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J&J CEO's Pay Is Rigged to Reward Him Even When He Fails

The headline about Johnson & Johnson (JNJ) CEO William Weldon's compensation is that last year he took a 7 percent pay cut to reflect the company's troubles. But that's just the headline. Any reasonable person looking at Weldon's compensation in detail will come away scratching their heads, wondering why someone who delivered one of J&J's worst ever annual performances could possibly be worth a staggering $28.7 million. Here's the context:

Now look at how Weldon was compensated (click to enlarge):

His base salary rose, his stock awards rose, his "other compensation" (mostly consisting of $90,000 in private jet trips) rose and his other metrics were flat or slightly down.

He was also compensated for lobbying on President Obama's healthcare reform bill, the proxy statement says:

Mr. Weldon played an effective role in shaping health care policy around the world, especially in the U.S. and Japan. Mr. Weldon's personal involvement with key leaders and organizations has ensured the interests of the Company are well represented.
The disclosure doesn't mention Weldon's other trip to Washington, in which he was dragged before a congressional committee to explain why his company was selling tainted Tylenol. Either way, these are the routine duties of a CEO, yet J&J's proxy suggests he should receive incentive compensation just for carrying them out.

Here's what J&J's board said about Weldon's overall performance:

Under Mr. Weldon, the Company also saw a number of successes across the businesses in 2010, including the delivery of innovations in health care and progress in the Company's robust pipelines. Many of the Company's businesses performed well in light of the challenging macroeconomic environment. The Board believes that Mr. Weldon provided strong leadership during a very demanding year and has worked to resolve multiple challenging issues and position the Company for future growth.
... The Company's reputation was challenged and revenue impacted during 2010 primarily due to a series of product recalls at McNeil Consumer Healthcare. Mr. Weldon's leadership and engagement with employees, legislators, regulators, investors and the news media enabled the Company to deal with the issues.
To restate that: in comparison with previous years, when the company performs well Weldon is rewarded for the success, but when the company performs poorly he's rewarded for "deal[ing] with the issues."

Heads he wins, tails shareholders lose!


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