UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant þ

 Filed by a Party other than the Registrant  o

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o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

AmerisourceBergen Corporation

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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January 14, 2011

 

Dear Stockholder:

 

I am pleased to invite you to attend our 2011 Annual Meeting of Stockholders on Thursday, February 17, 2011, at 2:00 p.m., Eastern Time. The meeting will be held at the Four Seasons Hotel Philadelphia, One Logan Square, Philadelphia, Pennsylvania.

 

The Notice of the 2011 Annual Meeting of Stockholders and the Proxy Statement describe the items of business for the meeting. At the meeting we will also report on AmerisourceBergen’s performance and operations during fiscal year 2010 and respond to stockholder questions.

 

Your vote is very important. Whether or not you plan to attend the 2011 Annual Meeting of Stockholders, we urge you to vote and to submit your proxy over the Internet, by telephone or by mail. If you are a registered stockholder and attend the meeting, you may revoke the proxy and vote your shares in person. If you hold your shares through a bank or broker and want to vote your shares in person at the meeting, please contact your bank or broker to obtain a legal proxy.

 

Thank you for your support.

 

Sincerely,

 

 

RICHARD C. GOZON
Chairman of the Board

 

Notice of 2011 Annual Meeting of Stockholders

 

 

By order of the Board of Directors,

 

 

JOHN G. CHOU
Senior Vice President, General Counsel and Secretary

January 14, 2011

AmerisourceBergen Corporation
1300 Morris Drive
Chesterbrook, PA 19087

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

 

Why am I being furnished this Proxy Statement?

 

This Proxy Statement is furnished by our Board of Directors in connection with its solicitation of proxies for use at the 2011 Annual Meeting of Stockholders to be held February 17, 2011, and at any adjournments thereof. Our Annual Report on Form 10-K for the fiscal year ended September 30, 2010 accompanies this Notice and Proxy Statement, but is not incorporated as a part of the Proxy Statement and is not to be regarded as part of the proxy solicitation material.

 

What are the items of business for the meeting?

 

The items of business for the meeting are as follows:

 

 

Who is soliciting my proxy?

 

The Board of Directors is soliciting your proxy in order to provide you with an opportunity to vote on all matters scheduled to come before the meeting whether or not you attend the meeting in person.

 

May I view the proxy materials online?

 

We are providing access to our proxy materials over the Internet. You may access our proxy materials at www.amerisourcebergen.com.

 

Who is entitled to vote?

 

You may vote if you owned shares of our common stock as of the close of business on December 20, 2010, which is the record date. You are entitled to one vote for each share of common stock that you own. As of December 20, 2010, we had 275,327,449 shares of common stock outstanding.

 

What shares can I vote?

 

You may vote all shares owned by you as of the close of business on December 20, 2010, the record date. These shares include:

 

 

How do I vote before the meeting?

 

If you hold your shares in your own name as the stockholder of record, you have three options for voting and submitting your proxy before the meeting:

 

 

If you hold your shares through an account with a bank or broker, your ability to vote over the Internet or by telephone depends on the voting procedures of the bank or broker. Please follow the directions provided to you by your bank or broker.

 

May I vote at the meeting?

 

You may vote your shares at the meeting if you attend in person. If you hold your shares through an account with a bank or broker, you must obtain a legal proxy from the bank or broker in order to vote at the meeting.

 

Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. You may vote by proxy over the Internet, by telephone or by mail.

 

How do I revoke my proxy?

 

If you are the stockholder of record, you may revoke your proxy at any time before the polls close at the meeting. You may revoke your proxy by:

 

 

If you hold your shares through an account with a bank or broker, your ability to revoke your proxy depends on the voting procedures of the bank or broker. Please follow the directions provided to you by your bank or broker.

 

May I change my vote?

 

You may change your vote at any time before the polls close at the meeting. You may change your vote by:

 

 

What if I return my proxy card but do not provide voting instructions?

 

Proxy cards that are signed and returned but do not contain instructions will be voted as follows:

 

 

 

What does it mean if I receive more than one proxy card or instruction form?

 

It means that you have multiple accounts with our transfer agent and/or banks or brokers. Please vote all of your shares.

 

We recommend that you consolidate as many accounts as possible under the same name and address. For assistance consolidating accounts where you are the stockholder of record, you may contact our transfer agent, BNY Mellon, at 1-866-233-1957.

 

Will my shares be voted if I do not provide my proxy?

 

If you are a registered stockholder and do not provide a proxy, you must attend the meeting in order to vote your shares.

 

If you hold shares through an account with a bank or broker, your shares may be voted on certain matters even if you do not provide voting instructions to your bank or broker. Banks and brokers have the authority under the rules of the New York Stock Exchange, or NYSE, to vote shares for which their customers do not provide voting instructions on certain routine matters. The ratification of the appointment of our independent registered public accounting firm (Item 2 on the Proxy Card) and the amendment of our Amended and Restated Certification of Incorporation to provide for the annual election of directors (Item 5 on the Proxy Card) are considered routine matters for which banks and brokers may vote without specific voting instructions from their customers.

 

May stockholders ask questions at the meeting?

 

Yes. Representatives of AmerisourceBergen will answer stockholders’ questions of general interest at the end of the meeting. In order to be eligible to ask questions at the meeting, you must be able to establish that you are a stockholder either as of December 20, 2010 or as of the date of the meeting.

 

How many votes must be present to hold the meeting?

 

In order for us to conduct our meeting, a majority of the shares of our common stock outstanding as of December 20, 2010 must be present in person or by proxy at the meeting. This is referred to as a quorum. Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy over the Internet, by telephone or by mail. Shares voted by banks or brokers on behalf of beneficial owners also are counted as present at the meeting. In addition, abstentions and broker non-votes will be counted for purposes of establishing a quorum with respect to any matter properly brought before the meeting. Broker non-votes occur on a matter when a bank or broker is not permitted under applicable rules and regulations to vote on a matter without instruction from the beneficial owner of the underlying shares and no instruction has been given.

 

How many votes are needed for each proposal and how are the votes counted?

 

The favorable vote of a majority of the votes cast will be required for the election of each director (Item 1 on the Proxy Card).

 

A majority of the votes cast means that the votes cast “for” a director exceed the number of votes cast “against” that director. Abstentions and broker non-votes are disregarded when determining if a majority of the votes have been cast in favor of a director.

The favorable vote of a majority of the shares of our common stock outstanding will be required for the approval of the amendment of our Amended and Restated Certificate of Incorporation to provide for the annual election of directors (Item 5 on the Proxy Card).

 

The favorable vote of a majority of the shares present in person or by proxy and entitled to vote will be required for:

 

 

Abstentions will be counted toward the tabulation of votes cast on Items 2, 3, 4, 5 and 6 and will have the effect of negative votes. Under NYSE rules, Items 2 and 5 are considered routine matters on which brokers will be permitted to vote in their discretion even if the beneficial owners do not provide voting instructions. However, Items 3, 4 and 6 are not considered routine matters under NYSE rules, and brokers will not be permitted to vote on Items 3, 4 or 6 if the beneficial owners fail to provide voting instructions. Broker non-votes will have the effect of negative votes.

 

How will proxies be voted on other items or matters that properly come before the meeting?

 

If any other items or matters properly come before the meeting, the proxies received will be voted on those items or matters in accordance with the discretion of the proxy holders.

 

Is AmerisourceBergen aware of any other item of business that will be presented at the meeting?

 

We are not aware of any other business to be presented at the 2011 Annual Meeting of Stockholders. However, if any other matter should properly come before the 2011 Annual Meeting of Stockholders, the enclosed proxy confers discretionary authority with respect to such matter.

 

Will there be any further solicitation of proxies for the meeting?

 

Our directors, officers and employees may solicit proxies by telephone or in person. In addition, we have hired Morrow & Co., LLC to assist us in soliciting proxies, if necessary. Morrow may solicit proxies by telephone or in person. We will pay Morrow a fee of $10,000, plus expenses, for providing such services. All costs and expenses of any solicitation, including the cost of preparing and mailing this Proxy Statement and posting it on the Internet, will be borne by AmerisourceBergen.

 

Will AmerisourceBergen reimburse any expenses of banks, brokers, nominees and fiduciaries?

 

We will reimburse the expenses of banks, brokers, nominees and fiduciaries that send notices, proxies and proxy materials to our stockholders.

 

Will the directors be in attendance at the meeting?

 

We currently expect all of our directors to be in attendance at the 2011 Annual Meeting of Stockholders. It has been customary for our directors to attend our annual meetings of stockholders. All of our directors attended the 2010 Annual Meeting of Stockholders.

 

How often are directors elected?

 

AmerisourceBergen’s directors are currently divided into three classes of three directors each — Class I, Class II and Class III. The directors of each class serve for a term of three years. The terms of office of the classes are currently staggered so that only one class of directors is elected at each annual meeting of stockholders.

 

We are proposing an amendment to our Amended and Restated Certificate of Incorporation to be voted on by our stockholders at the 2011 Annual Meeting of Stockholders that would, if adopted, eliminate the classification of our Board. Any directors who have already been elected to serve three-year terms, including the Class I directors (if they are all elected at this meeting), will serve until the earlier of their resignation or expiration of their terms. Directors whose terms expire in 2012 and beyond will be nominated for election to a term of one year.

 

How many directors are to be elected at the meeting?

 

The term of office of the current Class I directors will expire at the 2011 Annual Meeting of Stockholders. There currently are three Class I directors, all of whom have been nominated for election at the 2011 Annual Meeting of Stockholders.

 

What is the size of the Board of Directors?

 

The current size of the Board of Directors is nine.

 

Who are the current Class I directors?

 

The current Class I directors are Charles H. Cotros, Jane E. Henney, M.D. and R. David Yost.

 

Who are this year’s nominees?

 

Mr. Cotros, Dr. Henney and Mr. Yost will stand for re-election as Class I directors.

 

Which of this year’s nominees are independent?

 

Mr. Cotros and Dr. Henney are independent (as independence is defined in Section 303A of the NYSE Listed Company Manual and in our corporate governance principles).

 

What is the term of office for which this year’s nominees are to be elected?

 

The nominees are to be elected for a three-year term and are expected to hold office until the 2014 Annual Meeting of Stockholders and until their successors are elected and qualified.

 

What if a nominee is unwilling or unable to serve?

 

Each nominee for director has consented to his nomination and, so far as the Board of Directors and management are aware, intends to serve a full term as a director if elected. However, if any of the nominees should become unavailable or unable to stand for election prior to the election, the shares represented by proxies may be voted for the election of substitute nominees selected by the Board of Directors.

Biographical information about this year’s nominees:

 

 

 

 

How does the Board of Directors recommend that I vote?

 

We recommend that you vote For the election of each of the three nominees named in this Proxy Statement to the Board of Directors.

 

Who are the Class II directors?

 

The Class II directors are Richard C. Gozon, Kathleen W. Hyle and Michael J. Long.

 

When does the term of the Class II directors expire?

 

The term of office of the Class II directors will expire at the 2012 Annual Meeting of Stockholders.

 

Biographical information about Class II directors:

 

 

 

 

Who are the Class III directors?

 

The Class III directors are Richard W. Gochnauer, Edward E. Hagenlocker and Henry W. McGee.

 

When does the term of the Class III directors expire?

 

The term of office of the Class III directors will expire at the 2013 Annual Meeting of Stockholders.

 

Biographical information about Class III directors:

 

 

 

 

Are there any family relationships among AmerisourceBergen’s directors and executive officers?

 

No.

 

What are the committees of the Board of Directors?

 

The Board of Directors has the following standing committees: Executive and Finance; Audit and Corporate Responsibility; Compensation and Succession Planning; and Governance and Nominating.

 

 

How often did the Board and the committees meet in fiscal year 2010?

 

During fiscal year 2010, the Board of Directors met five times; the Executive and Finance Committee met three times; the Audit and Corporate Responsibility Committee met twelve times; the Compensation and Succession Planning Committee met five times; and the Governance and Nominating Committee met five times.

 

Did each director attend at least 75% of the meetings of the Board of Directors and of the committees on which he or she served?

 

Yes.

Do the non-management directors meet regularly?

 

The non-management directors meet at or near the end of each regularly scheduled meeting of the Board of Directors. The Chairman of the Board of Directors presides at such meetings. If the Chairman is not present, the committee chairs preside on a rotating basis.

 

How do interested parties make their concerns known to the non-management directors?

 

Interested parties who wish to make any concerns known to the non-management directors may submit communications at any time in writing to: John G. Chou, Secretary, AmerisourceBergen Corporation, 1300 Morris Drive, Chesterbrook, Pennsylvania 19087. AmerisourceBergen’s Secretary will determine, in his good faith judgment, which communications will be relayed to the non-management directors.

 

How are directors compensated?

 

The following table summarizes the total compensation earned by directors who were not employees of AmerisourceBergen during fiscal year 2010. Directors who are employees of AmerisourceBergen receive no compensation for their service as directors or as members of Board committees.

 

Non-Employee Director Compensation at 2010 Fiscal Year End

 

 

 

 

Director Fees.  We pay our non-employee directors an annual retainer and meeting attendance fees in quarterly increments during the course of each year. During fiscal year 2010, the Chairman of the Board received an annual retainer of $90,000 and each other non-employee director received an annual retainer of $60,000. Ms. Hyle received a pro-rated portion of the annual retainer and fee for fiscal year 2010, the year in which she joined the Board. As explained below, a

director may elect to have the annual retainer paid in cash, restricted common stock or options exercisable for common stock or credited to a deferred compensation account. For attending a Board meeting in person, the Chairman of the Board receives $7,500 and each other non-employee director receives $3,000. For attending a committee meeting in person, the Chairs of the Audit and Corporate Responsibility Committee and the Compensation and Succession Planning Committee receive $5,000, the Chair of the Governance and Nominating Committee receives $3,000 and other committee members receive $1,500. Telephonic meeting fees are 50% of the in-person meeting fee. A director may elect to have the meeting fees paid in cash or credited to a deferred compensation account. In addition, we provide our directors with a prescription drug benefit. We also reimburse our directors for the cost of transportation, food and lodging in connection with their service as directors.

 

Restricted Stock Awards.  Our non-employee directors receive a grant of restricted stock having a fair value of $50,000 in connection with their initial election to the Board. In most cases, the restrictions on the stock lapse three years after the grant date. A director who retires before the restrictions lapse may, in the Board’s discretion, receive a partial or full distribution of such stock.

 

Option Awards.  Our non-employee directors also receive an annual grant of non-qualified options to purchase our common stock having a grant date fair value of $100,000 (or a pro rata portion of the annual stock option grant in the year of their initial election to the Board). The exercise price of all options granted is the closing price of a share of our common stock on the date of grant. Options vest in equal installments over three years beginning on the first anniversary of the grant date. Vested options may be exercised at any time prior to the tenth anniversary of the grant date unless a director ceases to be a member of the Board. Generally, the options that have been granted will expire one or three years after the director ceases to be a member of the Board, depending on the reason for termination.

 

Deferral and Other Arrangements.  Directors may elect to defer all or any part of the annual retainer and meeting fees and credit the deferred amount to an account under the AmerisourceBergen Corporation 2001 Deferred Compensation Plan. Payment of deferred amounts will be made or begin on the first day of the month after the non-employee director ceases to serve as a director. A director may elect to receive the deferred benefit (i) over annual periods ranging from three to fifteen years and payable in quarterly installments or (ii) in a single distribution. We pay all costs and expenses incurred in the administration of the deferred compensation plan. Directors may also elect to forego 50% or more of their annual cash retainer and receive an enhanced amount of restricted stock or stock options for the cash compensation foregone. If they choose to receive restricted stock, they will receive restricted stock having a value equal to 125% of the cash compensation foregone. If they choose to receive options, they will receive non-qualified stock options having a fair value equal to 150% of the cash compensation foregone.

 

Stock Ownership Guidelines.  We require our non-employee directors to own shares of our common stock to align their interests with those of the stockholders and to provide an incentive to foster our long-term success. In the first and second years after their election to the Board, non-employee directors must own stock equal in value to one or two times the annual retainer, respectively. From and after the third year following their Board election, non-employee directors must own stock equal in value to at least three times the annual retainer. We may take unusual market conditions into consideration when assessing compliance.

 

Has AmerisourceBergen adopted a code of ethics and business conduct that applies to directors, officers and employees?

 

The Board of Directors adopted the AmerisourceBergen Corporation Code of Ethics and Business Conduct, in its current form, in May 2004. It applies to directors and employees, including officers, and is intended to comply with the requirements of Section 303A.10 of the NYSE Listed Company Manual.

 

Any waivers of the application of the AmerisourceBergen Corporation Code of Ethics and Business Conduct to directors or executive officers must be made either by the Board of Directors or the Audit and Corporate Responsibility Committee. We will disclose any such waiver or amendment of the Code of Ethics and Business Conduct promptly on our website.

Has AmerisourceBergen adopted a code of ethics for the principal executive officer and principal financial and accounting officers of AmerisourceBergen as required by SEC regulations?

 

We have adopted the AmerisourceBergen Corporation Code of Ethics for Designated Senior Officers in accordance with Item 406 of the SEC’s Regulation S-K. It applies to our Chief Executive Officer, Chief Financial Officer and Corporate Controller. Any waiver or amendment of the AmerisourceBergen Corporation Code of Ethics for Designated Senior Officers will be disclosed promptly on our website.

 

Where can stockholders obtain copies of the codes of ethics?

 

We have posted both the AmerisourceBergen Corporation Code of Ethics and Business Conduct and the AmerisourceBergen Corporation Code of Ethics for Designated Senior Officers under the Investors section of our Internet website at www.amerisourcebergen.com. A copy of the AmerisourceBergen Corporation Code of Ethics for Designated Senior Officers has also been filed with the SEC as an exhibit to our periodic reports under the Securities Exchange Act of 1934, as amended.

 

What is our leadership structure?

 

Our executive officers, managers and employees conduct our business under the direction of our Chief Executive Officer and with the independent oversight of our Board. To enhance its independent oversight function, our Board is composed of directors who are not employed by us, with the exception of Mr. Yost. A non-executive director serves as Chairman of the Board. At each regularly scheduled Board meeting, our non-employee directors meet in executive session without management present. Our Board provides guidance, critical review of our strategic initiatives, business plan and risk management processes. Our Board also ensures that we have an effective management team in place to run the company and serves to protect and advance the long-term interests of our stockholders. The role of our senior executives is to develop and implement a strategic business plan for AmerisourceBergen and to grow our business.

 

Why have we chosen to have an independent director serve as Chairman of the Board?

 

We believe that having a non-executive Chairman of the Board emphasizes the importance of the Board’s objectivity and independence from management and best promotes the effective functioning of the Board’s oversight role. Our Chairman’s responsibility is to ensure that our Board functions properly and to work with our Chief Executive Officer to set its agenda. We expect our Chairman to facilitate communications among our directors and between the Board and senior management. While our Chairman provides independent leadership, he also works closely with our Chief Executive Officer to ensure that our directors receive the information that they need to execute their responsibilities, including discussing and providing critical review of the matters that come before the Board and assessing management’s performance.

 

Why is the composition of our Board appropriate for AmerisourceBergen?

 

We are one of the world’s largest pharmaceutical services companies, with operations primarily in the United States, Canada and the United Kingdom. Our Board is called upon to address matters of considerable complexity. These issues range from evaluating long-range strategic initiatives to responding to changing market conditions and/or government regulations. To enhance the Board’s decision-making process, we seek individuals with diverse backgrounds, skills and expertise to serve on our Board. Our Board is composed of directors with a mix of industry, operational, healthcare, government, business development, marketing, and global expertise. We have directors who are current or former executive officers of public companies or wholesale distribution companies. Many of our directors serve or have served on the board of directors of other public companies. We have directors with significant public policy experience and knowledge of the healthcare and pharmaceutical industries. We believe that this mix encourages fresh perspectives, enriches the Board’s deliberations and avoids the dominance of particular individual or group over the Board’s decisions.

Has AmerisourceBergen adopted corporate governance principles for the Board of Directors?

 

Our Board has adopted the AmerisourceBergen Corporation Corporate Governance Principles. The corporate governance principles, together with the charters of the Board committees, provide the framework for the governance of AmerisourceBergen. The Board reviews and updates the corporate governance principles and the committee charters from time to time to reflect corporate governance best practices. The corporate governance principles address a variety of governance issues, including those discussed under this heading and the headings Additional Information about the Directors, the Board and the Board Committees, Code of Ethics, and Process for Identifying and Evaluating Director Nominees and for Submitting Recommendations

 

Where can stockholders find our corporate governance documents?

 

Our corporate governance principles and the charters of the Executive and Finance, Audit and Corporate Responsibility, Compensation and Succession Planning and Governance and Nominating Committees have been posted under the Investors section of our website at www.amerisourcebergen.com.

 

Do we have a majority vote standard for director elections and a director resignation policy?

 

Our bylaws and corporate governance principles provide for a majority vote standard for the election of directors. Under the majority vote standard, each director must be elected by a majority of the votes cast by the shares present in person or represented by proxy and entitled to vote. A “majority of the votes cast” means that the number of votes cast “for” a candidate for director must exceed the number of votes cast “against” that director. A plurality voting standard will apply instead of a majority voting standard if:

 

 

Under Delaware law, if an incumbent nominee for director in an uncontested election does not receive the required votes for re-election, the director remains in office until a successor is elected and qualified. Our bylaws and corporate governance principles require each director nominee to tender an irrevocable resignation prior to the applicable meeting of stockholders and include post-election procedures in the event an incumbent director does not receive the required votes for re-election, as follows:

 

 

Has the Board determined which of the directors are independent?

 

The Board has determined that, except for Mr. Yost, all of the directors and director nominees are independent. Our corporate governance principles require us to maintain a minimum of 70% independent directors on our Board. If the three director nominees are elected at the 2011 Annual Meeting of Stockholders, eight out of nine directors then serving, or approximately 90% of the Board, will be independent.

 

The Board has adopted guidelines in our corporate governance principles to assist it in making independence determinations, which meet or exceed the independence requirements set forth in the NYSE listing standards. These guidelines are contained in Section 5 of our corporate governance principles, which are available to stockholders under the Investors section of our website at www.amerisourcebergen.com. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with AmerisourceBergen.

 

With the assistance of legal counsel to the company, the Board reviewed the applicable legal standards for director and Board committee member independence and our corporate governance standards. As a result of this review, the Board has determined that each of the following directors is independent: Charles H. Cotros, Richard W. Gochnauer, Richard C.

Gozon, Edward E. Hagenlocker, Jane E. Henney, M.D., Kathleen W. Hyle, Michael J. Long and Henry W. McGee. The Board has also determined that, as required by their charters, all members of the Audit and Corporate Responsibility, Compensation and Succession Planning and Governance and Nominating Committees are independent. In addition to the independence standards in our corporate governance principles, members of the Audit and Corporate Responsibility Committee may not accept directly or indirectly any consulting, advisory or other compensatory fee from us other than their directors’ compensation. All members of the Audit and Corporate Responsibility Committee satisfy this additional SEC and NYSE independence requirement for audit committee members. We also apply this additional independence standard to the Compensation and Succession Planning Committee and the Governance and Nominating Committee and their members satisfy this standard. In undertaking its review, the Board considered that some of our directors serve on the board of directors of companies for which we perform (or may seek to perform) drug distribution and other services in the ordinary course of business and on competitive terms.

 

How does the Board oversee our risk management process?

 

The Board executes its oversight responsibility for risk management directly and through its committees, as follows:

 

 

Has management conducted a risk assessment of AmerisourceBergen’s employee compensation policies and practices?

 

We have conducted an internal risk assessment of our employee compensation policies and practices, including those relating to our executives. We have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on AmerisourceBergen. We have reviewed our risk analysis with the Compensation and Succession Planning Committee. The risk assessment process included, among other things, a review

of all key incentive compensation plans to ensure that they are aligned with our pay-for-performance philosophy and include performance metrics that meet and support corporate goals. The objective of the process was to identify any compensation plans and practices that may encourage employees to take unnecessary risks that could threaten the company. No such plans or practices were identified. In particular, there are various factors that mitigate the risk profile of our compensation programs, including, among other things:

 

 

How does the Governance and Nominating Committee identify and evaluate director nominees?

 

Director nominees should:

 

 

The Governance and Nominating Committee seeks to identify candidates who bring diverse experience at policymaking levels in business, management, marketing, finance, technology, human resources, communications, education, government, healthcare and in other areas that are relevant to our activities. While the committee values and considers the diversity of skills and experience of prospective nominees, the committee does not have a formal policy by which the committee assigns specific weights to particular skills or experiences of prospective nominees.

 

Additionally, director nominees should have sufficient time to effectively carry out their duties. The Chief Executive Officer of AmerisourceBergen may serve on the board of no more than one other public company. Other director nominees may serve on the boards of no more than four other public companies.

 

What process should a stockholder follow to propose nominees for consideration by the Governance and Nominating Committee?

 

Stockholders may propose nominees for consideration by the Governance and Nominating Committee by submitting the names, appropriate biographical information and qualifications in writing to: John G. Chou, Secretary, AmerisourceBergen Corporation, 1300 Morris Drive, Chesterbrook, Pennsylvania 19087.

 

In considering any nominee proposed by a stockholder, the Governance and Nominating Committee will reach a conclusion based on the criteria described above. After full consideration, the stockholder proponent will be notified of the decision of the committee.

 

In order to be considered by the Governance and Nominating Committee for the Annual Meeting of Stockholders to be held in 2012, the name of the proposed nominee and supporting biographical information and description of the qualifications of the proposed nominee must be received by us no later than September 16, 2011.

 

The Board of Directors has determined that Mr. Hagenlocker is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. Mr. Hagenlocker serves as Chairman of the Audit and Corporate Responsibility Committee.

 

The Audit and Corporate Responsibility Committee consists of the five directors named below. All of the committee members are independent (as independence is defined in Section 303A of the NYSE Listed Company Manual and our corporate governance principles) and all of the members are financially literate.

 

The committee reviewed and discussed with AmerisourceBergen’s management and its independent registered public accounting firm (i) the audited financial statements contained in the company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 and (ii) the company’s internal control over financial reporting. AmerisourceBergen’s management has the primary responsibility for the company’s financial statements and its financial reporting and control processes and procedures, including its internal control over financial reporting and its disclosure controls and procedures. AmerisourceBergen’s management has represented to the Audit and Corporate Responsibility Committee that the financial statements contained in the company’s fiscal year 2010 Annual Report on Form 10-K were prepared in accordance with U.S. generally accepted accounting principles and that the company’s internal control over financial reporting was effective as of September 30, 2010 (based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission).

 

The committee discussed with the company’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of the audited financial statements with U.S. generally accepted accounting principles, the firm’s judgments as to the quality, not just the acceptability, of the company’s accounting principles, the reasonableness of significant judgments reflected in the financial statements and the clarity of disclosures in the financial statements as well as such other matters as are required to be discussed with the committee under the standards of the Public Company Accounting Oversight Board (United States).

 

The committee discussed with the company’s independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended. In addition, the committee discussed with the independent registered public accounting firm the firm’s independence from the company and its management, including the matters in the written disclosures and letter which were received by the committee from the independent registered public accounting firm as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the audit committee concerning independence.

 

The committee also discussed with the company’s independent registered public accounting firm, the firm’s audit of the effectiveness of the company’s internal control over financial reporting, as of September 30, 2010.

 

Based on the reviews and discussions referred to above, the Audit and Corporate Responsibility Committee recommended to the Board of Directors that the audited financial statements be included in AmerisourceBergen’s Annual Report on Form 10-K for fiscal year 2010.

 

AUDIT AND CORPORATE RESPONSIBILITY
COMMITTEE

 

Edward E. Hagenlocker, Chairman
Charles H. Cotros
Jane E. Henney, M.D.
Kathleen W. Hyle
Henry W. McGee

 

The Audit and Corporate Responsibility Committee’s policy is to pre-approve all audit services and all non-audit services that the company’s independent registered public accounting firm is permitted to perform for the company under applicable federal securities regulations. As permitted by the applicable regulations, the committee’s policy utilizes a combination of specific pre-approval on a case-by-case basis of individual engagements of the independent registered public accounting firm and general pre-approval of certain categories of engagements up to predetermined dollar thresholds that are reviewed annually by the committee. Specific pre-approval is mandatory for the annual financial statement audit engagement, among others.

 

During the fiscal years ended September 30, 2010 and 2009, Ernst & Young LLP, AmerisourceBergen’s independent registered public accounting firm, billed the company the fees set forth below in connection with services rendered by the independent registered public accounting firm to the company:

 

 

Audit fees consisted of fees for the audit of AmerisourceBergen’s annual financial statements, consultation concerning financial accounting and reporting standards and consultation concerning matters relating to Section 404 of the Sarbanes-Oxley Act of 2002, review of quarterly financial statements as well as services normally provided in connection with statutory and regulatory filings or engagements, comfort letters, consents and assistance with and review of company documents filed with the SEC. Audit fees also included the fees for the audit of the effectiveness of the company’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002.

 

Audit-related fees consisted of fees for assurance and related services, including employee benefit plan audits and due diligence related to acquisitions.

 

Tax fees consisted primarily of fees for tax compliance, tax advice and tax planning services.

 

Other fees consisted of subscription fees for Internet-based professional literature.

 

Our Audit and Corporate Responsibility Committee reviewed and approved all fees charged by Ernst & Young LLP in accordance with the pre-approval policy described above and monitored the relationship between audit and permissible non-audit services provided. The policy is intended to ensure that the fees earned by Ernst & Young are consistent with the maintenance of the independent registered public accounting firm’s independence in the conduct of its auditing functions.

 

What am I voting on?

 

You are voting on the ratification of the appointment of Ernst & Young LLP as AmerisourceBergen’s independent registered public accounting firm for the fiscal year ending September 30, 2011. The Audit and Corporate Responsibility Committee has appointed Ernst & Young LLP to serve as our independent registered public accounting firm for fiscal year 2011. Although our governing documents do not require the submission of the appointment of AmerisourceBergen’s independent registered public accounting firm to the stockholders for approval, the Board considers it desirable that the stockholders ratify the appointment of Ernst & Young LLP. Should the stockholders not ratify the appointment of Ernst & Young LLP as AmerisourceBergen’s independent registered public accounting firm for the fiscal year ending

September 30, 2011, the Audit and Corporate Responsibility Committee will investigate the reasons for the rejection by the stockholders and will reconsider the appointment of Ernst & Young LLP.

 

What services will the independent registered public accounting firm provide?

 

Audit services provided by Ernst & Young LLP for fiscal year 2011 will include the examination of the consolidated financial statements of AmerisourceBergen and services related to periodic filings made with the SEC. Audit services for fiscal year 2011 also will include the audit of the effectiveness of our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, Ernst & Young LLP may provide audit-related, tax and other services comparable in nature to the services performed in fiscal years 2009 and 2010, as described above under the heading Independent Registered Public Accounting Firm’s Fees.

 

Will representatives of the independent registered public accounting firm be present at the 2011 Annual Meeting of Stockholders?

 

Representatives of Ernst & Young LLP are expected to be present at the 2011 Annual Meeting of Stockholders. Such representatives will have an opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.

 

How does the Board of Directors recommend that I vote?

 

We recommend that you vote For the ratification of the appointment of Ernst & Young LLP as AmerisourceBergen’s independent registered public accounting firm for fiscal year 2011.

 

General

 

Our Compensation and Succession Planning Committee, or the Committee, is composed entirely of independent directors. It is responsible for the design of our executive compensation program and review of succession planning. The Committee reviews and approves the compensation for our executives, including our named executive officers. The Committee also oversees our employee pension, long-term incentive, savings, health and welfare plans. The Committee has delegated the administration of our pension and benefit plans to an internal benefits committee, composed of senior finance, human resources and legal executives. The internal benefits committee is also responsible for oversight of the investment management of the assets of our pension plans and the investment options under our savings plans as well as the performance of the investment advisers and plan administrators.

 

Processes and Procedures

 

Meetings.  The Committee met five times in 2010. The Chairman, in consultation with the other Committee members and our management, prepares agendas, which address an annual calendar of topics and other matters requiring the attention of the Committee. The Committee meets without management present, whenever necessary, to discuss matters it deems appropriate.

 

Role of External Compensation Consultant.  The Committee has sole authority to engage an executive compensation consultant and to terminate the engagement of any such consultant. The Committee’s consultant must be independent and objective. No firm will be disqualified solely on the basis of fees, provided it has not received more than $100,000 in the aggregate for the performance of any other services for AmerisourceBergen during the fiscal year. In 2010, the Committee engaged Towers Watson (formerly Towers Perrin) to serve as its compensation consultant until July 2010 when Pay Governance LLC, including the consultants that serve the Committee, spun off from Towers Watson to form an independent executive compensation advisory firm. The Committee decided to engage Pay Governance to serve as its compensation consultant due to Pay Governance’s independence, familiarity with our executive compensation program and the involvement of its consultants in ongoing projects during the fiscal year 2010 compensation cycle. Pay Governance provides its services to the Committee pursuant to a written consulting agreement, subject to annual review.

 

During 2010, our external compensation consultants advised us on executive compensation matters, plan design and industry trends and practices. As directed by the Committee, the consultants prepared analyses and recommendations for the

Committee and the Board relating to all aspects of the compensation of our executives, including pay recommendations for Mr. Yost. They advised the Committee on market practices regarding executive compensation, including long-term incentive pay, and reviewed our peer group, benchmarking methodology and market positioning of the compensation provided to our named executive officers and other senior management. The consultants meet privately with the Committee and individual Committee members from time to time to plan for Committee meetings and discuss executive compensation matters.

 

Role of Executive Officers and Management.  Mr. Yost gives the Committee a performance assessment and pay recommendation for senior management, including each of the other named executive officers. Management, in consultation with the external compensation consultant, may also make recommendations to the Committee on matters of compensation philosophy and plan design. Executives may attend the Committee meetings, but they are not present when the Committee meets in executive session and they do not make recommendations regarding their own compensation.

 

The Board of Directors establishes the compensation of directors based upon the recommendation of the Governance and Nominating Committee.

 

Executive Summary

 

Overview

 

AmerisourceBergen is one of the largest pharmaceutical services companies in the world. We operate in a highly competitive environment. The purpose of our executive compensation program is to attract, motivate and retain the executives who lead our business and align their interests with the long-term interests of our stockholders. Our fiscal year 2010 named executive officers are: R. David Yost, Chief Executive Officer; Steven H. Collis, President and Chief Operating Officer; Michael D. DiCandilo, Executive Vice President and Chief Financial Officer; John G. Chou, Senior Vice President, General Counsel and Secretary; and James D. Frary, Senior Vice President and President, AmerisourceBergen Specialty Distribution and Services. For purposes of this Proxy Statement, we use our named executive officers’ current titles. However, in fiscal year 2010, Mr. Collis served as Executive Vice President and President of AmerisourceBergen Drug Corporation and Mr. Yost served as President and Chief Executive Officer. Mr. Collis was named President and Chief Operating Officer on November 11, 2010.

 

The main elements of our compensation program are base salary, annual cash bonus and long-term equity incentive awards. We benchmark the compensation of our named executive officers using published compensation survey data and, for the top three executives, against a peer group composed of 15 companies that are similar in size and revenues to AmerisourceBergen. For our named executive officers, we target base salary in the 35^th percentile for comparable positions at companies in our peer group. When we deliver targeted financial results, we aim to provide total cash compensation (base salary and cash bonus) in the 50th percentile of our peer group and total direct compensation (base salary, cash bonus and equity awards) in the 50^th — 75^th percentile of our peer group. We seek to pay our executives fairly and link pay with performance. In fiscal year 2010, incentive compensation (annual cash bonus and equity awards) accounted for approximately 81% of the total direct compensation of Mr. Yost and 79% of the average total direct compensation of our other named executive officers.

 

We believe our executive pay is reasonable and provides appropriate incentives to our executives to achieve our financial and strategic goals without encouraging them to take excessive risks in their business decisions. We regularly evaluate the major risks to our business, including how risks taken by management could impact the value of executive compensation. To this end, we note the following:

 

 

 

2010 Fiscal Year Financial and Business Performance

 

AmerisourceBergen performed very well in fiscal year 2010. Our results from continuing operations in fiscal year 2010 reflected exceptional resiliency in our business. We grew our revenue by 9% to $78 billion. We generated free cash flow of $924 million and net income of $637 million. We achieved a return on invested capital (ROIC) of 17.4%, which exceeded our weighted average cost of capital. Fiscal year 2010 diluted earnings per share from continuing operations (EPS) increased by approximately 31% to $2.22 per share. Overall, our drug distribution business and our specialty drug distribution business both demonstrated solid growth this past year. We returned a substantial amount of cash to our stockholders in fiscal year 2010 through $90.6 million in dividends and $470.4 million in stock repurchases. Our total stockholder returns (TSR), including reinvestment of gross dividends, for the fiscal years ended September 30, 2010, 2009 and 2008 were 40.8%, 23.1% and (-15.6%), respectively. This compares to TSR of the S&P 500 Index of 13.1%, (-6.5%) and (-23%) over the same periods.

 

The leadership and discipline of our management team heavily contributed to our performance over the last several years. Among other achievements, Mr. Yost and the other named executive officers demonstrated solid execution of our business plan and the promotion of our strategic objectives. They continued to position us appropriately for growth, including by increasing revenues, expanding operating income as a percentage of revenue, and promoting a diverse customer and product mix in our businesses. Their focus on expense and working capital management increased our efficiency and improved our results. In addition, our managers promoted a philosophy of continuous improvement, leadership development among our senior managers and the ongoing importance of diversity and inclusion among our employee population.

 

2010 Fiscal Year Executive Compensation Actions

 

Our Compensation and Succession Planning Committee (referred to as the Committee) took into account a number of factors in determining fiscal year 2010 compensation, including our financial and business results, individual performance and competitive data. In light of these considerations, the Committee made the following executive compensation decisions in fiscal year 2010:

 

 

We believe that our executive compensation program is reasonable, competitive and strongly focused on pay for performance principles. We emphasize compensation opportunities that reward our executives when they deliver targeted

financial results. The compensation of our named executive officers varies depending upon the achievement of pre-established performance goals, both individual and corporate. Through stock ownership requirements and equity incentives, we also align the interests of our executives with those of our stockholders and the long-term interests of AmerisourceBergen. Our executive compensation policies have enabled AmerisourceBergen to attract and retain talented and experienced senior executives and have benefited AmerisourceBergen over time. We believe that the fiscal year 2010 compensation of our named executive officers was appropriate and aligned with AmerisourceBergen’s fiscal year 2010 results and position for growth in future years.

 

Role of the Compensation and Succession Planning Committee

 

The Committee reviews and makes decisions about executive compensation policies and plans, including the amount of base salary, cash bonus and long-term incentive awarded to our named executive officers. Mr. Yost and other executives may assist the Committee from time to time in its evaluation of compensation elements or program design or by providing mathematical calculations, historical information, year-over-year comparisons and clarification regarding job duties and performance. The Committee also considers the recommendations and competitive data provided by the compensation consultant and makes decisions, as it deems appropriate, on executive compensation based on its assessment of individual performance and achievement of goals both by the individual and the company.

 

Executive Compensation Policy

 

The Committee considers the following objectives in setting executive compensation:

 

 

Benchmarking Process

 

We consider market pay practices when setting executive compensation. Benchmarking helps the Committee assess whether our level of executive pay is appropriate when compared to industry standards. We generally conduct a detailed market review of executive pay annually to evaluate each element of pay and benefit competitiveness, review pay practices and compare performance against our peer group.

 

In fiscal year 2010, the Committee reviewed peer group proxy statement data for similar positions when considering compensation for Messrs. Yost, Collis and DiCandilo and published compensation survey data when considering compensation for all of our named executive officers. When assessing pay levels, the Committee also reviews the relative positioning of our named executive officers with each other. In 2010, the Committee’s consultant concluded that our overall competitive posture for executive pay remained similar to our positioning in the 2009 assessment of executive pay in that the total direct compensation of our named executive officers fell below, and in some cases substantially below, the median total direct compensation of our peer group.

 

Our peer group is composed of companies with business models and operations comparable to our own, including our two largest direct competitors. It includes companies with revenues that fall within a range of approximately 50% to 150% of our expected revenue. In fiscal year 2010, we ranked above the median for revenues of companies in our peer group. We believe our peer group reflects the type and complexity of business risks managed by our executives and that we compete with many of these companies for executive talent. The Committee reviewed the composition of the peer group in

fiscal year 2010 with the assistance of its compensation consultant, and determined that no changes were necessary. The 2010 peer group was comprised of the following 15 companies:

 

2010 Peer Group

 

 

Our compensation program targets various levels relative to our peer group for each element of executive pay as follows:

 

Target Percentile Compensation for Fiscal Year 2010

 

 

Fiscal year 2010 base salaries and total cash compensation for our named executive officers were generally within the range of our target or below. However, total direct compensation for each of our named executive officers fell below and, in some cases, substantially below our 50^th — 75^th percentile target. This shortfall in total direct compensation as compared to our target pay philosophy is due, in part, to the fact that the target opportunity of our annual and long-term incentive awards is generally lower than that of our peers and, historically, because the base salaries of some of our named executive officers fell substantially below target. In recent years, we have taken some action to address the difference between our compensation philosophy and actual pay for the most affected executives by increasing base salaries and annual target bonus opportunities. In 2007, we also implemented a performance-based long-term incentive award for Mr. Yost, in part, to provide him with the opportunity to bring his total direct compensation closer to the median for chief executive officers in our peer group.

 

Components of the Executive Compensation Program

 

Our executive compensation program consists of three main components — base salary, cash bonus and long-term incentive. This represents a mix of fixed pay and annual and long-term incentives.

 

Base Salary.  For our named executive officers, we target base salary in the 35th percentile for similar positions in our peer group. Base pay provides a regular stream of income and financial security. By positioning base salary below our peer median, we place greater emphasis on incentive compensation. In fiscal year 2010, the Committee approved the following salary increases for our named executive officers:

 

 

Our executives are evaluated based on their job performance, changes in duties and scope of responsibilities, and expected future contributions. These salary increases reflected a positive performance review for all of the named executive officers and, in some cases, measures to bring the individual’s salary more in line with our target. Despite the difficult economy, we delivered outstanding financial results for fiscal year 2010. These results were, in part, attributable to the sound leadership and performance of each of our named executive officers, including Mr. Yost. Mr. Yost, however, decided to accept a lower pay increase in fiscal year 2010 than his performance would otherwise have warranted. Pay

raises for Messrs. Collis and Frary also reflect the increased operational responsibilities associated with new management roles. In August 2009, Mr. Collis was named Executive Vice President and President of AmerisourceBergen Drug Corporation (which we refer to as ABDC) and, in April 2010, Mr. Frary was appointed Senior Vice President and President, AmerisourceBergen Specialty Distribution and Services. Mr. Frary is the executive in charge of AmerisourceBergen Specialty Group (which we refer to as ABSG).

 

Cash Bonus.  We use annual cash bonuses to motivate executives to improve financial performance year-over-year and to reward executives who deliver targeted financial results. Cash bonuses are paid under our Annual Incentive Plan, or AIP.

 

The Committee establishes the performance goals and incentive levels under the AIP for each of our named executive officers, and assigns a relative weighting to each performance measure. For each financial performance measure, there is a threshold and a target. Threshold refers to the minimum acceptable level of performance. We do not pay a bonus if our performance is at or below threshold. Target is the expected level of performance. Executives may receive an amount in excess of their target bonus (up to a maximum cap of an additional 50% of the target incentive) if we exceed target on the key performance metric established for them. Therefore, an individual’s actual bonus consists of the amount determined for exceeding the thresholds and, if applicable, an amount (which we refer to as a “stretch” bonus) for exceeding target on the key performance metric established for them — EPS for Messrs. Yost, DiCandilo and Chou; ABDC pre-tax profit for Mr. Collis and ABSG earnings before interest and taxes (EBIT) for Mr. Frary. The stretch portion of the bonus is calculated by increasing the target bonus by an additional 2% for every 1% that actual performance exceeds target on the key performance metric. For example, because actual EPS exceeded target EPS by 20.7% in fiscal year 2010, the stretch portion of Messrs. Yost, DiCandilo and Chou’s annual bonus was calculated by multiplying their target incentive by 41.4 percent.

 

In November 2009, the Committee approved the following corporate performance measures under the AIP for fiscal year 2010:

 

 

The Committee chose EPS and ROIC because they are the key metrics used by management to set business goals and evaluate our financial results. 2010 AIP financial performance measures were based on our Board-approved business plan for fiscal year 2010. In addition, we communicate our expectations about future business performance to investors by using an EPS range for each fiscal year. We generally set EPS targets to reflect our long-term business goal of growing EPS as close to 15% as is realistic annually, while allowing for reasonable flexibility to adjust our targets each year based on the impact of industry trends, other market factors and special items from year to year. ROIC equals after tax operating income divided by invested capital. ROIC measures how well we generate cash flow relative to the capital we invest in our business, including not only the cost of the assets employed but also the cost to acquire those assets. We exceeded target on both EPS and corporate ROIC for fiscal year 2010.

Target and actual fiscal year 2010 cash bonuses for our named executive officers were as follows:

 

 

 

 

The fiscal 2010 cash bonuses of Messrs. Yost, DiCandilo and Chou were based on the achievement of corporate financial performance metrics and corporate leadership goals so that their bonus payments would reflect our overall financial results for the year. Accordingly, over 80% of the bonus payments to Messrs. Yost and DiCandilo depended upon the achievement of corporate performance goals, with EPS weighted at 50% and 49% and ROIC weighted at 33% and 32% of the total target incentive for Mr. Yost and Mr. DiCandilo, respectively. The remaining portions of their bonus, 17% for Mr. Yost and 19% for Mr. DiCandilo, were tied to individual leadership goals. Mr. Chou’s cash bonus was based 70% on corporate performance measures (with EPS weighted at 42% and ROIC at 28% of the total target incentive) and 30% on individual leadership goals. The Committee believes that leadership goals are important component of the annual bonus plan for the named executive officers. The Committee uses leadership goals to emphasize business and strategic priorities that could significantly impact financial results and that are within an individual’s area of responsibility. For example, a material regulatory violation or loss of an investment grade rating has the potential to undermine EPS growth. Mr. Yost’s leadership goals were to avoid regulatory failure and implement a comprehensive succession plan. Mr. DiCandilo’s leadership goals were to avoid regulatory failure, maintain our investment grade rating, implement our Business Transformation project and continue to develop effective and collaborative working relationships among senior management. Mr. Chou’s leadership goals were to avoid regulatory violations, manage labor relations effectively and promote collaborative relationships with other members of senior management. The Committee determined that each of Messrs. Yost, DiCandilo and Chou met their leadership goals for fiscal year 2010.

 

For named executive officers who lead a business unit, a majority of their bonus is tied to business unit performance. Mr. Collis was the executive in charge of ABDC for fiscal year 2010. Mr. Collis’s fiscal year 2010 cash bonus was based 30% on EPS, 40% on ABDC pre-tax profit, 10% on ABDC’s gross profit and 20% on leadership goals related to ABDC’s business operations. We believe this mix, which emphasizes ABDC’s performance, appropriately links pay to Mr. Collis’s operating responsibility. For this reason, ABDC pre-tax profit is the most heavily weighted performance metric for Mr. Collis and his stretch bonus is based on the extent to which ABDC’s actual fiscal year 2010 pre-tax profit exceeded target. Pre-tax profit under the AIP is measured by determining a business unit’s EBIT minus an intercompany charge based on the business unit’s committed capital. We select business unit performance goals that are designed to help us achieve our corporate EPS and ROIC goals for the fiscal year. For fiscal year 2010, target ABDC pre-tax profit was intended to achieve, at a minimum, a 1% increase over fiscal year 2009 ABDC pre-tax profit, reflecting the difficult economic environment and our expectations regarding the potential impact on ABDC’s business of the re-pricing of a significant customer contract and costs associated with the implementation of our Business Transformation project. The Committee intends that business unit performance goals should be challenging. Once in the last five fiscal years, ABDC has not achieved target on one or more AIP financial performance measures applicable to any named executive officer. Mr. Collis’s leadership goals were to avoid regulatory failure for ABDC, promote collaborative relationships with other members of senior management, facilitate integration of business units, where appropriate, and facilitate the implementation of our Business Transformation project. The Committee determined that Mr. Collis met his leadership goals for fiscal year 2010.

In April 2010, Mr. Frary was appointed Senior Vice President and President, AmerisourceBergen Specialty Distribution and Services. In this capacity as the executive in charge of ABSG, Mr. Frary’s fiscal year 2010 cash bonus was based on the following: 20% on EPS, 60% on ABSG performance measures (such as EBIT and ROIC ) and 20% on leadership goals. With ABSG as his primary area of responsibility, Mr. Frary’s stretch bonus was calculated based on ABSG’s EBIT performance, which was the key performance metric for ABSG under our AIP. As noted above, the Committee selects business unit performance goals which are designed to help us achieve our corporate EPS and ROIC goals for the fiscal year. Twice in the last five fiscal years, ABSG has not achieved target on one or more AIP financial performance measures applicable to any named executive officer. For fiscal year 2010, target ABSG EBIT was intended to achieve, at a minimum, a 6.4% increase over fiscal year 2009 ABSG EBIT. In fiscal year 2010, ABSG exceeded its EBIT and ROIC targets. The Committee determined that Mr. Frary met his leadership goals, which included identifying and executing synergistic opportunities among ABDC and ABSG, facilitating leadership development within ABSG and executing the long-range growth strategy of certain ABSG subsidiaries. Mr. Frary’s fiscal year 2010 cash bonus also included an amount earned under our AIP for the period October 2009 — April 2010 when Mr. Frary served as a regional vice president of ABDC. The portion of his cash bonus relating to the time prior to his becoming an executive officer was based largely on a mixture of pre-established ABDC regional performance goals as well as leadership goals related to ABDC, all of which regional performance targets and goals were substantially met or exceeded.

 

Although the Committee has discretion to give a bonus even though the pre-established performance goals have not been met or otherwise adjust a bonus payout up or down, it has rarely exercised this discretion. The Committee did not award any discretionary bonus to any named executive officers for fiscal year 2010.

 

In November 2010, the Committee set fiscal year 2011 performance measures under the AIP, consistent with our Board-approved business plan. These measures include EPS and ROIC at the corporate level and ABDC pre-tax profit, ABDC gross profit, ABSG pre-tax profit and ABSG revenue at the business unit level. ABSG pre-tax profit and ABSG revenue replace ABSG EBIT and ABSG ROIC as the ABSG financial performance measures for fiscal year 2011. The Committee determined that ABSG pre-tax profit is a more comprehensive measure than either ABSG EBIT or ABSG ROIC alone since pre-tax profit takes into account an intercompany capital charge when assessing EBIT performance. The Committee also determined that ABSG revenue is an appropriate financial performance measure because we want to incentivize executives to increase ABSG revenue and focus on ABSG market growth. The Committee also established leadership goals for each of the named executive officers, which included avoiding regulatory or legal failure within the executive’s area of organizational responsibility, executing specified business plans, facilitating organizational integration, promoting collaborative business relationships, developing succession plans and/or implementing corporate programs to address matters such as diversity, leadership development or employee satisfaction.

 

Fiscal year 2011 target incentive levels for the named executive officers range from 100% to 120% of base salary, with the opportunity for each named executive officer to earn an additional 50% of his target incentive level (or a maximum bonus, depending on the target incentive level, ranging from 150% to 180% of base salary) if we exceed our financial performance goals.

 

Long-Term Incentive.  We use annual equity incentive awards to align our management’s interests with those of our stockholders and to motivate continued efforts to achieve favorable financial results over the long-term. The use of equity incentives also supports our stock ownership requirements.

 

The Committee determines the number of equity incentives to award our named executive officers with reference to our target compensation philosophy and an assessment of individual performance. The Committee also takes into account the average annual burn rate for total equity incentives granted to employees so as to provide stock options and restricted stock to eligible employees (including the named executive officers) at a reasonable rate and cost to the company. The Committee considers Mr. Yost’s recommendations as well as individual performance and expected future contributions. Each award is then divided approximately 75% in the form of stock options and 25% in the form of restricted stock (or restricted stock units). We believe that this mix provides an incentive to achieve favorable long-term results at a reasonable cost to the company. Because of the tax treatment of restricted stock for federal income tax purposes that results when an individual has attained retirement age, but continues to work for us, Mr. Yost received restricted stock units in lieu of restricted stock in his award (as do similarly situated employees).

 

In the aggregate, our named executive officers received options to purchase 660,000 shares of our common stock and were awarded 73,333 restricted shares (or restricted stock units) of our common stock. These awards represented

approximately 19% of the total equity incentives granted to management and other employees in fiscal year 2010. We believe that it was appropriate to award approximately 19% of the annual equity incentives to our executive officers because they are in the best position to drive our future results and implement our long-term business strategy. Moreover, equity awards directly link the long-term wealth accumulation opportunity we provide our executives with our stockholders’ long-term interests. The number of equity awards granted to Mr. Yost in fiscal year 2010 is roughly the same as the number of equity awards granted to him in 2009. Equity awards granted to the other named executive officers increased somewhat from fiscal year 2009 equity awards either due to job promotions or to bring the executive’s total direct compensation more in line with the Company’s target pay philosophy. Equity incentives represented approximately 26% of Mr. Yost’s and between 40% — 47% of the other named executive officers’ total direct compensation in fiscal year 2010.

 

Stock options and restricted stock are subject to vesting and forfeiture provisions, described on page 43. In 2008, we amended our AmerisourceBergen Corporation Equity Incentive Plan (formerly called the AmerisourceBergen Corporation Management Incentive Plan) or EIP, to change the treatment of awards in retirement. As a result of the changes, for equity awards made in 2009 and beyond, when an executive retires, unvested awards will continue to vest according to their schedule and vested options will remain exercisable for the length of their original term (which is currently expected to be seven years). Equity awards made in 2009 and beyond that are held by current or former employees are subject to forfeiture and re-payment provisions for misconduct (including misconduct that leads to the restatement of our financial statements) or competitive behavior that is detrimental to the company. Retirement is defined as a voluntary termination of employment after age 62 with at least 60 months of continuous service. We believe that these requirements support our goal of retaining executives and aligning individual performance with our long-term growth. In addition, we believe that the post-retirement provisions provide an additional incentive for our executives, particularly those near retirement, to continue to focus on our long-term performance and, with the forfeiture and payment provisions, an added measure of protection against detrimental behavior by former employees.

 

In November 2007, the Committee approved a performance-based long-term incentive award for Mr. Yost under our EIP. Payment of the cash incentive depended upon the achievement of the following EPS and total stockholder return (TSR) goals over three one-year periods, beginning October 1, 2007 and ending September 30, 2010:

 

 

We performed well in fiscal years 2008, 2009 and 2010 and met or exceeded the maximum EPS and TSR goals for each fiscal year. As a result, Mr. Yost became entitled to receive the maximum amount of $1,350,000 each fiscal year ($4,050,000 in the aggregate) under the award. This award was designed to bring Mr. Yost’s total direct compensation in line with our target, if our financial goals were attained and in accordance with our stated objective of linking the compensation of executives who drive corporate financial results to the achievement of those results. Mr. Yost may not receive distribution of the award until at least 13 months after he terminates employment with us (other than as a result of his death), and may elect to defer receipt of the award for a longer period.

 

Equity Award Grant Practices

 

We have a written policy on equity grants designed to formalize our equity grant practices and ensure that equity awards will be made on specified dates. The Committee reviews and approves annual stock option and restricted stock awards to executives and other eligible employees in the first calendar quarter of each year (around the time of our annual meeting of stockholders). We may make equity awards at other times during the year for new hires or other reasons, such as a job promotion or as a result of an acquisition. In accordance with our policy and our EIP, the Committee has delegated limited authority to the chief executive officer to approve special grants to non-executive officers. These special awards may only be made on the 1st day of a month (or the next trading day, if the first day of the month is not a trading day). The Committee or the Board must approve any equity awards to the named executive officers.

 

The exercise price of any stock option award is the closing price of our common stock on the date of grant. We do not backdate or grant options or restricted stock retroactively. We generally schedule board and Committee meetings at least

one year in advance and, as noted above, make annual equity awards to our named executive officers at around the same time every year. We do not time our equity awards to take advantage of the release of earnings or other major announcements by us or market conditions.

 

Other Compensation

 

Our named executive officers receive a limited amount of other benefits as part of a competitive compensation package. These benefits include a company matching contribution under our 401(k) plan, which is provided to all employee participants. We pay for tax and financial planning services for our executives to give them the opportunity to maximize the benefits from the compensation and benefits programs offered to them. We pay a car allowance for Mr. Yost, which we view as reasonable in consideration of the substantial time and effort we expect him to devote to business travel, employee recruitment and developing customer relationships. In the aggregate, these other benefits constitute only a small percentage of each named executive officer’s total compensation. In fiscal year 2010, we provided Mr. Collis with $1,199,862 in moving and other expenses associated with his relocation from Dallas, Texas to our corporate headquarters in Valley Forge, Pennsylvania. The Committee approved the payment of additional relocation expenses to Mr. Collis under our executive relocation program to mitigate, in part, some of the loss that Mr. Collis would incur as a result of his relocation and sale of his home in Texas at time when housing prices had declined significantly. In fiscal year 2010, we provided Mr. Frary with $237,973 in moving and other expenses associated with his relocation to ABSG’s headquarters in Frisco, Texas. The executives have signed written agreements obligating them to repay the amounts paid to them for executive relocation benefits under certain circumstances. If either executive voluntarily terminates his employment with us or his employment is terminated by us for cause within two years of the date on which he accepted his new position with AmerisourceBergen, he will be required to repay all or a portion of the amounts paid to him for relocation benefits, based on a sliding scale depending on the date of termination of his employment. The Committee believes that the payment of relocation expenses to our executives is appropriate and in the best interest of its stockholders in seeking to mitigate any personal loss and distraction when we ask our executives to move with their families to a new location for the purpose of leading and promoting the continued success of AmerisourceBergen and/or our business units. These benefits appear in the All Other Compensation column in the Summary Compensation Table on page 33.

 

Deferred Compensation

 

Executives may defer receipt of part or all of their cash compensation under our deferred compensation plan. The plan is intended to promote retention of executives by providing a long-term, tax efficient savings opportunity at low cost to us. Amounts deferred under the plan are allocated to the plan investment options chosen by the executive. The executive receives a quarterly adjustment in his or her account for any gains and losses on the amounts deferred under the plan.

 

Employee and Retirement Benefits

 

Core employee benefits are available to the named executive officers on the same basis as all domestic employees generally. These benefits include medical and dental coverage, disability insurance, life insurance and a 401(k) plan.

 

We offer a supplemental 401(k) plan to selected key management, including the named executive officers. We implemented this plan to address the absence of any non-legacy executive retirement plan following the 2001 merger to form the company and to permit executives to receive the full amount of the company match available for other employees generally under the 401(k) plan. This plan provides an annual contribution amount equal to 4% of a participant’s salary and bonus to the extent that his or her compensation exceeds IRS limits applicable to our 401(k) plan.

 

Mr. Yost and Mr. DiCandilo are the only named executive officers who participate in any of the pension plans that we maintain. These pension plans were in existence prior to the 2001 merger that formed our company, and both of them are now frozen with respect to participation and benefit accruals. These legacy plans are more fully described on pages 37-38.

 

Severance and Change in Control Benefits

 

Severance Benefits.  We provide severance benefits under specified circumstances to give executives a measure of financial security following the loss of employment, to protect the company from competitive activities after the departure of certain executives, and because we believe that these benefits are important to attract and retain our executives in a competitive industry. We will provide severance benefits if we discharge a named executive officer without cause or he

leaves the company for good reason. Good reason means a reduction in base salary or our failure to comply with our obligations (including by diminishing the executive’s authority, duties and responsibilities) under his employment agreement. The terms of these benefits are set out in employment agreements and various plans, which are described on pages 39-41.

 

We do not provide severance benefits if a named executive officer is terminated for cause or leaves without good reason. In that case, we would only pay the amount of accrued obligations.

 

Change in Control.  We do not provide enhanced cash compensation in connection with a change in control of the company. We will accelerate the vesting of equity awards if a named executive officer’s employment is involuntarily terminated by us within two years after a change in control. We provide these benefits to provide financial protection to employees following an involuntary loss of employment in connection with a change in control and to enable our executives to focus on important business decisions should we be acquired without regard to how the transaction may affect them personally. We believe that this structure provides executives with an appropriate incentive to cooperate in completing a change in control transaction. The Board and the Committee also have discretion under our EIP to take certain actions in the event of a change in control. These actions include cancelling options that are not exercised within 30 days after a change in control; cashing out outstanding options; cancelling any restricted stock awards in exchange for the payment of cash, property or a combination of cash and property equal to the award’s value; or substituting other property (including securities of another entity) for awards granted under our EIP.

 

In addition, there is discretion under the AIP to pay cash bonuses during any year in which a change in control occurs. If this discretion is exercised, bonus payments would be based on performance for the portion of the fiscal year until the change in control event and paid within 75 days of the change in control.

 

Any payments that are made to the named executive officer as a result of termination are not intended to constitute excess parachute payments within the meaning of Section 280G of the Internal Revenue Code. The employment agreements of the named executive officers require us to reduce these payments, if necessary, to ensure that they do not constitute excess parachute payments.

 

Executive Stock Ownership

 

Our executives must own shares of our common stock in an amount equal to a multiple of their base salary. Stock ownership aligns management’s interests with those of our stockholders and provides a continuing incentive for management to focus on long-term growth. Under our executive stock ownership guidelines, Mr. Yost must own shares worth five times his base salary and the other named executive officers must own shares worth three times their base salaries. Executives who become subject to the guidelines have three years from the date of hire or change in status, whichever is later, to comply with the ownership requirements. Following its annual review, the Committee determined that each of the named executive officers is in compliance with the guidelines.

 

Derivatives Trading and Hedging Prohibition

 

No director, officer or employee may buy or sell options on our common stock or engage in short sales of our common stock. We also prohibit hedging the economic risk of ownership of our common stock. We discourage our employees from holding our stock in a margin account or pledging our stock as collateral for a loan. We have a written policy for our employees on these matters.

 

Tax and Accounting Considerations

 

In 2010, we paid cash compensation in the amount of $2,579,488 to Mr. Yost and $2,010,841 to Mr. Collis that was not deductible under Internal Revenue Code Section 162(m), which prohibits us from deducting compensation in excess of $1 million paid to the named executive officers (other than, under current rules, the chief financial officer). We have not taken action to date to structure the elements of cash compensation payable to our executive officers so as to comply specifically with federal tax law regarding the deductibility of compensation in excess of $1 million. We will continue to consider and evaluate all of our compensation programs in light of federal tax law and regulations.

 

The Compensation and Succession Planning Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in the 2011 Proxy Statement. Based on this review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the 2011 Proxy Statement and incorporated by reference into the company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010.

 

COMPENSATION AND SUCCESSION PLANNING COMMITTEE

 

Charles H. Cotros, Chairman
Richard W. Gochnauer
Richard C. Gozon
Michael J. Long
Henry W. McGee

 

Summary Compensation Table

 

The following table sets forth the compensation paid to or earned by our Chief Executive Officer, Executive Vice President and Chief Financial Officer and the three other most highly compensated executive officers during fiscal year 2010, who we refer to in this Proxy Statement as the named executive officers.

 

 

Salary (Column C)

 

The amounts reported as salary represent the base salaries paid to each of the named executive officers for each fiscal year shown. Amounts shown for Mr. Collis include $73,981, $111,402 and $90,600 deferred into our deferred compensation plan for fiscal years 2008, 2009 and 2010, respectively.

 

Stock Awards and Option Awards (Columns D and E)

 

The amounts reported in Columns D and E represent the grant date fair value for equity awards shown in accordance with ASC 718, disregarding the estimate of forfeitures related to service-based vesting conditions. There were no forfeitures by the named executive officers in fiscal years 2008, 2009 or 2010. See Note 9 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010 relating to assumptions made in the valuation.

 

Long-term equity incentive awards are made pursuant to our EIP. The value of annual equity awards generally consist of 25% restricted stock (or restricted stock units) and 75% stock options. Restricted stock and restricted stock units vest on the third anniversary of the grant date. Unvested restricted stock or restricted stock units are forfeited if the executive leaves the company prior to vesting, except by reason of death, disability, voluntary retirement or an involuntary termination of employment within two years after a change in control. In accordance with the dividend rate applicable to the declaration of dividends on our common stock from time to time, dividends on unvested restricted stock and dividend equivalents on unvested restricted stock units are accrued and paid upon vesting. The dividend rate is not preferential. A restricted stock unit is a grant of shares of our common stock that is delivered at the time and to the extent that the shares vest. Because of the different treatment between restricted stock and restricted stock units for federal income tax purposes that results when an individual has attained retirement age but continues to work for us, we awarded Mr. Yost restricted stock units in lieu of restricted stock in fiscal years 2009 and 2010.

Stock options have an exercise price equal to the closing price of our common stock on the date of grant. Stock options vest 25% per year beginning on the first anniversary of the grant date and may be exercised over a term of seven (7) years from the date of grant for those stock options granted on or after February 27, 2008. Unvested options granted before 2009 normally cease to vest upon any termination of employment other than involuntary termination of employment within two years after a change in control. If we terminate a named executive officer for cause, all outstanding options (vested and unvested) are immediately cancelled. (See page 43 for a description of the impact of termination of employment on vesting and exercisability of restricted stock and stock options.)

 

Non-Equity Incentive Plan Compensation (Column F)

 

The amounts reported in Column F represent the annual cash bonuses awarded to the named executive officers under our AIP plan for the fiscal year shown. Cash bonuses were calculated based on the degree to which the named executive officer achieved the performance criteria established for him by the Compensation and Succession Planning Committee in the preceding November and approved by the committee and paid in the November following the close of the applicable fiscal year. The amounts shown for Mr. Yost for fiscal years 2008, 2009 and 2010 also include $1,350,000 accrued each year as a result of the satisfaction of the performance criteria established under his three-year long-term incentive award. This amount will not be paid to Mr. Yost until at least 13 months after he terminates employment with us (other than as a result of his death), and may be deferred for a longer period of time.

 

Under the AIP, payment of cash bonus depends upon the achievement of pre-established performance goals for the fiscal year. Cash bonus payments depend primarily on the achievement of financial performance goals and secondarily on individual leadership goals. We use a mix of financial performance goals at the corporate and, depending on the named executive officer, business unit level. In fiscal year 2010, corporate level financial performance measures were EPS and ROIC, and business unit level financial performance measures were ABDC pre-tax profit and gross profit and ABSG EBIT and ROIC. (See cash bonus discussion on pages 26-28 under “Compensation Discussion and Analysis.”)

 

Change in Pension Value and Non-Qualified Deferred Compensation Earnings (Column G)

 

The amounts reported in Column G include the aggregate year-to-year change in the actuarial present value of the accumulated benefit under the AmerisourceBergen Corporation Participating Companies Pension Plan, the AmerisourceBergen Corporation 2001 Deferred Compensation Plan and the AmerisourceBergen Drug Corporation Supplemental Retirement Plan.

 

All Other Compensation (Column H)

 

The following table shows the specific components of the amounts shown for fiscal year 2010 in Column H of the Summary Compensation Table:

 

 

 

 

Grants of Plan-Based Awards in Fiscal Year 2010

 

The following table sets forth certain information regarding grants of plan-based awards to each of our named executive officers during fiscal year 2010.

 

 

 

Outstanding Equity Awards at 2010 Fiscal Year End

 

The following table provides information on the current holdings of stock options and restricted stock (or restricted stock unit) awards by our named executive officers as of September 30, 2010. The market value of the shares set forth under the “Stock Awards” column was determined by multiplying the number of unvested shares by the closing price of our common stock of $30.66 per share on September 30, 2010, the last trading day of fiscal year 2010.