Johnson & Johnson (JNJ): How I Voted – Proxy Score 67

JNJJohnson & Johnson $JNJ is one of the stocks in my portfolio. Their annual meeting is coming up on 4/24/2014. ProxyDemocracy.org had collected the votes of two funds when I checked and voted on 4/18/2014.  I voted with management 67% of the time. View Proxy Statement, which is user friendly.

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. The rationale for peer group benchmarking is a mythological market for CEOs

JNJ’s Summary Compensation Table shows CEO and Chair Alex Gorsky was the highest paid named executive officer (NEO) at about $16.9M in 2013. I’m using Yahoo! Finance to determine market cap ($280B) and Wikipedia’s rule of thumb regarding classification. JNJ is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $9.7 million in 2012, so JNJ’s is well over median. Therefore, I voted against the pay plan and members of the compensation committee (Dr. Michael M. E. Johns is not standing for reelection):

  • Mr. Charles Prince, Chairman
  • Mr. William D. Perez
  • Mr. Ronald A. Williams

GMIAnalyst

The GMIAnalyst report I reviewed gave JNJ an overall D for several reasons, mostly because it was dragged down because of “social” concerns.

Johnson & Johnson’s ESG profile is highlighted by flagged Social metrics for corporate behavior, including substantial fines, anti-competitive behavior, ongoing regulatory investigations, and several product recalls.

Other areas of concern include: Possible related party transactions, over boarded directors, restatements or special charges.

With regard to Kenneth Steiner’s shareowner proposal, I voted in favor of it. Retaining stocks awarded until retirement age will focus our senior executives on the long-term. That’s good for the company and for shareowners. I appreciate JNJ’s existing policy that the CEO must hold company stock equal to six times his or her base salary and all other Executive Committee members must hold company stock equal to three times their base salary. However, I think that policy will work best when combined with Mr. Steiner’s recommendation.

How I voted (CorpGov) below using bold where my vote opposes the board’s recommendation:

NUM. PROPOSAL TEXT CORPGOV TRILLIUM CALVERT
1a Elect Director Mary Sue Coleman For Against For
1b Elect Director James G. Cullen For Against For
1c Elect Director Ian E. L. Davis For Against For
1d Elect Director Alex Gorsky For Against For
1e Elect Director Susan L. Lindquist For Against For
1f Elect Director Mark B. McClellan For For For
1g Elect Director Anne M. Mulcahy For Against For
1h Elect Director Leo F. Mullin For Against For
1i Elect Director William D. Perez Against Against For
1j Elect Director Charles Prince Against Against For
1k Elect Director A. Eugene Washington For Against For
1l Elect Director Ronald A. Williams Against Against For
2 Ratify NEO Compensation Against Against For
3 Ratify Auditors For For For
4 Stock Retention/Holding Period For For For

Mark your calendar:

To be included in the Proxy Statement and proxy card for the 2015 Annual Meeting of Shareholders, a shareholder proposal must be received at our principal office on or before November 12, 2014 and must comply with Rule 14a-8 under the U.S. Securities and Exchange Act of 1934, as amended.

  Looking at SharkRepellent.net, special meetings can only be called by shareholders holding not less than 25% of the voting power. That seems high to me. I’d like to see that reduced to 10 or 15%. Additionally, JNJ maintains a supermajority vote requirement (66.67%) to approve mergers (default New Jersey state statute for companies organized prior to 1-1-1969).

From Yahoo! Finance, Johnson & Johnson’s ISS Governance QuickScore as of Apr 1, 2014 is 2. The pillar scores are Audit: 1; Board: 3; Shareholder Rights: 3; Compensation: 2. 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 disclosures.

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