The Director Compensation Project: Johnson & Johnson (JNJ)
This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation. We are for the most part including companies from 2017’s Fortune 500 and using information found in their 2017 proxy statements.
NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. The NYSE imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3) (see Rule 303A.06) and requires consideration by the board of directors of certain specified factors in designating directors for the Compensation Committee. See NYSE Rule 303A.02(a)(ii).
Finally, as the Commission has noted with respect to director independence:
All compensation committee members must meet the general independence standards under NYSE’s rules in addition to the two new criteria being adopted herein. The Commission therefore expects that boards, in fulfilling their obligations, will apply this standard to each such director’s individual responsibilities as a board member, including specific committee memberships such as the compensation committee. Although personal and business relationships, related party transactions, and other matters suggested by commenters are not specified either as bright-line disqualifications or explicit factors that must be considered in evaluating a director’s independence, the Commission believes that compliance with NYSE’s rules and the provision noted above would demand consideration of such factors with respect to compensation committee members, as well as to all Independent Directors on the board.
Exchange Act Release No. 68639 (Jan. 11, 2013); see also Exchange Act Release No. 68641 (Jan. 11, 2013).
Independent directors are compensated for their service on the board. The amount of “total compensation” can be seen from examining the director compensation table from the Johnson & Johnson’s (NYSE: JNJ) 2017 proxy statement. According to the proxy statement, the company paid the directors the following amounts:
Name
Fees Earned or Paid in in Cash ($)
Stock Awards ($)
Option Awards ($)
All Other Compensation ($)
Total ($)
M. C. Beckerle(1)
111,667
164,985
0
17,800
294,452
M. S. Coleman(2)
36,666
164,985
0
20,000
221,651
D. S. Davis
135,000
164,985
0
0
299,985
I. E. L. Davis
110,000
164,985
0
0
274,985
S. L. Lindquist(3)
107,038
164,985
0
1,500
273,523
M. B. McClellan
110,000
164,985
0
0
274,985
A. M. Mulcahy
140,000
164,985
0
20,000
324,985
W. D. Perez
130,000
164,985
0
20,000
314,985
C. Prince
130,000
164,985
0
20,000
314,985
A. E. Washington
110,000
164,985
0
20,000
294, 985
R. A. Williams
130,000
164,985
0
20,000
314,985
(1) Appointed Chair of Science, Technology & Sustainability Committee in December 2016. Chairman retainer payment was prorated.
(2) Retired from the Board in April 2016. Cash fees are pro-rated for partial year of service
(3) Passed away in October 2016
Director Compensation. During fiscal year 2016, Johnson & Johnson’s board held nine regular meetings and one special meeting. All directors attended at least 75% of the regularly-scheduled and special meetings. Non-employee directors receive an annual retainer of $110,000. The Chair of each committee receives an additional annual retainer of $20,000, except for the Audit Committee Chair who receives an additional annual retainer of $25,000. The Lead Director receives an additional annual retainer of $30,000. Other compensation included perquisites and other personal benefits, tax reimbursements, company contributions to the 401(k) Savings Plan, insurance premiums, stipends, and relocation.
Director Tenure. Ms. Beckerle is the shortest serving director, having joined in 2015. Ms. Beckerle serves as a director for American Association for Cancer Research. America. Mr. Prince is the longest serving director, having served since 2006.
CEO Compensation. Mr. Alex Gorsky serves as Chairman Board of Directors and Chief Executive Officer. In 2016, Mr. Gorsky earned total compensation of $ 26,871,720. Mr. Gorsky earned a base salary of $1,600,000, stock awards of $10,608,901, long-term incentive compensation of $16,848,019, deferred compensation of $5,663,771, option awards of $4,118,398 and other compensation totaling $228,094. Mr. Paulus Stoffels, Executive Vice President and Chief Scientific Officer, was the second highest compensated Johnson & Johnson executive. In 2016, Mr. Stoffels earned total compensation of $12,725,476. Mr. Stoffels received a base salary of $765,833, stock awards of $4,294,312, incentive compensation of $1,144,000, deferred compensation of $2,642,012, and other compensation totaling $380,232.