The question isn't why Johnson & Johnson ($JNJ) CEO Alex Gorsky took a 10% hit to his incentive pay. It's why Chairman William Weldon didn't suffer a bigger cut in his pay. Weldon gave up the CEO's job to Gorsky in April and the chairman's job in December, and his 2012 compensation still amounted to almost $30 million. Gorsky, on the other hand, racked up almost $11 million.
Gorsky and his fellow top execs were penalized for the company's "mixed" performance last year, including ongoing problems with supplies of its McNeil Consumer Healthcare products. That unit has three plants operating under an FDA consent decree and is still struggling to return some recalled brands to drugstore shelves. Sales growth for the year also fell short, as the Wall Street Journal notes; sales rose by 3%, rather than the targeted 4% to 5%.
Here's how Gorsky's compensation breaks down: a salary of $1.1 million; a performance bonus of $1.5 million; $2.79 million in stock and $1.48 million in options; $2 million in pension benefits and deferred compensation earnings; plus vesting of previously awarded performance certificates, worth almost $2 million; and perqs such as use of the company aircraft. Total: $10.98 million.
Weldon's numbers stack up this way: salary of $1.32 million; a bonus of $1.88 million; $7.6 million in stock and $4.1 million in options; more than $11 million in newly vested performance awards; $3.25 million in pension and deferred compensation; and $234,000 in perqs. Total: $29.84 million.
J&J says it's working to align executive compensation more closely with performance. For instance, it's no longer using the peer-group-comparison approach to set executive pay. Previously, the company pegged its compensation to fit in the 50th-to-75th percentile range, compared with similar companies. It's a common approach, but one that's been criticized as the engine behind an upward spiral in executive pay.