UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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The Story Behind the Cover Photo
Johnson & Johnson has a long-standing, 132-year legacy in innovation. Our approach to innovation is unique: we relentlessly pursue the best breakthroughs in science and technology-whether it is from within our own laboratories or from our powerful network of scientists and entrepreneurs all over the world. Our goal is to address some of the biggest health care needs of humanity. We do this by being a leader in R&D investment. In 2017 we invested $10.6 Billion in research and development, leading to the development of lifesaving and life enhancing products that make a difference for patients and consumers all over the world. We envision a world where all disease is treatable, curable or preventable. We believe our investment in research and development is the best way to benefit patients, consumers and our shareholders.
March 14, 2018 | |||
Notice of Annual Meeting and Proxy Statement | |||
You are invited to attend the Annual Meeting of Shareholders of Johnson & Johnson. | |||
When: Thursday, April 26, 2018 10:00 a.m., Eastern Time Doors to Meeting Open at 9:15 a.m. | Where: Hyatt Regency New Brunswick Two Albany Street New Brunswick, New Jersey | ||
We will broadcast the meeting as a live webcast at www.investor.jnj.com, under “Webcasts & Presentations”. The webcast will remain available for replay for three months following the meeting. | |||
Items of Business: | |||
1. Elect the 11 nominees named in this Proxy Statement to serve as Directors for the coming year; 2. Vote, on an advisory basis, to approve named executive officer compensation; 3. Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2018; 4. Vote on the two (2) shareholder proposals contained in this Proxy Statement, if properly presented at the meeting; and 5. Transact such other matters as may properly come before the meeting, and at any adjournment or postponement of the meeting. | |||
Voting: | |||
You are eligible to vote if you were a shareholder of record at the close of business on February 27, 2018. Ensure that your shares are represented at the meeting by voting in one of several ways: | |||
 | Go to the website listed on your proxy card or Notice to vote VIA THE INTERNET | ||
 | Call the telephone number specified on your proxy card or on the website listed on your Notice to vote BY TELEPHONE | ||
 | If you received paper copies of your proxy materials, mark, sign, date and return your proxy card in the postage-paid envelope provided to vote BY MAIL | ||
 | Attend the meeting to vote IN PERSON (see “Annual Meeting Attendance” and “Admission Ticket Procedures” on page 96 of this Proxy Statement) | ||
By order of the Board of Directors, | |||
 | |||
THOMAS J. SPELLMAN III Assistant General Counsel and Corporate Secretary | |||
Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to be held on April 26, 2018:
The Proxy Statement and Annual Report to Shareholders are available at
www.investor.jnj.com/gov/annualmeetingmaterials.cfm
A Message from Our Lead Director
Dear Fellow Shareholders,
As Johnson & Johnson’s Lead Director, I value this opportunity to share with you some of the ways my fellow Directors and I work to represent your interests and keep your trust. Our entire Board continues to provide strong, independent leadership and remains directly accountable to you through active engagement and oversight of the company’s strategy, performance, leadership and risk management. We also ensure a strong focus on the long-term success of the company through the Credo commitment of our Directors, executives and employees.
Over the past year, I had the pleasure of speaking with a robust cross-section of you and listening to your insights on key subjects, including board leadership, composition and refreshment; succession planning; compensation; sustainability risks and opportunities; the Board’s oversight of risk; diversity and inclusion; and the future of health care and our company. I shared your perspectives with my fellow Directors, and as a result, we updated important disclosures and reaffirmed critical policies and practices.
You can see the results of our outreach in our updated board skills matrix, our robust Board evaluation process (adopting new technology which enables the inclusion of anonymous written feedback), our steady Board refreshment, and our thought leadership and enhanced reporting on environmental, social and governance topics. Please read about our newest Director nominee and our other Board, governance, risk oversight and compensation practices in the pages that follow.
As a company focused on improving the health of humanity globally, we are intensely focused on the opportunities, as well as the risks, created by ever-shifting political, human capital, and other dynamics. The Drucker Institute rates Johnson & Johnson as one of the five best-managed companies in the United States with top-tier recognition for financial management, innovation, how we treat our people, and how we conduct ourselves globally. Despite that success, we maintain our sights on future performance, steadily raising the bar we set for ourselves to deliver long-term, sustainable results in line with Our Credo.
Independent, effective Board leadership and the talent and hard work of our executive team and our employees around the globe are at the core of our past achievements and fuel our future success. My role as Lead Director includes a broad range of responsibilities consistent with most independent Board chairs, impacting all critical aspects of the Board’s operations and decision-making. I focus on making the Lead Director role effective by providing strong independent leadership of the Board, and keeping in frequent contact with the Chairman. Together, we ensure the effective functioning of the Board/management relationship. As we periodically evaluate our Board’s leadership structure, we are mindful of the need for a governance framework that allows the Board flexibility to select the best structure based on the specific needs of the business at the time and what we believe is in the best interests of shareholders. All our Directors select our Board Chair as well as our Lead Director. I commit to you that your Johnson & Johnson Board will continue to advance the long-term interests of shareholders and remain accountable to you through a variety of meaningful governance practices. We hope you agree that this structure incorporates the checks and balances that a large global healthcare company like ours requires.
Thank you for your investment in Johnson & Johnson and the trust that it implies—it is that trust we continually work to retain. We kindly request that you support our voting recommendations and we invite you to share your thoughts with us throughout the year via any of the means we highlight in this Proxy Statement.
Sincerely,
Anne M. Mulcahy
Lead Director
2018 Proxy Statement - 5 | ||
Table of Contents
BOARD OF DIRECTORS | ||
COMPENSATION OF EXECUTIVES | ||
2018 Proxy Statement - 6 | ||
AUDIT MATTERS | ||
SHAREHOLDER PROPOSALS & OTHER MATTERS | ||
2018 Proxy Statement - 7 | ||
2018 Proxy Statement – Summary
This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider. You should read the entire Proxy Statement carefully before voting.
VOTING OVERVIEW | |||||||||||||
Items of Business: | Board Vote Recommendation | Page # | |||||||||||
1 | FOR each nominee | ||||||||||||
Management Proposals: | |||||||||||||
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4 | AGAINST | ||||||||||||
5 | AGAINST | ||||||||||||
CORPORATE GOVERNANCE HIGHLIGHTS | |||||||||||||
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Other Governance Features: | |||||||||||||
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l | No Shareholder Rights Plan | ||||||||||||
l | Shareholder Right to Call Special Meetings | ||||||||||||
SHAREHOLDER ENGAGEMENT (see page 23) | |||||||||||||
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2018 Proxy Statement - 8 | ||
DIRECTOR NOMINEES (see pages 11 - 16) | |||||||||||||
Name | Age | Director Since | Primary Occupation | ||||||||||
Mary C. Beckerle | I | 63 | 2015 | Chief Executive Officer and Director, Huntsman Cancer Institute; Distinguished Professor of Biology, College of Science, University of Utah | |||||||||
D. Scott Davis | I | 66 | 2014 | Former Chairman and Chief Executive Officer, United Parcel Service, Inc. | |||||||||
Ian E. L. Davis | I | 67 | 2010 | Chairman, Rolls-Royce Holdings plc; Former Chairman and Worldwide Managing Director, McKinsey & Company | |||||||||
Jennifer A. Doudna | I | 54 | Nominee | Professor of Chemistry; Professor of Biochemistry and Molecular Biology; Li Ka Shing Chancellor's Professor in Biomedical and Health; University of California, Berkeley | |||||||||
Alex Gorsky | CH | 57 | 2012 | Chairman, Board of Directors; Chief Executive Officer, Johnson & Johnson | |||||||||
Mark B. McClellan | I | 54 | 2013 | Director, Duke-Robert J. Margolis, MD, Center for Health Policy | |||||||||
Anne M. Mulcahy | LD | I | 65 | 2009 | Former Chairman and Chief Executive Officer, Xerox Corporation | ||||||||
William D. Perez | I | 70 | 2007 | Retired President and Chief Executive Officer, Wm. Wrigley Jr. Company | |||||||||
Charles Prince | I | 68 | 2006 | Retired Chairman and Chief Executive Officer, Citigroup Inc. | |||||||||
A. Eugene Washington | I | 67 | 2012 | Duke University’s Chancellor for Health Affairs; President and Chief Executive Officer, Duke University Health System | |||||||||
Ronald A. Williams | I | 68 | 2011 | Former Chairman and Chief Executive Officer, Aetna Inc. | |||||||||
Chairman of the Board: CH Lead Director: LD Independent Director: I | |||||||||||||
BOARD NOMINEE COMPOSITION AND REFRESHMENT (see page 18) | ||||||||||
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2018 Proxy Statement - 9 | ||
EXECUTIVE COMPENSATION | 13.1% per year 2015 - 2017 Total Shareholder Return (TSR) performance as compared to a 7.1% TSR per year for our peers (TSR calculated using 20-day average stock prices. See page 54 for detail) | |||||
Our Credo | ||||||
When we assess performance, we review not only what results were achieved but also how they were achieved and whether they were achieved consistent with the values embodied in Our Credo. In 2017, we upheld our Credo values by focusing on the needs and well-being of: our patients, consumers, and health care professionals who use our products; our employees; the communities in which we live and work; and our shareholders. | ||||||
Company Performance | ||||||
We delivered solid performance in 2017. We largely met or exceeded our combined financial and strategic goals. This was driven by strong performance in our Pharmaceutical business. We made good progress on many important strategic initiatives that will benefit our company in future years. | 34 Consecutive years of adjusted operational earnings increases (See page 46 for detail on non-GAAP measures) | |||||
Financial Goal | Goal | Results | ||||
Met our operational sales growth goal | 4.0% - 5.0% | 4.0% | ||||
Met our adjusted operational EPS growth goal | 4.8% - 7.0% | 6.5% | ||||
Exceeded our free cash flow goal ($ Billions) | $14.8 - $15.6 | $17.8 | ||||
Note: Operational sales growth, adjusted operational EPS growth, and free cash flow are non-GAAP measures. See page 46 for details. Our sales growth and EPS results do not include the impact of our Actelion Ltd. acquisition since it was not included in the goals. We summarize our performance against our financial and strategic goals and the performance of each of our businesses on pages 44 to 46. | 55 Consecutive years of dividend increases | |||||
Compensation Decisions for 2017 | ||||||
The Board believes the company largely met or exceeded its combined financial and strategic goals. It recognized Mr. Gorsky’s 2017 performance by awarding him an annual performance bonus at 110% of target and long-term incentives at 115% of target. After reviewing market data and other factors, the Board adjusted Mr. Gorsky’s salary rate by 3.1% to $1,650,000 (effective February 26, 2018). | 22% Of 2017 sales from products launched in the past five years | |||||
2017 Amount ($) | Percent of Target (%) | |||||
Salary Earned | $1,600,000 | More than $10 Billion Invested in R&D in 2017 | ||||
Annual Performance Bonus | 3,080,000 | 110% | ||||
Long-Term Incentive Awards | 14,352,000 | 115% | ||||
Total Direct Compensation | $19,032,000 | |||||
Compensation Program Changes | 17 Acquisitions & Licenses in 2017 | |||||
In 2017, we increased the weight of our PSUs to 60% for our 2018 long-term incentive grant based on: shareholder feedback, competitive data, and our objective of increasing the focus on long-term performance. The weighting is: 60% PSUs, 30% options, and 10% RSUs. See page 55 for more detail. | ||||||
2018 Proxy Statement - 10 | ||
Item 1: Election of Directors
The Board of Directors recommends a vote FOR election
of each of the below-named nominees.
NOMINEES
There are 11 Director nominees for election at our 2018 Annual Meeting, to hold office until the next Annual Meeting and until their successors have been duly elected and qualified.
All of the nominees were elected to the Board at the last Annual Meeting and are currently serving as Directors of the company except for Dr. Jennifer A. Doudna, who was nominated for election to the Board on February 13, 2018. Dr. Doudna was initially identified as a potential nominee by members of the Science, Technology & Sustainability Committee and by an executive search firm. Dr. Doudna was recommended for nomination by the Nominating & Corporate Governance Committee, in keeping with the Board’s commitment to seek out Directors who are widely recognized as leaders in the fields of medicine or the biological sciences, as well as candidates with diverse backgrounds, skills and experiences.
Below are summaries of the background, business experience and description of the principal occupation of each of the nominees.
 | MARY C. BECKERLE, Ph.D. Chief Executive Officer and Director, Huntsman Cancer Institute at the University of Utah; Distinguished Professor of Biology, College of Science, University of Utah With her expertise in scientific research and organizational management in the healthcare arena, and her active participation in national and international scientific affairs, Dr. Beckerle provides a perspective crucial to a global healthcare company. Director since 2015; Independent Chairman, Science, Technology & Sustainability Committee; Member, Regulatory, Compliance & Government Affairs Committee | |
Dr. Beckerle, 63, has served as CEO and Director of Huntsman Cancer Institute since 2006, and she was appointed in 2009 to an additional key health sciences leadership role as Associate Vice President for Cancer Affairs at the University of Utah. Dr. Beckerle joined the faculty of the University of Utah in 1986 and is a distinguished professor of biology and oncological sciences, holding the Ralph E. and Willia T. Main Presidential Professorship. Dr. Beckerle has served on the National Institute of Health (NIH) Advisory Committee to the Director, on the Board of Directors of the American Association for Cancer Research, as president of the American Society for Cell Biology, and as the Chair of the American Cancer Society Council for Extramural Grants. She currently serves on a number of scientific advisory boards, including the Medical Advisory Board of the Howard Hughes Medical Institute and the Scientific Advisory Boards of the National Center for Biological Sciences at the Tata Institute of Fundamental Research in India, the Mechanobiology Institute in Singapore, and the Dana Farber/Harvard Cancer Center. Dr. Beckerle held a Guggenheim Fellowship at the Curie Institute in Paris, received the Utah Governor’s Medal for Science and Technology in 2001, the Sword of Hope Award from the American Cancer Society in 2004 and is an elected Fellow of the American Academy of Arts and Sciences and the American Philosophical Society. Dr. Beckerle was also named a National Association of Corporate Directors (NACD) Governance Fellow in 2012. Other Public Company Board Service: Huntsman Corporation (2011 to present) | ||
2018 Proxy Statement - 11 | ||
 | D. SCOTT DAVIS Former Chairman and Chief Executive Officer, United Parcel Service, Inc. Having served as Chairman and CEO of the world’s largest publicly-traded logistics company, and given his knowledge and passion for emerging markets and international operations, deep understanding of public policy and global economic indicators, and expertise in management, strategy, finance and operations, Mr. Davis brings to our Board his unique expertise in supply chain logistics at a time of rapid global expansion in the healthcare industry. Director since 2014; Independent Chairman, Audit Committee; Member, Compensation & Benefits Committee | |
Mr. Davis, 66, served as Chairman and Chief Executive Officer of United Parcel Service, Inc. (UPS) (shipment and logistics) from 2008 to 2014, and as Chairman from 2014 to 2016. Previously, Mr. Davis held various leadership positions with UPS, primarily in the finance and accounting area, including Vice Chairman and Chief Financial Officer. Prior to joining UPS, he was Chief Executive Officer of II Morrow Inc., a developer of general aviation and marine navigation instruments. Mr. Davis is a Certified Public Accountant. He previously served on the Board of the Federal Reserve Bank of Atlanta from 2003 to 2009, serving as Chairman in 2009. Mr. Davis is a trustee of the Annie E. Casey Foundation and a member of The Carter Center Board of Councilors. Other Public Company Board Service: Honeywell International, Inc. (2005 to present) Recent Past Public Company Board Service: United Parcel Service, Inc. (2008 to 2016); EndoChoice, Inc. (2014 to 2016) | ||
 | IAN E. L. DAVIS Chairman, Rolls-Royce Holdings plc; Former Chairman and Worldwide Managing Director, McKinsey & Company Having served as Chairman and Worldwide Managing Director of one of the world’s leading management consulting firms, and as a consultant to a range of global organizations across the public, private and not-for-profit sectors, Mr. Davis brings considerable global experience, management insight and business knowledge to our Board. Director since 2010; Independent Member, Audit Committee; Member, Regulatory, Compliance & Government Affairs Committee | |
Mr. Davis, 67, is currently non-executive Chairman, Rolls-Royce Holdings plc. Mr. Davis retired from McKinsey & Company (management consulting) in 2010 as a Senior Partner, having served as Chairman and Worldwide Managing Director from 2003 until 2009. In his more than 30 years at McKinsey, he served as a consultant to a range of global organizations across the public, private and not-for-profit sectors. Prior to becoming Chairman and Worldwide Managing Director, he was Managing Partner of McKinsey’s practice in the United Kingdom and Ireland. His experience included oversight for McKinsey clients and services in Asia, Europe, the Middle East and Africa, as well as expertise in the consumer products and retail industries. Mr. Davis is a Director of Teach for All, Inc., a global network of independent social enterprises working to expand educational opportunities in their nations; BP plc., a global energy group; and Majid Al Futtaim Holding LLC; and a Senior Advisor at Apax Partners, a private equity firm. Other Public Company Board Service: BP plc (2010 to present); Rolls-Royce Holdings plc (2013 to present) | ||
2018 Proxy Statement - 12 | ||
 | JENNIFER A. DOUDNA Professor of Chemistry; Professor of Biochemistry & Molecular Biology; Li Ka Shing Chancellor's Professor in Biomedical and Health, University of California, Berkeley As a pioneer in the field of biochemistry, having co-discovered the simplified genome editing technique Crispr-Cas9, and with her vast academic experience and her steadfast concern for ethics in science, Dr. Doudna will bring a global, ethical and scientific perspective to our Board. Director Nominee; Independent | |
Dr. Doudna, 54, joined the faculty at University of California, Berkeley, as a Professor of Biochemistry & Molecular Biology in 2002. She directs the Innovative Genomics Institute, a joint UC Berkeley-UC San Francisco center, holds the Li Ka Shing Chancellor’s Professorship in Biomedicine and Health, and is the chair of the Chancellor’s Advisory Committee on Biology at UC Berkeley. Dr. Doudna is Principal Investigator at the Doudna Lab at UC Berkeley and has founded and serves on the scientific advisory boards of Caribou Biosciences, Inc. and Intellia Therapeutics, Inc., leading CRISPR genome engineering companies. She has been an Investigator with the Howard Hughes Medical Institute since 1997. Dr. Doudna is the recipient of numerous scientific awards in biochemistry and genetics, including: the Alan T. Waterman Award (2000); the Eli Lilly Award in Biological Chemistry of the American Chemical Society (2001); a co-recipient of the Breakthrough Prize in Life Sciences (2015); a co-recipient of the Gruber Prize in Genetics (2015); a co-recipient of the Canada Gairdner International Award (2016); the Heineken Prize for Biochemistry and Biophysics (2016); the Tang Prize (2016); the Japan Prize (2017); and the Albany Medical Center Prize (2017). Dr. Doudna was elected to the National Academy of Sciences (2002); the American Academy of Arts and Sciences (2003); the National Academy of Medicine (2010); the National Academy of Inventors (2014); and as a Foreign Member of the Royal Society (2016). Dr. Doudna is a Trustee for Pomona College and serves on the Board of Directors of Driver Inc., a treatment access platform for cancer patients. Other Public Company Board Service: None | ||
 | ALEX GORSKY Chairman, Board of Directors; Chief Executive Officer; Chairman, Executive Committee, Johnson & Johnson Having started his career at Johnson & Johnson in 1988 and having been promoted to positions of increasing responsibility across business segments, culminating in his appointment to CEO and election to our Board of Directors in 2012, Mr. Gorsky brings a full range of strategic management expertise, a broad understanding of the issues facing a multinational business in the healthcare industry, and an in-depth knowledge of the company’s business, history and culture to our Board and the Chairman position. Director since 2012; Management Chairman, Finance Committee | |
Mr. Gorsky, 57, was appointed as Chairman, Board of Directors in December 2012. He was named Chief Executive Officer, Chairman of the Executive Committee and joined the Board of Directors in April 2012. Mr. Gorsky began his Johnson & Johnson career with Janssen Pharmaceutica Inc. in 1988. Over the next 15 years, he advanced through positions of increasing responsibility in sales, marketing, and management. In 2001, Mr. Gorsky was appointed President of Janssen Pharmaceutical Inc., and in 2003 he was named Company Group Chairman of the Johnson & Johnson pharmaceutical business in Europe, the Middle East and Africa. Mr. Gorsky left Johnson & Johnson in 2004 to join Novartis Pharmaceuticals Corporation, where he served as head of the company’s pharmaceutical business in North America. Mr. Gorsky returned to Johnson & Johnson in 2008 as Company Group Chairman for Ethicon. In early 2009, he was appointed Worldwide Chairman of the Surgical Care Group and member of the Executive Committee. In September 2009, he was appointed Worldwide Chairman of the Medical Devices and Diagnostics Group. Mr. Gorsky became Vice Chairman of the Executive Committee in January 2011. Mr. Gorsky also serves on the boards of the Travis Manion Foundation, the Congressional Medal of Honor Foundation and the National Academy Foundation; the Wharton Board of Overseers; and as a member of the Business Roundtable Board of Directors and as the Chairman of its Corporate Governance Committee. Other Public Company Board Service: International Business Machines Corporation (IBM) (2014 to present) | ||
2018 Proxy Statement - 13 | ||
 | MARK B. McCLELLAN, M.D., Ph.D. Director, Duke-Robert J. Margolis, MD, Center for Health Policy With his extensive experience in public health policy, including as Commissioner of the United States Food and Drug Administration and Administrator for the United States Centers for Medicare & Medicaid Services, Dr. McClellan possesses broad knowledge of, and unique insights into, the challenges facing the healthcare industry, making him a valuable member of the board of a broad-based healthcare company. Director since 2013; Independent Member, Regulatory, Compliance & Government Affairs Committee; Member, Science, Technology & Sustainability Committee | |
Dr. McClellan, 54, became the inaugural Director of the Duke-Robert J. Margolis, MD, Center for Health Policy and the Margolis Professor of Business, Medicine and Policy at Duke University in January 2016. He is also a faculty member at Dell Medical School at The University of Texas in Austin. Previously, he served from 2007 to 2015 as a Senior Fellow in Economic Studies and as Director of the Initiatives on Value and Innovation in Health Care at the Brookings Institution. Dr. McClellan served as Administrator of the Centers for Medicare & Medicaid Services for the U.S. Department of Health and Human Services from 2004 to 2006 and as Commissioner of the U.S. Food and Drug Administration from 2002 to 2004. He served as a member of the President’s Council of Economic Advisers and as senior director for healthcare policy at the White House from 2001 to 2002 and, during President Bill Clinton’s administration, held the position of Deputy Assistant Secretary for Economic Policy for the Department of the Treasury. Dr. McClellan previously served as an associate professor of economics and medicine with tenure at Stanford University, where he also directed the Program on Health Outcomes Research. Dr. McClellan is the founding chair and a current board member of the Reagan-Udall Foundation for the Food and Drug Administration, is a member of the National Academy of Medicine and chairs the Academy’s Leadership Consortium for Value and Science-Driven Health Care, and co-chairs the guiding committee of the Health Care Payment Learning and Action Network. Other Public Company Board Service: None Recent Past Public Company Board Service: Aviv REIT, Inc. (2013 to 2015) | ||
 | ANNE M. MULCAHY Former Chairman and Chief Executive Officer, Xerox Corporation Having served as Chairman and CEO of a large, global manufacturing and services company with one of the world’s most recognized brands, Ms. Mulcahy provides to our Board valuable insight into organizational and operational management issues crucial to a large public company, as well as a strong reputation for leadership in business innovation and talent development. Lead Director since 2012 Director since 2009; Independent Member, Audit Committee; Member, Nominating & Corporate Governance Committee; Member, Finance Committee | |
Ms. Mulcahy, 65, was Chairman and Chief Executive Officer of Xerox Corporation (business equipment and services) until July 2009, when she retired as CEO after eight years in the position. Prior to serving as CEO, Ms. Mulcahy was President and Chief Operating Officer of Xerox. She also served as President of Xerox’s General Markets Operations, which created and sold products for reseller, dealer and retail channels. Earlier in her career at Xerox, which began in 1976, Ms. Mulcahy served as Vice President for Human Resources with responsibility for compensation, benefits, human resource strategy, labor relations, management development and employee training; and as Vice President and Staff Officer for Customer Operations, covering South America and Central America, Europe, Asia and Africa. Ms. Mulcahy was the U.S. Board Chair of Save the Children from March 2010 to February 2017, and was reappointed as a Board member in February 2018. Other Public Company Board Service: Graham Holdings Company (2008 to present); LPL Financial Holdings Inc. (2013 to present) Recent Past Public Company Board Service: Target Corporation (1997 to 2017) | ||
2018 Proxy Statement - 14 | ||
 | WILLIAM D. PEREZ Retired President and Chief Executive Officer, Wm. Wrigley Jr. Company With his experience as CEO of several large, consumer-focused companies across a wide variety of industries, Mr. Perez contributes to our Board significant organizational and operational management skills, combined with a wealth of experience in global, consumer-oriented businesses vital to a large public company in the consumer products space. Director since 2007; Independent Chairman, Nominating & Corporate Governance Committee; Member, Audit Committee | |
Mr. Perez, 70, served as President and Chief Executive Officer for the Wm. Wrigley Jr. Company (confectionary and chewing gum) from 2006 to 2008. He was a Senior Advisor at Greenhill & Co., Inc. from 2010 to 2017. Before joining Wrigley, Mr. Perez served as President and Chief Executive Officer of Nike, Inc. Previously, he spent 34 years with S.C. Johnson & Son, Inc., including eight years as its President and Chief Executive Officer. Mr. Perez is a Director at Northwestern Memorial Hospital. Other Public Company Board Service: Whirlpool Corporation (2009 to present) | ||
 | CHARLES PRINCE Retired Chairman and Chief Executive Officer, Citigroup Inc. Having served as Chairman and CEO of the nation’s largest and most diversified financial institution, Mr. Prince brings to our Board a strong mix of organizational and operational management skills combined with well-developed legal, global business and financial acumen critical to a large public company. Director since 2006; Independent Chairman, Regulatory, Compliance & Government Affairs Committee; Member, Nominating & Corporate Governance Committee | |
Mr. Prince, 68, served as Chief Executive Officer of Citigroup Inc. (financial services) from 2003 to 2007 and as Chairman from 2006 to 2007. Previously he served as Chairman and Chief Executive Officer of Citigroup’s Global Corporate and Investment Bank from 2002 to 2003 and Chief Operating Officer from 2001 to 2002. Mr. Prince began his career as an attorney at U.S. Steel Corporation in 1975. Mr. Prince is a member of the Council on Foreign Relations and The Council of Chief Executives. Other Public Company Board Service: Xerox Corporation (2008 to present) | ||
2018 Proxy Statement - 15 | ||
 | A. EUGENE WASHINGTON, M.D., M.Sc. Duke University’s Chancellor for Health Affairs; President and Chief Executive Officer, Duke University Health System Dr. Washington brings to our Board his distinct expertise born of significant achievements as a senior executive in academia, an accomplished clinical investigator, an innovator in health care, and a leader in shaping national health policy. With his unique combination of knowledge, skills and experience in organizational management, medical research, patient care, and public health policy, Dr. Washington provides an invaluable perspective for a company in the healthcare industry. Director since 2012; Independent Member, Compensation & Benefits Committee; Member, Science, Technology & Sustainability Committee | |
Dr. Washington, 67, is currently Duke University’s Chancellor for Health Affairs and the President and Chief Executive Officer of the Duke University Health System. Previously he was Vice Chancellor of Health Sciences, Dean of the David Geffen School of Medicine at UCLA; Chief Executive Officer of the UCLA Health System; and Distinguished Professor of Gynecology and Health Policy at UCLA. Prior to UCLA, he served as Executive Vice Chancellor and Provost at the University of California, San Francisco (UCSF) from 2004 to 2010. Dr. Washington co-founded UCSF’s Medical Effectiveness Research Center for Diverse Populations in 1993 and served as Director until 2005. He was Chair of the Department of Obstetrics, Gynecology, and Reproductive Sciences at UCSF from 1996 to 2004. Dr. Washington also co-founded the UCSF-Stanford Evidence-based Practice Center and served as its first Director from 1997 to 2002. Prior to UCSF, Dr. Washington worked at the Centers for Disease Control and Prevention. Dr. Washington was elected to the National Academy of Sciences’ Institute of Medicine in 1997, where he served on its governing Council. He was founding Chair of the Board of Governors of the Patient-Centered Outcomes Research Institute, served as a member of the Scientific Management Review Board for the NIH, and also served as Chair of the Board of Directors of both the California HealthCare Foundation and The California Wellness Foundation. Dr. Washington currently serves on the Boards of Directors of the Kaiser Foundation Hospitals and Kaiser Foundation Health Plan, Inc. Other Public Company Board Service: None | ||
 | RONALD A. WILLIAMS Former Chairman and Chief Executive Officer, Aetna Inc. With his long and distinguished career in the healthcare industry, from his experience leading one of Fortune’s Most Admired healthcare companies to his career-long role as an advocate for meaningful healthcare reform, Mr. Williams provides our Board with an exceptional combination of operational management expertise and insight into both public healthcare policy and the healthcare industry critical to a large public company in the healthcare industry. Director since 2011; Independent Chairman, Compensation & Benefits Committee; Member, Nominating & Corporate Governance Committee | |
Mr. Williams, 68, served as Chairman and Chief Executive Officer of Aetna Inc. (managed care and health insurance) from 2006 to 2010, and as Chairman from 2010 until his retirement in April 2011. He is also an advisor to the private equity firm, Clayton, Dubilier & Rice, LLC. In addition, Mr. Williams serves on the boards of MIT Corporation, Peterson Institute for International Economics, the Advisory Board of Peterson Center on Healthcare and is Vice Chairman of the Board of Trustees of The Conference Board. Previously, Mr. Williams served on President Obama's Management Advisory Board from 2011 to January 2017, as Chairman of the Council for Affordable Quality Healthcare from 2007 to 2010, and as Vice Chairman of The Business Council from 2008 to 2010. Other Public Company Board Service: The Boeing Company (2010 to present), American Express Company (2007 to present) Recent Past Public Company Board Service: Envision Healthcare Holdings, Inc. (2011 to 2017) | ||
The Board of Directors recommends a vote FOR election of each of the above-named nominees. | ||
2018 Proxy Statement - 16 | ||
DIRECTOR NOMINATION PROCESS AND BOARD COMPOSITION
Director Nomination Process
The Nominating & Corporate Governance Committee of the Board of Directors annually considers the size, composition and needs of the Board, reviews possible candidates for the Board, and recommends the nominees for Directors to the Board for approval. The Committee considers and evaluates suggestions from many sources, including shareholders, regarding possible candidates for Directors. Such suggestions, together with appropriate biographical information, should be submitted to the Office of the Corporate Secretary at our principal office address.
Below are the General Criteria for Nomination to the Board of Directors, which, as part of the Principles of Corporate Governance, are posted at www.investor.jnj.com/gov.cfm: | ||
l | The highest ethical character and shared values with Our Credo | |
l | Reputation, both personal and professional, consistent with our image and reputation | |
l | Accomplishment within candidate’s field, with superior credentials and recognition | |
l | Active and former chief executive officers of public companies and leaders of major complex organizations, including scientific, government, educational and other non-profit institutions | |
l | Widely recognized leaders in the fields of medicine or biological sciences, including those who have received the most prestigious awards and honors in their fields | |
l | Relevant expertise and experience and the ability to offer advice and guidance to the CEO based on that expertise and experience | |
l | Independence, without the appearance of any conflict in serving as a Director, and independence of any particular constituency with the ability to represent all shareholders | |
l | Ability to exercise sound business judgment | |
l | Diversity, reflecting differences in skills, regional and industry experience, background, race, ethnicity, gender and other unique characteristics | |
2018 Proxy Statement - 17 | ||
Board Nominee Composition
Understanding the importance of board composition and refreshment for effective oversight, the Nominating & Corporate Governance Committee strives to maintain a diverse board of Directors, with diversity reflecting differences in skills, regional and industry experience, background, race, ethnicity, gender and other unique characteristics. The Board welcomed a new director every year during the period from 2009 to 2015. This year, Dr. Jennifer A. Doudna was recommended for nomination by the Nominating & Corporate Governance Committee, in keeping with the Board's commitment to refreshment, diversity and seeking out directors who are widely recognized as leaders in the fields of medicine or the biological sciences (see "Nominees" on page 11).The Board remains committed to refreshment and to seeking out highly qualified women and minority candidates as well as candidates with diverse backgrounds, skills and experiences. Below are highlights of the composition of our Director nominees: |
BOARD NOMINEE COMPOSITION |
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2018 Proxy Statement - 18 | ||
BOARD LEADERSHIP STRUCTURE
• Chairman of the Board and CEO: Alex Gorsky • Independent Lead Director: Anne M. Mulcahy Ø Both positions designated annually by the independent Directors and reviewed annually by the Nominating & Corporate Governance Committee • All 5 main Board Committees composed of independent Directors • Independent Directors met in executive session at each of the 8 regular 2017 Board meetings |
Our Directors believe that there are positives and negatives related to all possible board leadership structures, which must be considered in the context of the specific circumstances, culture and challenges facing a company, and that such consideration falls squarely on the shoulders of a company’s board, holding a diversity of views and experiences. As discussed in “Item 1: Election of Directors” on pages 11 to 16 of this Proxy Statement, our Directors come from a variety of organizational backgrounds with direct experience in a wide range of leadership and management structures. Moreover, our independent Directors appropriately challenge management and demonstrate the free-thinking expected of today’s Directors. Given this makeup, our Board is in a very strong position to evaluate the pros and cons of the various types of board leadership structures, considering the perspectives of shareholders, and to ultimately decide which one best serves the interests of our stakeholders, as they are defined in Our Credo (on the back inside cover of this Proxy Statement).
Our Board believes that it remains in our company’s best interests for Mr. Gorsky to serve as Chairman of our Board. Having Mr. Gorsky, our company's CEO, serve as Chairman creates clear and unambiguous authority, which is essential to effective management. Further, given that he is closer to our company’s businesses than any other Board member and has the benefit of over 20 years of operational and leadership experience within the Johnson & Johnson Family of Companies, Mr. Gorsky is best positioned to provide effective leadership. Mr. Gorsky’s career experience gives him unsurpassed industry knowledge, which the Board believes is critical for the chairman of the board of a company that operates in a highly-regulated industry, such as health care.
Our Board believes that it remains in our company’s best interests for Ms. Mulcahy to serve as Lead Director. The Lead Director role includes the broad range of responsibilities set out below, consistent with most independent board chairs, impacting all critical aspects of the Board’s operations and decision-making.
The Lead Director provides strong independent leadership of the Board and keeps in frequent contact with the Chairman.
Throughout 2017, the Chairman and Lead Director collaborated to: | ||
l | Create the agendas for Board and Committee meetings | |
l | Evaluate the successes and opportunities from past meetings | |
l | Handle a range of board governance issues such as board refreshment and succession planning | |
l | Meet with large shareholders and proxy voting advisory firms | |
l | Address key corporate transactions, capital allocation, and talent management | |
l | Ensure the effective functioning of the board/management relationship consistent with Our Credo values | |
Our Board, through its Nominating & Corporate Governance Committee, will continue to periodically review its leadership structure in a serious and open-minded fashion to ensure it remains appropriate for our company.
In February 2018, our Board amended its Principles of Corporate Governance to reflect that our Nominating & Corporate Governance Committee reviews on an annual basis, and at other appropriate times, the Board’s leadership structure, including whether the roles of Chairman and Chief Executive Officer should be combined or separate. The Principles of Corporate Governance can be found at www.investor.jnj.com/gov.cfm.
Our Board will continue to monitor this topic considering what it observes in the marketplace, the evolution of viewpoints in the corporate governance community, and, most importantly, what the Board believes is in the best interests of Johnson & Johnson and its stakeholders.
2018 Proxy Statement - 19 | ||
Duties and Responsibilities of the Lead Director
Board Agendas, Information and Schedules | • | Approves information sent to the Board and determines timeliness of information flow from management. |
• | Periodically provides feedback on quality and quantity of information flow from management. | |
• | Participates in setting, and ultimately approves, the agenda for each Board meeting. | |
• | Approves meeting schedules to assure that there is sufficient time for discussion of all agenda items. | |
• | With the Chair/CEO, determines who attends Board meetings, including management and outside advisors. | |
Committee Agendas and Schedules | • | Reviews in advance the schedule of committee meetings. |
• | Monitors flow of information from Committee Chairs to the full Board. | |
Board Executive Sessions | • | Has the authority to call meetings and Executive Sessions of the Independent Directors. |
• | Presides at all meetings of the Board at which the Chair/CEO is not present, including Executive Session of the Independent Directors. | |
Communicating with Management | • | After each Executive Session of the Independent Directors, communicates with the Chair/CEO to provide feedback and also to effectuate the decisions and recommendations of the Independent Directors. |
• | Acts as liaison between the Independent Directors and the Chair/CEO and management on a regular basis and when special circumstances exist or communication out of the ordinary course is necessary. | |
Communicating with Stakeholders | • | As necessary, meets with major shareholders or other external parties, after discussions with the Chair/CEO. |
• | Is regularly apprised of inquiries from shareholders and involved in correspondence responding to these inquiries. | |
• | Under the Board’s guidelines for handling shareholder and employee communications to the Board, is advised promptly of any communications directed to the Board or any member of the Board that allege misconduct on the part of company management, or raise legal, ethical or compliance concerns about company policies or practices. | |
Chair and CEO Performance Evaluations | • | Leads the annual performance evaluation of the Chair/CEO, distinguishing as necessary between performance as Chair and performance as CEO. |
Board Performance Evaluation | • | Leads the annual performance evaluation of the Board. |
New Board Member Recruiting | • | Interviews Board candidates, as appropriate. |
CEO Succession | • | Leads the CEO succession planning process. |
Crisis Management | • | Plays an increased role in crisis management oversight, as appropriate. |
Limits on Leadership Positions of Other Boards | • | May only serve as chair, lead or presiding director, or similar role, or as CEO or similar role at another public company if approved by the full Board upon recommendation from the Nominating & Corporate Governance Committee. |
2018 Proxy Statement - 20 | ||
DIRECTOR INDEPENDENCE
All Directors are independent except for our CEO |
It is our goal that at least two-thirds of our Directors be “independent,” not only as that term may be defined legally or mandated by the New York Stock Exchange (NYSE), but also without the appearance of any conflict in serving as an independent Director. The Board of Directors has determined that all non-employee Directors who served during fiscal 2017, as well as our new Director nominee, are “independent” under the listing standards of the NYSE and our Standards of Independence, including: Dr. Beckerle, Mr. I. E. L. Davis, Mr. D. S. Davis, Dr. Doudna, Dr. McClellan, Ms. Mulcahy, Mr. Perez, Mr. Prince, Dr. Washington and Mr. Williams.
In order to assist the Board in making this determination, the Board adopted Standards of Independence as part of our Principles of Corporate Governance, which can be found at www.investor.jnj.com/gov.cfm. These Standards conform to, or are stricter than, the NYSE independence standards and identify, among other things, material business, charitable and other relationships that could interfere with a director’s ability to exercise independent judgment.
As highly accomplished individuals in their respective industries, fields and communities, the non-employee Directors and Director nominee are affiliated with numerous corporations, educational institutions, hospitals and charities, as well as civic organizations and professional associations, many of which have business, charitable or other relationships with the company. The Board considered each of these relationships in light of our Standards of Independence and determined that none of these relationships conflict with the interests of the company or would impair the relevant non-employee Director’s, or new Director nominee's, independence or judgment.
The following table describes the relationships that were considered in making this determination. The nature of the transactions and relationships summarized in the following table, and the role of each of the Directors and new Director nominee at their respective organizations, were such that none of the non-employee Directors or new Director nominee had any direct business relationships with the company in 2017 or received any direct personal benefit from any of these transactions or relationships.
All of the transactions and relationships of the type listed below were entered into, and payments were made or received, by the company or one of its subsidiaries in the ordinary course of business and on competitive terms. In 2015, 2016 and 2017, the company’s transactions with, or discretionary charitable contributions to, each of the relevant organizations (not including gifts made under our matching gifts program) did not exceed the greater of $1 million or 1% of that organization’s consolidated gross revenues, and therefore did not exceed the thresholds in our Standards of Independence.
2018 Proxy Statement - 21 | ||
Director Independence - Transactions and Relationships
Director | Organization | Type of Organization | Relationship to Organization | Type of Transaction or Relationship | 2017 Aggregate Magnitude |
M. C. Beckerle | Huntsman Cancer Institute | Healthcare Institution | Executive Officer | Sales of healthcare products | <1%; <$1 million |
M. C. Beckerle | University of Utah | Educational Institution | Employee | Investigator payments, sales of healthcare products and grants | <1% |
J. A. Doudna | University of California - Berkeley | Educational Institution | Employee | Research-related payments; sponsorship and grants | <1%; <$1 million |
M. B. McClellan | Duke University | Educational Institution | Employee | Sales of healthcare products and services; research- related payments; grants | <1% |
M. B. McClellan | Research! America | Public Education and Advocacy Organization | Director | Annual dues; sponsorship and contributions | <$1 million |
A. M. Mulcahy | Save the Children | Non-profit Organization | Trustee | Contributions | <1% |
W. D. Perez | Cornell University | Educational Institution | Trustee | Grants and fellowships | <1%; <$1 million |
W. D. Perez | Northwestern Memorial Hospital | Healthcare Institution | Director | Research grants | <1%; <$1 million |
A. E. Washington | Duke University | Educational Institution | Employee | Sales of healthcare products and services; research- related payments; grants; tuition reimbursements | <1% |
A. E. Washington | Duke University Health System | Healthcare Institution | Executive Officer | Sales of healthcare products and services; rebates | <1% |
R. A. Williams | The Cleveland Clinic Foundation | Non-profit Organization | Trustee | Grants; sponsorship; research contribution | <1%; <$1 million |
R. A. Williams | The Conference Board | Non-profit Organization | Trustee | Sponsorships | <1%; <$1 million |
R. A. Williams | The MIT Corporation/Massachusetts Institute of Technology | Educational Institution | Trustee | Sponsorships | <1%; <$1 million |
R. A. Williams | National Academy Foundation | Non-profit Organization | Trustee | Contributions and grants | <1%; <$1 million |
Note: Any transaction or relationship under $25,000 is not listed above. | |||||
In the event of Board-level discussions pertaining to a potential transaction or relationship involving an organization with which a Director is affiliated, that Director would be expected to recuse him or herself from the deliberation and decision-making process. In addition, other than potential review and approval of related person transactions under our Policy on Transactions with Related Persons described on page 33 of this Proxy Statement, none of the non-employee Directors has the authority to review, approve or deny any grant to, or research contract with, an organization. | |||||
2018 Proxy Statement - 22 | ||
SHAREHOLDER ENGAGEMENT
We actively engage with our shareholders throughout the year to listen to concerns, ask questions and share information and perspectives.
In 2017, our engagement took a number of forms: | ||
l | During the proxy season, we reached out to our top 100 shareholders, who represent approximately 45% of our outstanding shares, and sought a dialogue and feedback on issues raised in our 2017 Proxy Statement. | |
l | We included a section on our voting card inviting all of our shareholders to give us comments. We were pleased that over 250 shareholders did so. This supplemented the means we provide—and highlight in our Proxy Statement—to contact our Board at any time throughout the year. | |
l | At the direction of our Lead Director, we also greatly expanded from 13 to 24 the number of individual, personal engagement meetings we held with shareholders and key proxy advisers | |
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We are particularly proud that a number of our key engagement meetings included both our Chairman and our Lead Director—a practice we understand is rare. These meetings enabled our shareholders to witness as well as discuss with our leadership the frequency of their communications, how they collaborate to create the agendas for Board and Committee meetings, how they evaluate the content and suggestions arising from past Board and Committee meetings, how they handle a range of board governance issues such as board refreshment and succession planning, and how they address key corporate transactions, capital allocation, and talent management. These meetings also enabled them to share their personal commitments to Our Credo.
Our 2017 engagement meetings and other governance exchanges covered a wide range of important corporate governance, environmental and social stewardship, compensation, public policy and performance issues. These included:
Shareholder Engagement Topics | |||||
l | Board Skills and Skills Matrix | l | Board-Shareholder Engagement | ||
l | Board Composition and Diversity | l | Executive Compensation and Compensation Metrics | ||
l | Board Size | l | Shareholder Proposal Process | ||
l | Board Tenure | l | Cybersecurity | ||
l | Overboarding | l | Environment, Sustainability and Governance Reporting | ||
l | Board Share Ownership Requirements | l | Materiality and Transparency | ||
l | Separation of the Chairman and CEO Roles | l | Tax Policy | ||
l | Board Oversight of Risk | l | Pharmaceutical Pricing Transparency | ||
l | Board Evaluation Process, Outcomes and Refreshment | l | Pharmaceutical Pricing and Access | ||
l | Opioid Marketing | ||||
2018 Proxy Statement - 23 | ||
We shared the content of many of these discussions with our full Board or its key Committees.
As a result of these shareholder conversations and the Board’s own discussions that followed, our Board and its Committees took a number of actions in 2017, several of which are highlighted below:
Shareholder Feedback Received | Actions Taken | Page # | |
You should continue to seek even greater diversity on your Board. | We strengthened our diversity by adding a new Board nominee, Dr. Jennifer A. Doudna. Her deep scientific background, vast academic experience and enduring concern for ethics in science will add to the global, ethical and scientific perspective and diversity of our Board. | 13 | |
Your Board skills and diversity matrices were good in last year’s Proxy Statement, but can you make them even better by being more transparent? | We enhanced our Proxy Statement’s Board Nominee Composition and skills disclosures by adding separate and more detailed graphics setting out the qualities, attributes, skills and experiences of our Board, including separate representations of gender and racial diversity. | ||
You give arguments about why you believe your current Board structure with a combined Chairman & CEO works best for your company. But how do we know your Board is actually taking the appropriate time on a systemic basis to review the issue in light of all circumstances? | We amended our Principles of Corporate Governance to reflect that our Nominating & Corporate Governance Committee reviews the Board’s leadership structure on an annual basis, and at other appropriate times, including whether the roles of Chairman and Chief Executive Officer should be combined or separate. See www.investor.jnj.com/gov.cfm. | ||
How do the roles of Lead Director and Chairman differ from one another and how do they work together? | We discussed our Leadership Structure extensively in shareholder engagement and we enhanced our disclosure to be more transparent about how the two roles collaborate at our company. See Board Leadership Structure. | ||
How does your Board Evaluation Process work? | We discussed our Board Evaluation Process and the insights from feedback coming out of our Board Evaluation Process, and we added disclosure in the Proxy Statement to provide transparency to all our shareholders about Board and Committee evaluation processes and outcomes. See Board Meetings and Processes. | ||
Could you be more transparent about your drug pricing practices? | In early 2017, the Janssen Pharmaceutical Companies of Johnson & Johnson released a ground-breaking 2016 U.S. Transparency Report with information on pharmaceutical pricing and other business practices, covering everything from discovery to the commercialization of pharmaceuticals. Janssen released a follow up report in March 2018 available at Janssen.com/2017USTransparencyReport. | ||
Tell us about your efforts in Citizenship & Sustainability. | In September 2016, we announced a comprehensive United Nations Sustainable Development Goals (UN SDG) commitment focused on five key areas where we are uniquely positioned to create sustainable and scalable impact: Global Disease Challenges, Essential Surgery, Women’s & Children’s Health, Health Workforce, and Environmental Health. We also have worked to improve and expand the content of our Health for Humanity Report, which provides transparency to our Citizenship & Sustainability commitments. See our Health for Humanity Report available at http://healthforhumanityreport.jnj.com/downloads. | ||
2018 Proxy Statement - 24 | ||
RISK OVERSIGHT
Board Oversight of Risk Management
The Board believes that overseeing management’s processes for assessing and managing the various risks we face is one of its most important responsibilities to our stakeholders. Our enterprise risk management framework reflects a collaborative process, whereby our Board of Directors, management and other personnel apply a consistent, rigorous risk management approach to our strategic, planning and operational decisions across the enterprise that is designed to identify potential events that may present a risk to the company. With oversight from the Board of Directors, business leaders collaborate with leaders from applicable risk management functions to analyze these risks and develop an appropriate approach to resolve or mitigate the impact of such risk factors. Some risk factors, such as product quality and healthcare compliance, are both top business priorities and core Credo values, and we have designed strong internal compliance programs and rigorous, independent quality and safety review processes to ensure compliant business practices and high quality products.
The Board believes that oversight of risk management is a vital element of its responsibility and meets at regular intervals with business leaders and leaders of risk management functions to discuss the risk factors related to our company, which can generally be grouped into the following categories and risk areas:
The Board also receives regular reports on certain elements of our risk management from senior representatives of our independent auditor. In addition, the Audit Committee meets in private sessions with the Chief Financial Officer, General Counsel, Vice President of Internal Audit, and representatives of our independent auditor to discuss risk management issues at the conclusion of every regularly-scheduled meeting. The Regulatory, Compliance & Government Affairs Committee also meets in private sessions with the General Counsel, Chief Compliance Officer, Chief Quality Officer, and Vice President of Internal Audit, where risk management is discussed.
2018 Proxy Statement - 25 | ||
Risk Related to Executive Compensation
The following characteristics of our executive compensation program work to reduce the possibility that our executive officers, either individually or as a group, make excessively risky business decisions that could maximize short-term results at the expense of long-term value:
Characteristics | Description | Page # | ||
Balanced Approach to Performance‑Based Awards | Performance targets are tied to multiple financial metrics, including operational sales growth, free cash flow, adjusted operational earnings per share growth, and long-term total shareholder return | |||
Performance-based awards are based on the achievement of strategic and leadership objectives in addition to financial metrics | ||||
See “Base Salary, Annual Performance Bonus, and Long-Term Incentives” | ||||
Performance Period and Vesting Schedules | The performance period and vesting schedules for long-term incentives overlap and, therefore, reduce the motivation to maximize performance in any one period. Performance Share Units, Restricted Share Units, and Stock Options vest three years from the grant date. See "Long Term Incentives" | |||
Balanced Mix of Pay Components | The target compensation mix is not overly weighted toward annual incentive awards and represents a balance of cash and long-term equity-based compensation vesting over three years. See “2017 Pay Mix at Target” | |||
Capped Incentive Awards | Annual performance bonuses and long-term incentive awards are capped at 200% of target. See “Aligning Compensation to "The What" & "The How"" | |||
Stock Ownership Guidelines | These guidelines require our CEO to directly or indirectly own equity in our company equal to six times salary, and the other members of our Executive Committee (the principal management group) to own equity equal to three times salary, and to retain this level of equity at all times while serving as an Executive Committee member. See “Stock Ownership Guidelines for Named Executive Officers” | |||
Executive Compensation Recoupment Policy | This Policy gives our Board authority to recoup executive officers’ past compensation in the event of a material restatement of our financial results and for events involving material violations of company policy relating to the manufacturing, sales or marketing of our products. See “Executive Compensation Recoupment Policy” | |||
No Change-in-Control Arrangements | None of our executive officers have in place any change-in-control arrangements that would result in guaranteed payouts. See "Potential Payments Upon Termination" | |||
2018 Proxy Statement - 26 | ||
ADDITIONAL GOVERNANCE FEATURES
Proxy Access
In 2015, as part of our long-standing shareholder outreach program, we engaged with a number of our shareholders regarding proxy access and the potential terms of proxy access provisions that our shareholders would view as appropriate for Johnson & Johnson. After taking into account the feedback provided as part of these discussions and considering developments in market practice, in January 2016, we amended our By-Laws to implement proxy access with the following key parameters: | |
Ownership threshold: | 3% of outstanding shares of our common stock |
Holding period: | Continuously for 3 years |
Number of nominees: | Up to 20% of our Board, with a minimum of up to two nominees if Board size is less than 10 |
Nominating group size: | Up to 20 shareholders may group together to reach the 3% ownership threshold |
We continue to believe this proxy access framework reflects a thoughtfully designed and balanced approach to proxy access that mitigates the risk of abuse and protects the interests of all of our shareholders, while affording a meaningful proxy access right in light of our size and shareholder base. Shareholders who wish to nominate directors for inclusion in our Proxy Statement in accordance with the proxy access procedures in our By-Laws should see “General Information—Notice and Access” on page 95. | |
Majority Voting In Uncontested Director Elections
Our By-Laws require that in uncontested elections (those where the number of nominees does not exceed the number of directors to be elected), Director nominees receive the affirmative vote of a majority of the votes cast in order to be elected to our Board of Directors. Contested Director elections (those where the number of Director nominees exceeds the number of Directors to be elected) would be governed by the plurality standard under New Jersey law.
The Board has adopted a Director Resignation Policy for Incumbent Directors in Uncontested Elections. Specifically, if an incumbent Director receives more votes “Against” his or her election than votes “For” his or her election in an uncontested election, then such Director must promptly tender an offer of his or her resignation following certification of the shareholder vote. The Nominating & Corporate Governance Committee and the Board would then consider and take appropriate action on such offer of resignation in accordance with the Policy.
Our By-Laws and Principles of Corporate Governance, including the Director Resignation Policy for Incumbent Directors in Uncontested Elections, can be found at www.investor.jnj.com/gov.cfm.
Director Overboarding Policy
Our Principles of Corporate Governance state that a Director who serves as a CEO (or similar position) at our, or any other, company should not serve on more than two public company boards (including the Johnson & Johnson Board and his or her own board) and that other Directors should not serve on more than five public company boards (including the Johnson & Johnson Board). Currently, all of our Directors are in compliance with this policy. The Nominating & Corporate Governance Committee also monitors the board service of Directors for entities that are not public companies.
2018 Proxy Statement - 27 | ||
Political Spending Oversight and Disclosure
As a leader in the healthcare industry, Johnson & Johnson is committed to supporting the development of sound public policy in health care. We work with many organizations across the political spectrum on a variety of policy issues related to health and other topics that impact patients, consumers, and our company. As a result of constructive engagement with a number of our institutional investors, we were an early mover on the disclosure of corporate political expenditures and activities, and we have expanded that disclosure over the years as we continue the dialogue with our shareholders on this issue. Disclosure regarding the company’s political activities and expenditures, including the policies and procedures that govern that activity and spending, as well as the Board’s oversight role, are updated semi-annually and can be found at www.investor.jnj.com/gov/contributions.cfm.
In response to shareholder engagement on this topic, we have provided the following on our website: | ||
l | A breakdown of our trade association dues by dollar range, including the percentage of dues that is utilized for federal lobbying, for U.S. trade associations to which we paid annual dues of $50,000 or more | |
l | A description of our approach and processes to impact trade associations of which we are members when we do not align on an issue | |
l | The annual total amount of federal lobbying expenditures for the last fiscal year | |
l | The aggregate annual total amount of state lobbying expenditures for the last fiscal year, based on amounts disclosed pursuant to lobbying regulations of the various state ethics oversight agencies | |
l | A direct link to the most current filing of the Johnson & Johnson Political Action Committee federal campaign finance report | |
l | A direct link to the most current quarterly filing of Johnson & Johnson’s federal lobbying disclosure report | |
In addition to transparency, our Board believes oversight of political activities and expenditures is important. Our Regulatory, Compliance & Government Affairs Committee receives an annual report of the company’s political contribution and lobbying policies, practices, and activities. In addition, the company’s Political Action Committee and U.S. corporate political spending is audited biennially by our internal auditors.
2018 Proxy Statement - 28 | ||
BOARD COMMITTEES
The Board of Directors has a standing Audit Committee, Compensation & Benefits Committee, Nominating & Corporate Governance Committee, Regulatory, Compliance & Government Affairs Committee and Science, Technology & Sustainability Committee, each composed entirely of non-employee Directors determined to be “independent” under the listing standards of the NYSE and our Standards of Independence. Under their written charters adopted by the Board, each of these Committees is authorized and assured of appropriate funding to retain and consult with external advisors, consultants and counsel. In addition, the Board has a standing Finance Committee, composed of the Chairman of the Board and the Lead Director, which exercises the authority of the Board between Board meetings.
Board Committee Rotation
In 2016, the Board determined to rotate membership on each of its Committees, including the Chairman of three Committees. The Board altered the composition of our five key Committees, with each Committee having at least one new member and three Committees, Compensation & Benefits, Regulatory, Compliance & Government Affairs and Science, Technology & Sustainability, being led by a new Chairman. Each Committee, other than Finance, continues to be comprised solely of independent Directors.
Board Committee Membership
The following table shows the current members and Chairmen of each of the standing Board Committees and the number of meetings each Committee held in 2017.
Directors | Audit | Compensation & Benefits | Nominating & Corporate Governance | Regulatory, Compliance & Government Affairs | Science, Technology & Sustainability | Finance | ||
Mary C. Beckerle | I | a | C | |||||
D. Scott Davis(1) | I | C | a | |||||
Ian E. L. Davis | I | a | a | |||||
Alex Gorsky | CH | C | ||||||
Mark B. McClellan | I | a | a | |||||
Anne M. Mulcahy | I | LD | a | a | a | |||
William D. Perez | I | a | C | |||||
Charles Prince | I | a | C | |||||
A. Eugene Washington | I | a | a | |||||
Ronald A. Williams | I | C | a | |||||
Number of Meetings in 2017 | 9(2)(3) | 7 | 4 | 5(3) | 5 | — | ||
Chairman of the Board: CH Lead Director: LD Independent Director: I Chair: C Member: a | ||||||||
(1) | Designated as an “audit committee financial expert.” |
(2) | Does not include teleconferences held prior to each release of quarterly earnings (4 in total) |
(3) | Includes an annual joint meeting of the Audit and Regulatory, Compliance & Government Affairs Committees |
2018 Proxy Statement - 29 | ||
Board Committee Responsibilities
Audit Committee
l | Oversees the company’s financial management and accounting and financial reporting processes and practices | |
l | Appoints, retains, compensates and evaluates independent auditor | |
l | Oversees the company’s internal audit organization, reviews its annual plan and reviews results of its audits | |
l | Oversees the quality and adequacy of the company’s internal accounting controls and procedures | |
l | Reviews and monitors the company’s financial reporting compliance and practices and its disclosure controls and procedures | |
l | Discusses with management the processes used to assess and manage the company’s exposure to risk and monitors risks related to tax, treasury, IT and cybersecurity | |
In performing these functions, the Audit Committee meets periodically with the independent auditor, management, and internal auditors (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. For more information on Audit Committee activities in 2017, see the Audit Committee Report on page 86. | ||
A copy of the charter of the Audit Committee is available at www.investor.jnj.com/gov/committee.cfm.
The Board has designated Mr. D. S. Davis, the Chairman of the Audit Committee and an independent Director, as an “audit committee financial expert” under the rules and regulations of the U.S. Securities and Exchange Commission (SEC), after determining that he meets the requirements for such designation. The determination was based on his being a Certified Public Accountant and his experience as Chief Financial Officer at United Parcel Service, Inc.
Any employee or other person who wishes to contact the Audit Committee to report fiscal improprieties or complaints about internal accounting control or other accounting or auditing matters can do so by writing to the Audit Committee at the address of our principal office: One Johnson & Johnson Plaza, New Brunswick, NJ 08933, or by using the online submission form at www.investor.jnj.com/communication.cfm. Such reports may be made anonymously.
Compensation & Benefits Committee
l | Establishes the company’s executive compensation philosophy and principles | |
l | Reviews, and recommends for approval by the independent Directors of the Board, the compensation for our Chief Executive Officer and approves the compensation for the company’s other executive officers | |
l | Sets the composition of the group of peer companies used for comparison of executive compensation | |
l | Oversees the design and management of the various pension, long-term incentive, savings, health and welfare plans that cover our employees | |
l | Reviews, and recommends for approval by the full Board, the compensation for our non-employee Directors | |
l | Provides oversight of the compensation philosophy and policies of the Management Compensation Committee, a non-Board committee composed of Mr. Gorsky (Chairman/CEO), Mr. Dominic J. Caruso (Executive Vice President, Chief Financial Officer) and Dr. Peter M. Fasolo (Executive Vice President, Chief Human Resources Officer), which, under delegation from the Compensation & Benefits Committee, determines management compensation and establishes perquisites and other compensation policies for employees other than our executive officers | |
A copy of the charter of the Compensation & Benefits Committee is available at www.investor.jnj.com/gov/committee.cfm. The Compensation & Benefits Committee has retained Frederic W. Cook & Co., Inc. as its independent compensation consultant for matters related to executive officer and non-employee Director compensation. For further discussion of the role of the Compensation & Benefits Committee in the executive compensation decision-making process, and for a description of the nature and scope of the consultant’s assignment, see “Governance of Executive Compensation” on page 64. | ||
2018 Proxy Statement - 30 | ||
Nominating & Corporate Governance Committee
l | Oversees matters of corporate governance, including the evaluation of the policies and practices of the Board | |
l | Oversees the process for performance evaluations of the Board and its Committees | |
l | Reviews our executive succession plans | |
l | Considers any questions of possible conflicts of interest | |
l | Reviews potential candidates for the Board, as discussed on page 11, and recommends the nominees for Directors to the Board for approval | |
l | Reviews and recommends Director orientation and continuing orientation programs for Board members | |
A copy of the charter of the Nominating & Corporate Governance Committee can be found at www.investor.jnj.com/gov/committee.cfm.
Regulatory, Compliance & Government Affairs Committee
l | Oversees the company’s major compliance programs and systems with respect to legal and regulatory requirements | |
l | Oversees compliance with any ongoing corporate integrity agreements or any similar significant undertakings by the company with a government agency | |
l | Reviews the organization, implementation and effectiveness of the company’s compliance and quality programs | |
l | Oversees the company’s Code of Business Conduct and Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers | |
l | Reviews the company’s governmental affairs policies and priorities | |
l | Reviews the policies, practices and priorities for the company’s political expenditure and lobbying activities | |
A copy of the charter of the Regulatory, Compliance & Government Affairs Committee can be found at www.investor.jnj.com/gov/committee.cfm. Also see a copy of the Report on Regulatory, Compliance & Government Affairs Committee for Calendar Year 2017 at www.investor.jnj.com/gov.cfm.
Science, Technology & Sustainability Committee
l | Monitors and reviews the overall strategy, direction and effectiveness of the company’s research and development organization | |
l | Serves as a resource and provides input, as needed, regarding the scientific and technological aspects of product safety matters | |
l | Reviews the company’s policies, programs and practices on environment, health and sustainability | |
l | Assists the Board in identifying and comprehending significant emerging science and technology policy and public health issues and trends that may impact the company’s overall business strategy | |
l | Assists the Board in its oversight of the company’s major acquisitions and business development activities as they relate to the acquisition or development of new science or technology | |
A copy of the charter of the Science, Technology & Sustainability Committee can be found at www.investor.jnj.com/gov/committee.cfm.
Finance Committee
l | Composed of the Chairman and Lead Director of the Board | |
l | Exercises the authority of the Board during the intervals between Board meetings, as permitted by law | |
l | Acts from time-to-time between Board meetings, as needed, generally by unanimous written consent in lieu of a meeting | |
l | Any action is taken pursuant to specific advance delegation by the Board or is later ratified by the Board | |
2018 Proxy Statement - 31 | ||
BOARD MEETINGS AND PROCESSES
Director Meetings and Attendance
During 2017, the Board of Directors held eight regular meetings and one special meeting. Each Director attended at least 75% of the total of regularly-scheduled and special meetings of the Board of Directors and the Committees on which he or she served (during the period that he or she served).
It has been our longstanding practice for all Directors to attend the Annual Meeting of Shareholders. All 10 of our Directors who were elected to the Board at the 2017 Annual Meeting attended the meeting.
Executive Sessions
During 2017, each of the Audit, Compensation & Benefits, Nominating & Corporate Governance, Regulatory, Compliance & Government Affairs, and Science, Technology & Sustainability Committees met in executive sessions without members of management present. The independent Directors met in executive session at every regular Board meeting during 2017 and held a special executive session to perform the annual evaluation of the CEO/Chairman. The Lead Director acted as Chair at all of these executive sessions.
Board and Committee Evaluations
Our Principles of Corporate Governance require that the Board and each Committee conduct an annual self-evaluation. These self-evaluations are intended to facilitate a candid assessment and discussion by the Board and each Committee of its effectiveness as a group in fulfilling its responsibilities, its performance as measured against the Principles of Corporate Governance, and areas for improvement.
Board Evaluations: At the end of 2016, the Lead Director, and certain members of management, met with each Director individually to collect feedback on the Board’s responsibilities, structure, procedures, atmosphere and engagement. In 2017, the Nominating & Corporate Governance Committee initiated two process changes for gathering Board feedback. First, written questions were used with technology to ensure candid anonymous feedback from each Director. Second, at the request of the Lead Director, each of the non-employee Directors completed an anonymous written evaluation of the Lead Director. In all cases, input from the evaluations was synthesized and discussed with the full Board with certain minor and administrative action items emerging from the discussion.
Committee Evaluations: Committee members are provided with a questionnaire to facilitate discussion during an executive session of the Committee, and upon completion of the self-evaluation, the Chairman of the Committee reports to the full Board on the discussion and any necessary follow-up actions.
2018 Proxy Statement - 32 | ||
RELATED PERSON TRANSACTIONS
Policies and Procedures
Our written Policy on Transactions with Related Persons requires the approval or ratification by the Nominating & Corporate Governance Committee of any transaction or series of transactions exceeding $120,000 in which the company is a participant and any related person has a direct or indirect material interest (other than solely as a result of being a director or trustee or less than 10% owner of another entity). Related persons include our Directors and executive officers and their immediate family members and persons sharing their households. It also includes persons controlling more than 5% of our outstanding common stock.
Under our Principles of Corporate Governance and Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers, all of our Directors and executive officers have a duty to report to the Chairman or the Lead Director potential conflicts of interest, including transactions with related persons. Management also has established procedures for monitoring transactions that could be subject to approval or ratification under the Policy on Transactions with Related Persons.
Once a related person transaction has been identified, the Nominating & Corporate Governance Committee (Committee) will review all of the relevant facts and circumstances and approve or disapprove of the entry into the transaction. The Committee will take into account, among other factors, whether the transaction is on terms no more favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
If advance Committee approval of a transaction is not feasible, the transaction will be considered for ratification at the Committee’s next regularly scheduled meeting. If a transaction relates to a member of the Committee, that member will not participate in the Committee’s deliberations. In addition, the Committee Chairman (or, if the transaction relates to the Committee Chairman, the Lead Director) may pre-approve or ratify any related person transactions involving up to $1 million.
The following types of transactions have been deemed by the Committee to be pre-approved or ratified, even if the aggregate amount involved will exceed $120,000: | ||
l | Compensation paid by the company for service as a Director or executive officer of the company | |
l | Transactions with other companies where the related person’s only relationship is as a non-executive employee, less than 10% equity owner, or limited partner, and the transaction does not exceed the greater of $1 million or 2% of that company’s annual revenues | |
l | Contributions by the company to charitable organizations where the related person is an employee and the transaction does not exceed the lesser of $500,000 or 2% of the charitable organization’s annual receipts | |
l | Transactions where the related person’s only interest is as a holder of company stock and all holders receive proportional benefits, such as the payment of regular quarterly dividends | |
l | Transactions involving competitive bids | |
l | Transactions where the rates or charges are regulated by law or government authority | |
l | Transactions involving bank depositary, transfer agent, registrar, trustee under a trust indenture, or party performing similar banking services | |
Our Policy on Transactions with Related Persons can be found at www.investor.jnj.com/gov.cfm.
2018 Proxy Statement - 33 | ||
Transactions with Related Persons for 2017
A sister-in-law of Dr. Paulus Stoffels, Executive Vice President, Chief Scientific Officer, is a Senior Manager at Janssen Pharmaceutica NV, a wholly-owned subsidiary of the company, and earned $164,059 in total compensation in 2017 (using an exchange rate of 1.778 USD/1 EUR), including base salary, any annual incentive bonus, the value of any long-term incentive award granted in 2017, and any other compensation. She also participates in the general welfare and benefit plans of Janssen Pharmaceutica NV. Her compensation was established in accordance with Janssen Pharmaceutica NV’s employment and compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions. Dr. Stoffels does not have a material interest in his sister-in-law’s employment, nor does he share a household with her.
The daughter of Dr. A. Eugene Washington, one of our Directors, is a Senior Analyst at Johnson & Johnson Innovation LLC, a wholly-owned subsidiary of the company, and earned $194,659 in total compensation in 2017, including base salary, any annual incentive bonus, the value of any long-term incentive award granted in 2017, and any other compensation. She also participates in the general welfare and benefit plans of Johnson & Johnson Innovation LLC. Her compensation was established in accordance with Johnson & Johnson Innovation LLC’s employment and compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions. Dr. Washington does not have a material interest in his daughter’s employment, nor does he share a household with her.
Two sons of Dominic Caruso, Executive Vice President, Chief Financial Officer of Johnson & Johnson, are employed by subsidiaries of the company. One is a Senior Manufacturing Team Leader at Janssen Biotech, Inc., and earned $126,596 in total compensation in 2017, including base salary, any annual incentive bonus, the value of any long-term incentive award granted in 2017, and any other compensation. Another son is a Manager of Distribution at Johnson & Johnson Health Care Systems Inc., and earned $124,563 in total compensation in 2017, including base salary, any annual incentive bonus, the value of any long-term incentive award granted in 2017, and any other compensation. Both employees also participate in the general welfare and benefit plans of their employers. The compensation for each son, who have been employees of the company for 14 and 16 years, respectively, was established in accordance with his company’s employment and compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions. The senior Mr. Caruso does not have a material interest in his sons’ employment, nor does he share a household with either of them.
These transactions were approved by the Nominating & Corporate Governance Committee in compliance with our Policy on Transactions with Related Persons described on the preceding page.
2018 Proxy Statement - 34 | ||
STOCK OWNERSHIP AND SECTION 16 COMPLIANCE
Stock Ownership
The following table sets forth information regarding beneficial ownership of our common stock by each Director and nominee for election; our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers named in the tables in the section “Executive Compensation Tables” on pages 68 through 85 (each a “named executive officer”); and by all Directors and executive officers as a group. Each of the individuals/group listed below is the owner of less than 1% of our outstanding shares. Because they serve as co-trustees of two trusts which hold stock for the benefit of others, Mr. Gorsky and Mr. Michael Ullmann, an executive officer, are deemed to “control” an additional 5,629,411 shares of our stock in which they have no economic interest, and those shares are not reflected in the table below. In addition to such shares, the Directors and executive officers as a group own/control a total of 1,167,341 shares. In the aggregate, these 6,796,752 shares represent less than 1% of the shares outstanding. All stock ownership is as of February 27, 2018. | ||||||||||||
Name | Number of Common Shares(1) (#) | Deferred Share Units(2) (#) | Common Shares Underlying Options or Stock Units(3) (#) | Total Number of Shares Beneficially Owned (#) | ||||||||
Mary C. Beckerle | 0 | 4,695 | 0 | 4,695 | ||||||||
Dominic J. Caruso | 171,985 | 13,876 | 1,078,155 | 1,264,016 | ||||||||
D. Scott Davis | 0 | 6,350 | 0 | 6,350 | ||||||||
Ian E. L. Davis | 4,193 | 11,304 | 0 | 15,497 | ||||||||
Jennifer A. Doudna | 0 | 0 | 0 | 0 | ||||||||
Joaquin Duato | 94,157 | 0 | 530,299 | 624,456 | ||||||||
Alex Gorsky | 338,096 | 0 | 1,966,381 | 2,304,477 | ||||||||
Mark B. McClellan | 0 | 8,262 | 0 | 8,262 | ||||||||
Anne M. Mulcahy | 5,789 | 11,304 | 0 | 17,093 | ||||||||
William D. Perez | 17,222 | 22,259 | 0 | 39,481 | ||||||||
Sandra E. Peterson | 83,349 | 0 | 371,442 | 454,791 | ||||||||
Charles Prince | 27,320 | 17,703 | 0 | 45,023 | ||||||||
Paulus Stoffels | 202,564 | 0 | 170,668 | 373,232 | ||||||||
A. Eugene Washington | 0 | 16,301 | 0 | 16,301 | ||||||||
Ronald A. Williams | 3,650 | 17,477 | 0 | 21,127 | ||||||||
All Directors and executive officers as a group (18) | 1,167,341 | 129,531 | 4,580,673 | 5,877,545 | ||||||||
(1) | The shares described as "owned" are shares of our common stock directly or indirectly owned by each listed person, including shares held in 401(k) and Employee Stock Ownership Plans, and by members of his or her household, and are held individually, jointly or pursuant to a trust arrangement. Mr. Prince disclaims beneficial ownership of 800 shares listed as owned by him. |
(2) | Includes Deferred Share Units credited to non-employee Directors under our Amended and Restated Deferred Fee Plan for Directors and Deferred Share Units credited to the executive officers under our Executive Income Deferral Plan (Amended and Restated). |
(3) | Includes shares underlying options exercisable on February 27, 2018, options that become exercisable within 60 days thereafter and Restricted Share Units that vest within 60 days thereafter. |
2018 Proxy Statement - 35 | ||
The following are the only persons known to us to be the beneficial owners of more than five percent of any class of our voting securities:
Name and Address of Beneficial Owner | Title of Class | Amount and Nature of Beneficial Ownership | Percent of Class |
The Vanguard Group 100 Vanguard Boulevard Malvern, PA 19355 | Common Stock | 204,466,526 shares(1) | 7.61%(1) |
BlackRock Inc. 55 East 52nd Street New York, NY 10055 | Common Stock | 167,535,883 shares(2) | 6.2%(2) |
State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 | Common Stock | 156,126,923 shares(3) | 5.81%(3) |
(1) Based solely on an Amendment to Schedule 13G filed with the SEC on February 9, 2018, The Vanguard Group reported aggregate beneficial ownership of approximately 7.61%, or 204,466,526 shares, of our common stock as of December 31, 2017. Vanguard reported that it possessed sole dispositive power of 200,188,755 shares, sole voting power of 3,781,587 shares, shared dispositive power of 4,277,771 shares, and shared voting power of 593,263 shares. | |||
(2) Based solely on an Amendment to Schedule 13G filed with the SEC on February 8, 2018, BlackRock, Inc. reported aggregate beneficial ownership of approximately 6.2%, or 167,535,883 shares, of our common stock as of December 31, 2017. BlackRock reported that it possessed sole voting power of 143,538,105 shares and sole dispositive power of 167,535,883 shares. BlackRock also reported that it did not possess shared voting or dispositive power over any shares beneficially owned. | |||
(3) Based solely on a Schedule 13G filed with the SEC on February 14, 2018, State Street Corporation reported aggregate beneficial ownership of approximately 5.81%, or 156,126,923 shares, of our common stock as of December 31, 2017. State Street reported that it possessed shared voting power of 148,782,523 shares, shared dispositive power of 156,126,923 shares, sole voting power of 7,344,400 shares. State Street also reported that it did not possess sole dispositive power over any shares beneficially owned. | |||
As a result of being beneficial owners of more than 5% of our stock, The Vanguard Group (Vanguard), BlackRock, Inc. (BlackRock), and State Street Corporation (State Street) are currently considered “related persons” under our Policy on Transactions with Related Persons described on page 33 of this Proxy Statement. | |||
• | Certain of our U.S. and international employee savings and retirement plans have retained BlackRock and its affiliates to provide investment management services. In connection with these services, we paid BlackRock approximately $2.6 million in fees during fiscal year 2017. |
• | Certain of our U.S. and international employee savings and retirement plans and other affiliates have retained State Street and its affiliates to provide investment management, trustee, custodial, administrative and ancillary investment services. In connection with these services, we paid State Street approximately $8 million in fees during fiscal year 2017. |
Section 16(a) Beneficial Ownership Reporting Compliance
Based on our review of Forms 3, 4 and 5 and amendments thereto in our possession and written representations furnished to us, we believe that during 2017 all reports for our executive officers and Directors that were required to be filed under Section 16 of the Securities Exchange Act of 1934 were filed on a timely basis, except for nine reports, each in respect of three transactions filed by each of the following officers: J. Duato, P. Fasolo, A. Gorsky, R. A. Kapusta, J. S. Mesquita, S. E. Peterson, G. J. Pruden, P. Stoffels, and M. H. Ullmann. In each case, the company made such filings on behalf of the applicable officer and believed that such filings had been made in a timely manner, but technical errors delayed acceptance of the filings by the SEC until 6 a.m. on the morning following the company’s transmission.
2018 Proxy Statement - 36 | ||
DIRECTOR COMPENSATION
Our Compensation & Benefits Committee is required by its charter to annually review non-employee Director compensation, including total compensation and each element of our non-employee Director compensation program.
During its annual review, the Compensation & Benefits Committee analyzes the competitive position of our non-employee Director compensation program and each element of that program against the programs of the peer group used for executive compensation purposes (see page 61 for information about the Executive Peer Group). Frederic W. Cook & Co., Inc., the Committee’s independent consultant, provides an independent assessment of the competitive data provided to the Committee and advises the Committee on non-employee Director compensation. Decisions regarding the non-employee Director compensation program are approved by our full Board of Directors, based on recommendations by our Compensation & Benefits Committee. |
Fiscal 2017 Non-Employee Director Compensation
The Compensation & Benefits Committee’s analysis in 2016 of the competitive position of our non-employee Director compensation program showed that overall compensation for non-employee Directors and the retainer for the Lead Director were below the peer group median. As a result, our Compensation & Benefits Committee recommended, and our Board of Directors approved on September 13, 2016, the following non-employee Director compensation program for 2017 to achieve an overall compensation structure in line with the peer group median.
2017 Non-Employee Director Compensation(1) | ($) |
Cash Compensation | $110,000 |
Lead Director Cash Retainer | 35,000 |
Audit Committee Chair Cash Retainer | 25,000 |
Committee Chair (other than Audit) Cash Retainer | 20,000 |
Value of Deferred Share Units | 175,000 |
(1) | See columns C and D of the table below |
The compensation of our non-employee Directors for fiscal 2017 is set forth in the following table. Mr. Gorsky is an employee of the company, and therefore, received no additional compensation for his service as a Director. For a complete understanding of the table, please read the accompanying footnotes and the narrative disclosures.
2017 Total Non-Employee Director Compensation | |||||
A | B | C | D | E | F |
Name | Role for Additional Cash Retainer | Fees Earned or Paid in Cash ($) | Stock Awards (DSUs) ($) | All Other Compensation ($) | Total ($) |
M. C. Beckerle | Committee Chair | $130,000 | $174,893 | $20,000 | $324,893 |
D. S. Davis | Audit Committee Chair | 135,000 | 174,893 | 0 | 309,893 |
I. E. L. Davis | 110,000 | 174,893 | 0 | 284,893 | |
M. B. McClellan | 110,000 | 174,893 | 0 | 284,893 | |
A. M. Mulcahy | Lead Director | 145,000 | 174,893 | 0 | 319,893 |
W. D. Perez | Committee Chair | 130,000 | 174,893 | 20,000 | 324,893 |
C. Prince | Committee Chair | 130,000 | 174,893 | 20,000 | 324,893 |
A. E. Washington | 110,000 | 174,893 | 0 | 284,893 | |
R. A. Williams | Committee Chair | 130,000 | 174,893 | 20,000 | 324,893 |
2018 Proxy Statement - 37 | ||
Stock Awards (Column D)
Deferred Share Units - Mandatory Deferral. All figures in column D represent the grant date fair value of Deferred Share Units (DSUs) granted to each non-employee Director on February 14, 2017. The Board approved a 2017 DSU award valued at $175,000; therefore, pursuant to the terms of the Deferred Fee Plan for Directors, each non-employee Director was granted 1,512 DSUs (rounded down to the nearest whole share). DSUs are immediately vested but must be deferred until the Director completes service as a Board member. DSUs earn additional amounts based on a hypothetical investment in our common stock, including accruing dividend equivalents in the same amount and at the same time as dividends paid on our common stock. DSUs are settled in cash upon termination of Board membership.
All Other Compensation (Column E)
Charitable Matching Contributions. The amounts reported in column E represent the aggregate dollar amount for each non-employee Director for charitable matching contributions. Non-employee Directors are eligible to participate in our charitable matching gift program on the same basis as employees, pursuant to which we contribute, on a two-to-one basis for every dollar donated, up to $20,000 per year per person to certain charitable institutions.
Deferred Fee Plan for Directors
Elective Fee Deferrals. Under the Deferred Fee Plan for Directors, non-employee Directors may elect to defer payment of all or a portion of their cash retainers until termination of Board membership. Deferred fees are converted into DSUs, and earn additional amounts based on a hypothetical investment in our common stock, including accruing dividend equivalents in the same amount and at the same time as dividends paid on our common stock. DSUs are settled in cash upon termination of Board membership. In 2017, Dr. Washington and Messrs. Perez and Williams elected to defer all of their cash 2017 retainers.
Deferred Compensation Balances. At December 31, 2017, the aggregate number of DSUs held in each non-employee Director’s Deferred Fee Account, including both mandatory deferrals and any elective fee deferrals, as well as dividend equivalent accruals, was as follows:
Name | Deferred Share Units (#) |
M. C. Beckerle | 3,267 |
D. S. Davis | 4,922 |
I. E. L. Davis | 9,876 |
M. B. McClellan | 6,834 |
A. M. Mulcahy | 9,876 |
W. D. Perez | 20,831 |
C. Prince | 16,275 |
A. E. Washington | 14,873 |
R. A. Williams | 16,049 |
Additional Arrangements
We pay for or provide (or reimburse Directors for out-of-pocket costs incurred for) transportation, hotel, food and other incidental expenses related to attending Board and Committee meetings and Director orientation or other relevant educational programs or company meetings.
2018 Proxy Statement - 38 | ||
Stock Ownership Guidelines for Non-Employee Directors
The company’s stock ownership guidelines for non-employee Directors are intended to further align the Directors' interests with the interests of our shareholders. Stock ownership for the purpose of these guidelines includes shares directly owned by the Director, shares held indirectly that are beneficially owned by the Director, and DSUs. Non-employee Directors are prohibited from transacting in derivative instruments linked to the performance of our securities.
Name | Stock Ownership Guideline as a Multiple of Annual Cash Retainer | 2017 Compliance with Stock Ownership Guidelines? | Ownership Threshold Met?(1) |
M. C. Beckerle(2) | 5x | Yes | No |
D. S. Davis | 5x | Yes | Yes |
I. E. L. Davis | 5x | Yes | Yes |
M. B. McClellan | 5x | Yes | Yes |
A. M. Mulcahy | 5x | Yes | Yes |
W. D. Perez | 5x | Yes | Yes |
C. Prince | 5x | Yes | Yes |
A. E. Washington | 5x | Yes | Yes |
R. A. Williams | 5x | Yes | Yes |
(1) Non-employee Directors have five years after first becoming subject to the guidelines to achieve the required ownership threshold (2) Joined Board within past five years. As of February 2018, now meets ownership threshold | |||
Fiscal 2018 Non-Employee Director Compensation
The Compensation & Benefits Committee’s analysis in 2017 of the competitive position of our non-employee Director compensation program showed that overall compensation for non-employee Directors and the retainer for the Lead Director were below the peer group median. As a result, our Compensation & Benefits Committee recommended, and our Board of Directors approved on September 12, 2017, the following non-employee Director compensation program for 2018 to achieve an overall compensation structure in line with the peer group median:
2018 Non-Employee Director Compensation | ($) |
Cash Compensation(1) | $115,000 |
Lead Director Cash Retainer | 35,000 |
Audit Committee Chair Cash Retainer | 25,000 |
Committee Chair (other than Audit) Cash Retainer | 20,000 |
Value of Deferred Share Units(2) | 185,000 |
(1) Increase of $5,000 (2) Increase of $10,000 | |
2018 Proxy Statement - 39 | ||
Item 2: Advisory Vote to Approve Named Executive Officer Compensation | ||
Before you vote, we urge you to read the following for additional details on our executive compensation | The Board of Directors recommends that shareholders vote, in an advisory manner, FOR approval of the compensation of our named executive officers and the executive compensation philosophy, policies and procedures described in the Compensation Discussion and Analysis (CD&A) section of the 2018 Proxy Statement. | |
When casting your 2018 “Say on Pay” vote, we encourage you to consider: • The alignment of the 2017 compensation of our Chairman/CEO and our other named executive officers with our company’s 2017 performance• The pay-for-performance alignment built into the design of our incentive programs• Our continued evaluation of our executive compensation program• Our continued direct engagement with our shareholders | ||
We recognize that executive compensation is an important matter for our shareholders. We believe our compensation programs are strongly aligned with the long-term interests of our shareholders. The guiding principles of our executive compensation program continue to be: • Competitiveness; • Pay for Performance; • Accountability for Short-Term and Long-Term Performance; and • Alignment to Shareholders’ Interests.Above all, we assess performance by reviewing not only what financial and strategic objectives are achieved but also how those results were achieved and whether they were achieved consistent with the values embodied in Our Credo. As an advisory vote, the results of this vote will not be binding on the Board or the company. However, the Board of Directors values the opinions of our shareholders, and will consider the outcome of the vote when making future decisions on the compensation of our named executive officers and our executive compensation philosophy, policies and procedures. Following our 2018 shareholder meeting on April 26, 2018 the next advisory vote on executive compensation is expected to occur at the 2019 Annual Meeting of Shareholders, unless the Board of Directors modifies its policy on the frequency of holding such advisory votes. | ||
2018 Proxy Statement - 40 | ||
Compensation Committee Report The Compensation & Benefits Committee of the Board of Directors (the Committee) has reviewed and discussed the section of this Proxy Statement entitled “Compensation Discussion and Analysis” with management. Based on this review and discussion, the Committee has recommended to the Board that the section entitled “Compensation Discussion and Analysis,” as it appears on pages 42 through 67, be included in this Proxy Statement and incorporated by reference into the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Ronald A. Williams, Chairman D. Scott Davis A. Eugene Washington |
2018 Proxy Statement - 41 | ||
Compensation Discussion and Analysis
2018 Proxy Statement - 42 | ||
2017 Performance and Compensation
2017 SUMMARY
Our Credo | When we assess performance, we review not only what results were achieved but also how they were achieved and whether they were achieved consistent with the values embodied in Our Credo. In 2017, we upheld our Credo values by focusing on the needs and well-being of: our patients, consumers, and health care professionals who use our products; our employees; the communities in which we live and work; and our shareholders. | ||||||
Company Performance | We delivered solid performance in 2017. We largely met or exceeded our combined financial and strategic goals. This was driven by strong performance in our Pharmaceutical business. We made good progress on many important strategic initiatives that will benefit our company in future years. | ||||||
Financial Goal | Goal | Results | |||||
Met our operational sales growth goal | 4.0% - 5.0% | 4.0% | |||||
Met our adjusted operational EPS growth goal | 4.8% - 7.0% | 6.5% | |||||
Exceeded our free cash flow goal ($ Billions) | $14.8 - $15.6 | $17.8 | |||||
Note: Operational sales growth, adjusted operational EPS growth, and free cash flow are non-GAAP measures. See page 46 for details. Our sales growth and EPS results do not include the impact of our Actelion Ltd. acquisition since it was not included in the goals. We summarize our performance against our financial and strategic goals and the performance of each of our businesses on pages 44 to 46. | |||||||
Compensation Decisions for 2017 | The Board believes the company largely met or exceeded its combined financial and strategic goals. It recognized Mr. Gorsky’s 2017 performance by awarding him an annual performance bonus at 110% of target and long-term incentives at 115% of target. After reviewing market data and other factors, the Board adjusted Mr. Gorsky’s salary rate by 3.1% to $1,650,000 (effective February 26, 2018). | ||||||
2017 Amount ($) | Percent of Target (%) | ||||||
Salary Earned | $1,600,000 | ||||||
Annual Performance Bonus | 3,080,000 | 110% | |||||
Long-Term Incentive Awards | 14,352,000 | 115% | |||||
Total Direct Compensation | $19,032,000 | ||||||
We describe the performance and compensation of our Chairman/CEO on page 47 and our named executive officers on pages 48 to 51. | |||||||
Update on Performance Share Unit Awards vs. Goals | Our 2015-2017 Performance Share Units (PSU) paid out at 136.0% of target driven primarily by our 3-year Total Shareholder Return (TSR) exceeding our competitors and EPS performance exceeding our goals. | ||||||
Shareholder Outreach | Our Lead Director and management discussed our executive compensation program with our shareholders. Our shareholders continued to strongly support our program. Our “Say on Pay” vote has been 93% or more in favor since 2013. See page 55 for more detail. | ||||||
Compensation Program Changes | In 2017, we increased the weight of our PSUs to 60% for our 2018 long-term incentive grant based on: shareholder feedback, competitive data, and our objective of increasing the focus on long-term performance. The weighting is: 60% PSUs, 30% options, and 10% RSUs. See page 55 for more detail. | ||||||
2018 Proxy Statement - 43 | ||
2017 COMPANY PERFORMANCE
We delivered solid performance in 2017. We largely met or exceeded our combined financial and strategic goals. This was driven by strong performance in our Pharmaceutical business. We made good progress on many important strategic initiatives that will benefit our company in future years.
We summarize the company's performance against financial and strategic goals below. We also summarize the performance of each of our businesses. We set our goals based on our long-term strategic objectives, our product portfolio and pipeline, and competitive benchmarking.
Performance against our 2017 Financial Goals | We met or exceeded all our financial goals in 2017. We: • Met our operational sales growth goal.• Met our adjusted operational earnings per share (EPS) growth goal.• Exceeded our free cash flow goal.Our annual goals are set consistent with our long-term strategic objectives of growing sales faster than our competitors and earnings faster than sales. Our sales growth and EPS results do not include the impact of our Actelion Ltd. acquisition since it was not included in the goals. | ||||||
 | |||||||
Note: Operational sales growth, adjusted operational EPS growth, and free cash flow are non-GAAP measures. See page 46 for details. | |||||||
Performance against our Long-Term Strategic Goals | We made good progress on our strategic objectives. We exceeded on some, fell short on others, and made important strategic moves that will benefit our company in future years. • Creating Value through Innovation: We partially met our objectives that measure the health of our priority business platforms across all 3 businesses. We: • Gained or held share in 12 of 15 key product platforms and exceeded sales growth targets in 6 of 15 of them.• Achieved 100% of our priority innovation milestones.• Advanced our robust pipeline by launching key new products and line extensions across our 3 businesses.• Invested more than $10 billion in research & development in 2017. We believe that sustaining investments in innovation is the most important aspect of our strategy.• Global Reach with Local Focus: We did not meet our objectives that measure the health of our business in regions offering significant growth opportunities. We:• Fell short of our Medical Devices and Consumer sales goals and Pharmaceutical BRIC-market (Brazil, Russia, India, and China) sales goal.• Exceeded our sales goals in our Pharmaceutical business in developed markets and non-BRIC emerging markets which drove the achievement of our company-wide growth goal. | ||||||
2018 Proxy Statement - 44 | ||
Performance against our Long-Term Strategic Goals | • Excellence in Execution: We exceeded our objectives that track elements we need to execute to unleash additional growth opportunities. We:• Made strategic acquisitions to enhance our future growth, including Actelion Ltd. and Abbott Medical Optics Inc.• Achieved our Enterprise Standards and Productivity annual savings goal.• Met or exceeded all our quality goals. • Leading with Purpose: We met our objectives that measure our organizational health, diversity, and reputation. We:• Strengthened our leadership talent pipeline, advanced diversity, and exceeded our employee engagement benchmarks.• Maintained our high reputational standing, ranking #17 among Fortune’s Most Admired Companies and placing #1 in the pharmaceutical industry for the 5th consecutive year. | ||||||
Performance by Business | • Pharmaceuticals exceeded its operational sales growth, operational income, and cash flow goals. In 2017, it: • Advanced our innovation pipeline with the approval of TREMFYA® for treatment of moderate to severe plaque psoriasis, and completed the acquisition of Actelion Ltd.• Maximized the value of our in-market brands through line extension approvals, including: SIMPONI®, STELARA®, XARELTO®, DARZALEX® and IMBRUVICA®.• Consumer exceeded its cash flow goal, met its operational income goal, and did not meet its operational sales growth goal. In 2017, it: • Maintained market share against our competitors in 4 of our 6 core platforms, despite category slowdowns.• Advanced our eCommerce capabilities.• Medical Devices met its cash flow goal and did not meet its operational sales and income goals. In 2017, it:• Increased market share in 3 of our 6 key product platforms.• Exceeded our operational sales growth goal and gained market share in our Vision Care business.• Managed our product portfolio: acquiring Megadyne Medical Products, Inc. (energy) and Neuravi Limited (neurovascular); integrating Abbott Medical Optics Inc.; and divesting the Codman Neurosurgery business. | ||||||
2018 Proxy Statement - 45 | ||
Details on Non-GAAP Performance Measures | ||||||||||
l | Operational Sales Growth: Operational Sales Growth is the sales increase due to volume and price, excluding the effect of currency translation. ◦ See page 16 of "Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Conditions” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (2017 Form 10-K) for our operational sales growth. ◦ We excluded the impact of our Actelion Ltd. acquisition since it was not included in the goals. | |||||||||
2017 Operational Sales Growth % | ||||||||||
Sales Growth Currency Translation | 6.3% (0.3%) | |||||||||
Operational Sales Growth | 6.0% | |||||||||
Impact of Actelion Ltd. acquisition | 2.0% | |||||||||
Operational Sales Growth (without Actelion Ltd.) | 4.0% | |||||||||
l | Free Cash Flow: Free cash flow is the net cash from operating activities less additions to property, plant and equipment. The figures are rounded for display purposes. Cash flow from operating activities $21.1 billion Additions to property, plant and equipment -$3.3 billion Free Cash Flow $17.8 billion | |||||||||
l | Adjusted Operational EPS Growth: Adjusted EPS and adjusted operational EPS are non-GAAP financial measures. ◦ Adjusted EPS excludes special items and intangible amortization expense as disclosed in Exhibit 99.2O to the company’s Current Report on Form 8-K dated January 23, 2018 and in “Reconciliation of Non-GAAP Financial Measures” of our 2017 Annual Report included in our proxy materials. ◦ Adjusted operational EPS growth also excludes the effect of currency translation. ◦ Below is a reconciliation of diluted EPS (the most directly comparable U.S. GAAP measure) to adjusted EPS and adjusted operational EPS.◦ We excluded the impact of our Actelion Ltd. acquisition since it was not included in the goals. | |||||||||
2017 Actual $ per share | % Change vs. Prior Year* | |||||||||
Diluted EPS Special Items and Intangible Amortization Expense | $0.47 6.83 | |||||||||
Adjusted EPS Currency Translation | 7.30 (0.06) | 8.5 | % | |||||||
Adjusted Operational EPS | 7.24 | 7.6 | % | |||||||
Impact of Actelion Ltd. acquisition | 0.07 | |||||||||
Adjusted operational EPS (without Actelion Ltd.) | 7.17 | 6.5 | % | |||||||
* Prior year Adjusted EPS = $6.73 | ||||||||||
2018 Proxy Statement - 46 | ||
CEO PERFORMANCE AND COMPENSATION DECISIONS
 Alex Gorsky | Chairman, Board of Directors and Chief Executive Officer Performance: The Board based its assessment of Mr. Gorsky’s performance primarily upon its evaluation of the company’s performance. The Board believes the company largely met or exceeded its combined financial and strategic goals in 2017 under Mr. Gorsky’s leadership, as summarized under “2017 Company Performance” on pages 44 through 46. In addition to our company’s overall performance, the Board evaluated Mr. Gorsky’s performance against a set of strategic priorities. Mr. Gorsky: • Delivered on our financial and quality commitments.• Drove sales growth in the face of biosimilar competition and pricing pressure.• Managed our business portfolio with key acquisitions and divestitures.• Increased the value of our product pipeline. 2018 CEO Compensation Decisions for 2017 Performance: The Board’s compensation decisions for Mr. Gorsky reflect the Board’s assessment of his 2017 performance. The Board recognized Mr. Gorsky’s 2017 performance by awarding him an annual performance bonus at 110% of target and long-term incentives at 115% of target. After reviewing market data and other factors, the Board adjusted Mr. Gorsky's salary rate by 3.1% to $1,650,000 (effective as of February 26, 2018). Mr. Gorsky’s total direct compensation for 2017 and, for comparison purposes, his total direct compensation for 2016 are displayed in the table below. | |||||
2016 | 2017 | |||||
Amount ($) | Percent of Target (%) | Amount ($) | Percent of Target (%) | |||
Salary Earned | $1,600,000 | $1,600,000 | ||||
Annual Performance Bonus | 3,780,000 | 135% | 3,080,000 | 110% | ||
Long-Term Incentive Awards | 16,848,019 | 135% | 14,352,000 | 115% | ||
Total Direct Compensation | $22,228,019 | $19,032,000 | ||||
 | ||||||
Please see pages 49 to 51 for details on the awards and total direct compensation. | ||||||
2018 Proxy Statement - 47 | ||
OTHER NAMED EXECUTIVE OFFICER PERFORMANCE
The Compensation & Benefits Committee based its assessment of each of the other named executive officers upon its evaluation of the company’s performance and the individual performance of each named executive officer. Each of the named executive officers contributed to the company’s performance as a member of the Executive Committee and as a leader of a business or a function. See pages 44 through 46 for the Committee’s evaluation of the company’s performance for 2017. |
 Dominic J. Caruso | Executive Vice President, Chief Financial Officer | |||
In addition to his contribution to our company’s overall performance, Mr. Caruso: | ||||
• | Drove strong financial management throughout the year. | |||
• | Played a significant role in the acquisition of Actelion Ltd. and Abbott Medical Optics Inc. | |||
• | Worked closely with the investment community, having an excellent rapport, and being recognized as the #1 CFO in the Pharmaceutical sector by Institutional Investor. | |||
• | Executed two significant debt offerings with favorable interest rates and actively engaged with legislators on U.S. tax reform. | |||
 Sandra E. Peterson | Executive Vice President, Group Worldwide Chairman | |||
In addition to her contribution to our company’s overall performance, Ms. Peterson: | ||||
• | Made progress in addressing quality, execution, and competitiveness for Medical Devices, strengthening its ability to compete in a changing healthcare environment. | |||
• | Led our Vision Care business to over-deliver its financial commitments (with eight consecutive quarters of above-market performance) and completed three acquisitions. | |||
• | Led our Supply Chain group to deliver a strong year in which all quality and productivity metrics were met or exceeded. | |||
• | Met our major Information Technology and Global Services objectives, and completed several strategic partnerships with technology companies. | |||
 Joaquin Duato | Executive Vice President, Worldwide Chairman, Pharmaceuticals | |||
In addition to his contribution to our company’s overall performance, Mr. Duato: | ||||
• | Exceeded all our financial goals (sales, income, and cash flow) for Pharmaceuticals, delivering the 7th consecutive year of sales growth and exceeding our peers’ compound average sales growth rate for the 7-year period. | |||
• | Co-led the acquisition and successful integration of Actelion Ltd. | |||
• | Led the Pharmaceutical Research and Manufacturers of America as Chairman. | |||
• | Increased the value of our product pipeline. | |||
 Paulus Stoffels, M.D. | Executive Vice President, Chief Scientific Officer | |||
In addition to his contribution to our company’s overall performance, Dr. Stoffels: | ||||
• | Delivered significant continued pharmaceutical pipeline growth. | |||
• | Advanced our cross-sector R&D product portfolio and accelerated the sourcing of external innovation. | |||
• | Co-led the acquisition and successful integration of Actelion Ltd. | |||
• | Advanced significantly the innovation and impact of J&J Global Public Health (GPH) in Tuberculosis, HIV, Ebola and Zika. | |||
2018 Proxy Statement - 48 | ||
2017 COMPENSATION DECISIONS FOR 2016 PERFORMANCE
How Compensation Decisions are Reported
In January and February of each year, we assess the performance of our named executive officers and we determine the:
• | Annual performance bonus earned for the prior year’s performance, |
• | Long-term incentive award granted in the first quarter of the year based on the prior year's performance, and |
• | Salary rate for the upcoming year. |
The independent members of the Board approve the compensation decisions for the Chairman/CEO. The Compensation & Benefits Committee approves the compensation decisions for all other named executiv`e officers.
In the tables below, we summarize the decisions regarding the annual performance bonuses, long-term incentive awards, and salary rates. We also show the 2017 total direct compensation. We believe that these tables best summarize the actions taken on the named executive officers’ compensation for the performance year.
By contrast, most of the amounts required by the U.S. Securities and Exchange Commission’s (SEC) rules to be reported in the “Summary Compensation Table” on page 68 are the result of compensation decisions from prior years, earnings from prior long-term incentive awards, or participation in long-standing pension programs as follows. The:
• | Stock Awards and Option Awards are grants made in 2017 based on performance in 2016. For PSUs, grants from 2016 and 2015 are also included for the portion of the awards based on 2017 sales (since they were considered granted in 2017 according to U.S. accounting rules). |
• | Non-Equity Incentive Plan Compensation includes dividend equivalent payments on our legacy cash-based long-term incentive plans. We stopped granting cash-based long-term incentives in 2012. |
• | Change in Pension Present Value is not paid currently and the amount is highly sensitive to changes in mortality and interest rate assumptions. |
• | Non-Qualified Deferred Compensation Earnings is the growth in value of our legacy cash-based long-term incentive plans above a reference rate. We stopped granting these long-term incentives in 2012. |
Reconciliation of Our CEO's 2017 Total Direct Compensation to Summary Compensation Table (SCT) Total | |
2017 Total Direct Compensation | $19,032,000 |
Long-Term Incentives granted in 2018 for 2017 Performance | (14,352,000) |
Stock Awards and Option Awards granted in 2017 based on 2016 performance (SCT columns D and E) | 17,408,759 |
Dividend Equivalents on legacy cash-based long-term incentives (included in SCT column F) | 518,382 |
Change in Pension Present Value (included in SCT column G) | 6,807,000 |
Non-Qualified Deferred Compensation Earnings (included in SCT column G) | 152,144 |
All Other Compensation (SCT column H) | 236,279 |
Total from Summary Compensation Table (SCT column I) | $29,802,564 |
2018 Proxy Statement - 49 | ||
2017 Total Direct Compensation
In the table below, we show the salary paid during 2017 and the annual performance bonus and long-term incentive grants approved on February 12, 2018 for performance in 2017 for each named executive officer.
A | B | C | D | E | ||||
Cash | Equity | |||||||
Name | Salary ($) | Annual Performance Bonus ($) | Long-Term Incentive ($) | Total Direct Compensation ($) | ||||
A. Gorsky | $1,600,000 | $3,080,000 | $14,352,000 | $19,032,000 | ||||
D. Caruso | 932,600 | |||||||