Sick Stuff in CEO Pay

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Horrible CEO pay packages abound these days, but Johnson & Johnson (NYS: JNJ) can no longer put a Band-Aid on the gaping wound of bleeding shareholder value. Its compensation policies have been abysmal for some time now, and one major shareholder is rallying others to do something about the "disease" of excessive pay.

Terminally screwed up
For years, Johnson & Johnson's outgoing CEO William Weldon has banked some huge paychecks, even as the company's once-stellar reputation was tarnished during repeated recalls of well-known consumer products like Motrin and Tylenol. Since 2009, Johnson & Johnson has been forced to do about 30 product recalls.

In 2010, the Institute for Policy Studies highlighted Weldon as a "Layoff Leader," no less -- one of the poster children for chief executives who enjoyed lucrative pay while letting go thousands of workers.


Despite continued product recalls at Johnson & Johnson, Weldon still received an 8% increase in his compensation last year. He raked in $23.4 million.

Although Weldon's leaving his CEO post (he'll stay on as chairman), shareholders have good reason to be angry and distrustful of Johnson & Johnson's board of directors, specifically its compensation committee.

More than $1 billion in Johnson & Johnson sales have disintegrated due to the ongoing product quality problems, and the company's been shelling out millions on expenses like shareholder and consumer lawsuits.

Curing the disease with a "no" vote
One major shareholder's rallying the troops to vote against Johnson & Johnson's compensation practices at the company's annual meeting on April 26. The American Federation of State, County and Municipal Employees, or AFSCME, a public pension fund that has engaged in plenty of shareholder activism, has launched a "Vote No" campaign at Johnson & Johnson.

AFSCME points out that shareholders have plenty of reasons to reject Johnson & Johnson's pay practices after the sick way things have gone under Weldon's tenure. For example, the ongoing recalls and product liability and litigation expenses helped slash the company's 2011 earnings by $4.5 billion.

According to AFSCME President Gerald McEntee, "Excessive pay is a disease, and the prescription for investors is to just 'Vote No.'"

AFSCME's efforts aren't futile. Just recently, Goldman Sachs (NYS: GS) decided to separate its chairman and CEO roles, taking some power away from Lloyd Blankfein. AFSCME withdrew its planned shareholder proposal on the issue after Goldman Sachs made the concession.

Other companies are on AFSCME's radar this year, too. The organization has filed shareholder proposals to declassify the board at Emerson Electric (NYS: EMR) , and to separate the chairman and CEO roles at other huge companies including American Express (NYS: AXP) and Lockheed Martin (NYS: LMT) .

Remedying the sick stuff
There's no problem when well-paid chief executives prove to be good stewards of shareholder value and stakeholder interests. The major problem in today's marketplace is how frequently chief executives are paid handsomely for a shoddy job.

In the case of Johnson & Johnson, an individual was paid millions for his "leadership," which led to the company losing trust on so many levels. It's all the more mind-blowing because this was a stock long considered so trustworthy and stable that it was suitable for proverbial widows and orphans.

Weldon's pay is the symptom, and part of the cure is to recognize members of the company's compensation committee. They include Charles Prince (yes, that Chuck Prince of the "dance the night away" financial crisis quote), Michael Johns, Anne Mulcahy, William Perez, and Ronald Williams, in case you were wondering. Johnson & Johnson shareholders certainly should know who they are.

One way to return our marketplace to healthiness is to vote against egregious pay packages for CEOs who don't perform, and to vote against individuals on compensation committees who actually condone and enable such misuse of shareholder capital. If we want healthy companies, we need to vote against the sick stuff. 

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

At the time this article was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Johnson & Johnson and Lockheed Martin. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Emerson Electric, and Goldman Sachs, as well as creating a diagonal call position in Johnson & Johnson and writing a covered strangle position in American Express. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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