Johnson & Johnson
Annual Meeting: 4/23/2019
Total disclosed compensation for Johnson & Johnson CEO Alex Gorsky for 2019 was $25,365,777. Gorsky’s compensation has been higher than $20 million in each of the last four years. Gorsky was 28th in the most recent report of most overpaid CEOs. A regression analysis done by HIP Investor predicted pay based on his performance should have been $12,545,623 million; instead, his 2018 compensation was $20,097,572. The excess calculated was 60.2%.
At last year’s annual meeting, 34% of shareholders voted against the pay package. The company has taken some actions in response after consulting with shareholders. It redesigned 2020 annual incentives with weightings on financial and strategic goals and identified threshold, target, and maximum levels of financial performance and payout.
Additionally, the company redesigned its Performing Share Units (PSUs), eliminating a one-year sales goal. Beginning with 2020 grants, the PSU will be based on three-year adjusted operational EPS (Earnings Per Share) and three-year relative TSR (Total Shareholder Return). Both EPS and TSR are weighted at 50%.
Existing PSUs will continue to be granted based on the prior metrics. In fact, despite being below-target relative to total shareholder return, the 2017-2019 PSUs paid out at 94.7%.
Shareholders may appreciate these changes but many may still vote against based on the fact that the pay is excessive.
The increases in Gorsky’s total compensation stems from an increase in his pension value of nearly $6 million. The proxy notes that “It is important to ‘separate the signal from the noise’ in the change in pension present value. The ‘noise’ created by changes in assumptions that are beyond our control introduces significant year-on-year volatility to the Summary Compensation Table totals and does not reflect decisions on compensation by the Committee.” That is a fair point. However, the signal is real, no matter how the accrual is reported. Gorsky has a Salaried Pension Plan of $1,576,000. The accumulated benefit of his so-called Excess Pension Plan is $31,692,000. The term excess is a reference to IRS rules, but it applies on multiple levels.
In addition to voting on Gorsky’s compensation, shareholders at the meeting will vote on a proposal from Trillium calling for an independent board chair. There have been some suggestions that CEOs who are not also chairmen are likely to be paid somewhat less. In its statement of support for the proposal, Trillium cites a PWC 2019 survey of over 700 directors, in which “57% of directors surveyed who sit on a board with a chair/CEO say it is difficult to voice dissent.”
Trillium also noted recent controversies at the company, including those related to accusations that the company downplayed the dangers of opioid treatment and claims that its talcum powder contained asbestos and caused cancer. Trillium cites a Wall Street Journal estimate from October 2019 that JNJ was "facing lawsuits from more than 100,000 plaintiffs over its product safety and marketing tactics."