Investment
Office
P.O.
Box
2749
Sacramento,
CA 95812-2749
Telecommunications
Device for the Deaf - (916) 795-3240
(916)
795-3400; FAX (916) 795-2842
October
19, 2006
Dear
Cardinal Health Shareholder:
Earlier
this year, we highlighted Cardinal Health on our Focus List due to its lack
of
commitment to good corporate governance and underperformance relative to
the
S&P 500 and its industry peer group over the 3 and 5 year time period.
Currently, Cardinal underperforms
its
S&P Industry Peer Index by more than 53%
and
82%
respectively over the 3 and 5 year time period as of September 29,
2006.
CalPERS
is concerned with the company’s compensation and severance practices. As a
shareowner, we urge you to pay particular attention to an important matter
on
the proxy materials you recently received for the Annual Meeting of Shareowners
scheduled to be held on November 8, 2006.
This
proposal (Proposal 3 on Cardinal Health’s proxy card) which we sponsored
asks
for your approval to amend the Company’s by-laws to control against egregious
severance payments. We are not seeking to limit severance payouts, but we
do
believe that shareowners need to have the ability to approve certain large
payouts.
Accordingly,
Proposal 3 aims to require the Board to seek shareowner ratification of any
Severance Agreement with any Officer that provides Severance Benefits with
a
total present value exceeding 2.99 times the sum of the Officer’s base salary
plus target bonus.
DO
NOT BE MISLED
In
August, only after we submitted this proposal did the company’s Board of
Directors announce that the company had amended its agreement with several
of
its executives requiring shareowner approval for “Severance Benefits” that
exceed 2.99 times Base Salary and Bonus.
This
change that Cardinal Health’s management has made is a step in the right
direction but does not go far enough. Cardinal’s
current severance policy excludes the granting and acceleration of equity
as a
result of a merger, acquisition or spin-off regardless of performance. Since
the
Company’s severance policy does not include the granting of equity, shareowners
would not have the ability to approve potentially egregious payouts.
CalPERS
is interested in paying for performance. If management delivers performance,
why
wouldn’t shareowners approve pay-outs that reward them for this performance?
The
adoption of this by-law amendment, in CalPERS’ opinion still allows the Company
the flexibility it needs to attract qualified individuals to serve in Officer
positions.
SEND
A
MESSAGE TO THE BOARD OF CARDINAL HEALTH.
VOTE
FOR
PROPOSAL 3.
We
are
apparently not the only ones that believe these policies are in the best
interests of shareholders:
| § |
According
to their policies, both
ISS and Glass Lewis support proposals that seek to require approval
if the
benefit exceeds 2.99 times the amount of the executive's base salary
plus
bonus,
|
| § |
Almost
2/3 of these proposals filed at companies over the past five years
have
received majority shareowner support.
|
We
urge you to support this important initiative by voting for Proposal 3.
Please
refer to the proxy statement for more information or call The Altman Group,
Inc.
at (201) 460-1200 who is assisting us with this effort if you have any questions
or need assistance in voting your shares.
Sincerely,
Christianna
Wood
Senior
Investment Officer, Global Equity
PLEASE
NOTE:
The cost
of this solicitation is being borne entirely by CalPERS and is being done
through the use of one or more of the following forms of communication: mail,
e-mail, and/or telephone communication. CalPERS is not asking for your proxy
card. Please
do not send us your proxy card but return it to the proxy voting agent in
the
envelope that was provided to you.
California
Public Employees’ Retirement System
Lincoln
Plaza - 400 Q Street - Sacramento, CA
95814