March 14, 2013 -- Johnson & Johnson's (JNJ) "mixed" performance in 2012 prompted its board to reduce the planned bonus for Chief Executive Alex Gorsky and other senior officers by 10%, the health-care giant disclosed Wednesday.
J&J said the move was part of a shift in its executive compensation policies to more closely link pay to performance. The company has been criticized by some shareholders for the hefty compensation packages paid to Mr. Gorsky's predecessor, William Weldon, despite a series of problems at the company in recent years.
Mr. Gorsky, who became CEO in April 2012 and chairman in December, still received total compensation valued at about $11 million for 2012, up more than 60% from 2011, reflecting his promotion to the company's top job.
However, J&J's board concluded the company didn't meet all of its goals for 2012. Among the disappointments: the McNeil Consumer Healthcare unit didn't return over-the-counter medicines to pharmacy shelves as quickly as expected. The company has recalled several popular medicines, such as Tylenol, in recent years over manufacturing-quality lapses.
"To hold Mr. Gorsky accountable for the company's 2012 performance, the board reduced his planned bonus for 2012 by 10%," according to J&J's annual proxy statement filed Wednesday with the U.S. Securities and Exchange Commission.
This resulted in a performance bonus at 90% of the targeted amount for Mr. Gorsky, 52. His final bonus for 2012 amounted to $1.5 million, below the nearly $1.7 million he would have received at 100% of the targeted amount.
Performance bonuses for other top executives including Chief Financial Officer Dominic Caruso also were reduced by 10%, J&J said.
J&J said the company met or exceeded several goals for 2012, including earnings and cash flow targets, as well as the number of new medicines approved by regulators. J&J also cited the closing of its purchase of medical-device maker Synthes as a success.
But disappointments included 2012 sales growth of 3%--excluding Synthes and foreign exchange--short of the target range of 4% to 5%.
"We had expected to return Consumer products to shelves at a faster rate than we did," J&J said. "Our reputational standings, while improving in places, are not at the level to which we aspire."
Other elements of Mr. Gorksy's compensation included salary of $1.1 million, which was prorated to reflect his appointment to the CEO post in April; $2.8 million in stock awards; and $1.5 million in option awards.
Mr. Gorsky's transition to the role of chairman and CEO in a year with "challenging macro-economic pressures" went "smoothly," J&J said in the proxy statement. "He generally met expectations of the board, however.. the company's performance was mixed in 2012 and it was the primary driver of Mr. Gorsky's assessment."
J&J spokesman Ernie Knewitz said the board modified the executive-compensation policy after listening to feedback from shareholders. In an advisory vote at J&J's 2012 shareholder meeting, about 57% approved of J&J's executive compensation program, which J&J deemed to be below satisfactory.
Among the changes in J&J's pay structure, the company no longer targets total direct compensation to a specific percentile of executives at certain peer companies. J&J previously targeted pay between the 50th and 75th percentile of its executive peer group.
J&J also dropped tax reimbursements for executive officers that are not provided as part of standard relocation practices.
Mr. Weldon plans to officially retire from the company on March 29 after a 41-year career at J&J. He has served as a special adviser to Mr. Gorsky since stepping down from the board in December.
Mr. Weldon's 2012 compensation was valued at $29.8 million, up 11% from 2011, reflecting his service as CEO until April 2012 and as chairman until December.
J&J said it won't enter any retirement or "golden parachute" agreement with Mr. Weldon. However, Mr. Weldon stands to collect a total of more than $157 million in pension benefits and non-qualified deferred compensation.
The deferred compensation of $105.8 million represents portions of Mr. Weldon's annual salary and bonus from prior years that he elected to defer receiving until retirement.
"He'll be paid his deferred compensation that's been built up over years," Mr. Knewitz said.
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