How I Voted: Johnson & Johnson (JNJ) – Proxy Score – 76%

Johnson & Johnson ($JNJ) is one of the stocks in my portfolio. Their annual meeting is coming up on 4/25/2013. ProxyDemocracy.org had collected the votes of three funds when I checked on 4/22/2013.  I voted with management 76% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime)

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world.

JNJ’s Summary Compensation Table shows CEO/Chair Alex Gorsky was the highest paid named executive officer (NEO) at about $11M in 2012. I’m using Yahoo! Finance to determine market cap ($137B) and Wikipedia’s rule of thumb regarding classification. JNJ is a large-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9 & 10), using data from Equilar, the median CEO compensation at large-cap corporations was $10.8 million in 2010.

Factoring inflationJNJ ’s pay is below median. I voted in favor of the compensation plan but against Charles Prince, whose behavior as CEO at Citigroup contributed to the crash.

I voted in favor of Ken Steiner’s proposal that executives be required to hold significant stock awards until retirement age to align incentives with the long-term. I had a similar proposal at Apple this year. I also voted in favor of Northstar Asset Management’s proposal to align political contributions with the company’s values and disclose specified political expenditures. We should have this at every company. I also voted in favor of AFSCME’s proposal to separate the CEO and chair positions. That’s plain good governance. The CEO can also lead the board without a huge conflict of interest. How I voted (CorpGov) below:

# PROPOSAL TEXT CorpGov AFSCME CALVERT  TRILLIUM
1.1 Elect Director Mary Sue Coleman For For For Against
1.2 Elect Director James G. Cullen For Against For Against
1.3 Elect Director Ian E.L. Davis For For For Against
1.4 Elect Director Alex Gorsky For Against For Against
1.5 Elect Director Michael M.E. Johns For For For Against
1.6 Elect Director Susan L. Lindquist For For For Against
1.7 Elect Director Anne M. Mulcahy For For For Against
1.8 Elect Director Leo F. Mullin For Against For Against
1.9 Elect Director William D. Perez For For For Against
1.10 Elect Director Charles Prince Against For For Against
1.11 Elect Director A. Eugene Washington For For For Against
1.12 Elect Director Ronald A. Williams For For For Against
2 Advisory Vote NEO Compensation For For For Against
3 Ratify Auditors For Against For For
4 Stock Retention/Holding Period For For For For
5 Report on Political Contributions For Against For For
6 Require Independent Board Chairman For For For For

Mark your calendar:

To be included in the Proxy Statement and proxy card for the 2014 Annual Meeting of Shareholders, a shareholder proposal must be received at our principal office on or before November 13, 2013 and must comply with Rule 14a-8 under the U.S. Securities and Exchange Act of 1934, as amended.

 Looking at SharkRepellent.net, I see action by written consent for the election of directors must be unanimous. That may be the default in New Jersey but it is too high. Special meetings can only be called by shareholders holding not less than 25% of the voting power… also too high. Our company imposes a supermajority vote requirement (66.67%) to approve mergers; I’d like to see that reduced to a simple majority.

Johnson & Johnson’s ISS Governance QuickScore as of Apr 1, 2013 is 9. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 4; Compensation: 9. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosure. ISS, so far, has provided no detail on the relative distribution of the scores. The board’s poor rating provides support for a proxy access proposal. Additionally, in 2012 more than 12% of shares were voted against five directors. Dissatisfaction is certainly brewing. Perhaps we should meet on Sharegate to do some more analysis.

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