forward culture initiatives.

Mr. Mason’s annual incentive was based on enterprise performance and his leadership of the Medical segment, stepping in early in the fiscal year to lead initiatives underway to drive longer-term growth. Under his leadership, the segment significantly overachieved its cost savings target. He also managed the segment through the challenges of COVID-19 and the surgical gown recall and made strong contributions to the company’s progress on diversity and inclusion. He also was instrumental in the progress the Medical segment made in Our Path Forward culture initiatives.

Ms. Mayer’s annual incentive was based on enterprise performance, her performance leading our legal and compliance functions, and her assuming responsibility mid-year for our quality function. Ms. Mayer also managed her functions through the challenges of COVID-19 and the surgical gown recall and was instrumental in the progress her functions made in Our Path Forward culture initiatives.

Long-Term Incentive Compensation

For fiscal 2020, long-term incentive awards were delivered 60% in PSUs and 40% in RSUs. As noted earlier, even with the unexpected negative impact of COVID-19 (approximately $100 million), we did not adjust either our PSU performance goals or results to remove this impact.

Fiscal 2020 Long-Term Incentive Grants

The Compensation Committee annually reviews our named executives’ long-term incentive targets. At the beginning of fiscal 2020, based primarily on market data, the Committee increased Mr. Kaufmann’s target to $10.0 million (from $9.0 million) and Ms. Mayer’s target to $1.75 million. The Compensation Committee set Mr. Hollar’s target at $2.5 million when he joined us and Mr. Mason’s target at $2.25 million when he was promoted.

The following table shows the long-term incentive awards made in the fiscal 2020 annual grant to the named executives at the time.

In May 2020, when he joined us as Chief Financial Officer, we provided Mr. Hollar with initial long-term incentive grants of $1.0 million in PSUs and $1.0 million in RSUs. These grants and his cash sign-on bonus were intended to address compensation he forfeited when he left his prior employer.

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Fiscal 2018-2020 PSU Payouts

In August 2020, the Compensation Committee certified the payout level of the PSUs granted for the fiscal 2018 through fiscal 2020 performance cycle (the “Fiscal 18-20 PSUs”). The Fiscal 18-20 PSUs were earned based on the average of the adjusted non-GAAP EPS payout level for each of the three fiscal years in the performance period, as adjusted by a relative TSR modifier.

The following table shows the target and earned Fiscal 18-20 PSUs for those named executives who had received this grant.

Fiscal 2020-2022 PSU Grants

When granting PSUs for the fiscal 2020 through fiscal 2022 performance cycle (the “Fiscal 20-22 PSUs”), the Compensation Committee changed its approach to setting adjusted non-GAAP EPS goals and added new strategic measures for cost savings and culture.

EPS goal. Adjusted non-GAAP EPS remains the primary PSU performance measure because non-GAAP EPS is one of our primary measures of operating performance and is an important measure used by the investment community to evaluate our performance. The EPS goal is a three-year cumulative goal, which is the sum of annual targets set by the Compensation Committee. The Compensation Committee set the adjusted non-GAAP EPS target for fiscal 2020 at $5.00 to align with the Board-approved budget. The target was consistent with our public EPS guidance range issued at the beginning of fiscal 2020.

The Compensation Committee changed its EPS goal-setting approach to address significant healthcare industry uncertainties that the company has been facing. These uncertainties have made setting appropriate three-year goals very challenging. The Compensation Committee will continue to evaluate its goal-setting approach, especially in light of the COVID-19 pandemic; when it made the change, the Committee viewed it as temporary.

Strategic goals. The Compensation Committee added a three-year cost savings measure based on an annual run rate in cost savings projects implemented before the end of fiscal 2022. The Compensation Committee set the three-year cost savings target to align with our internal and publicly announced five-year goal of more than $500 million. The Committee also added an Our Path Forward — Culture measure (see pages 23 and 24 for a discussion of Our Path Forward) focused on a leadership score improvement from our employee engagement surveys.

TSR modifier. A relative TSR modifier measured over a three-year period continues to link this long-term incentive compensation directly to our relative shareholder returns. We use the S&P 500 Health Care Index as the peer group because it is an objective, widely available index with broad representation in the healthcare sector.

Operating cash flow threshold. Operating cash flow must exceed net earnings for the first two years of the performance period for any of the Fiscal 20-22 PSUs to vest, regardless of whether the other goals are achieved.

We describe how we calculate these measures under “Performance Measure Calculations” beginning on page 43.

Other Elements of Compensation

401(k) Savings and Deferred Compensation Plans

Our 401(k) Savings Plan and DCP allow most of our U.S.-based employees to accumulate value on a tax-deferred basis and allow us to be competitive in recruiting and retaining talent. Our DCP permits certain management employees, including the named executives, to defer payment and taxation of a portion of their salary and annual incentive compensation into a variety of different investment alternatives. We make matching contributions subject to limits discussed under “Deferred Compensation” on page 46. We also may make additional contributions to the 401(k) Savings Plan and DCP on the same basis for all employees. Named executives also may elect to defer payment and taxation of PSUs and RSUs.

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Other Benefits and Perquisites

The Compensation Committee encourages use of our corporate aircraft for the personal travel of our Chief Executive Officer because it increases his time available for business purposes and enhances his safety and security, especially during the COVID-19 pandemic. Mr. Kaufmann’s fiscal 2020 personal travel allowance was $150,000. He does not receive tax reimbursement for any imputed income associated with personal travel. Mr. Kaufmann has an aircraft time-sharing agreement, under which he may reimburse us for incremental costs when he uses the aircraft for personal travel. Reimbursed travel does not count against his allowance.

Relocation assistance is an important tool for us to recruit talent. We provided Mr. Hollar a $200,000 lump sum payment for relocation. Our offer letter agreement with Mr. Hollar allows us to recover the full relocation payment if he voluntarily leaves the company during the first year following his start date and 50% of it if he leaves during the second year following his start date.

Severance and Change of Control Benefits

Under our Board-adopted Senior Executive Severance Plan (the “Severance Plan”), our named executives are eligible for severance benefits under certain circumstances. Specifically, if

then, the named executive will receive:

Receipt of these amounts is conditioned upon execution of a general release and compliance with certain restrictive covenants.

During fiscal 2020, the Compensation Committee amended the definition of “Termination for Cause” under the Severance Plan to include committing fraud or theft or violating the Standards of Business Conduct or any other written company policy.

We believe that the Severance Plan is competitive with market practices and provides appropriate levels of compensation under standard terms and conditions related to executive separations. These benefits are an important component of our compensation packages designed to attract and retain top caliber talent in senior leadership roles and define terms and conditions of separation events.

We do not have any agreements to provide change-of-control excise tax gross-ups. We discuss our severance payments and benefits in detail under “Potential Payments on Termination of Employment or Change of Control” beginning on page 47.

Our Policies, Guidelines and Practices Related to Executive Compensation

Role of Compensation Committee’s Compensation Consultant

The Compensation Committee has utilized Korn Ferry as its independent executive compensation consultant since 2018. The nature and scope of the consultant’s engagement consists primarily of:

The Compensation Committee has made an assessment under the factors set forth in the NYSE rules and concluded that Korn Ferry is independent and that the firm’s work for the Compensation Committee does not raise any conflicts of interest. In making this assessment, the Committee considered other services that Korn Ferry provides to management.

Role of Executive Officers

Our Chief Executive Officer and Chief Human Resources Officer participate in Compensation Committee meetings to make recommendations regarding program design and compensation amounts, present performance assessments of the named executives (other than our Chief Executive Officer) and discuss company performance. The Compensation Committee delegates authority to our executive officers to administer compensation plans for participants who are not officers subject to Section 16 of the Exchange Act.

Our Chief Executive Officer reviews performance objectives with the Compensation Committee at the beginning of the fiscal year. At the end of the fiscal year, the Compensation Committee reviews and discusses the performance and compensation of the Chief Executive Officer in executive session and with the Chairman of the Board. The Chief Executive Officer does not participate in decisions regarding his own compensation.

Comparator Group

The Compensation Committee establishes target compensation levels based on a variety of factors, including data from a “Comparator Group” of similarly situated public companies, which helps the Compensation Committee to assess whether our executive pay remains reasonable and competitive in the marketplace. Developed with the assistance of the Compensation Committee’s compensation consultant, our Comparator Group reflects the industry in which we primarily compete for executive talent and includes direct competitors and other companies in the healthcare field. Our Comparator Group also includes air/freight and logistics companies and retailers and because of their similar size and business models.

The following companies comprised the Comparator Group for fiscal 2020 executive pay decisions:

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The Compensation Committee, working with its compensation consultant, periodically reviews the group’s composition to ensure that the companies remain relevant for comparison purposes. The Compensation Committee uses the following key guidelines when it reviews the Comparator Group’s composition with the assistance of Korn Ferry:

Our revenue is in the top quintile of the Comparator Group and our market capitalization is in the bottom quintile.

Our Compensation Committee compares total direct compensation (base salary plus annual and long-term incentive) against the median of the Comparator Group as a reference point in setting target compensation levels. In addition to competitive market data, the Compensation Committee also considers internal pay equity and an executive’s experience, scope of responsibility, individual performance, potential, and unique or hard-to-replace skills, as well as retention considerations.

Risk Assessment of Compensation Programs

Management has assessed our compensation programs and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on Cardinal Health. This risk assessment included reviewing the design and operation of our compensation programs, identifying and evaluating situations or compensation elements that could raise more significant risks and evaluating other controls and processes designed to identify and manage risk. The Compensation Committee along with Korn Ferry reviewed the risk assessment and concurred with management’s conclusion.

CFO Offer Letters

Jason Hollar joined us as in April 2020 and became Chief Financial Officer on May 26, 2020. Mr. Hollar’s offer letter set his initial base salary and annual and long-term incentive targets. To address compensation forfeited at his former employer, the offer letter provided for Mr. Hollar to receive initial long-term incentive grants of $1.0 million in PSUs and $1.0 million in RSUs and a $1.55 million cash sign-on bonus. The offer letter also provided for a $200,000 lump sum payment for relocation. Under the terms of the offer letter, Mr. Hollar must repay 100% of the sign-on bonus and the relocation payment if he voluntarily leaves the company during the first year following his start date and 50% of it if he leaves during the second year following his start date.

David Evans served as our interim Chief Financial Officer from September 1, 2019 until May 25, 2020. Mr. Evans’ offer letter provided him with monthly cash compensation during his time of employment with a minimum duration of five months. In his interim role, he did not participate in our annual or long-term incentive award programs or our Severance Plan.

We discuss the terms of Messrs. Hollar’s and Evans’ offer letters in more detail under “CFO Offer Letters” on page 41.

Stock Ownership Guidelines

We have stock ownership guidelines to align the interests of executive officers and directors with the interests of our shareholders. The guidelines specify a dollar value (expressed as a multiple of salary or cash retainer) of shares that executive officers and directors must accumulate and hold while serving in these positions.

We count common shares, RSUs and phantom shares held through the DCP under the stock ownership guidelines. Executive officers and directors must retain 100% of the net after-tax shares received under any equity awards until they satisfy the required ownership levels.

Non-GAAP Financial Measures

Our primary annual incentive and PSU performance measures are based on the same non-GAAP financial measures that we use internally for planning and evaluating our performance and present externally in our earnings materials and SEC reports. We adjust these non-GAAP financial measures to exclude some items that are included in our GAAP measures, such as restructuring and employee severance costs, amortization and other acquisition-related costs, impairments and gain or loss on disposal of assets and net litigation recoveries or charges. We make these adjustments primarily because they are not part of our ongoing operations or included in our financial planning, or they relate to events that may have occurred in prior or multiple periods or their timing or amount is inherently unpredictable.

We excluded the following charges and gains, among others, from our non-GAAP financial measures during relevant periods:

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We explain the adjustments to our non-GAAP financial measures and provide a reconciliation to GAAP measures in Annex A.

When determining the payout level for the Fiscal 18-20 PSUs, we removed the positive impact of a benefit from a change in U.S. federal rate of $135 million ($0.43 per share) that was reflected in our fiscal 2018 non-GAAP financial measures.

In addition, the negative impact of COVID-19, which we estimate had a net negative impact on operating earnings of approximately $100 million, was reflected in our fiscal 2020 non-GAAP financial measures and, as noted earlier, we did not adjust either our annual incentive or PSU performance goals or results to remove this impact.

Potential Impact on Compensation from Executive Misconduct (“Clawbacks”)

Our 2011 LTIP and equity award agreements provide that we may require repayment of cash incentives and gains realized under equity awards and cancel outstanding equity awards in specified instances of executive misconduct, including misconduct causing a financial statement restatement or a material violation of law or of our Standards of Business Conduct that causes material financial harm to us.

We will disclose publicly the incentive compensation forfeitures or repayments from our executive officers if required by law or if we have already disclosed publicly the underlying event triggering the forfeiture or repayment and the disclosure would not violate any individual’s privacy rights, is not likely to result in or exacerbate any existing or threatened employee, shareholder or other litigation, arbitration, investigation or proceeding against us, and is not otherwise prohibited.

These clawback provisions support our compliance and risk management programs. We discuss the provisions in more detail under “Potential Impact on Compensation from Executive Misconduct (“Clawbacks”)” on page 45.

Hedging and Pledging Shares

Our Board has adopted a policy prohibiting all employees and directors from entering into short sales, publicly traded options, puts and calls, forward sale contracts and other swap, hedging or derivative transactions relating to our securities. The Board also has adopted a policy prohibiting our executive officers and directors from holding our securities in margin accounts or pledging our securities as collateral for a loan.

Equity Grant Practices

The Compensation Committee typically approves the annual equity grant in August of each year and sets August 15 as the grant date. The Compensation Committee expects the annual grant date to follow the release of earnings for the prior fiscal year in early August, without regard to whether we are aware of material nonpublic information.

Equity Dilution Practices

Our fiscal 2020 annual equity run rate was 0.92%. We calculate our equity run rate as the total number of shares subject to equity awards granted in the fiscal year divided by the weighted average number of our common shares outstanding during the fiscal year.

Human Resources and Compensation Committee Report

We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Submitted by the Human Resources and Compensation Committee of the Board.

Carrie S. Cox, Chairman
Calvin Darden
Patricia A. Hemingway Hall
Nancy Killefer

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Executive Compensation Tables

The table below summarizes fiscal 2020 compensation for:

Summary Compensation Table

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All Other Compensation

The amounts shown for “All Other Compensation” for fiscal 2020 include: company contributions to the named executive’s account under our 401(k) plan; company contributions to the named executive’s account under our DCP; and perquisites, in the following amounts:

CFO Offer Letters

Mr. Hollar became our Chief Financial Officer on May 26, 2020. We entered into an offer letter with him in March 2020 providing for:

To address compensation forfeited at his former employer, the offer letter provided that Mr. Hollar receive initial long-term incentive grants of $1.0 million in PSUs and $1.0 million in RSUs and a $1.55 million cash sign-on bonus. The offer letter also provided for a $200,000 lump sum payment for relocation. Under the terms of the offer letter, Mr. Hollar must repay the full sign-on bonus and the relocation payment if he voluntarily leaves the company during the first year following his start date and 50% of it if he leaves during the second year following his start date.

Mr. Evans served as our interim Chief Financial Officer from September 1, 2019 until May 25, 2020. Mr. Evans’ offer letter provided him with monthly cash compensation of $220,000 during his time of employment with a minimum duration of five months. He did not participate in our annual or long-term incentive award programs or our Severance Plan.

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Grants of Plan-Based Awards for Fiscal 2020

The table below supplements our Summary Compensation Table by providing additional information about our plan-based compensation for fiscal 2020.

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2011 Long-Term Incentive Plan

Our key executive employees, including our named executives, are eligible to receive annual cash incentive awards under our 2011 LTIP. As discussed in the Compensation Discussion and Analysis, for 70% of the fiscal 2020 annual incentive award payout, the Compensation Committee set a performance goal of adjusted non-GAAP operating earnings and established a matrix of potential funding percentages based upon achievement of varying levels of earnings, subject to adjustment based on tangible capital performance. The Compensation Committee set additional strategic goals for cost savings and Our Path Forward — Culture for the remaining 30%. Based on performance against these goals, an aggregate funding percentage determines the named executives’ annual incentive awards before applying an individual performance factor. The performance goals established by the Compensation Committee may vary from year to year.

The 2011 LTIP provides that the timing of payment of any cash award will occur on or before the 15th day of the third month after the end of the applicable performance period, unless the Compensation Committee exercises its discretion to specify another payment date or to defer payments. The 2011 LTIP also grants the Compensation Committee broad discretion to assess and determine the amounts payable, including how performance was achieved and whether there were inappropriate risks undertaken or conduct by individual participants. In practice, the Compensation Committee has deferred decisions on payment of awards under the annual cash incentive program until fiscal year-end audited financial statements are substantially complete to support its assessment of the company’s and named executives’ performance. The Compensation Committee retains discretion to adjust upward or downward the amount payable under a cash award, including, if appropriate, to support the company’s clawback policy. It also may make annual incentive awards to named executives even if we do not achieve the threshold performance goals.

Under our 2011 LTIP, we also may grant stock options, stock appreciation rights, stock awards and other stock-based awards to employees. During fiscal 2020, we granted PSUs and RSUs under the 2011 LTIP to our named executives, as shown in the Grants of Plan-Based Awards for Fiscal 2020 table on page 42 and discussed in Compensation Discussion and Analysis. The 2011 LTIP provides for “double-trigger” accelerated vesting in connection with a change of control, under which the vesting of awards will accelerate only if there is a qualifying termination within two years after the change of control or if the surviving entity does not provide qualifying replacement awards.

We have one-year minimum vesting provisions in our 2011 LTIP. Under these provisions, stock options and stock awards are subject to a one-year vesting condition, except upon a change of control or the death or disability of the grantee or for up to an aggregate not to exceed 5% of the total number of shares provided for in the 2011 LTIP.

PSUs granted under the 2011 LTIP settle after a performance period by the issuance of shares, which may be a fraction or multiple of the target number of PSUs subject to an award. Issuance of the shares is subject to both continued employment and the achievement of performance goals established by the Compensation Committee (which vary from award to award).

As discussed in the Compensation Discussion and Analysis, the Compensation Committee established performance goals for the Fiscal 20-22 PSUs based on cumulative adjusted non-GAAP EPS over three annual periods for 70% of the payout and cost savings and Our Path Forward — Culture strategic goals for the remaining 30%. A modifier based on TSR relative to the S&P 500 Health Care Index is then applied to determine the final payout. A cashflow threshold must be achieved to receive any payout.

We describe how we calculate the measures referred to in this section under “Performance Measure Calculations” below.

Performance Measure Calculations

Our primary annual incentive and PSU performance measures are based on the same non-GAAP financial measures that we use internally for planning and evaluating our performance and present externally in our earnings materials and SEC reports. We adjust these non-GAAP financial measures to exclude some items that are included in our GAAP measures, such as restructuring and employee severance costs, amortization and other acquisition-related costs, impairments and gain or loss on disposal of assets and net litigation recoveries or charges. We make these adjustments primarily because they are not part of our ongoing operations or included in our financial planning, or they relate to events that may have occurred in prior or multiple periods or their timing or amount is inherently unpredictable. We explain the adjustments to our non-GAAP financial measures and provide a reconciliation to GAAP measures in Annex A. See also “Non-GAAP Financial Measures” in Compensation Discussion and Analysis beginning on page 38 for a discussion of certain adjustments we made during relevant periods.

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Potential Impact on Compensation from Executive Misconduct (“Clawbacks”)

The 2011 LTIP authorizes us to seek repayment of incentive awards if a named executive engages in misconduct that causes or contributes to the need to restate previously filed financial statements and the payment was based on financial results that we subsequently restate. In addition, cash awards granted under the 2011 LTIP may be subject to repayment if a named executive engaged in a material violation of law or of our Standards of Business Conduct and this conduct caused material financial harm to us.

Under our 2011 LTIP and stock option, PSU and RSU agreements, unpaid annual cash incentive awards, unexercised stock options, unvested PSUs and RSUs and certain vested PSUs and RSUs are forfeited if a named executive breaches our Standards of Business Conduct, discloses confidential information, commits fraud, gross negligence or willful misconduct, solicits business or our employees, disparages us or engages in competitive actions while employed by Cardinal Health or during a set time period after termination of employment. We also may require a named executive to repay the gross gain realized from any stock option exercises or the value of annual cash incentive awards paid or PSUs and RSUs settled within a set time period prior to such conduct.

Outstanding Equity Awards at Fiscal Year-End for Fiscal 2020

The table below shows the number of shares underlying exercisable and unexercisable stock options and unvested PSUs and RSUs held by our named executives on June 30, 2020.