J&J Shareholders Urged by Others to Reject CEO's $30 Million Payday

Gorsky_Steven Ferdman/Getty Images

Steven Ferdman/Getty Images

Johnson & Johnson Chief Executive Officer Alex Gorsky is up for a whopping $30 million payday. However, several prominent investors are urging shareholders to reject the compensation package because it shields the executive from billions of dollars in opioid-related litigation costs to the company.

J&J is a target in multiple lawsuits over the marketing of its opioid products. Despite those legal concerns and settlements of nearly $5 billion over the past two years, the CEO was up for a pay increase. 

A group of shareholders, led by the state of Illinois, several religious organizations, and the OxFam charitable organization called for the board to reduce Gorsky’s pay by about $2 million instead of increasing it.

“We believe Johnson & Johnson should protect investors by not intervening to remove the financial impact of opioid-related litigation charges from executive pay. Executives should be accountable for all consequences of corporate conduct,” the investors said in a letter to shareholders

In the letter, the shareholders say the company failed to explain its decision to remove the impact of opioid litigation that has cost the company $5 billion over the past two years to Gorsky’s earnings. The shareholders said it insulates Gorsky and other executives from the fall out of those legal issues by excluding those costs. 

Johnson & Johnson’s opioid marketing landed the company in a California court this week. J&J., along with three other companies, has been sued by Santa Clara, Los Angeles, and Orange counties and the city of Oakland over their role in the opioid crisis. The local governments are seeking $50 billion in damages from the four companies. 

In a filing with the U.S. Securities and Exchange Commission earlier this month, Johnson & Johnson said excluding litigation costs from pay is “consistent with its past practices and motivates the right executive behaviors,” Reuters reported

Gorsky has been CEO for nine years. His compensation totaled $29.6 million in 2020, up 17% from the previous year. The letter writers said they would understand shielding compensation if he had only been in the role a short time and the opioid and talc legal issues were a legacy from a previous executive team. However, that is not the case for Gorsky and the current CEOs. In addition to the opioid litigation, the life sciences giant is also facing litigation related to its talc-based products, but the letter writers chalked that up as a legacy issue.

“In lodging these concerns, we are mindful of the important role Johnson & Johnson has played in combatting the COVID-19 pandemic. We support compensation plans that reward executives for such laudable achievements as vaccine development despite the recent recommendation from the U.S. Centers for Disease Control and Prevention and the U.S. Food and Drug Administration to pause the use of the Janssen vaccine in response to rare adverse reactions involving blood clots,” the letter noted.

“Compensation plans work more effectively when they take both successes and failures into account. We believe the issue of linking executives’ pay to the costs of the opioid crisis is both singularly important and separate from the question of whether executives merit recognition in the development of a vaccine,” the letter continued. “With CEO Gorsky receiving nearly $30 million in pay in 2020, and benefiting from an increase to his long-term incentive opportunity this year (125% of target) in light of last year’s performance, we believe there is ample scope to balance these competing demands.”

The complaints raised by the Illinois Treasurer, OxFam, and the others echo concerns raised earlier this month by Institutional Shareholder Services (ISS) and Glass Lewis. As Reuters reported earlier this month, ISS wrote in a note to its shareholders that “...investors may nonetheless expect an explanation from the company of how the compensation committee considered the extraordinarily large litigation charges when making compensation decisions.”

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