JOHNSON & JOHNSON | Executive compensation adjustment policy at JOHNSON & JOHNSON

Status
Withdrawn
AGM date
Previous AGM date
Proposal number
7
Resolution details
Company ticker
JNJ
Lead filer
Vermont Pension Investment Committee (VPIC)
Resolution ask
Adopt or amend a policy
ESG theme
  • Social
ESG sub-theme
  • Public health
  • Remuneration or pay
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Health Care
Company HQ country
United States
Resolved clause
RESOLVED, that shareholders of Johnson & Johnson (“J&J”) urge the Board of Directors to adopt a policy that no financial performance metric shall be adjusted to exclude Legal or Compliance Costs when evaluating performance for purposes of determining the amount or vesting of any senior executive Incentive Compensation award. “Legal or Compliance Costs” are expenses or charges associated with any investigation, litigation or enforcement action related to drug manufacturing, sales, marketing or distribution, including legal fees; amounts paid in fines, penalties or damages; and amounts paid in connection with monitoring required by any settlement or judgement of claims of the kind described above. “Incentive Compensation” is compensation paid pursuant to short-term and long-term incentive compensation plans and programs. The policy should be implemented in a way that does not violate any existing contractual obligation of the Company or the terms of any compensation or benefit plan. The Board shall have discretion to modify the application of this policy in specific circumstances for reasonable exceptions and in that case shall provide a statement of explanation.
Supporting statement
We support compensation arrangements that incentivize senior executives to drive growth while safeguarding company operations and reputation over the long-term. J&J adjusts certain financial metrics when calculating progress for executive incentive compensation. While some adjustments may be appropriate, we believe senior executives should not be insulated from all legal costs as a matter of policy.
These considerations are especially critical at J&J given the risks it faces over its role in the nation's opioid epidemic. Shareholders largely agree as a similar proposal filed for the 2022 shareholder meeting received 47.7% support.
The Investors for Opioid and Pharmaceutical Accountability (IOPA), a coalition of 67 investors with $4.2 trillion in assets under management has been engaging companies on this issue for several years. As shareholders bear the financial impacts of record-setting legal settlements related to inadequate assessment of how business decisions would impact the opioid crisis, the IOPA believes executives should similarly be accountable for the financial impacts of those decisions.
J&J agreed to pay $5 billion as part of a global settlement to resolve outstanding opioid litigation, taking $4 billion and $1 billion charges in fiscal 2019 and fiscal 2020, respectively. Executive pay was adjusted to exclude the impact of these charges. J&J’s default decision to exclude the impact of litigation from metrics originally designed to align executive pay with shareholder interests means executives know in advance their incentive pay will remain intact no matter how large the negative financial impact on shareholders.
In response to discussions with the IOPA and other shareholders, AmerisourceBergen, Cardinal Health, and McKesson reduced CEO pay in light of opioid-related litigation settlements. While the IOPA views the amounts of the reductions as less than warranted, we applaud the decision to acknowledge that incentives matter as do the approximately 700,000 lives lost due to opioid-related drug overdoses since 1999.1
We urge shareholders to vote for this proposal.

How other organisations have declared their voting intentions

Organisation nameDeclared voting intentionsRationale
Rothschild & co Asset ManagementFor
Anima SgrForAs shareholders continue to raise concern surrounding the company's exclusion of large litigation-related costs from the executive compensation program, as evidenced by significant shareholder support for this proposal at last year's annual meeting. In addition, shareholders may have expected more robust disclosure and reconciliation in the proxy in order to better understand how these specific expenses impacted pay for its top executives. Given that the proposal would provide the board with flexibility to adjust the application of the policy in individual circumstances, with an explanation to shareholders, the request is not viewed as overly prescriptive.

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