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Corporate Governance

: The Race to the Bottom

The Director Compensation Project: Johnson & Johnson

By Laura Almquist

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This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Johnson & Johnson’s (JNJ-NYSE) 2008 proxy statement.

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
M.S. Coleman	95,000	99,939	—	7,692	202,631
J.G. Cullen	115,000	99,939	—	7,692	222,631
M.M.E. Johns	96,500	99,939	—	5,244	201,683
A.D. Jordan	36,500	99,939	—	7,692	144,131
A.G. Langbo	106,500	99,939	—	7,692	214,131
S.L. Lindquist	95,000	99,939	—	7,692	202,631
L.F. Mullin	105,000	99,939	—	7,692	212,631
W.D. Perez	52,750	61,790	—	—	114,540
C. Prince	96,500	99,939	—	2,467	198,906
S.S. Reinemund	103,167	99,939	—	7,692	210,798
D. Satcher	105,000	99,939	—	7,692	212,631

Director Compensation . Five directors received more than $100,000 in director’s fees paid in cash, and the non-employee directors as a group averaged $194,304 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure . On average, the non-employee directors have served on the board for 6.5 years. Arnold G. Lango has the longest tenure at seventeen years. Eight of the directors also sit on other boards. One director alone sits on the boards at American Express, Exxon Mobil, and Marriot International.

CEO Compensation . The CEO, William C. Weldon, received $31,916,566 in total compensation last year, a relatively small portion of which came in the form of cash ($1,725,000). Over $3,000,000 of his compensation came from "other compensation," which mostly included dividends equivalents earned as part of a non-equity compensation plan. Almost one third ($9,188,120) of his compensation was tied to non-equity performance incentives and another third ($9,8954,532) was in the form of stock and options awards, the value of which was dependent upon company performance. Change in pension value and other deferred compensation comprised the remaining $7,888,757 of Mr. Weldon’s pay.

Full post as published by The Race to the Bottom on May 07, 2008 (boomark / email).