|
|
|
|
|
|
2017 Proxy Statement -
37
|
Compensation Discussion and Analysis
|
|
|
|
2017 Proxy Statement -
38
|
|
|
2016 Performance and Compensation
|
|
|
|
|
Our strong results in 2016 were driven by our approach to managing for the long term, relentless drive for innovation, disciplined portfolio management, and capital allocation strategy.
|
KEY PERFORMANCE AND COMPENSATION HIGHLIGHTS
• Upheld Our Credo values by focusing on the needs and well-being of our stakeholders:
• Patients, consumers, and health care professionals
• Employees
• Communities in which we live and work
• Shareholders
• Executed against our near-term priorities in 2016, consistent with our long-term strategic plan
(1)
:
• Exceeded our operational sales growth goal.
• Exceeded our adjusted operational EPS growth goal.
• Did not meet our free cash flow goal due to unanticipated litigation settlements.
• Advanced our long-term strategic growth drivers:
• Exceeded our "Creating Value through Innovation" objectives that measure the health of our priority business platforms across all 3 sectors.
• Partially met our "Global Reach with Local Focus" objectives that measure the health of our business in regions offering significant growth opportunities.
• Exceeded our "Excellence in Execution" objectives that track elements we need to execute to unleash additional growth opportunities.
• Exceeded our "Leading with Purpose" objectives that measure our organizational health, diversity, and reputation.
• Drove our strong results with contributions from all three businesses:
• Our Pharmaceutical business continued to deliver strong growth, while also increasing investment to further develop our strong pipeline of innovative new medicines.
• Our Consumer business continued gaining share across most major categories, and significantly improved margins with the goal of returning to benchmark profitability.
• Our Medical Devices business continued to gain share in key platforms while refocusing and accelerating our pace of innovation, and developed novel commercial models to meet the evolving needs of today's healthcare systems.
• Received continued strong support for our named executive officer compensation in our 2016 “Say on Pay” vote - 93% or more in favor since 2013
• Continued our shareholder outreach and increased the weighting of performance share units in our 2017 long-term incentive mix to increase the focus on long-term performance
|
2016 FINANCIAL RESULTS
(1)
OPERATIONAL SALES GROWTH
3.9%
ADJUSTED OPERATIONAL EPS
GROWTH
9.4%
FREE CASH FLOW
$15.5B
|
|
|
•
22%
of 2016 sales from products launched in the past 5 years
• Invested
>$9 billion
in R&D
•
14
Acquisitions & Licenses
|
|
CEO Pay Decisions
•
Annual Bonus: 135% of target
•
LTI Award: 135% of target
•
Salary: No increase
Total Direct Compensation
•
2016: $22,228,019
•
2015: $18,141,454
(See page
43
for details)
|
33
Consecutive
years of
adjusted
operational
earnings
increases
(1)
|
54
Consecutive
years of
dividend
increases
|
(1)
Non-GAAP measures: see page 42 for details on non-GAAP measures.
|
|
|
|
|
|
2017 Proxy Statement -
39
|
2016
COMPANY PERFORMANCE
Below is a summary of the company's performance against enterprise financial and strategic goals, as well as performance by business segment. Our goals are set based on our long-term strategic objectives, our product portfolio and pipeline, and competitive benchmarking.
Performance Against Our 2016 Financial Goals
(1)
:
|
|
•
|
Exceeded our operational sales growth goal.
|
|
|
•
|
Exceeded our adjusted operational Earnings Per Share (EPS) growth goal.
|
|
|
•
|
Did not meet our free cash flow goal due to unanticipated litigation settlements.
|
(1)
Non-GAAP measures; see page
42
for details on non-GAAP performance measures.
Performance Against our Long-Term Strategic Growth Drivers:
|
|
•
|
Exceeded our Creating Value through Innovation objectives that measure the health of our priority business platforms across all 3 sectors:
|
|
|
•
|
Gained or held share in 13 of 15 key product platforms and exceeded sales growth targets in 10 of 15 of them.
|
|
|
•
|
Advanced our robust pipeline by launching key new products and line extensions across our three sectors.
|
|
|
•
|
Achieved over 75% of our priority innovation milestones.
|
|
|
•
|
Invested more than $9 billion in research & development in 2016. We believe that sustaining investments in innovation is the most important aspect of our strategy.
|
|
|
•
|
Partially met our Global Reach with Local Focus objectives that measure the health of our business in regions offering significant growth opportunities:
|
|
|
•
|
Exceeded our growth target as a whole, led by developed markets.
|
|
|
•
|
Underperformed in emerging markets and BRIC (Brazil, Russia, India, and China).
|
|
|
|
|
2017 Proxy Statement -
40
|
|
|
|
|
•
|
Exceeded our Excellence in Execution objectives that track elements we need to execute to unleash additional growth opportunities:
|
|
|
•
|
Made strategic acquisitions to enhance our future growth including Vogue International LLC, NeoStrata Company, Inc., BioMedical Enterprises, Inc., and NeuWave Medical, Inc., and entered into an agreement to purchase Abbott Medical Optics Inc.
|
|
|
•
|
Made significant progress on our Enterprise Standards and Productivity initiative, exceeding our annual savings goal.
|
|
|
•
|
Delivered strong performance on all quality metrics: compliance was in the top quartile for the industry, with no significant inspections this year.
|
|
|
•
|
Delivered on restructuring initiative milestones within our Medical Devices segment, working toward achieving savings of $800 million to $1 billion, the majority of which is expected to be realized by the end of 2018.
|
|
|
•
|
Exceeded our Leading with Purpose objectives that measure our organizational health, diversity, and reputation:
|
|
|
•
|
Strengthened our leadership talent pipeline, advanced diversity, and exceeded our employee engagement benchmarks.
|
|
|
•
|
Increased our reputational standings, ranking #1 in Barron's list of "Most Respected Companies."
|
Performance by Business:
|
|
•
|
Our Pharmaceutical business continued to deliver strong growth, while also increasing investment to further develop our strong pipeline of innovative new medicines:
|
|
|
•
|
Exceeded its operational sales, operational income, and cash flow goals.
|
|
|
•
|
Delivered strong growth of our key launch and growth products, including IMBRUVICA
®
, DARZALEX
®
, INVOKANA
®
, STELARA
®
, and XARELTO
®
, as well as important line extensions.
|
|
|
•
|
Our Consumer business continued gaining share across most major categories, and significantly improved margins with the goal of returning to benchmark profitability:
|
|
|
•
|
Exceeded its income goal, met its cash flow goal, but did not meet its sales growth goal.
|
|
|
•
|
Growth was in line with our competitor composite and gained market share despite a market slowdown.
|
|
|
•
|
Identified new opportunities for long-term growth by investing $4.2 billion across 6 acquisitions (including Vogue International, NeoStrata, and La Lumiere Light Mask) to strengthen our position in Beauty.
|
|
|
•
|
Our Medical Devices business continued to gain share in key platforms while refocusing and accelerating our pace of innovation, and developed novel commercial models to meet the evolving needs of today's healthcare systems:
|
|
|
•
|
Met its cash flow and income goals, but did not meet its operational sales goal.
|
|
|
•
|
Achieved strong operational sales growth in Vision Care, Endocutters, Electrophysiology, and Knees but underachieved in Diabetes.
|
|
|
•
|
Identified new opportunities for long-term growth by investing $0.5 billion through licensing and acquisitions (including NeuWave and BioMedical Enterprises), and entering into an agreement to purchase Abbott Medical Optics.
|
|
|
•
|
Achieved strong growth in our priority platforms; although overall growth was below our competitor composite.
|
|
|
|
|
|
|
2017 Proxy Statement -
41
|
|
|
|
|
|
|
|
|
|
|
|
|
Details on Non-GAAP Performance Measures
|
|
|
|
|
|
l
|
Operational Sales Growth:
Operational Sales Growth is the sales increase due to volume and price, excluding the effect of currency translation. As set forth on page 15 of "Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Conditions” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2017 (2016 Form 10-K), our 2016 Operational Sales Growth was 3.9%, excluding currency translation of (1.3)%.
|
|
l
|
Free Cash Flow:
Free cash flow is the net cash from operating activities less additions to property, plant and equipment. As set forth in the Consolidated Statements of Cash Flows on page 38 of our 2016 Form 10-K, cash flows from operating activities was $18.7 billion, and additions to property, plant and equipment were $3.2 billion. ($18.7 billion – $3.2 billion = $15.5 billion.)
(1)
|
|
l
|
Adjusted Operational EPS Growth:
Adjusted EPS and Adjusted Operational EPS are non-GAAP financial measures. Adjusted EPS excludes special items and intangible amortization expense as set forth in Exhibit 99.2O to the company’s Current Report on Form 8-K dated January 24, 2017 and in “Reconciliation of Non-GAAP Financial Measures” of our 2016 Annual Report included in our proxy materials. Adjusted Operational EPS Growth also excludes the effect of currency translation. The following is a reconciliation of Diluted EPS (the most directly comparable U.S. GAAP measure) to Adjusted EPS and Adjusted Operational EPS:
|
|
|
|
|
|
|
|
|
|
|
|
2016 Actual
$ per share
|
% Change vs.
Prior Year*
|
|
|
|
|
Diluted EPS
Special Items and Intangible Amortization Expense
|
$5.93
0.80
|
|
|
|
|
|
|
|
|
Adjusted EPS
Currency Translation
|
6.73
0.05
|
|
|
8.5
|
%
|
|
|
|
|
|
Adjusted Operational EPS
|
6.78
|
|
|
9.4
|
%
|
|
|
|
|
|
* Prior year Adjusted EPS = $6.20
|
|
|
|
|
|
|
|
(1)
The figures above are rounded for display purposes.
|
|
|
|
|
2017 Proxy Statement -
42
|
|
|
CEO PERFORMANCE AND COMPENSATION DECISIONS
|
|
|
|
|
|
|
|
|
|
Alex Gorsky
|
|
Chairman, Board of Directors and Chief Executive Officer
Performance:
The Board based its assessment of Mr. Gorsky primarily upon its evaluation of the company’s performance. The Board believes the company delivered excellent financial results and strong strategic performance in 2016 under Mr. Gorsky’s leadership, as summarized under “2016 Company Performance” on pages 40 through 42, and the Board approved compensation for 2016 reflecting this performance.
2016 CEO Compensation Decisions for 2015 Performance:
The Board’s compensation decisions for Mr. Gorsky reflect the Board’s assessment of his 2016 performance. The Board recognized Mr. Gorsky’s 2016 performance by awarding him an annual performance bonus at 135% of target and long-term incentives at 135% of target. After reviewing market data and other factors, the Board kept Mr. Gorsky's salary rate unchanged at $1,600,000 per year.
Mr. Gorsky’s total direct compensation for 2016 and, for comparison purposes, his total direct compensation for 2015 are displayed in the table below.
|
|
|
|
2015
|
2016
|
|
|
|
Amount
($)
|
Percent of Target
(%)
|
Amount
($)
|
Percent of Target
(%)
|
|
|
Salary Earned
(1)
|
$1,613,462
|
|
$1,600,000
|
|
|
|
Annual Performance Bonus
|
2,800,000
|
100
|
%
|
3,780,000
|
135
|
%
|
|
|
Long-Term Incentive Awards
|
13,727,992
|
110
|
%
|
16,848,019
|
135
|
%
|
|
|
Total Direct Compensation
|
$18,141,454
|
|
$22,228,019
|
|
|
|
(1)
Salaries earned in fiscal year 2015 were higher than each executive’s annualized base salary due to an additional earnings period that occurred in fiscal year 2015. U.S. salaried employees are paid on a bi-weekly schedule. There were 27 pay periods in fiscal year 2015 rather than the usual 26 pay periods.
|
|
|
|
|
|
Please see “2017 Compensation Decisions for 2016 Performance” on pages 45 to 46 for details on the awards and total direct compensation.
|
|
|
|
|
|
|
2017 Proxy Statement -
43
|
OTHER NAMED EXECUTIVE OFFICER PERFORMANCE
The Compensation & Benefits Committee based its assessment of each of the other named executive officers upon its evaluation of the company’s performance as well as the individual performance of each named executive officer. Each of the named executive officers contributed to the company’s performance as a member of the Executive Committee and as a leader of a business segment or a function. See “2016 Company Performance” on pages 40 through 42 for the Committee’s evaluation of the company’s performance for
2016
.
|
|
|
|
|
|
Dominic J. Caruso
|
|
|
Executive Vice President, Chief Financial Officer
|
|
|
In addition to his contribution to our company’s overall performance, Mr. Caruso:
|
|
|
•
|
Drove strong financial management throughout the year.
|
|
|
•
|
Played a significant role in the acquisition of Vogue International, Abbott Medical Optics, and the pending acquisition of Actelion Ltd.
|
|
|
•
|
Continued to have an excellent rapport with the Investment Community, recognized as the Top CFO in Medical Devices.
|
|
|
•
|
Enhanced the company's financial strategy with the optimal use of non-U.S. cash and executed two debt offerings and a share repurchase plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paulus Stoffels, M.D.
|
|
|
Executive Vice President, Chief Scientific Officer
|
|
|
In addition to his contribution to our company’s overall performance, Dr. Stoffels:
|
|
|
•
|
Delivered significant continued pharmaceutical pipeline growth.
|
|
|
•
|
Advanced the impact of our cross sector R&D product portfolio and accelerated the sourcing of external innovation in our three business sectors.
|
|
|
•
|
Implemented J&J Global Public Health (GPH) — an important new group to address the world's greatest unmet public health needs.
|
|
|
•
|
Significantly enhanced recognition of the company as one of the world’s leading medical and scientific innovators committed to ensuring patient safety, setting the standard for transparency, advancing access to medicines, and delivering more years of life and quality of life for people around the world.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandra E. Peterson
|
|
|
Executive Vice President, Group Worldwide Chairman
|
|
|
In addition to her contribution to our company’s overall performance, Ms. Peterson:
|
|
|
•
|
Provided strong leadership to Consumer & Consumer Medical Devices; our operating infrastructure - Information Technology, Supply Chain, Quality and Global Services; Health & Wellness; Global Design; and Health Technology.
|
|
|
•
|
Led the Consumer and Vision Care businesses to a positive trend in growth and global market share and met, or exceeded, income and cash flow goals.
|
|
|
•
|
Led our Supply Chain and Quality groups to deliver a strong year in which all quality and productivity metrics were exceeded.
|
|
|
•
|
Met, or exceeded, all of our major Information Technology objectives, and completed a number of strategic partnerships with technology companies.
|
|
|
|
|
|
|
|
|
|
2017 Proxy Statement -
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joaquin Duato
|
|
|
Executive Vice President, Worldwide Chairman, Pharmaceuticals
|
|
|
In addition to his contribution to our company’s overall performance, Mr. Duato:
|
|
|
•
|
Exceeded all of our financial goals (sales, income, and cash flow) for Pharmaceuticals.
|
|
|
•
|
Delivered the 6th consecutive year of growth, averaging more than double the branded market growth rate and firmly establishing Janssen as a top five global Pharmaceutical company.
|
|
|
•
|
Was appointed Chair-elect of the Pharmaceutical Research and Manufacturers of America, assuming the Chairman role in 2017.
|
|
|
•
|
Expanded and commercialized the product pipeline: increasing its value 4 years in a row.
|
|
|
|
|
|
|
|
|
|
2017 COMPENSATION DECISIONS FOR 2016 PERFORMANCE
How Compensation Decisions are Reported
In January and February of each year, based on the performance assessments of the named executive officers, the Compensation & Benefits Committee determines for each named executive officer:
• The annual performance bonus earned for the prior year’s performance,
• The long-term incentive award granted in the first quarter of the year based on the prior year's performance, and
• The salary rate for the upcoming year.
Decisions regarding these elements and the 2016 total direct compensation are summarized in the tables below. The Compensation & Benefits Committee believes that these tables best summarize the actions taken on the named executive officers’ compensation for the performance year. By contrast, most of the amounts required by the U.S. Securities and Exchange Commission’s (SEC) rules to be reported in the “Summary Compensation Table” on page 60 are the result of compensation decisions from prior years, earnings from prior long-term incentive awards, or participation in long-standing pension programs.
2016 Total Direct Compensation
The following table shows the salary paid during
2016
and the annual performance bonus and long-term incentive grants approved on February 13, 2017 for performance in
2016
for each named executive officer.
|
|
|
|
|
|
|
|
A
|
B
|
C
|
D
|
E
|
|
Cash
|
Equity
|
|
Name
|
Salary
($)
|
Annual Performance Bonus
($)
|
Long-Term Incentive
($)
|
Total Direct Compensation
($)
|
A. Gorsky
|
$1,600,000
|
$3,780,000
|
$16,848,019
|
$22,228,019
|
D. Caruso
|
909,500
|
1,534,800
|
5,855,691
|
|
8,299,991
|
|
P. Stoffels
|
1,144,000
|
1,600,000
|
6,199,992
|
|
8,943,992
|
|
S. Peterson
|
963,462
|
1,600,000
|
6,199,992
|
|
8,763,454
|
|
J. Duato
|
875,000
|
1,400,000
|
5,500,025
|
|
7,775,025
|
|
Salary (Column B)
The amounts reported in column B represent base salaries paid to each of the named executive officers for the
2016
fiscal year.
Annual Performance Bonus (Column C)
Based on
2016
company performance and individual performance as discussed on pages 40 to 45, the Board and the Committee awarded annual performance bonuses on February 13, 2017 ranging from 131% to 160% of target for the named executive officers. See the “Grants of Plan-Based Awards” table on page 66 for the target bonus amounts.
|
|
|
|
2017 Proxy Statement -
45
|
|
|
Long-Term Incentive Awards (for 2016 performance) (Column D)
The Board and Committee granted the following long-term equity incentive awards on February 13, 2017 (ranging from 128% to 148% of target) to the named executive officers based on his or her 2016 performance, impact on the company’s long-term results, competitive market data, and the individual’s long-term potential within the organization. These awards included Performance Share Units (PSUs), Stock Options, and Restricted Share Units (RSUs).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
PSUs Granted
(1)
|
Options Granted
(2)
|
RSUs Granted
(3)
|
Total
(4)
|
(#)
|
($)
|
(#)
|
($)
|
(#)
|
($)
|
($)
|
A. Gorsky
|
79,448
|
$8,424,030
|
377,673
|
$5,054,398
|
31,779
|
$3,369,591
|
$16,848,019
|
D. Caruso
|
27,613
|
2,927,862
|
131,264
|
1,756,706
|
11,045
|
1,171,123
|
5,855,691
|
P. Stoffels
|
29,236
|
3,099,952
|
138,982
|
1,859,996
|
11,695
|
1,240,044
|
6,199,992
|
S. Peterson
(5)
|
29,236
|
3,099,952
|
138,982
|
1,859,996
|
11,695
|
1,240,044
|
6,199,992
|
J. Duato
(5)
|
25,936
|
2,750,046
|
123,291
|
1,650,003
|
10,374
|
1,099,976
|
5,500,025
|
|
|
(1)
|
The estimated grant date fair value used to determine the number of PSUs granted was $106.032. The estimated grant date fair value per PSU was assumed to be equal to the estimated grant date fair value per RSU for the purpose of determining the number of PSUs.
|
|
|
(2)
|
The grant date fair value used to determine the number of options granted was $13.383. The option exercise price was $115.67 based on the average of the high and low prices of our common stock on the NYSE on the grant date. The Black-Scholes option valuation model was used to calculate the grant date fair value with the following assumptions: volatility of 15.30% based on a blended rate of historical average volatility and implied volatility based on at-the-money traded Johnson & Johnson stock options with a life of two years; dividend yield of 2.90%; risk-free interest rate of 2.25% based on a U.S. Treasury rate of seven years; and a seven-year option life.
|
|
|
(3)
|
The grant date fair value used to determine the number of RSUs granted was $106.032. The grant date fair value for the RSU awards as calculated under U.S. GAAP was based on the average of the high and low prices of our common stock on the NYSE on the grant date ($115.67) and discounted by an expected dividend yield of 2.90% as dividends are not paid on the RSUs prior to vesting.
|
|
|
(4)
|
Award values are rounded to the nearest whole share.
|
|
|
(5)
|
In addition to the long-term incentive awards included in the above table, on February 13, 2017 the Committee granted special awards to Ms. Peterson and Mr. Duato of 70,733 RSUs, each with a fair value on the grant date of $7.5 million. Ms. Peterson’s award recognizes her expanded responsibilities that will include the Hospital Medical Devices business and enhances her future retention. Mr. Duato’s award recognizes his ongoing outstanding performance and enhances his future retention.
|
Total Direct Compensation (Column E)
The amounts reported in column E are the sum of columns B through D for each of the named executive officers. The Committee believes that totals in column E best summarize the total direct compensation paid to each named executive officer for the
2016
fiscal year.
2017 Salary Increases
Annual salary increases are neither automatic nor guaranteed. In determining the base salary rates for our named executive officers, the Committee reviewed each individual’s performance, compensation, alignment with our Credo values, complexity and scope of responsibilities, and experience in role, as well as market data. The Board and Committee can elect to leave a base salary rate unchanged as it did for Messrs. Gorsky and Caruso and Dr. Stoffels in 2016, and Mr. Gorsky in 2017.
The following table shows the annual base salary rate approved for each named executive officer. The annual base salary rates are all effective as of February 27, 2017. Ms. Peterson’s 2017 salary rate reflects her expanded responsibilities that will include the Hospital Medical Devices business.
|
|
|
|
|
|
Name
|
2016 Base Salary Rate ($)
|
2017 Base Salary Rate ($)
|
A. Gorsky
|
$1,600,000
|
$1,600,000
|
|
D. Caruso
|
909,500
|
|
936,800
|
|
P. Stoffels
|
1,144,000
|
|
1,178,300
|
|
S. Peterson
|
975,000
|
|
1,072,500
|
|
J. Duato
|
875,000
|
|
901,300
|
|
|
|
|
|
2017 Proxy Statement -
46
|
|
|
2016
UPDATE ON PERFORMANCE OF PERFORMANCE SHARE UNIT AWARDS VERSUS GOALS
In
2016
, we completed the first year of the PSU performance period for our
2016
-
2018
awards, the second year of the PSU performance period for our
2015
-
2017
awards, and the third year of the PSU performance period for our
2014
-
2016
awards.
Performance Share Units Earned to Date
The following table shows the PSUs earned to date highlighting the contribution of the performance periods completed in
2016
. The number of PSUs earned based on our adjusted operational EPS and relative Total Shareholder Return (TSR) performance are determined after the completion of the 3-year performance periods. The entire PSU awards are subject to 3-year vesting periods, so earned units will only vest after the completion of the 3-year cycle.
|
|
|
|
|
|
|
|
|
|
|
|
PSUs Earned Based on Performance to Date
|
Performance Period and Performance Measures
|
Weight
|
2014
|
2015
|
2016
|
2017
|
2018
|
|
Total
|
2014 - 2016 Performance Share Units
|
|
|
|
|
|
|
|
|
Operational Sales
|
1/3
rd
|
160.5%
|
106.3%
|
118.2%
|
|
|
|
42.8%
|
Cumulative Adjusted Operational EPS
|
1/3
rd
|
154.4%
|
|
|
|
51.5%
|
Relative TSR
|
1/3
rd
|
137.0%
|
|
|
|
45.7%
|
Total
|
|
|
|
|
|
|
|
139.9%
|
2015 - 2017 Performance Share Units
|
|
|
|
|
|
|
|
|
Operational Sales
|
1/3
rd
|
|
106.3%
|
118.2%
|
TBD 2017
|
|
|
24.9%
|
Cumulative Adjusted Operational EPS
|
1/3
rd
|
|
TBD 2015-2017
|
|
|
0.0%
|
Relative TSR
|
1/3
rd
|
|
TBD 2015-2017
|
|
|
0.0%
|
Total
|
|
|
|
|
|
|
|
24.9%
|
2016 - 2018 Performance Share Units
|
|
|
|
|
|
|
|
|
Operational Sales
|
1/3
rd
|
|
|
118.2%
|
TBD 2017
|
TBD 2018
|
|
13.1%
|
Cumulative Adjusted Operational EPS
|
1/3
rd
|
|
|
TBD 2016-2018
|
|
0.0%
|
Relative TSR
|
1/3
rd
|
|
|
TBD 2016-2018
|
|
0.0%
|
Total
|
|
|
|
|
|
|
|
13.1%
|
Note: The percentages above are rounded to one decimal for display purposes.
PSU Performance versus Goals for Performance Periods Completed in
2016
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016 Operational Sales Goals
|
Fiscal Year 2014 - 2016 Cumulative Adjusted Operational EPS Goal
|
Fiscal Year 2014 - 2016 Relative TSR Goal
|
Level
(1)
|
Operational Sales
($ Millions)
|
PSUs Earned
(% of target)
|
Cum. Adj. Op. PSU EPS Goal
|
PSUs Vesting
(% of target)
|
Relative TSR Goal
|
PSUs Vesting
(% of target)
|
Maximum
|
$75,785
|
200
|
%
|
$19.75
|
200
|
%
|
10.0 % points
|
200
|
%
|
Target
|
72,175
|
100
|
|
17.95
|
100
|
|
0.0 % points
|
100
|
|
Threshold
|
68,565
|
50
|
|
16.16
|
50
|
|
(10.0) % points
|
50
|
|
<Threshold
|
< 68,565
|
0
|
|
< 16.16
|
0
|
|
< (10.0) % points
|
0
|
|
Result
|
$72,833
|
118.2
|
%
|
$18.93
|
154.4
|
%
|
3.7 % points
|
137.0
|
%
|
(1)
Non-GAAP measures; see page 49 for details on non-GAAP PSU performance measures.
Note: If performance falls between threshold and target or between target and maximum, the vesting percentage is determined by the Committee using interpolation; provided, however, that no payout will be made with respect to a performance objective if the threshold level of performance is not attained for the objective.
Our PSU Goal Setting Proces
s
Our PSU goals support our long-term objectives to grow sales faster than our competitors and grow earnings faster than sales. Sales growth drives quality EPS growth and quality EPS growth drives TSR growth, all of which drive shareholder value creation.
During the first quarter of the year, the Committee establishes the goals for the next PSU award 3-year cycle, and the Committee reviews the company’s performance against the PSU goals on a quarterly basis. Following year-end, the Committee certifies the result for the year’s operational sales performance and certifies the EPS and TSR results for the completed 3-year award cycle.
|
|
|
|
|
|
2017 Proxy Statement -
47
|
Our PSU goals are based on our long-term strategic plan and take into account our product portfolio and pipeline, anticipated healthcare market growth and other external factors, including the competitive landscape. The sales goals and first-year EPS goal are also set to align with guidance. The 3-year TSR goal is set at meeting the performance of our Competitor Composite Peer Group. See page 55 for more information on our Competitor Composite Peer Group.
Our annual operational sales goals are based on actual sales from the prior year and then aligned to the company’s annual operational sales growth guidance. Currency had a negative impact of approximately $5.6 billion on the 2015 sales base used to set the 2016 operational sales growth goal. The following table shows the 2015 operational and reported sales, the 2015 impact of currency, and the 2016 operational sales goal.
|
|
|
|
|
($ Millions)
|
Base Year Sales
|
|
2015 Operational Sales
|
$75,687
|
Currency Translation
|
($5,613)
|
|
2015 Reported Sales
|
$70,074
|
2016 Operational Sales Goal
|
|
2016 Operational Sales Growth Goal
|
3.0
|
%
|
2016 Operational Sales Goal
|
$72,175
|
|
|
|
|
2017 Proxy Statement -
48
|
|
|
|
|
|
|
|
|
|
|
|
|
Details on Non-GAAP PSU Performance Measures
|
l
|
2016 Operational Sales Performance:
Operational sales growth is the sales increase due to volume and price, excluding the effect of currency translation. The following is a reconciliation of operational sales to reported sales (the most directly comparable GAAP measure).
|
|
|
|
|
|
|
|
|
|
|
($ millions)
|
|
|
|
|
2016 Reported Sales
|
$71,890
|
|
|
|
|
|
Currency Translation
|
943
|
|
|
|
|
|
2016 Operational Sales
|
$72,833
|
|
|
|
l
|
2014-2016 Cumulative Adjusted Operational PSU EPS Performance:
2014-2016 Cumulative Adjusted Operational PSU EPS is total EPS for the period adjusted to exclude:
|
|
l
|
Special items as disclosed in reconciliation tables for fiscal years 2014, 2015, and 2016 as shown in the following table (Intangible amortization expense is not excluded for the 2014-2016 PSUs):
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
|
2014
|
$0.27
|
|
|
|
|
|
2015
|
|
|
|
|
|
Special items and intangible amortization expense
Intangible amortization expense
Special items included in intangible amortization expense
|
0.72
(0.39)
0.08
|
|
|
|
|
|
2016
|
|
|
|
|
|
Special items and intangible amortization expense
Intangible amortization expense
|
0.80
(0.33)
|
|
|
|
|
|
2014 – 2016 Total
|
$1.15
|
|
|
|
|
|
|
|
|
|
|
|
l
|
The effect of changes in currency exchange rates
|
|
l
|
PSU Plan adjustments: (1) Significant acquisitions, divestitures, share repurchases, and changes in
accounting rules or tax laws that impact adjusted operational EPS results by more than 1%; and (2) earnings from products that were not approved when the targets were set
|
|
|
The following is a reconciliation of 2014-2016 cumulative reported EPS to cumulative adjusted operational EPS:
|
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
|
Reported EPS
|
$17.11
|
|
|
|
|
|
Special Items
|
1.15
|
|
|
|
|
|
Non-GAAP EPS
|
18.26
|
|
|
|
|
|
Currency Translation
|
1.37
|
|
|
|
|
|
PSU Plan Adjustments
|
(0.70)
|
|
|
|
|
|
Cumulative Adjusted Operational PSU EPS
|
$18.93
|
|
|
|
|
|
|
|
|
|
|
l
|
2014-2016 Relative TSR Performance:
|
|
|
|
|
|
|
|
|
|
|
TSR from January 1, 2014 to December 31, 2016
|
(%)
|
|
|
|
|
Johnson & Johnson
|
10.5
|
%
|
|
|
|
|
Competitor Composite Peer Group
|
6.8
|
%
|
|
|
|
|
Relative TSR Performance (J&J minus Competitor Composite Peer Group)
|
3.7% points
|
|
|
|
|
TSR performance is calculated using trailing 20-day average closing stock prices.
|
|
|
|
|
|
|
|
2017 Proxy Statement -
49
|
SHAREHOLDER OUTREACH AND OUR COMPENSATION PROGRAM
|
|
|
|
|
|
In 2016, we held an annual advisory vote to approve named executive officer compensation, commonly known as “Say on Pay”. Since 2013, 93% or more of the votes cast voted in favor of our executive compensation program as disclosed in our Proxy Statements. We believe that this continued strong support for the named executive officer compensation resulted from our direct engagement with our shareholders and the changes we made to our executive compensation program over the past several years.
We regularly consider the feedback from our shareholders and we continue to evaluate our executive compensation program. During 2016, we continued our shareholder outreach on our executive compensation program. Our Lead Director and members of senior management had discussions with a diverse mix of U.S. and international institutional shareholders on our executive compensation program.
|
|
|
|
Change for 2017
Based on our shareholders' feedback, our competitive benchmarking, and to increase the focus on our long-term performance, we have increased the weighting of performance share units in our 2017 long-term incentive mix for our executive officers as follows:
|
|
|
|
|
|
|
|
|
2017 Proxy Statement -
50
|
|
|
Executive Compensation Philosophy
KEY FEATURES OF OUR EXECUTIVE COMPENSATION PROGRAM
|
|
|
|
|
|
|
The Committee believes that the executive compensation program includes key features that align the interests of the named executive officers and Johnson & Johnson’s long-term strategic direction with shareholders and does not include features that could misalign their interests.
|
|
What We Do
|
|
What We Don't Do
|
|
ü
|
Align CEO pay with company performance
|
|
û
|
No automatic or guaranteed annual salary
|
|
|
|
|
|
increases
|
|
ü
|
Use long-term incentives to link the majority of
|
|
|
|
|
|
named executive officer pay to company
|
|
û
|
No guaranteed bonuses or long term incentive
|
|
|
performance
|
|
|
awards
|
|
|
|
|
|
|
|
ü
|
Balance short-term and long-term incentives
|
|
û
|
No above-median targeting of executive
|
|
|
|
|
|
compensation
|
|
ü
|
Cap incentive awards
|
|
|
|
|
|
|
|
û
|
No change-in-control benefits
|
|
ü
|
Require named executive officers to own
|
|
|
|
|
|
significant amounts of company stock
|
|
û
|
No tax gross-ups
(unless they are provided
|
|
|
|
|
|
pursuant to our standard relocation practices)
|
|
ü
|
Have a compensation recoupment policy
|
|
|
|
|
|
applicable to our named executive officers
|
|
û
|
No option repricing without shareholder
|
|
|
|
|
|
approval
|
|
ü
|
Actively engage with our shareholders
|
|
|
|
|
|
|
|
û
|
No hedging of company stock
|
|
ü
|
Use an independent compensation consultant
|
|
|
|
|
|
reporting directly to the Compensation & Benefits
|
|
û
|
No long-term incentive backdating
|
|
|
Committee
|
|
|
|
|
|
|
|
û
|
No dividend equivalents on unvested long-term
|
|
|
|
|
|
incentives
|
|
|
|
|
|
|
IMPORTANCE OF CREDO VALUES IN ASSESSING PERFORMANCE
For over 70 years, the Johnson & Johnson Credo has guided us in fulfilling our responsibilities to our customers, employees, communities, and shareholders. In assessing our named executive officers’ contributions to Johnson & Johnson’s performance, the Committee not only looks to results-oriented measures of performance, but also considers how those results were achieved – whether the decisions and actions leading to the results were consistent with the values embodied in Our Credo – and the long-term impact of a named executive officer’s decisions. Credo-based behavior is not something that can be precisely measured; thus, there is no formula for how Credo-based behavior can, or will, impact an executive’s compensation. The Committee and the Chairman/CEO use their judgment and experience to evaluate whether an executive’s actions were aligned with our Credo values.
GUIDING PRINCIPLES
We design our executive compensation programs to achieve our goals of attracting, developing, and retaining global business leaders who can drive financial and strategic growth objectives and build long-term shareholder value. We use the following guiding principles to design our compensation programs:
|
|
•
|
Competitiveness:
We compare our practices against appropriate peer companies that are of similar size and complexity, so we can continue to attract, retain, and motivate high-performing executives.
|
|
|
•
|
Pay for Performance:
Annual bonuses and grants of long-term incentives are tied to performance, including the performance of the individual named executive officer and his or her specific business unit or function, as well as the overall performance of our company.
|
|
|
•
|
Accountability for Short- and Long-Term Performance:
We structure performance-based compensation to reward an appropriate balance of short- and long-term financial and strategic business results, with an emphasis on managing the business for long-term results. As described under “Risk Oversight” on pages 20 and 21, the full Board is responsible for oversight of risk management (including product development, supply chain, and quality risks) and the executive compensation program’s emphasis on long-term value helps to reduce the possibility that our executive officers make excessively risky business decisions that could maximize short-term results at the expense of long-term value.
|
|
|
•
|
Alignment to Shareholders’ Interests:
We structure performance-based compensation to align the interests of our named executive officers with the long-term interests of our shareholders.
|
|
|
|
|
|
|
2017 Proxy Statement -
51
|
Components of Executive Compensation
BASE SALARY, ANNUAL PERFORMANCE BONUS, AND LONG-TERM INCENTIVES
|
|
|
|
|
|
Compensation Component
|
Form
|
Vesting / Performance Period
|
How Size is Determined
|
Why We Pay Each Component
|
Base Salary
|
Cash
|
Ongoing
|
•
Salary rates based on:
•
Competitive data
•
Scope of responsibilities
•
Work experience
•
Time in position
•
Internal equity
•
Individual performance
|
•
Recognize job responsibilities
|
Annual Performance Bonus
|
Cash
|
1 year
|
•
Award opportunities as a percent of salary set based on competitive data
•
Award payouts based on business and individual performance
|
•
Motivate attainment of our near-term priorities, consistent with our long-term strategic plan
|
Long-Term Incentives
|
Equity
|
3 years
(options: 10-year term)
|
•
Award opportunities as a percent of salary set based on competitive data
•
Grants based on business and individual performance, contribution, and long-term potential
•
Payouts based on achievement of long-term operational goals, TSR, and share price appreciation
|
•
Motivate attainment of long-term goals, TSR, and share price growth
•
Help retain executives
|
Long-Term Incentives
|
|
|
|
|
|
Long-Term Incentive Form
|
2016 Mix
|
Vesting / Performance Period
|
How Payouts are Determined
|
Why We Use Them
|
Performance Share Units
|
50%
|
• 0% to 200% vested 3 years after grant
|
• Measures and Weight:
• 1/3 Sales: 1-year Operational Sales for each year of the 3-year performance period
• 1/3 Earnings per Share: 3-year Cumulative Adjusted Operational EPS
• 1/3 Relative Total Shareholder Return: 3-year Compound Annual Growth Rate versus the Competitor Composite Peer Group
• Share Price
• No dividend equivalents paid
|
• Aligns with our long-term objectives of growing sales faster than our competitors and earnings faster than sales
• Measuring top line and bottom line growth ensures quality earnings growth
• TSR relative to our competitors is a good overall outcome measure
• PSU unit value is directly tied to the share price
|
Stock Options
|
30%
|
• 100% vested 3 years after grant
• 10-year term
|
• Share price appreciation
• No dividend equivalents paid
|
• Motivates share price appreciation over the long-term
• Reinforces emphasis on long-term growth aligned with our objectives
|
Restricted Share Units
|
20%
|
• 100% vested 3 years after grant
|
• Share price
• No dividend equivalents paid
|
• Value tied directly to the share price
|
|
|
|
|
2017 Proxy Statement -
52
|
|
|
EXECUTIVE PERQUISITES & OTHER BENEFITS
Our named executive officers received the same employee benefits provided to all other non-union U.S. employees, with the exception of the Executive Life Insurance Program, which is provided to approximately 200 executives. Effective January 2015, the executive life insurance program was closed to new participants.
In addition to the benefits offered to all employees, our named executive officers were provided benefits intended for business purposes. In some cases, these benefits may be used for personal use, which would then be considered part of the named executive officer’s total compensation and would be treated as taxable income under the applicable tax laws. In 2016, this included: limited access to the company aircraft for personal travel, access to company cars and drivers for commutation and other personal transportation, and reimbursement of home security system related fees.
The executive life insurance premiums paid, values of personal use of company aircraft and cars, and home security related costs, are disclosed in the Summary Compensation Table under “All Other Compensation (Column H)” on page 60.
COMPENSATION TARGET SETTING PROCESS AND PAY POSITION
Before each fiscal year begins, we set compensation targets to ensure that we can compete for talent and to maintain compensation equity and balance among positions with similar responsibilities. An annual review of publicly available information and executive compensation surveys is conducted to determine current Executive Peer Group pay levels.
The Committee reviews market data to understand how our target pay levels compare to benchmark positions, but does not target total compensation to a specific percentile of the Executive Peer Group. In deciding on compensation for individual named executive officers, the Committee considers the individual’s performance and alignment with our Credo values, our internal bonus and long-term incentive opportunities as a percent of salary, the individual’s roles and responsibilities, and his or her experience in role.
2016
PAY MIX AT TARGET
The pay mix at target for our named executive officers is a result of the compensation targets that emphasize long-term compensation versus short-term compensation.
|
|
|
|
|
|
2017 Proxy Statement -
53
|
Peer Groups for Pay and Performance
The Committee uses two peer groups for executive compensation. The Executive Peer Group is used to assess the competitiveness of the compensation of our named executive officers, and the Competitor Composite Peer Group is used to evaluate the relative performance of our company. As described below, the two peer groups vary because executive compensation levels and practices are influenced by business complexity and company size, and most of our business competitors are much smaller than Johnson & Johnson as a whole, or even as compared to each of our three individual business segments.
EXECUTIVE PEER GROUP
The composition of the Executive Peer Group is reviewed by the Committee on an annual basis and consists of companies that generally: are similar to Johnson & Johnson's size and scope; have executive positions similar to ours; and compete with us for executive talent. In 2016, the Committee determined to add Medtronic plc to, and remove Hewlett Packard Enterprise Co. from, the Executive Peer Group for 2017.
The Executive Peer Group does not include companies headquartered outside the U.S. (because comparable compensation data for the named executive officers is not available) or companies in industries whose compensation programs are not comparable to our programs, such as the financial services or oil and gas industries.
The following table lists the companies in the
2016
Executive Peer Group and their business characteristics, along with Johnson & Johnson’s rankings among these companies, based on financial data reported by each company for the most recent four fiscal quarters. Market capitalization is calculated as of
December 31, 2016
. Johnson & Johnson ranks in the top half of the peers for revenue and in the top quartile for net income and market capitalization.
|
|
|
|
|
|
|
|
|
|
|
|
|
Company (Ticker Symbol)
|
Revenue
($ Millions)
|
Net Income
($ Millions)
|
Market Cap
($ Billions)
|
Common
Industry
(Y/N)
(1)
|
Gross
Margin
(>40%)
|
Global
Presence
(Inter-national
> 33% of
Sales)
|
Business
Complexity
(2)
|
Innovation
Emphasis
(R&D> or =
5% of Sales)
|
3M Company (MMM)
|
$30,109
|
$5,050
|
$107
|
ü
|
ü
|
ü
|
ü
|
ü
|
Abbott Laboratories (ABT)
|
20,853
|
1,400
|
57
|
ü
|
ü
|
ü
|
ü
|
ü
|
The Boeing Company (BA)
|
94,571
|
4,895
|
96
|
|
|
ü
|
ü
|
|
Bristol-Myers Squibb Company (BMY)
|
19,427
|
4,457
|
98
|
ü
|
ü
|
ü
|
ü
|
ü
|
Cisco Systems, Inc. (CSCO)
(3)
|
48,570
|
9,832
|
152
|
|
ü
|
ü
|
ü
|
ü
|
The Coca-Cola Company (KO)
|
41,863
|
6,527
|
179
|
ü
|
ü
|
ü
|
|
|
Eli Lilly and Company (LLY)
|
21,222
|
2,738
|
81
|
ü
|
ü
|
ü
|
ü
|
ü
|
General Electric Company (GE)
|
123,693
|
8,176
|
280
|
ü
|
|
ü
|
ü
|
|
Hewlett Packard Enterprise Co. (HPE)
(4)
|
50,123
|
3,161
|
39
|
ü
|
|
ü
|
ü
|
|
Intel Corporation (INTC)
|
59,387
|
10,316
|
172
|
|
ü
|
ü
|
ü
|
ü
|
International Business Machines Corporation (IBM)
|
79,919
|
11,872
|
158
|
|
ü
|
ü
|
ü
|
ü
|
Merck & Co., Inc. (MRK)
|
39,807
|
5,712
|
162
|
ü
|
ü
|
ü
|
ü
|
ü
|
Microsoft Corporation (MSFT)
(3)
|
85,688
|
16,768
|
483
|
ü
|
ü
|
ü
|
ü
|
ü
|
PepsiCo, Inc. (PEP)
|
62,799
|
6,329
|
150
|
ü
|
ü
|
ü
|
|
|
Pfizer Inc. (PFE)
|
52,824
|
7,215
|
197
|
ü
|
ü
|
ü
|
ü
|
ü
|
The Procter & Gamble Company (PG)
(3)
|
65,231
|
15,290
|
225
|
ü
|
ü
|
ü
|
ü
|
|
United Technologies Corporation (UTX)
|
57,244
|
5,055
|
90
|
|
|
ü
|
ü
|
|
Johnson & Johnson (JNJ)
|
71,890
|
16,540
|
313
|
ü
|
ü
|
ü
|
ü
|
ü
|
Johnson & Johnson’s Ranking
|
5th
|
|
2nd
|
|
2nd
|
|
|
|
|
|
|
Johnson & Johnson’s Percentile Rank
|
76
|
%
|
94
|
%
|
94
|
%
|
|
|
|
|
|
(1)
Common Industry means that the company is in an industry similar to one of the company’s business segments: pharmaceutical, medical devices and consumer packaged goods.
(2)
Business Complexity means the company is a complex organization with multiple product lines.
(3)
Used last four calendar quarters ending
December 31, 2016
for Cisco Systems, Inc., The Procter & Gamble Company and Microsoft Corporation.
(4)
Hewlett-Packard Enterprise Co. took the place of HP, Inc., after its December 31, 2015 spin-off.
|
|
|
|
2017 Proxy Statement -
54
|
|
|
COMPETITOR COMPOSITE PEER GROUP
The Committee compares overall company performance to the weighted performance of its Competitor Composite Peer Group companies. The Competitor Composite Peer Group is a portfolio of companies that compete with one, or more, of our three business segments. The portfolio of companies is evaluated on an ongoing basis and is updated as necessary. These companies are selected based on the following criteria and financial metrics:
|
|
•
|
Financial Comparison: Sales growth, net income growth and margin, EPS growth, and TSR
|
The following table lists our
2016
Competitor Composite Peer Group companies broken down by business segment.
|
|
|
|
|
|
|
|
|
|
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COMPETITOR COMPOSITE PEER GROUP
|
|
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Pharmaceuticals
|
|
Medical Devices
|
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Consumer
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AbbVie Inc.
Amgen Inc.
AstraZeneca plc
Bristol-Myers Squibb Company
Eli Lilly and Company
GlaxoSmithKline plc
Merck & Co., Inc.
Novartis AG
Pfizer Inc.
Roche Holding AG (Pharm Rx Only)
Sanofi SA
|
|
Abbott Laboratories (Vascular & Diabetes)
Allergan, Inc. (Breast Aesthetics)
Boston Scientific Corporation
C. R. Bard, Inc.
Edwards Lifesciences Corporation
Medtronic plc
The Cooper Companies, Inc.
(CooperVision)
Roche Holding AG (Diabetes)
Smith & Nephew plc
St. Jude Medical, Inc.
Stryker Corporation
Zimmer Biomet Holdings, Inc.
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Beiersdorf AG
Bayer AG (Consumer Healthcare)
Colgate-Palmolive Company
GlaxoSmithKline plc
(Consumer Healthcare)
The L’Oréal Group
Pfizer Inc. (Consumer Healthcare)
The Procter & Gamble Company
Reckitt Benckiser Group plc
Sanofi SA (Consumer Healthcare)
Unilever plc
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Effective in 2017, Allergan, Inc. (Breast Aesthetics) and St. Jude Medical, Inc. have been removed from the Competitor Composite Peer Group.
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2017 Proxy Statement -
55
|
Compensation Decision Process
ASSESSING "THE WHAT" & "THE HOW"
We evaluate the performance of our named executive officers based on what objectives they have accomplished and how they have accomplished them. We evaluate each of them against a set of financial and strategic goals for the overall company, as well as for the business segment or function that they lead - “the what”. In addition, we consider how they accomplished their goals including whether the executive achieves business results in a manner that is consistent with the values embodied in Our Credo - “the how”.
During the first quarter of the year, the Committee reviews the company’s annual financial and strategic goals for the overall enterprise and the business segments. At the end of the performance period, the Chairman/CEO provides his assessment to the Committee of “the what” and “the how” for each of the other named executive officers, and the independent members of the Board of Directors evaluate “the what” and “the how” for the Chairman/CEO.
ALIGNING COMPENSATION TO "THE WHAT" & "THE HOW"
An individual employee has the opportunity to earn from 0% to 200% of the applicable target for annual performance bonuses and long-term incentives based on the evaluation of his or her individual performance on both “the what” and “the how”. This broad range allows for meaningful differentiation based on performance.
The Committee determines annual performance bonuses, long-term incentive awards and salary increases based on a component-by-component and a total direct compensation basis. In addition, the Committee compares the position of actual compensation for the performance year, as well as compensation opportunities for the current year, to Executive Peer Group data.
The ultimate compensation decisions are based on the judgment and experience of the independent directors (in the case of the Chairman/CEO) and the Committee (in the case of the other named executive officers). While performance against goals is the most significant factor, the achievement of particular goals does not determine compensation award levels in a formulaic manner. In addition, an executive’s previous long-term incentive awards and total equity ownership are not considered when making annual long-term incentive awards.
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2017 Proxy Statement -
56
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Governance of Executive Compensation
The Committee is responsible for the executive compensation program design and decision-making process. The Committee solicits input from the independent members of the Board of Directors, the Chairman/CEO and other members of management, and its independent compensation consultant, to assist it with its responsibilities. The following summarizes the roles of each of the key participants in the executive compensation decision-making process.
COMPENSATION & BENEFITS COMMITTEE
|
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•
|
Acts on behalf of the Board by setting the principles that guide the design of our compensation and benefits programs
|
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•
|
Sets the executive compensation philosophy and composition of the Executive Peer Group
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•
|
Approves the compensation target levels
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•
|
Sets compensation programs and principles that are designed to link executive pay with company and individual performance
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•
|
Recommends to the Board the Chairman/CEO’s compensation
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•
|
Reviews and approves compensation decisions recommended by the Chairman/CEO for each of the other named executive officers
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•
|
Reviews the eligibility criteria and award guidelines for the corporate-wide compensation and benefits programs in which the named executive officers participate
|
INDEPENDENT MEMBERS OF THE BOARD OF DIRECTORS
|
|
•
|
Participate in the performance assessment process for the Chairman/CEO
|
|
|
•
|
Approve the Chairman/CEO’s compensation
|
CHAIRMAN/CEO
|
|
•
|
Reviews and presents to the Committee the performance assessments and compensation recommendations for each of the other named executive officers
|
INDEPENDENT COMPENSATION CONSULTANT
The Committee has retained an independent compensation consultant from Frederic W. Cook & Co., Inc. (FWC) to advise it on executive compensation matters. The Committee has sole authority to negotiate the terms of service, including all fees paid to FWC. The independent compensation consultant:
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•
|
Attends all Committee meetings, at the request of the Committee
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•
|
Advises the Committee on market trends, regulatory issues and developments and how they may impact our executive compensation programs
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•
|
Reviews the compensation strategy and executive compensation programs for alignment with our strategic business objectives
|
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•
|
Advises on the design of executive compensation programs to ensure the linkage between pay and performance
|
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•
|
Provides market data analyses to the Committee
|
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|
•
|
Advises the Committee on setting the Chairman/CEO’s pay
|
|
|
•
|
Reviews the annual compensation of the other named executive officers as recommended by the Chairman/CEO
|
Independence of Compensation Consultant
The Committee considered the following factors, among others, when assessing the independence of its compensation consultant:
|
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•
|
FWC does not provide any other services to the company and reports directly to the Committee
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•
|
FWC has in place policies and procedures to prevent conflicts of interest
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•
|
No member of the FWC consulting team serving the Committee has a business or personal relationship with any member of the Committee or any executive officer of the company
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•
|
Neither FWC nor any principal of FWC owns any shares of our common stock
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•
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The amount of fees paid to FWC is less than 1% of FWC's total consulting income
|
Based on this assessment, the Committee determined FWC’s service as its independent compensation consultant did not raise any conflict of interest concerns. In order to assure continuing independence, the Committee periodically considers whether there should be rotation of its independent compensation consulting firm or the lead consultant on the engagement.
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2017 Proxy Statement -
57
|
Additional Information Concerning Executive Compensation
USE OF TALLY SHEETS
The Committee reviews compensation tally sheets, prepared by management and reviewed by the Committee’s independent compensation consultant, which present comprehensive data on the total compensation and benefits package for each of our named executive officers. These tally sheets include all obligations for compensation, as well as analyses for hypothetical terminations and retirements to consider the company’s obligations under such circumstances. The Committee does not use the tally sheets to determine the various elements of compensation or the actual amounts of compensation to be approved, but instead uses the tally sheets to evaluate the company’s obligations under the plans.
LIMITED EMPLOYMENT ARRANGEMENTS AND AGREEMENTS
Our named executive officers are covered by our Severance Pay Plan that provides separation benefits to certain full-time U.S. employees who are involuntarily terminated. This coverage provides for two weeks base salary for each year of service, with certain guaranteed minimums based on level. The minimum number of weeks of base salary continuance for our named executive officers is 52 weeks. The severance is paid according to our normal payroll cycle and is not available as a lump sum payment.
Pursuant to his offer letter, Dr. Stoffels receives an annual stipend of $320,000 to assist him in the payment of foreign taxes. While serving as a member of the Executive Committee, Dr. Stoffels is considered a U.S. employee even though he is a non-resident of the United States. As a result, Dr. Stoffels is subject to both U.S. taxation and foreign taxation. Dr. Stoffels will not receive any other tax equalization assistance. The stipend is reviewed annually by the Committee and can be terminated at any time.
We do not have employment arrangements or agreements with any of our named executive officers, except for Dr. Stoffels as described above.
STOCK OWNERSHIP GUIDELINES FOR NAMED EXECUTIVE OFFICERS
The company’s stock ownership guidelines for named executive officers are intended to further align their interests with the interests of our shareholders. Under these guidelines, our named executive officers must comply with the following requirements:
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Name
|
Stock Ownership Guideline
as a Multiple of Base Salary
|
2016 Compliance with Stock
Ownership Guidelines?
|
Ownership Threshold Met?
(1)
|
A. Gorsky
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6x
|
Yes
|
Yes
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D. Caruso
|
3x
|
Yes
|
Yes
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P. Stoffels
|
3x
|
Yes
|
Yes
|
S. Peterson
|
3x
|
Yes
|
Yes
|
J. Duato
|
3x
|
Yes
|
Yes
|
(1)
Executive Officers have five years after first becoming subject to the guidelines to achieve the required ownership thresholds.
|
Stock ownership for the purpose of these guidelines does not include shares underlying vested or unvested stock options or unvested PSUs. Our policy states that any named executive who has not yet met his or her respective ownership thresholds cannot sell net shares on the open market until such ownership level has been met. The Nominating & Corporate Governance Committee of the Board monitors compliance with these guidelines on an annual basis. Company policy prohibits named executive officers from transacting in derivative instruments linked to the performance of the company’s securities.
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2017 Proxy Statement -
58
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EXECUTIVE COMPENSATION RECOUPMENT POLICY
In the event of a material restatement of the company’s financial results, the Board is authorized to take such actions as it deems necessary and appropriate, including the recoupment of all or part of any bonus or other compensation paid to an executive officer. The Board will consider whether any executive officer received compensation based on the original financial statements because it appeared he or she achieved financial performance targets that in fact were not achieved based on the restatement. The Board will also consider the accountability of any executive officer whose acts or omissions were responsible in whole or in part for the events that led to the restatement and whether such actions or omissions constituted misconduct.
In the event of significant misconduct resulting in a violation of a significant company policy, law, or regulation relating to manufacturing, sales or marketing of products that causes material harm to Johnson & Johnson, the Board is authorized to recoup compensation from senior executives. The compensation recoupment policies can be found on our website at
www.investor.jnj.com/gov/compensation-recoupment-policy.cfm.
TAX IMPACT ON COMPENSATION
The Committee believes that preserving tax deductibility is an important, but not the sole, objective when designing executive compensation programs. In certain circumstances, the company may authorize compensation arrangements that are not fully tax deductible, but which promote other important objectives, such as attracting and retaining global business leaders who can drive financial and strategic growth objectives that maximize long-term shareholder value.
The 2016 threshold, target, and maximum annual performance bonus amounts for our named executive officers are reported in the "Grants of Plan-Based Awards" table on page 66. In addition, in order to preserve the tax deductibility of the annual performance bonuses, under section 162(m) of the Internal Revenue Code, as amended, the bonuses for our named executive officers are subject to the limits of our Executive Incentive Plan (EIP). Under the EIP, individual bonuses cannot exceed 0.08% of Consolidated Net Earnings for the Chairman/CEO and any Vice Chairman and 0.04% of Consolidated Net Earnings for any other named executive officers.
The Committee has reviewed our compensation plans with regard to the deduction limitation under the Omnibus Budget Reconciliation Act of 1993 (the Act) and the final regulations interpreting the Act that have been adopted by the U.S. Internal Revenue Service and the U.S. Department of the Treasury. Based on this review, the Committee believes that a significant portion of the compensation paid to our named executive officers qualifies as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and is, therefore, fully deductible for federal income tax purposes. The portions of compensation paid in 2016 that are not tax deductible include: (1) vesting of restricted share units as they are not deemed to be performance-based awards, (2) salary amounts in excess of $1 million paid to Mr. Gorsky and Dr. Stoffels, (3) dividend equivalents paid on previously awarded CLCs and CLPs that were granted after 1992, and (4) certain perquisites and other benefits paid to certain named executive officers. See the “Summary Compensation Table” on page 60.
2016 COMPENSATION DECISIONS FOR 2015 PERFORMANCE
Some of the compensation figures included in the tables in the “Executive Compensation Tables” section of this Proxy Statement were paid (or granted) to the named executive officers in
2016
for performance in
2015
. The decisions regarding these awards and payments were discussed in detail in our
2016
Proxy Statement dated March 16, 2016. For a full understanding of these decisions, please refer to the sections of our
2016
Proxy Statement entitled “Compensation Discussion and Analysis – CEO Performance and Compensation Decisions” and “Compensation Discussion and Analysis –
2016
Compensation Decisions for
2015
Performance.”
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2017 Proxy Statement -
59
|
Executive Compensation Tables
Summary Compensation Table
The following table provides information concerning the compensation of our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers for fiscal
2016
and, for those executive officers who were named in the
2016
and
2015
Proxy Statements, for fiscal
2015
and
2014
. For a complete understanding of the table, please read the narrative disclosures that follow the table.
It is important to note the significant impact of year-on-year differences in the change in pension value included in column G and detailed on page 64 on the total compensation amounts. For our Chief Executive Officer, the 2015-2016 year-on-year difference in the change in pension value amounts to 76% of the increase in his total compensation.
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A
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B
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C
|
D
|
E
|
F
|
G
|
H
|
I
|
Name and Principal
Position
|
Year
|
Salary
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
Alex Gorsky
|
2016
|
$1,600,000
|
$10,608,901
|
$4,118,398
|
$4,652,556
|
$5,663,771
|
$228,094
|
$26,871,720
|
Chairman, CEO
|
2015
|
1,613,462
|
|
10,693,427
|
|
4,562,998
|
|
4,009,536
|
|
2,714,268
|
|
202,175
|
|
23,795,866
|
|
|
2014
|
1,500,000
|
|
9,467,380
|
|
4,168,139
|
|
5,018,779
|
|
4,606,142
|
|
228,866
|
|
24,989,306
|
|
Dominic Caruso
|
2016
|
909,500
|
|
3,624,523
|
|
1,425,643
|
|
2,758,967
|
|
2,475,956
|
|
110,240
|
|
11,304,829
|
|
EVP, CFO
|
2015
|
922,577
|
|
3,497,099
|
|
1,458,603
|
|
2,772,796
|
|
925,536
|
|
112,789
|
|
9,689,400
|
|
2014
|
878,115
|
|
3,271,853
|
|
1,332,376
|
|
3,234,152
|
|
1,511,238
|
|
121,299
|
|
10,349,033
|
|
Paulus Stoffels
|
2016
|
1,144,000
|
|
4,383,454
|
|
1,750,317
|
|
2,425,461
|
|
2,642,012
|
|
380,232
|
|
12,725,476
|
|
EVP, CSO
|
2015
|
1,158,385
|
|
4,208,874
|
|
1,823,246
|
|
2,172,098
|
|
1,022,024
|
|
401,118
|
|
10,785,745
|
|
|
2014
|
1,075,423
|
|
10,690,520
|
|
1,307,669
|
|
2,573,450
|
|
2,267,167
|
|
425,088
|
|
18,339,317
|
|
Sandra Peterson
|
2016
|
963,462
|
|
3,897,074
|
|
1,539,002
|
|
1,600,000
|
|
592,000
|
|
141,246
|
|
8,732,784
|
|
EVP, Group Worldwide
|
2015
|
908,654
|
|
3,504,177
|
|
1,574,621
|
|
1,125,000
|
|
367,000
|
|
147,000
|
|
7,626,452
|
|
Chairman
|
2014
|
841,346
|
|
2,833,545
|
|
1,368,001
|
|
1,400,000
|
|
451,000
|
|
192,714
|
|
7,086,606
|
|
Joaquin Duato
|
2016
|
875,000
|
|
3,198,483
|
|
1,260,002
|
|
2,158,006
|
|
2,535,760
|
|
77,278
|
|
10,104,529
|
|
EVP, Worldwide
|
|
|
|
|
|
|
|
|
Chairman, Pharmaceuticals
|
|
|
|
|
|
|
|
|
Salary (Column C)
The amounts reported in column C represent base salaries paid to each of the named executive officers for the listed fiscal year. Salaries earned in fiscal year 2015 were higher than each executive’s annualized base salary due to an additional earnings period that occurred in fiscal year 2015. U.S. salaried employees are paid on a bi-weekly schedule. There were 27 pay periods in fiscal year 2015 rather than the usual 26 pay periods.
Stock Awards (Column D)
The amounts reported in column D represent the aggregate grant date fair value of Performance Share Unit (PSU) and Restricted Share Unit (RSU) awards.
In accordance with U.S. GAAP, PSU shares are considered granted when the performance goals are approved. Since we use 3, 1-year sales goals, 7/9
ths
of the 2016 award and 1/9
th
of the prior two years' awards are considered granted in 2016 as shown in the following table.
|
|
|
|
2017 Proxy Statement -
60
|
|
|
|
|
|
|
|
|
PSU Award
|
Fraction of Award Considered Granted in 2016
|
2016 Operational Sales
|
2016-2018 Cumulative Adjusted Operational EPS
|
2016-2018 Relative TSR
|
Total
|
2016-2018
|
1/9
th
|
3/9
th
|
3/9
th
|
7/9
th
|
2015-2017
|
1/9
th
|
N.A.
|
N.A.
|
1/9
th
|
2014-2016
|
1/9
th
|
N.A.
|
N.A.
|
1/9
th
|
The number and value of the PSUs assuming achievement at (i) threshold performance, (ii) target performance and (iii) maximum performance at 200% is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Award
|
Fraction of Award Considered Granted
|
Performance Share Units
|
Units
|
Grant Date Fair Value
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
A. Gorsky
|
2016-2018 PSU
|
7/9
th
|
0
|
|
57,515
|
|
115,030
|
|
$0
|
$6,056,330
|
$12,112,659
|
|
2015-2017 PSU
|
1/9
th
|
0
|
|
9,213
|
|
18,426
|
|
0
|
882,108
|
1,764,216
|
|
2014-2016 PSU
|
1/9
th
|
0
|
|
9,367
|
|
18,734
|
|
0
|
924,851
|
1,849,701
|
D. Caruso
|
2016-2018 PSU
|
7/9
th
|
0
|
|
19,910
|
|
39,820
|
|
0
|
2,096,523
|
4,193,046
|
|
2015-2017 PSU
|
1/9
th
|
0
|
|
2,945
|
|
5,890
|
|
0
|
281,972
|
563,944
|
|
2014-2016 PSU
|
1/9
th
|
0
|
|
2,994
|
|
5,988
|
|
0
|
295,613
|
591,225
|
P. Stoffels
|
2016-2018 PSU
|
7/9
th
|
0
|
|
24,444
|
|
48,888
|
|
0
|
2,573,953
|
5,147,906
|
|
2015-2017 PSU
|
1/9
th
|
0
|
|
3,681
|
|
7,362
|
|
0
|
352,441
|
704,882
|
|
2014-2016 PSU
|
1/9
th
|
0
|
|
2,939
|
|
5,878
|
|
0
|
290,182
|
580,364
|
S. Peterson
|
2016-2018 PSU
|
7/9
th
|
0
|
|
21,493
|
|
42,986
|
|
0
|
2,263,213
|
4,526,426
|
|
2015-2017 PSU
|
1/9
th
|
0
|
|
3,179
|
|
6,358
|
|
0
|
304,377
|
608,753
|
|
2014-2016 PSU
|
1/9
th
|
0
|
|
3,074
|
|
6,148
|
|
0
|
303,511
|
607,023
|
J. Duato
|
2016-2018 PSU
|
7/9
th
|
0
|
|
17,596
|
|
35,192
|
|
0
|
1,852,859
|
3,705,718
|
|
2015-2017 PSU
|
1/9
th
|
0
|
|
2,726
|
|
5,452
|
|
0
|
261,004
|
522,007
|
|
2014-2016 PSU
|
1/9
th
|
0
|
|
2,478
|
|
4,956
|
|
0
|
244,665
|
489,331
|
Option Awards (Column E)
The amounts reported in column E represent the aggregate grant date fair value of stock option awards. The grant date fair values have been determined based on the assumptions detailed on pages 66 to 68 under the “Grants of Plan-Based Awards” table, in accordance with U.S. GAAP in the listed fiscal year.
Non-Equity Incentive Plan Compensation (Column F)
The amounts reported in column F represent the aggregate dollar value for each of the named executive officers of the annual performance bonus for the listed fiscal year, Certificates of Long-Term Compensation (CLCs) and Certificates of Long-Term Performance (CLPs) that vested in the listed fiscal year, and dividend equivalents received during the fiscal year on vested CLCs and CLPs. The specific amounts included in column F are shown in the following table.
|
|
|
|
|
|
2017 Proxy Statement -
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation
|
Name
|
Year
|
Annual
Performance
Bonus
($)
|
Value of CLC
Units that
Vested in Fiscal
Year
($)
|
Value of CLP
Units that
Vested in Fiscal
Year
($)
|
Value of CLC
Dividend
Equivalents
Earned During
the Fiscal Year
($)
|
Value of CLP
Dividend
Equivalents
Earned During
the Fiscal Year
($)
|
Total
($)
|
A. Gorsky
|
2016
|
$3,780,000
|
$0
|
$378,529
|
$378,000
|
$116,027
|
$4,652,556
|
|
2015
|
2,800,000
|
|
0
|
|
761,427
|
|
354,000
|
|
94,109
|
|
4,009,536
|
|
|
2014
|
3,543,800
|
|
352,440
|
|
715,280
|
|
331,200
|
|
76,059
|
|
5,018,779
|
|
D. Caruso
|
2016
|
1,534,800
|
|
0
|
|
342,568
|
|
756,000
|
|
125,599
|
|
2,758,967
|
|
|
2015
|
1,136,900
|
|
0
|
|
824,240
|
|
708,000
|
|
103,656
|
|
2,772,796
|
|
|
2014
|
1,400,000
|
|
313,280
|
|
774,286
|
|
662,400
|
|
84,186
|
|
3,234,152
|
|
P. Stoffels
|
2016
|
1,600,000
|
|
0
|
|
246,044
|
|
504,000
|
|
75,417
|
|
2,425,461
|
|
|
2015
|
1,144,000
|
|
0
|
|
494,927
|
|
472,000
|
|
61,171
|
|
2,172,098
|
|
|
2014
|
1,500,000
|
|
117,480
|
|
464,931
|
|
441,600
|
|
49,439
|
|
2,573,450
|
|
S. Peterson
|
2016
|
1,600,000
|
|
0
|
|
0
|
|
0
|
|
0
|
|
1,600,000
|
|
|
2015
|
1,125,000
|
|
0
|
|
0
|
|
0
|
|
0
|
|
1,125,000
|
|
|
2014
|
1,400,000
|
|
0
|
|
0
|
|
0
|
|
0
|
|
1,400,000
|
|
J. Duato
|
2016
|
1,400,000
|
|
0
|
|
208,193
|
|
488,250
|
|
61,563
|
|
2,158,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual performance bonuses for the listed fiscal year were approved by the Committee and paid to the named executive officers in the first fiscal quarter of the following year.
We no longer grant CLCs and CLPs to our named executive officers. In prior years, CLCs and CLPs were awarded under cash-based long-term incentive plans. Previously granted CLCs and CLPs have vested and will be paid out in accordance with their original terms.
The 2016 dollar value of the vested CLCs and CLPs reported in this table were determined using the beginning of year CLC and CLP unit values. See details on CLC and CLP unit values on page 74. The dollar values for fiscal years 2015 and 2014 for the named executive officers were reported in our 2016 and 2015 Proxy Statements.
Change in Pension Value and Non-Qualified Deferred Compensation Earnings (Column G)
Change in Pension Value
The changes in pension value included in the figures reported in column G represent the increase in the present value of the accrued pension benefit for each named executive officer. This increase in present value is not a current cash payment. It represents the increase in the value of the named executive officers’ pensions, which are only paid after retirement.
The accrued pension benefits for each of the named executive officers were calculated based on the final average pay and the years of service as of the listed fiscal year-end. The present value of the accrued pension benefits for each named executive officer increased over the previous year-end because:
|
|
•
|
An additional year of completed service was included in the calculation of benefits;
|
|
|
•
|
The average of the most recent five years of pay increased over the five-year average pay as of the previous fiscal year-end; and
|
|
|
•
|
Each executive is one year closer to the normal retirement age, the assumed commencement of benefits.
|
The present value can also increase or decrease in value due to changes in actuarial assumptions as shown in the table below. As disclosed in Note 10 to the Consolidated Financial Statements of the 2016 Form 10-K, the present values are calculated using a separate duration-appropriate discount rate for each future year’s projected pension payment. The disclosed rate (4.41%) is the single rate that would produce the same total present value for the named executive officers as the separate rates for each future year.
|
|
|
|
2017 Proxy Statement -
62
|
|
|
|
|
|
|
|
|
Effect of Change in Actuarial Assumptions on Pension Present Value
|
Year
|
Mortality Table
|
Discount Rate
|
Net Effect of
Changes on Pension
Present Value
|
2016
|
RP-2014 Table, Generational Mortality Projection
|
4.41
|
%
|
Increase
|
2015
|
RP-2014 Table, Generational Mortality Projection
|
4.73
|
%
|
Decrease
|
2014
|
RP-2014 Table, Generational Mortality Projection
|
4.28
|
%
|
Increase
|
2013
|
RP-2000 Table projected to 2021
|
5.19
|
%
|
N.A.
|
No other actuarial assumptions changed between fiscal year-end 2013 and fiscal year-end 2016.
Change In Non-Qualified Deferred Compensation Earnings
We no longer grant CLCs and CLPs to our named executive officers. Previously granted CLCs and CLPs have vested and will be paid out in accordance with their original terms. The CLC and CLP Plans are cash-based long-term incentive plans. The values of unit awards under both of these plans are disclosed in several tables in this Proxy Statement:
|
|
•
|
When units vest, their value is included in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column.
|
|
|
•
|
The annual change in value of vested units between the time the units vest and are paid out is included in the Summary Compensation Table in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column, but only to extent that the unit values grow at a rate that exceeds a reference rate of return.
|
|
|
•
|
The total value of vested units that have not been paid out as of the fiscal year-end is included in the “Non-Qualified Deferred Compensation” table on page 73.
|
The change in the values of the CLCs and CLPs depend on our long-term operational performance. The amounts representing the above-reference-rate returns on all CLCs and CLPs vested as of the listed fiscal year-end are included in column G.
|
|
•
|
The above reference-rate calculations for vested CLCs and CLPs are unrealized amounts and not actual compensation received by the executive for the year.
|
|
|
•
|
We use 120% of the December applicable federal long-term interest rate (AFR) as the reference rate to compare potential returns of CLCs and CLPs.
|
|
|
•
|
Negative figures are not included in the Summary Compensation Table according to the SEC’s rules.
|
The following table shows the calculation of the above-reference-rate returns on CLCs and CLPs.
|
|
|
|
|
|
Above-Reference-Rate Return
|
CLC
|
CLP
|
Beginning of Year Unit Value
|
$42.44
|
$4.76
|
End of Year Unit Value
|
$46.55
|
$5.25
|
Change in Unit Value ($)
|
$4.11
|
$0.49
|
Change in Unit Value (%)
|
9.68
|
%
|
10.29
|
%
|
Reference-Rate
|
2.72
|
%
|
2.72
|
%
|
Above-Reference-Rate Return
|
6.96
|
%
|
7.57
|
%
|
Above reference-rate return included in the Summary Compensation Table
|
6.96
|
%
|
7.57
|
%
|
|
|
|
|
|
|
2017 Proxy Statement -
63
|
The table below shows the specific amounts of change in pension value and above-reference-rate calculation for vested CLCs and CLPs for 2016, 2015, and 2014 included in column G.
|
|
|
|
|
|
|
|
|
|
Name
|
Fiscal Year
|
Change in Pension
Value
($)
|
Above Reference-
Rate Calculation for
Vested CLCs
($)
|
Above Reference-
Rate Calculation for
Vested CLPs
($)
|
Total
($)
|
A. Gorsky
|
2016
|
$5,012,000
|
$354,676
|
$297,095
|
$5,663,771
|
|
2015
|
2,667,000
|
47,268
|
0
|
2,714,268
|
|
2014
|
4,488,000
|
|
38,596
|
|
79,546
|
|
4,606,142
|
D. Caruso
|
2016
|
1,445,000
|
|
709,352
|
|
321,604
|
|
2,475,956
|
|
2015
|
831,000
|
|
94,536
|
|
0
|
|
925,536
|
|
2014
|
1,346,000
|
|
77,193
|
|
88,045
|
|
1,511,238
|
P. Stoffels
|
2016
|
1,976,000
|
|
472,901
|
|
193,111
|
|
2,642,012
|
|
2015
|
959,000
|
|
63,024
|
|
0
|
|
1,022,024
|
|
2014
|
2,164,000
|
|
51,462
|
|
51,705
|
|
2,267,167
|
S. Peterson
|
2016
|
592,000
|
|
0
|
|
0
|
|
592,000
|
|
2015
|
367,000
|
|
0
|
|
0
|
|
367,000
|
|
2014
|
451,000
|
|
0
|
|
0
|
|
451,000
|
J. Duato
|
2016
|
1,920,000
|
|
458,123
|
|
157,637
|
|
2,535,760
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Compensation (Column H)
The amounts reported in column H represent the aggregate dollar amount for each named executive officer for perquisites and other personal benefits, tax reimbursements, company contributions to our 401(k) Savings Plan, insurance premiums, stipends, and relocation. The following table shows the specific amounts included in column H.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Fiscal
Year
(1)
|
Perquisite and Other Personal Benefits
(2)
($)
|
Tax Reimbursements
(3)
($)
|
Registrant
Contributions
to Defined
Contribution
Plans
($)
|
Insurance
Premiums
($)
|
Stipend
(4)
($)
|
Total
($)
|
A. Gorsky
|
2016
|
$147,865
|
$0
|
$72,000
|
$8,229
|
$0
|
$228,094
|
|
2015
|
120,941
|
0
|
73,904
|
7,330
|
0
|
202,175
|
|
2014
|
154,899
|
|
0
|
|
67,500
|
|
6,467
|
|
0
|
|
228,866
|
|
D. Caruso
|
2016
|
60,824
|
|
0
|
|
40,927
|
|
8,489
|
|
0
|
|
110,240
|
|
|
2015
|
63,179
|
|
0
|
|
42,281
|
|
7,329
|
|
0
|
|
112,789
|
|
|
2014
|
75,713
|
|
0
|
|
39,485
|
|
6,101
|
|
0
|
|
121,299
|
|
P. Stoffels
|
2016
|
0
|
|
0
|
|
51,480
|
|
8,752
|
|
320,000
|
|
380,232
|
|
|
2015
|
20,178
|
|
0
|
|
53,079
|
|
7,861
|
|
320,000
|
|
401,118
|
|
|
2014
|
49,698
|
|
0
|
|
48,271
|
|
7,119
|
|
320,000
|
|
425,088
|
|
S. Peterson
|
2016
|
97,890
|
|
0
|
|
43,356
|
|
0
|
|
0
|
|
141,246
|
|
|
2015
|
105,375
|
|
0
|
|
41,625
|
|
0
|
|
0
|
|
147,000
|
|
|
2014
|
131,932
|
|
22,965
|
|
37,817
|
|
0
|
|
0
|
|
192,714
|
|
J. Duato
|
2016
|
37,903
|
|
0
|
|
39,375
|
|
0
|
|
0
|
|
77,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amounts for fiscal years 2015 and 2014 for the named executive officers were reported in our 2016 and 2015 Proxy Statements.
(2)
The perquisites and other personal benefits for 2016 are set forth in the following table.
|
|
|
|
2017 Proxy Statement -
64
|
|
|
|
|
|
|
|
|
Name
|
Personal
Use of
Corporate
Aircraft
($)
|
Value of Car
and Driver for
Personal
Transportation
($)
|
Home Security
Related Costs
($)
|
Total
($)
|
A. Gorsky
|
$85,217
|
$53,934
|
$8,714
|
$147,865
|
D. Caruso
|
58,267
|
2,557
|
0
|
60,824
|
P. Stoffels
|
0
|
0
|
0
|
0
|
S. Peterson
|
84,480
|
13,410
|
0
|
97,890
|
J. Duato
|
37,261
|
642
|
0
|
37,903
|
Perquisites and other personal benefits are valued on the basis of the aggregate incremental cost to the company. We calculate the aggregate incremental cost to the company for personal use of company aircraft as the sum of the cost of trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hangar or aircraft parking costs, fuel costs based on the average annual cost of fuel per mile flown, and other smaller variable costs. Fixed costs that would be incurred in any event to operate company aircraft (e.g., aircraft purchase costs, maintenance not related to personal trips, and flight crew salaries) are not included. We calculate the aggregate incremental cost to the company for company cars and drivers for commutation and other personal transportation as the sum of the cost of fuel, driver overtime fees, and other smaller variable costs. Fixed costs that would be incurred in any event to operate company cars (e.g., car purchase costs, maintenance not related to personal trips, and driver salaries) are not included. Named executive officers are taxed on the imputed income attributable to their personal use of company aircraft and cars and do not receive tax assistance from us with respect to these amounts.
(3)
In 2013, the Committee discontinued all non-relocation related tax reimbursement for executive officers.
(4)
The 2016 amount represents a stipend of $320,000. Dr. Stoffels is provided with an annual cash stipend to assist him in the payment of foreign taxes. While serving as a member of the Executive Committee, Dr. Stoffels is considered a U.S. employee even though he is a non-resident of the United States. As a result, Dr. Stoffels is subject to both U.S. taxation and foreign taxation. Dr. Stoffels will not receive any other tax equalization assistance.
Total Compensation (Column I)
The amounts reported in column I are the sum of columns C through I for each of the named executive officers. All compensation amounts reported in column I include amounts paid and amounts deferred.
|
|
|
|
|
|
2017 Proxy Statement -
65
|
Grants of Plan-Based Awards
The following table provides information concerning the annual performance bonus and long-term incentive awards made to each of the named executive officers in fiscal
2016
. For a complete understanding of the table, please read the narrative disclosures that follow the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
J
|
K
|
L
|
M
|
N
|
|
|
|
Estimated Future
Payouts
Under Non-Equity
Incentive Plan
Awards
(Annual Performance Bonus)
|
Estimated Future
Payouts
Under Equity
Incentive Plan
Awards
(Performance Share Units)
|
All
other
Stock
Awards:
Number
of
Shares
of Stock or Units
(#)
|
All Other
Option
Awards:
Number
of
Securities
Underlying Options
(#)
|
Exercise
or Base
Price of
Option Awards
($/sh)
|
Closing
Market
Price
on the
Grant Date
($)
|
Grant
Date Fair
Value of
Stock and
Option Awards
($)
|
Name
|
Award
|
Grant
Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
A. Gorsky
|
Bonus
|
|
$0
|
$2,800,000
|
$5,600,000
|
|
|
|
|
|
|
|
|
|
2016-2018 PSU
|
2/8/2016
|
|
|
|
0
|
|
57,515
|
|
115,030
|
|
|
|
|
|
$6,056,330
|
|
2015-2017 PSU
|
2/8/2016
|
|
|
|
0
|
|
9,213
|
|
18,426
|
|
|
|
|
|
882,108
|
|
|
2014-2016 PSU
|
2/8/2016
|
|
|
|
0
|
|
9,367
|
|
18,734
|
|
|
|
|
|
924,851
|
|
|
RSU
|
2/8/2016
|
|
|
|
|
|
|
29,579
|
|
|
|
|
2,745,612
|
|
|
Stock Awards Total
|
|
|
|
|
|
|
|
|
|
|
|
10,608,901
|
|
|
Option
Award
|
2/8/2016
|
|
|
|
|
|
|
|
411,264
|
|
$101.87
|
$102.00
|
4,118,398
|
|
D. Caruso
|
Bonus
|
|
0
|
|
1,136,875
|
|
2,273,750
|
|
|
|
|
|
|
|
|
|
|
2016-2018 PSU
|
2/8/2016
|
|
|
|
0
|
|
19,910
|
|
39,820
|
|
|
|
|
|
2,096,523
|
|
|
2015-2017 PSU
|
2/8/2016
|
|
|
|
0
|
|
2,945
|
|
5,890
|
|
|
|
|
|
281,972
|
|
|
2014-2016 PSU
|
2/8/2016
|
|
|
|
0
|
|
2,994
|
|
5,988
|
|
|
|
|
|
295,613
|
|
|
RSU
|
2/8/2016
|
|
|
|
|
|
|
10,239
|
|
|
|
|
950,415
|
|
|
Stock Awards Total
|
|
|
|
|
|
|
|
|
|
|
|
3,624,523
|
|
|
Option
Award
|
2/8/2016
|
|
|
|
|
|
|
|
142,365
|
|
101.87
|
|
102.00
|
|
1,425,643
|
|
P. Stoffels
|
Bonus
|
|
0
|
|
1,144,000
|
|
2,288,000
|
|
|
|
|
|
|
|
|
|
|
2016-2018 PSU
|
2/8/2016
|
|
|
|
0
|
|
24,444
|
|
48,888
|
|
|
|
|
|
2,573,953
|
|
|
2015-2017 PSU
|
2/8/2016
|
|
|
|
0
|
|
3,681
|
|
7,362
|
|
|
|
|
|
352,441
|
|
|
2014-2016 PSU
|
2/8/2016
|
|
|
|
0
|
|
2,939
|
|
5,878
|
|
|
|
|
|
290,182
|
|
|
RSU
|
2/8/2016
|
|
|
|
|
|
|
12,571
|
|
|
|
|
1,166,878
|
|
|
Stock Awards Total
|
|
|
|
|
|
|
|
|
|
|
|
4,383,454
|
|
|
Option
Award
|
2/8/2016
|
|
|
|
|
|
|
|
174,787
|
|
101.87
|
|
102.00
|
|
1,750,317
|
|
S. Peterson
|
Bonus
|
|
0
|
|
1,218,750
|
|
2,437,500
|
|
|
|
|
|
|
|
|
|
|
2016-2018 PSU
|
2/8/2016
|
|
|
|
0
|
|
21,493
|
|
42,986
|
|
|
|
|
|
2,263,213
|
|
|
2015-2017 PSU
|
2/8/2016
|
|
|
|
0
|
|
3,179
|
|
6,358
|
|
|
|
|
|
304,377
|
|
|
2014-2016 PSU
|
2/8/2016
|
|
|
|
0
|
|
3,074
|
|
6,148
|
|
|
|
|
|
303,511
|
|
|
RSU
|
2/8/2016
|
|
|
|
|
|
|
11,053
|
|
|
|
|
1,025,973
|
|
|
Stock Awards Total
|
|
|
|
|
|
|
|
|
|
|
|
3,897,074
|
|
|
Option
Award
|
2/8/2016
|
|
|
|
|
|
|
|
153,685
|
|
101.87
|
|
102.00
|
|
1,539,002
|
|
J. Duato
|
Bonus
|
|
0
|
|
875,000
|
|
1,750,000
|
|
|
|
|
|
|
|
|
|
|
2016-2018 PSU
|
2/8/2016
|
|
|
|
0
|
|
17,596
|
|
35,192
|
|
|
|
|
|
1,852,859
|
|
|
2015-2017 PSU
|
2/8/2016
|
|
|
|
0
|
|
2,726
|
|
5,452
|
|
|
|
|
|
261,004
|
|
|
2014-2016 PSU
|
2/8/2016
|
|
|
|
0
|
|
2,478
|
|
4,956
|
|
|
|
|
|
244,665
|
|
|
RSU
|
2/8/2016
|
|
|
|
|
|
|
9,049
|
|
|
|
|
839,955
|
|
|
Stock Awards Total
|
|
|
|
|
|
|
|
|
|
|
|
3,198,483
|
|
|
Option
Award
|
2/8/2016
|
|
|
|
|
|
|
|
125,824
|
|
101.87
|
|
102.00
|
|
1,260,002
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (Columns D through F)
The amounts reported in columns D through F reflect threshold, target, and maximum annual performance bonus award amounts for the
2016
performance year. Actual annual performance bonus payments, as reflected in column F of the “Summary Compensation Table” on page 60, were made in recognition of
2016
performance using the range represented in columns D through F as guidance.
|
|
|
|
2017 Proxy Statement -
66
|
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards (Columns G through I)
The amounts reported in columns G through I reflect threshold, target, and maximum performance share unit amounts that were considered granted for accounting purposes in
2016
. See page 61 for the fraction of the awards that were considered granted under U.S. GAAP in 2016. For actual performance results to date, please refer to the section titled “
2016
Update on Performance of Performance Share Unit Awards versus Goals” on pages 47 and 48 of this Proxy Statement.
All Other Stock Awards (Column J)
The amounts reported in column J relate to the RSU grants awarded to the named executive officers in February
2016
for the
2015
performance year, as described on page 59.
All Other Option Awards (Columns K through M)
Under the terms of the 2012 Long-Term Incentive Plan, the stock options were granted at an exercise price equal to the fair market value (calculated as the average of the high and low stock prices on the NYSE) of our common stock on the grant date. For the grants made in February 2016, the fair market value was $0.13 lower than the closing price on the grant date.
Grant Date Fair Value of Stock and Option Awards (Column N)
The amounts reported in column N represent the grant date fair value of PSUs, RSUs, and stock option awards calculated in accordance with U.S. GAAP for the listed fiscal year. The Stock Awards totals are reported in column D of the “Summary Compensation Table” on page 60. The stock option grant date fair values are reported in column E of the "Summary Compensation Table".
2016
–
2018
PSUs:
The grant date fair value of each PSU is calculated as a weighted average of the fair values of each component of the award that was considered granted for accounting purposes in
2016
. See page 61 for the fraction of the awards that were considered granted under U.S. GAAP in 2016. The weighted fair value of the PSUs on the date of grant is as follows:
|
|
|
|
2016 – 2018 PSU Fair Value
|
Performance Measures
|
Weight
|
Fair Value
|
Sales
|
1/9
th
|
$92.823
|
EPS
|
3/9
ths
|
$92.823
|
TSR
|
3/9
ths
|
$121.935
|
Weighted Average
|
$105.300
|
The grant date fair values for each performance measure are calculated as follows:
Sales & EPS (
2016
-
2018
,
2015
-
2017
, and 2014-
2016
PSUs):
The grant date fair value for the PSUs measured against the 1-year operational sales goal tied to the 2016 fiscal year and EPS are calculated on the grant date and discounted for dividends because dividends are not paid on PSUs during the vesting period. The grant date fair value per PSU was based on the average of the high and low prices of our common stock on the NYSE on the grant date discounted by the expected dividend yield as shown in the table below.
|
|
|
|
|
|
|
|
|
|
PSU Fair Values: Units Tied To Operational Sales and EPS Goals
|
Performance Measure
|
2016 Operational Sales
|
2016-2018 EPS
|
PSU Award
|
2016-2018 PSU
|
|
2015-2017 PSU
|
|
2014-2016 PSU
|
|
2016-2018 PSU
|
|
Grant Date
|
2/8/2016
|
|
2/8/2016
|
|
2/8/2016
|
|
2/8/2016
|
|
Common Stock Fair Market Value
(1)
|
$101.87
|
$101.87
|
$101.87
|
$101.87
|
Dividend Yield
|
3.10
|
%
|
3.10
|
%
|
3.10
|
%
|
3.10
|
%
|
Fair Value
|
$92.823
|
$95.746
|
$98.735
|
$92.823
|
(1)
Average of the high and low prices of the company’s common stock on the NYSE on the grant date.
Relative TSR (
2016
–
2018
PSUs):
The grant date fair value for the PSUs measured against relative TSR are calculated on the grant date using a Monte Carlo valuation by an independent third party. The grant date fair value was $121.935 per PSU.
|
|
|
|
|
|
2017 Proxy Statement -
67
|
RSUs:
The grant date fair value of the RSU awards is calculated on the grant date and discounted for dividends because dividends are not paid on RSUs during the vesting period. The grant date fair value per RSU was based on the average of the high and low prices of our common stock on the NYSE on the grant date discounted by the expected dividend yield as shown in the table below.
|
|
|
2016 RSU Fair Value
|
Grant Date
|
2/8/2016
|
Common Stock Fair Market Value
(1)
|
$101.87
|
Dividend yield
|
3.10%
|
Fair Value
|
$92.823
|
(1)
Average of the high and low prices of the company’s common stock on the NYSE on the grant date.
Options:
The fair value of each stock option award is calculated on the grant date using the Black-Scholes option valuation model based on the assumptions in the table below. The calculated expected life of an option is determined using historical data. Volatility represents a blended rate of historical average volatility and implied volatility based on at-the-money traded Johnson & Johnson stock options with a life of two years. The risk-free rate is based on a U.S. Treasury rate of seven years in effect at the time of grant.
|
|
|
2016 Stock Option Fair Value
|
Grant Date
|
2/8/2016
|
Common Stock Fair Market Value
(1)
|
$101.87
|
Risk Free Rate
|
1.51%
|
Expected Volatility
|
15.76%
|
Expected Life
|
7 yrs.
|
Dividend Yield
|
3.10%
|
Fair Value
|
$10.014
|
(1)
Average of the high and low prices of the company’s common stock on the NYSE on the grant date.
|
|
|
|
2017 Proxy Statement -
68
|
|
|
Outstanding Equity Awards at Fiscal Year-End
The following table provides information concerning the unexercised stock options outstanding and unvested RSUs and PSUs for each of the named executive officers as of fiscal year-end
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
J
|
K
|
|
|
|
Options
|
Stock Awards
|
Number of Securities
Underlying Unexercised
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock that
Have Not
Vested
(#)
|
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units, or
Other Rights
That Have
Not Vested
(#)
|
Equity
Incentive
Plans:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)
|
Name
|
Grant Date
|
Vesting Date
|
Exercisable
|
Unexercisable
|
A. Gorsky
|
Stock Options and RSUs
|
|
2/08/2010
|
2/09/2013
|
119,770
|
|
|
$62.62
|
2/07/2020
|
|
|
|
|
|
1/10/2011
|
1/11/2014
|
144,695
|
|
|
62.20
|
|
1/08/2021
|
|
|
|
|
|
1/17/2012
|
1/18/2015
|
231,951
|
|
|
65.37
|
|
1/17/2022
|
|
|
|
|
|
1/16/2013
|
1/17/2016
|
547,692
|
|
|
72.54
|
|
1/13/2023
|
|
|
|
|
|
2/10/2014
|
2/11/2017
|
|
495,146
|
|
90.44
|
|
2/09/2024
|
33,720
|
|
$3,884,881
|
|
|
|
2/09/2015
|
2/10/2018
|
|
427,127
|
|
100.06
|
|
2/09/2025
|
33,165
|
|
3,820,940
|
|
|
|
|
2/08/2016
|
2/09/2019
|
|
411,264
|
|
101.87
|
|
2/08/2026
|
29,579
|
|
3,407,797
|
|
|
|
|
PSUs
|
|
2/10/2014
(1)
|
2/10/2017
|
|
|
|
|
96,914
|
|
11,165,462
|
|
|
|
|
2/09/2015
(2)
|
2/10/2017
|
|
|
|
|
9,957
|
|
1,147,146
|
|
|
|
|
2/08/2016
(3)
|
2/10/2017
|
|
|
|
|
11,072
|
|
1,275,605
|
|
|
|
|
2/09/2015
(2)
|
2/09/2018
|
|
|
|
|
9,791
|
|
1,128,021
|
|
55,276
|
|
$6,368,348
|
|
2/08/2016
(3)
|
2/09/2018
|
|
|
|
|
10,890
|
|
1,254,637
|
|
|
|
|
2/08/2016
(3)
|
2/08/2019
|
|
|
|
|
9,712
|
|
1,118,920
|
|
49,298
|
|
5,679,623
|
|
D. Caruso
|
Stock Options and RSUs
|
|
2/11/2008
|
2/12/2011
|
82,591
|
|
|
61.75
|
|
2/10/2018
|
|
|
|
|
|
2/09/2009
|
2/10/2012
|
110,578
|
|
|
58.33
|
|
2/08/2019
|
|
|
|
|
|
2/08/2010
|
2/09/2013
|
119,770
|
|
|
62.62
|
|
2/07/2020
|
|
|
|
|
|
1/10/2011
|
1/11/2014
|
145,447
|
|
|
62.20
|
|
1/08/2021
|
|
|
|
|
|
1/17/2012
|
1/18/2015
|
173,702
|
|
|
65.37
|
|
1/17/2022
|
|
|
|
|
|
1/16/2013
|
1/17/2016
|
233,846
|
|
|
72.54
|
|
1/13/2023
|
|
|
|
|
|
2/10/2014
|
2/11/2017
|
|
158,277
|
|
90.44
|
|
2/09/2024
|
10,779
|
|
1,241,849
|
|
|
|
|
2/09/2015
|
2/10/2018
|
|
136,535
|
|
100.06
|
|
2/09/2025
|
10,601
|
|
1,221,341
|
|
|
|
|
2/08/2016
|
2/09/2019
|
|
142,365
|
|
101.87
|
|
2/08/2026
|
10,239
|
|
1,179,635
|
|
|
|
|
PSUs
|
|
2/10/2014
(1)
|
2/10/2017
|
|
|
|
|
30,980
|
|
3,569,206
|
|
|
|
|
2/09/2015
(2)
|
2/10/2017
|
|
|
|
|
3,183
|
|
366,713
|
|
|
|
|
2/08/2016
(3)
|
2/10/2017
|
|
|
|
|
3,539
|
|
407,728
|
|
|
|
|
2/09/2015
(2)
|
2/09/2018
|
|
|
|
|
3,129
|
|
360,492
|
|
17,670
|
|
2,035,761
|
|
|
2/08/2016
(3)
|
2/09/2018
|
|
|
|
|
3,481
|
|
401,046
|
|
|
|
|
2/08/2016
(3)
|
2/08/2019
|
|
|
|
|
3,362
|
|
387,336
|
|
17,066
|
|
1,966,174
|
|
P. Stoffels
|
Stock Options and RSUs
|
|
1/16/2013
|
1/17/2016
|
102,692
|
|
|
72.54
|
|
1/13/2023
|
|
|
|
|
|
2/10/2014
|
2/11/2017
|
|
155,342
|
|
90.44
|
|
2/09/2024
|
10,579
|
|
1,218,807
|
|
|
|
|
10/31/2014
|
10/31/2017
|
|
|
|
|
75,492
|
|
8,697,433
|
|
|
|
|
2/09/2015
|
2/10/2018
|
|
170,668
|
|
100.06
|
|
2/09/2025
|
13,252
|
|
1,526,763
|
|
|
|
|
2/08/2016
|
2/09/2019
|
|
174,787
|
|
101.87
|
|
2/08/2026
|
12,571
|
|
1,448,305
|
|
|
|
|
PSUs
|
|
2/10/2014
(1)
|
2/10/2017
|
|
|
|
|
30,407
|
|
3,503,190
|
|
|
|
|
2/09/2015
(2)
|
2/10/2017
|
|
|
|
|
3,122
|
|
359,686
|
|
|
|
|
2/08/2016
(3)
|
2/10/2017
|
|
|
|
|
3,474
|
|
400,240
|
|
|
|
|
2/09/2015
(2)
|
2/09/2018
|
|
|
|
|
3,914
|
|
450,932
|
|
22,086
|
|
2,544,528
|
|
|
2/08/2016
(3)
|
2/09/2018
|
|
|
|
|
4,351
|
|
501,279
|
|
|
|
|
2/08/2016
(3)
|
2/08/2019
|
|
|
|
|
4,128
|
|
475,587
|
|
20,952
|
|
2,413,880
|
|
|
|
|
|
|
|
2017 Proxy Statement -
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
J
|
K
|
|
|
|
Options
|
Stock Awards
|
Number of Securities
Underlying Unexercised
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock that
Have Not
Vested
(#)
|
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units, or
Other Rights
That Have
Not Vested
(#)
|
Equity
Incentive
Plans:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)
|
Name
|
Grant Date
|
Vesting Date
|
Exercisable
|
Unexercisable
|
S. Peterson
|
Stock Options and RSUs
|
|
1/16/2013
|
1/17/2016
|
61,538
|
|
|
$72.54
|
1/13/2023
|
|
|
|
|
|
2/10/2014
|
2/11/2017
|
|
162,509
|
|
90.44
|
|
2/09/2024
|
11,067
|
|
$1,275,029
|
|
|
|
2/09/2015
|
2/10/2018
|
|
147,395
|
|
100.06
|
|
2/09/2025
|
11,445
|
|
1,318,578
|
|
|
|
|
2/08/2016
|
2/09/2019
|
|
153,685
|
|
101.87
|
|
2/08/2026
|
11,053
|
|
1,273,416
|
|
|
|
|
PSUs
|
|
2/10/2014
(1)
|
2/10/2017
|
|
|
|
|
31,808
|
|
3,664,600
|
|
|
|
|
2/09/2015
(2)
|
2/10/2017
|
|
|
|
|
3,268
|
|
376,506
|
|
|
|
|
2/08/2016
(3)
|
2/10/2017
|
|
|
|
|
3,633
|
|
418,558
|
|
|
|
|
2/09/2015
(2)
|
2/09/2018
|
|
|
|
|
3,380
|
|
389,410
|
|
19,074
|
|
$2,197,516
|
|
2/08/2016
(3)
|
2/09/2018
|
|
|
|
|
3,758
|
|
432,959
|
|
|
|
|
2/08/2016
(3)
|
2/08/2019
|
|
|
|
|
3,630
|
|
418,212
|
|
18,422
|
|
2,122,399
|
|
J. Duato
|
Stock Options and RSUs
|
|
2/11/2008
|
2/12/2011
|
20,842
|
|
|
61.75
|
|
2/10/2018
|
|
|
|
|
|
2/09/2009
|
2/10/2012
|
34,288
|
|
|
58.33
|
|
2/08/2019
|
|
|
|
|
|
1/10/2011
|
1/11/2014
|
19,293
|
|
|
62.20
|
|
1/08/2021
|
|
|
|
|
|
1/17/2012
|
1/18/2015
|
100,000
|
|
|
65.37
|
|
1/17/2022
|
|
|
|
|
|
1/16/2013
|
1/17/2016
|
148,538
|
|
|
72.54
|
|
1/13/2023
|
|
|
|
|
|
2/10/2014
|
2/11/2017
|
|
130,969
|
|
90.44
|
|
2/09/2024
|
8,919
|
|
1,027,558
|
|
|
|
|
2/09/2015
|
2/10/2018
|
|
126,369
|
|
100.06
|
|
2/09/2025
|
9,812
|
|
1,130,441
|
|
|
|
|
2/08/2016
|
2/09/2019
|
|
125,824
|
|
101.87
|
|
2/08/2026
|
9,049
|
|
1,042,535
|
|
|
|
|
PSUs
|
|
2/10/2014
(1)
|
2/10/2017
|
|
|
|
|
25,634
|
|
2,953,293
|
|
|
|
|
2/09/2015
(2)
|
2/10/2017
|
|
|
|
|
2,634
|
|
303,463
|
|
|
|
|
2/08/2016
(3)
|
2/10/2017
|
|
|
|
|
2,929
|
|
337,450
|
|
|
|
|
2/09/2015
(2)
|
2/09/2018
|
|
|
|
|
2,896
|
|
333,648
|
|
16,354
|
|
1,884,144
|
|
|
2/08/2016
(3)
|
2/09/2018
|
|
|
|
|
3,222
|
|
371,207
|
|
|
|
|
2/08/2016
(3)
|
2/08/2019
|
|
|
|
|
2,972
|
|
342,404
|
|
15,082
|
|
1,737,597
|
|
(1)
The PSUs based on the achievement of
2014
-
2016
relative TSR and EPS achieved 137.0% and 154.4% of target, as discussed on page
47
. The PSUs based on the achievement of
2014
operational sales performance achieved 160.5% of target, as reported in our
2015
Proxy Statement. The units tied to each of the performance measures have been adjusted to reflect actual performance and are listed in columns H and I.
(2)
The PSUs based on the achievement of
2015
operational sales performance achieved 106.3% of target, as reported in our
2016
Proxy Statement. The portion of the award that is based on the achievement of
2015
operational sales performance has been adjusted to reflect actual performance and is listed in columns H and I.
(3)
The PSUs based on the achievement of
2016
operational sales performance achieved 118.2% of target, as discussed on page 47. The portion of the award that is based on the achievement of
2016
operational sales performance has been adjusted to reflect actual performance and is listed in columns H and I.
Market Value of Shares or Units of Stock That Have Not Vested (Columns I and K)
The market values of unvested PSUs and RSUs included in columns I and K were calculated using the closing price of our common stock on the NYSE on December 30, 2016, which was the last business day of fiscal
2016
, of $115.21.
|
|
|
|
2017 Proxy Statement -
70
|
|
|
Option Exercises and Stock Vested
The following table provides information concerning the exercises of stock options and the vesting of RSUs and PSUs during fiscal
2016
on an aggregated basis for each of the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Number of Shares
Acquired on Exercise
(#)
|
Value Realized Upon
Exercise
($)
|
Number of Shares
Acquired on Vesting
(#)
|
Value Realized Upon
Vesting
($)
|
A. Gorsky
|
0
|
|
$0
|
114,875
|
|
$11,573,245
|
D. Caruso
|
41,146
|
|
2,438,723
|
|
49,047
|
|
4,941,308
|
|
P. Stoffels
|
125,000
|
|
3,722,500
|
|
47,757
|
|
4,811,345
|
|
S. Peterson
|
0
|
|
0
|
|
12,907
|
|
1,300,334
|
|
J. Duato
|
100,275
|
|
4,507,790
|
|
38,076
|
|
3,836,019
|
|
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
|
|
|
|
|
|
2017 Proxy Statement -
71
|
Pension Benefits
The following table provides information as of fiscal year-end
2016
with respect to our pension plans for each of the named executive officers. For a complete understanding of the table, please read the narrative disclosures that follow the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value of Accumulated Benefit
|
Name
|
Number of Years
Credited Service
(#)
|
Normal Retirement
Age
|
Salaried Pension
Plan
($)
|
Excess Pension
Plan
($)
|
Total
($)
|
A. Gorsky
|
24.41
|
|
62
|
|
$1,035,000
|
$18,268,000
|
$19,303,000
|
D. Caruso
|
17.00
|
|
62
|
|
804,000
|
|
6,653,000
|
|
7,457,000
|
|
P. Stoffels
|
23.33
|
|
62
|
|
888,000
|
|
8,070,000
|
|
8,958,000
|
|
S. Peterson
|
4.08
|
|
62
|
|
183,000
|
|
1,501,000
|
|
1,684,000
|
|
J. Duato
|
27.25
|
|
62
|
|
1,039,000
|
|
7,726,000
|
|
8,765,000
|
|
Each of the named executive officers participates in the same defined benefit pension plans offered to other U.S. non-union employees hired before January 1, 2015. Annuity benefits payable under the U.S. plans are calculated as:
(1)
Final average earnings multiplied by 1.667%, multiplied by years of service prior to 2005, plus
(2) Final average earnings multiplied by 1.55%, multiplied by years of service after 2004, minus
(3) Age 65 Social Security benefits multiplied by 1.429%, multiplied by total years of service.
For this formula, “final average earnings” is defined as the average of the highest consecutive 60 months out of the last 120 months of pay, including base salary and bonus, and dividend equivalents paid or deferred on nonvested CLCs for years prior to 2009. The formula above produces the amount payable as a monthly annuity for the life of the named executive officer beginning as early as age 62. Benefits can begin as early as age 55, but are subject to a 4% per year reduction for the number of years before age 62 that benefits begin.
The Salaried Pension Plan applies this formula to pay up to the IRS’s covered compensation limit ($265,000 in
2016
). The Excess Pension Plan is a restorative supplemental retirement plan that uses the same formula (including the definition of final average earnings) as the Salaried Pension Plan without applying the IRS pay limits and is offset by amounts paid from the Salaried Pension Plan. Any U.S. non-union employee participates in the Excess Pension Plan if his or her covered compensation exceeds the IRS limit.
Because Dr. Stoffels has provided periods of service in both Belgium and the U.S., his total Salaried Plan amount includes benefits from both the U.S. and Belgian Plans. The U.S. portion is calculated using the U.S. formula above for all service and subtracting the amount earned in the Belgian Plan. This treatment of service rendered outside the U.S. applies to all participants in the Salaried Plan who were hired before January 1, 2015, and who earned company service outside the U.S. before joining the U.S. pension plan on, or before, July 1, 2015.
While a present value is shown in the table, benefits are not available as a lump sum and must be taken in the form of an annuity, except the Belgian portion of Dr. Stoffels’ benefit which is payable as a lump sum at retirement. Present values were calculated using the same actuarial assumptions applied in the calculation of pension liabilities reported in our
2016
Annual Report (discount rate of 4.41%, and mortality according to the RP-2014 table with generational improvements projected according to scale AA).
No payments were made in
2016
under our pension plans to any of the named executive officers.
|
|
|
|
2017 Proxy Statement -
72
|
|
|
Non-Qualified Deferred Compensation
The following table provides information with respect to our defined contribution and non-tax-qualified compensation deferral plans for each of the named executive officers for
2016
. For a complete understanding of the table, please read the narrative disclosures that follow the table.
|
|
|
|
|
|
|
|
|
|
A
|
B
|
C
|
D
|
E
|
Name
|
Executive Contributions
in Last FY
($)
|
Registrant Contributions
in Last FY
($)
|
Aggregate Earnings in
Last FY
($)
|
Aggregate Balance at
Last FYE
($)
|
A. Gorsky
|
$0
|
$438,604
|
$933,942
|
$10,381,946
|
D. Caruso
|
0
|
|
371,570
|
|
1,653,095
|
|
17,852,678
|
|
P. Stoffels
|
0
|
|
285,599
|
|
941,996
|
|
10,542,963
|
|
S. Peterson
|
0
|
|
31,431
|
|
8,974
|
|
125,081
|
|
J. Duato
|
0
|
|
235,643
|
|
871,189
|
|
9,764,045
|
|
Executive Contributions in Last Fiscal Year (Column B)
The amounts reported in column B include amounts deferred in the last fiscal year under the Executive Income Deferral Plan, which allows eligible employees to defer up to 50% of base salary and 100% of annual performance bonus.
Registrant Contributions in Last Fiscal Year (Column C)
The amounts reported in column C include company contributions to each of the named executive officer’s Excess Savings Plan accounts. These amounts also include the value of CLCs and CLPs that vested during the fiscal year, calculated using the beginning of year CLC and CLP unit values. See details on CLC and CLP unit values on page 74. The value of CLCs and CLPs that vested during the fiscal year is also included in column F of the “Summary Compensation Table” on page 60. The specific amounts included in column C are shown below.
|
|
|
|
|
|
Name
|
Registrant Contribution
to Excess Savings Plan
($)
|
Value of CLCs Vested in
Last FY
($)
|
Value of CLPs Vested
in Last FY
($)
|
Total
($)
|
A. Gorsky
|
$60,075
|
$0
|
$378,529
|
$438,604
|
D. Caruso
|
29,002
|
0
|
342,568
|
371,570
|
P. Stoffels
|
39,555
|
0
|
246,044
|
285,599
|
S. Peterson
|
31,431
|
0
|
0
|
31,431
|
J. Duato
|
27,450
|
0
|
208,193
|
235,643
|
Aggregate Earnings in Last Fiscal Year (Column D)
The amounts reported in column D include earnings on the Executive Income Deferral Plan and Excess Savings Plan, in addition to the change in value on all vested CLCs and CLPs as of the fiscal year-end. See details on CLC and CLP unit values on page 74. The specific amounts included in column D are shown below.
|
|
|
|
|
|
|
|
|
|
Name
|
Earnings / (Losses)
on Income
Deferral Program
and Excess
Savings Plan
($)
|
Change in Value on All
Vested CLCs at Last FYE
($)
|
Change in Value on All
Vested CLPs at Last FYE
($)
|
Total
($)
|
A. Gorsky
|
$36,955
|
$493,200
|
$403,787
|
$933,942
|
D. Caruso
|
229,598
|
|
986,400
|
|
437,097
|
|
1,653,095
|
|
P. Stoffels
|
21,935
|
|
657,600
|
|
262,461
|
|
941,996
|
|
S. Peterson
|
8,974
|
|
0
|
|
0
|
|
8,974
|
|
J. Duato
|
19,891
|
|
637,050
|
|
214,248
|
|
871,189
|
|
|
|
|
|
|
|
2017 Proxy Statement -
73
|
Aggregate Balance at Last Fiscal Year-End (Column E)
The amounts reported in column E include the full balance of the Executive Income Deferral Plan and Excess Savings Plan for each of the named executive officers. These amounts also include the full value of all vested CLCs and CLPs held by each named executive officer as of fiscal year-end (calculated using the end of year unit values). See details on CLC and CLP unit values below. The specific amounts included in column E are shown below.
|
|
|
|
|
|
|
|
|
|
Name
|
Full Balance of
Income Deferral
Plan and Excess
Savings Plan
($)
|
Full Value of All Vested
CLCs at Last FYE
($)
|
Full Value of All Vested
CLPs at Last FYE
($)
|
Total
($)
|
A. Gorsky
|
$469,657
|
$5,586,000
|
$4,326,289
|
$10,381,946
|
D. Caruso
|
1,997,494
|
|
11,172,000
|
|
4,683,184
|
|
17,852,678
|
|
P. Stoffels
|
282,879
|
|
7,448,000
|
|
2,812,084
|
|
10,542,963
|
|
S. Peterson
|
125,081
|
|
0
|
|
0
|
|
125,081
|
|
J. Duato
|
253,285
|
|
7,215,250
|
|
2,295,510
|
|
9,764,045
|
|
Each of the named executive officers participates in one or more of the following non-tax qualified deferred compensation programs: Excess Savings Plan (all named executive officers), Executive Income Deferral Plan (Mr. Caruso only), and CLC and CLP Plans (all named executive officers except Ms. Peterson).
Johnson & Johnson’s 401(k) Savings Plan provides a matching contribution of 4.5% of base salary for employees contributing at least 6% of base salary. Base salary covered under this plan is limited by the IRS (to $265,000 in
2016
). The Excess Savings Plan credits an unfunded account for each individual with 4.5% of the amount of the base salary in excess of the IRS limit. The rate of earnings credited to these Excess Savings Plan accounts is equal to actual earnings in the Balanced Fund investment option within our 401(k) Savings Plan (9.15% in
2016
). Distribution of Excess Savings Plan account balances will be made as a single lump sum six months after retirement or separation, unless the participant made an irrevocable deferral or installment election before December 15, 2008.
Under the Executive Income Deferral Plan, the named executive officers are eligible to defer up to 50% of base salary and 100% of performance bonus until they retire from the company. Distribution of amounts deferred before 2005 can begin up to 10 years after separation or retirement and be paid as a lump sum or in up to 15 annual installments. Payment of amounts deferred after 2004 begins on the later of (i) six months after retirement or (ii) January of the year following retirement. Deferred amounts are credited with earnings equal to the actual return on the following investment options: Johnson & Johnson Common Stock, One-Year Treasury Bills, or the investment options within our 401(k) Savings Plan. The allocation among these options is elected by the executive officer. For
2016
, the aggregate return on our common stock for these participants was 14.22%. None of the named executive officers had amounts allocated to the One Year Treasury Bill option in
2016
.
No withdrawals or distributions were made to any of the named executive officers under any of our defined contribution or non-tax-qualified compensation deferral plans in
2016
.
Details on CLC and CLP Unit Values
|
|
|
|
Unit Values and Change in Values
|
CLC
($)
|
CLP
($)
|
Beginning of Year Unit Value
|
$42.44
|
$4.76
|
End of Year Unit Value
|
46.55
|
5.25
|
Change in Unit Value
|
4.11
|
0.49
|
|
|
|
|
2017 Proxy Statement -
74
|
|
|
Potential Payments Upon Termination
Employees, including the named executive officers, are entitled to receive earned and unpaid compensation upon termination of employment. Accordingly, upon any termination of employment as of fiscal year-end
2016
the named executive officers would have received the following (except as noted):
|
|
•
|
Earned but unpaid annual performance bonuses for
2016
as shown in the “Non-Equity Incentive Plan Compensation” table on pages 61 and 62. However, in case of involuntary termination for cause, these amounts would be forfeited.
|
|
|
•
|
Vested non-qualified deferred compensation balances as shown in the “Non-Qualified Deferred Compensation” table on page 73. This includes the account balances under the Executive Income Deferral Plan and Excess Savings Plan and the value of vested CLCs and CLPs as shown in the table on page 74.
|
|
|
•
|
Pension benefits as described in the “Pension Benefits” table and notes on page 72.
|
We do not have any change-in-control agreements or arrangements in place for any of our named executive officers. In addition, there are no change-in-control provisions in any of our compensation plans or instruments.
In addition to the compensation and benefits discussed above, the following table shows the compensation and benefits that would have been due to the named executive officers had their employment terminated as of fiscal year-end
2016
under the circumstances shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Type of
Payment
|
Voluntary
Termination
($)
|
Involuntary
Termination
Without
Cause
($)
|
Involuntary
Termination
with
Cause
($)
|
Death
($)
|
Disability
($)
|
A. Gorsky
|
Cash Severance
|
$0
|
$1,600,000
|
$0
|
$0
|
$0
|
|
Benefits
|
271,000
|
|
274,000
|
|
271,000
|
|
140,000
|
|
268,000
|
|
|
Equity Incentives
|
67,427,942
|
|
67,427,942
|
|
0
|
|
67,427,942
|
|
67,427,942
|
|
|
Total
|
67,698,942
|
|
69,301,942
|
|
271,000
|
|
67,567,942
|
|
67,695,942
|
|
D. Caruso
|
Cash Severance
|
0
|
|
1,084,404
|
|
0
|
|
0
|
|
0
|
|
|
Benefits
|
193,000
|
|
197,000
|
|
193,000
|
|
101,000
|
|
235,000
|
|
|
Equity Incentives
|
22,020,063
|
|
22,020,063
|
|
0
|
|
22,020,063
|
|
22,020,063
|
|
|
Total
|
22,213,063
|
|
23,301,467
|
|
193,000
|
|
22,121,063
|
|
22,255,063
|
|
P. Stoffels
|
Cash Severance
|
0
|
|
1,144,000
|
|
0
|
|
0
|
|
0
|
|
|
Benefits
|
0
|
|
100,000
|
|
0
|
|
4,000
|
|
204,000
|
|
|
Equity Incentives
|
0
|
|
0
|
|
0
|
|
33,534,444
|
|
33,534,444
|
|
|
Total
|
0
|
|
1,244,000
|
|
0
|
|
33,538,444
|
|
33,738,444
|
|
S. Peterson
|
Cash Severance
|
0
|
|
975,000
|
|
0
|
|
0
|
|
0
|
|
|
Benefits
|
0
|
|
14,000
|
|
0
|
|
4,000
|
|
144,000
|
|
|
Equity Incentives
|
0
|
|
0
|
|
0
|
|
23,269,364
|
|
23,269,364
|
|
|
Total
|
0
|
|
989,000
|
|
0
|
|
23,273,364
|
|
23,413,364
|
|
J. Duato
|
Cash Severance
|
0
|
|
908,654
|
|
0
|
|
0
|
|
0
|
|
|
Benefits
|
0
|
|
101,000
|
|
0
|
|
8,000
|
|
205,000
|
|
|
Equity Incentives
|
0
|
|
0
|
|
0
|
|
19,194,163
|
|
19,194,163
|
|
|
Total
|
0
|
|
1,009,654
|
|
0
|
|
19,202,163
|
|
19,399,163
|
|
|
|
|
|
|
|
2017 Proxy Statement -
75
|
Cash Severance
Our named executive officers are covered by our Severance Pay Plan that provides separation benefits to certain full-time U.S. employees who are involuntarily terminated. This coverage provides for two weeks base salary for each year of service, with certain guaranteed minimums based on level. The severance is paid according to our normal payroll cycle and is not available as a lump sum payment.
The following table provides detail with the respect to the “Cash Severance” amounts in the preceding table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Salary Rate as of Fiscal
Year End
($)
|
Years of Eligible
Service
(#)
|
Weeks of Base Salary Continuation
|
Total Amount of
Cash
Severance
($)
|
Accrued
(#)
|
Minimum
(#)
|
Final
(#)
|
A. Gorsky
|
$1,600,000
|
8
|
|
16
|
|
52
|
|
52
|
|
$1,600,000
|
D. Caruso
|
909,500
|
|
31
|
|
62
|
|
52
|
|
62
|
|
1,084,404
|
|
P. Stoffels
|
1,144,000
|
|
19
|
|
38
|
|
52
|
|
52
|
|
1,144,000
|
|
S. Peterson
|
975,000
|
|
4
|
|
8
|
|
52
|
|
52
|
|
975,000
|
|
J. Duato
|
875,000
|
|
27
|
|
54
|
|
52
|
|
54
|
|
908,654
|
|
Benefits
The benefits amounts represent the present value of continued healthcare coverage post termination. Upon termination of employment, the named executive officers would receive the same continued healthcare coverage post termination provided to all other non-union U.S. employees. The values in the table vary based upon the termination circumstances as follows:
|
|
•
|
Voluntary Termination and Involuntary Termination With Cause:
|
|
|
•
|
Not a Retirement: Employees that terminate voluntarily or are terminated for cause are not eligible to receive healthcare coverage post termination.
|
|
|
•
|
Retirement: Employees are eligible to receive retiree healthcare coverage post termination.
|
In order to be considered retirement-eligible as it pertains to retiree healthcare coverage, an employee must have attained age 55 and have at least ten years of service.
Messrs. Gorsky and Caruso are considered retirement-eligible as it pertains to retiree healthcare coverage.
|
|
•
|
Involuntary Termination Without Cause:
|
|
|
•
|
Employees are eligible to receive active-employee healthcare coverage during their cash severance period up to a maximum of 52 weeks.
|
|
|
•
|
Employees that are between the age 50 and 54 with at least ten years of service at the time of termination are eligible to receive separation healthcare coverage beginning on the earlier of the expiration of their cash severance period or 52 weeks after termination and continuing until they have attained age 65.
|
Dr. Stoffels and Mr. Duato are considered eligible for separation healthcare coverage.
|
|
•
|
Employees that are considered retirement-eligible are able to receive retiree healthcare coverage after their cash severance period expires.
|
Messrs. Gorsky and Caruso are considered retirement-eligible as it pertains to retiree healthcare coverage.
|
|
•
|
Death: Employees’ dependents are eligible to receive active-employee healthcare coverage for six months after termination.
|
|
|
•
|
Disability: Employees are eligible to receive active-employee healthcare coverage while on long-term disability.
|
|
|
|
|
2017 Proxy Statement -
76
|
|
|
The following table provides detail with the respect to the “Benefits” provided in the preceding table.
|
|
|
|
|
|
|
|
Benefits
|
Eligibility
|
Voluntary
Termination
|
Involuntary
Termination
Without
Cause
|
Involuntary
Termination
with
Cause
|
Death
|
Disability
|
Retiree Healthcare Coverage
|
Employees age 55 with ten years of service
|
ü
|
ü
|
ü
|
ü
Coverage for Dependents
|
ü
|
Separation Healthcare Coverage
|
Employees between ages 50 and 54 with ten years of service
|
|
ü
|
|
|
|
Active-employee Healthcare Coverage
|
All Employees
|
|
ü
While on
severance - up to 52 weeks
|
|
ü
Coverage for Dependents for
6 months
|
ü
While on
LTD
|
Equity Incentives
The amount in the table reflects the value of unvested equity incentives as of fiscal year-end
2016
as shown in the “Outstanding Equity Awards at Fiscal Year-End” table on pages 69 and 70. The values in the table vary based upon the termination circumstances as follows:
|
|
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Voluntary Termination and Involuntary Termination Without Cause:
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Not a Retirement: All unvested equity incentives would be forfeited. Vested options would remain exercisable for three months.
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Retirement: All equity incentives would remain in effect and become vested on their normal vesting dates. Options would remain exercisable for their remaining terms.
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In order to be considered retirement-eligible as it pertains to equity incentives, an employee must have attained age 55 and have at least ten years of service with at least five consecutive years of service immediately before the date of termination or have attained age 62.
Messrs. Gorsky and Caruso are considered retirement-eligible as it pertains to equity incentives.
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Involuntary Termination With Cause: All vested and unvested equity awards would be forfeited.
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Death and Disability: All equity incentives would become vested upon termination due to death or disability. Options would remain exercisable for their remaining terms.
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Item 4: Re-approval of the Material Terms of Performance Goals Under the 2012 Long-Term Incentive Plan
RECOMMENDATION & OVERVIEW
The Board of Directors recommends a vote FOR re-approval of the material terms of the performance goals under our 2012 Long-Term Incentive Plan (the “Plan”) in order to allow for certain awards under the Plan to qualify as tax-deductible “performance-based compensation” as described in this Item 4. The Board believes our ability to grant equity-based awards that qualify as “performance-based” under Section 162(m) of the Internal Revenue Code (the “Code”) is important to enhancing shareholder value.
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The Plan, approved by shareholders in 2012, provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, restricted share units, performance shares and performance share units to our employees and non-employee directors.
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In order to allow for awards under the Plan to qualify as tax-deductible “performance-based compensation” under Section 162(m) of the Code, we are asking shareholders to re-approve the material terms of the performance goals under the Plan. There can be no guarantee, however, that amounts payable under the Plan will be treated as qualified “performance-based compensation” under Section 162(m).
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You are not being asked to approve any amendment to the Plan or to approve the Plan itself. These terms are the same as those that the shareholders previously approved in 2012.
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Approval of this Item 4
will not
increase the number of shares available for issuance under the Plan or otherwise increase the potential dilution to shareholders as a result of the Plan.
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Section 162(m) of the Code
The Board believes that it is in the best interests of the company and its shareholders to continue to provide for an equity incentive plan under which compensation awards can be made to our executive officers that are intended to qualify for deductibility by the company for federal income tax purposes. In general, under Section 162(m), in order for the company to be able to deduct compensation in excess of $1,000,000 paid in any one year to our chief executive officer or any of our three other most highly compensated executive officers (other than our chief financial officer), such compensation must qualify as “performance-based.”
One of the requirements of “performance-based compensation” for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by the company’s shareholders at least once every five years. For purposes of Section 162(m), the material terms include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. With respect to the various types of awards under the Plan, each of these aspects is discussed below, and, as noted above, shareholders are being asked under this proposal to approve each of these aspects of the Plan for purposes of the approval requirements of Section 162(m).
If our shareholders do not approve the material terms of the performance goals under the Plan, there will be no impact on the terms of the Plan. The Plan will continue to remain in existence and awards may continue to be made in accordance with the terms of the Plan.
For a summary of the material terms of the Plan, see the Plan Summary below.
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PLAN SUMMARY
The following summary of the material terms of the Plan are qualified in their entirety by reference to the full text of the Plan, which is attached as
Appendix A
to this Proxy Statement.
Administration
The Plan is administered by the Compensation & Benefits Committee of the Board (the “Committee”), or, in the absence of the Committee, the Board itself. Subject to the express provisions of the Plan, the Committee is authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of the Plan. To the extent permitted by law, the Committee may delegate its authority to one or more of its members or other persons, except that no such delegation is permitted with respect to awards granted to participants who are subject to Section 16 of the Securities and Exchange Act of 1934, as amended
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Participants
Directors that are also our employees or employees of our domestic subsidiaries, our non-employee directors and those of any of our subsidiaries or affiliates (“Non-Employee Directors”), our employees and those of our domestic subsidiaries (including our executive officers), employees of international subsidiaries and joint venture operations of Johnson & Johnson and its subsidiaries, and employees of joint venture partners who are assigned to any such joint ventures are eligible for selection by the administrator for the grant of awards under the Plan. Options intending to qualify as “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Code may only be granted to our employees and those of our subsidiaries. As of January 2, 2017, approximately 20,000 employees and 9 Non-Employee Directors qualified for participation in the Plan.
Shares Subject to the Plan and to Awards
The total number of shares of our common stock that may be delivered pursuant to awards under the Plan is 650,000,000, plus any shares of common stock that were subject to outstanding awards under the Johnson & Johnson 2005 Long-Term Incentive Plan (the “Prior Plan”) as of April 26, 2012 that are subsequently canceled, expired, forfeited or otherwise not issued under a Prior Plan award or settled in cash. Any shares issued under options or stock appreciation rights will be counted against the number of shares issuable under the Plan on a one-for-one basis and any shares issued pursuant to awards other than options or stock appreciation rights will be counted against this limit as 5.99 shares of common stock for every one (1) share of common stock subject to such award. Shares of common stock subject to Prior Plan awards that, after April 26, 2012, are canceled, expired, forfeited or otherwise not issued under the Prior Plan award or settled in cash will be added to the number of shares of common stock issuable under the Plan as one (1) share of common stock if such shares were subject to options or stock appreciation rights granted under the Prior Plan, and as 5.99 shares of common stock if such shares were subject to awards other than options or stock appreciation rights granted under the Prior Plan. Such shares may be either authorized but unissued shares, treasury shares or shares acquired on the open market.
The aggregate number of shares issued under the Plan at any time may only equal the number of shares actually issued upon exercise or settlement of an award and shares subject to awards that have been canceled, expired, forfeited or otherwise not issued under an award and shares subject to awards settled in cash will be available for delivery in connection with future awards under the Plan; provided, however, that (i) shares subject to a stock-settled stock appreciation right that were not issued upon the net settlement or net exercise of such stock appreciation right, (ii) shares delivered to or withheld by our company to pay the exercise price of an option, (iii) shares delivered to or withheld by our company to pay the withholding taxes related to an option or stock appreciation right, or (iv) shares repurchased on the open market with cash proceeds from the exercise of an option will reduce the total number of shares available for delivery under the Plan. Any shares that again become available for grant will be added back as one (1) share of common stock if such shares were subject to options or stock appreciation rights and 5.99 shares of common stock if such shares were subject to awards other than options or stock appreciation rights granted under the Plan or the Prior Plan. Any shares delivered under the Plan upon exercise or satisfaction of a substitute award in connection with any acquisition, merger, consolidation or otherwise will not reduce the shares available for delivery under the Plan. The aggregate number of shares available for grant under the Plan and the number of shares subject to outstanding awards is subject to adjustment upon a change in our capitalization.
The maximum aggregate number of shares subject that may be granted pursuant to options and stock appreciation rights during any calendar year to any one participant is 5,000,000 (50,000 shares in the case of a Non-Employee Director). The maximum aggregate number of shares that may be granted subject to awards other than options or stock appreciation rights during any calendar year to any one participant is 500,000 (5,000 shares in the case of a Non-Employee Director). The maximum number of shares under awards other than options or stock appreciation rights that may be granted to any one participant for a performance period lasting longer than one calendar year may not exceed the foregoing annual maximum multiplied by the number of full fiscal years in the performance period. The maximum aggregate number of shares that may be issued pursuant to the exercise of incentive stock options is 140,000,000.
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Option Awards
The administrator establishes the exercise price per share under each option, which, other than in the event of options granted in connection with a merger or other acquisition, may not be less than the fair market value of a share on the date the option is granted. The administrator establishes the term of each option, which in no case may exceed a period of ten (10) years from the date of grant. Options granted under the Plan may either be Incentive Stock Options (“ISOs”) or options which are not intended to qualify as ISOs, or nonqualified stock options (“NQSOs”). Other than in connection with a change in our capitalization, at any time when the exercise price of an option is above the fair market value of a share, we will not, without shareholder approval, reduce the exercise price of such option and may not exchange such option for cash or a new award with a lower (or no) exercise price.
Stock Appreciation Rights
A stock appreciation right provides the right to the monetary equivalent of the increase in value of a specified number of the shares over a specified period of time after the right is granted. Stock appreciation rights may be granted to participants either in tandem with or as a component of other awards granted under the Plan (“tandem SARs”) or not in conjunction with other awards (“freestanding SARs”). All freestanding SARs will be granted subject to the same terms and conditions applicable to options as set forth above and in the Plan and all tandem SARs will have the same exercise price, vesting, exercisability, forfeiture and termination provisions as the award to which they relate. Other than in connection with a change in our capitalization, at any time when the exercise price of a stock appreciation right is above the fair market value of a share, we will not, without shareholder approval, reduce the exercise price of such stock appreciation right and may not exchange such stock appreciation right for cash or a new award with a lower (or no) exercise price.
Restricted Shares and Restricted Share Units
An award of restricted shares is an award or issuance of shares, the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Restricted share units are awards denominated in units of shares under which the issuance of shares is subject to conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Participants holding restricted shares granted under the Plan may exercise full voting rights with respect to those shares during the period of restriction. Participants will have no voting rights with respect to shares underlying restricted share units unless and until such shares are reflected as issued and outstanding shares on our stock ledger. Participants in whose name restricted shares are granted will be entitled to receive all dividends and other distributions paid with respect to those shares, unless determined otherwise by the administrator.
Performance Shares and Performance Share Units
Performance shares and performance share units provide the opportunity to receive shares upon the attainment of performance and/or satisfaction of other terms and conditions determined by the administrator. Performance shares and/or performance share units will be earned based on the achievement or satisfaction of the corresponding performance goals and/or other terms and conditions. Participants receiving performance shares or performance share units will only have the rights of a shareholder (including the right to dividends paid in respect of shares subject to such awards) with respect to shares of common stock, if any, actually received by the participant upon satisfaction or achievement of the terms and conditions of such award and not with respect to shares subject to the award but not actually issued to the participant. Participants holding performance shares granted under the Plan may exercise full voting rights with respect to those shares during the period of restriction. Participants will have no voting rights with respect to shares underlying performance share units unless and until such shares are reflected as issued and outstanding shares on our stock ledger.
Deferral of Gains
Subject to the terms of the Plan, the administrator may provide for the deferred delivery of shares or payment of cash, as applicable, upon settlement, vesting or other events with respect to restricted share or restricted share units, or performance shares or performance share units.
Qualifying Performance Criteria
The administrator may establish performance criteria and level of achievement versus such criteria that will determine the number of shares or units to be granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an award, which criteria may be based on “qualifying performance criteria” (as described below) or other standards of financial performance and/or personal performance evaluations. In addition, the administrator may specify that an award or a portion of an award is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, provided that the performance criteria for such award or portion of an award that is intended by the administrator to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be a measure based on one or more qualifying performance criteria selected by the administrator and specified at the time the award is granted. The administrator will certify the extent to which any qualifying performance
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criteria has been satisfied, and the amount payable as a result thereof, prior to payment, settlement or vesting of any award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding satisfaction of any performance goals, the number of shares issued under or the amount paid under an award may be reduced, but not increased, by the administrator on the basis of such further considerations as the administrator in its sole discretion may determine.
For purposes of the Plan, the term “qualifying performance criteria” means any one or more of the following performance criteria, or derivations of such performance criteria, either individually, alternatively or in any combination, described in terms of objectives that are related to the individual participant or objectives that are company-wide or related to a subsidiary, division, department, region, function or business unit of Johnson & Johnson, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the administrator: (i) cash flow (before or after dividends), (ii) earnings (before or after taxes and including earnings before interest, taxes, depreciation and amortization), (iii) earnings per share, (iv) book value per share, (v) stock price, (vi) return on equity, (vii) total shareholder return, (viii) product quality measures, (ix) improvements on capital structure, (x) working capital, (xi) return on capital (including return on total capital or return on invested capital), (xii) return on assets or net assets, (xiii) return on investment, (xiv) return on sales, (xv) market capitalization, (xvi) economic value added, (xvii) sales growth, (xviii) productivity improvement, (xix) debt leverage (debt to capital), (xx) revenue, (xxi) income or net income, (xxii) operating income, (xxiii) gross profit, operating profit or net operating profit, (xxiv) maintenance or improvement of operating margin or profit margin, (xxv) return on operating revenue, (xxvi) cash from operations, (xxvii) operating ratio, (xxviii) operating revenue, (xxix) market share, (xxx) product development or release schedules, (xxxi) new product innovation, (xxxii) economic profit, (xxxiii) profitability of an identifiable business unit or product, (xxxiv) product cost reduction through advanced technology, (xxxv) brand recognition/acceptance, (xxxvi) product ship targets, (xxxvii) cost reductions (including expense management), (xxxviii) customer service, (xxxix) customer satisfaction, or (xl) the sales of assets or subsidiaries.
To the extent consistent with Section 162(m) of the Code, the administrator may (A) appropriately adjust any evaluation of performance to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense determined to be extraordinary or unusual in nature or related to the disposal of a segment of a business or related to a change in accounting principle all as determined in accordance with standards under applicable accounting provisions, as well as the cumulative effect of accounting changes, in each case as determined in accordance with generally accepted accounting principles or identified in the company’s financial statements or notes thereto and (B) provide in an award intended to qualify as performance-based compensation that any evaluation of performance may exclude any of the following events that occurs during a performance period: (a) asset write-downs; (b) litigation, claims, judgments or settlements; (c) the effect of changes in tax laws or other laws or provisions affecting reported results; (d) any reorganization and restructuring programs; and (e) accruals of any amounts for payment under the Plan or any of our other compensation arrangements.
Amendment and Termination
The administrator may at any time terminate, or from time to time amend, the Plan, or alter any award agreement or other document evidencing an award; provided, however, that no such amendment, alteration or termination of the Plan may be made which, without first obtaining shareholder approval , would: (i) increase the maximum number of shares that may be issued under the Plan or to any one individual (except to the extent such amendment is made pursuant to a change in our capitalization), (ii) extend the maximum period during which awards may be granted under the Plan, (iii) change the class of participants eligible to receive awards under the Plan, (iv) reduce the price at which options and stock appreciation rights may be granted, (v) reduce the exercise price of outstanding options and stock appreciation rights, or (vi) otherwise require shareholder approval pursuant to the Plan, applicable law, or the rules of the principal securities exchange on which shares of common stock are traded in order to be effective.
No termination of the Plan or amendment to the Plan or an award may be made which would adversely affect any rights or obligations with respect to any awards granted prior to the date of such termination or amendment, except to the extent that the administrator reasonably determines that such termination or amendment is necessary or appropriate to comply with applicable law, rules and regulations or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard
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Adjustments
The number and kind of shares available for issuance under the Plan (including under any awards then outstanding), the number and kind of shares subject to the individual limits set forth in the Plan and above, and the terms of any outstanding award will be equitably adjusted by the administrator as it determines appropriate to reflect any merger, reorganization, consolidation, recapitalization, reclassification, stock split, reverse stock split, spin-off combination, or exchange of shares, dividend or distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of outstanding shares of Johnson & Johnson.
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Transferability
Awards generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a participant other than by will or the laws of descent and distribution, and each option or stock appreciation right may be exercisable only by the participant during his or her lifetime.
Effective Date and Termination of the Plan
The Plan became effective as of April 26, 2012. No awards will be made under the Plan after April 26, 2022 or such earlier date as the Board may determine.
Federal Income Tax Treatment
The following discussion of the federal income tax consequences of the Plan is intended to be a summary of applicable federal law as currently in effect. It should not be taken as tax advice by Plan participants, who are urged to consult their individual tax advisors.
Stock Options
ISOs and NQSOs are treated differently for federal income tax purposes. ISOs are intended to comply with the requirements of Section 422 of the Code. NQSOs do not comply with such requirements.
An optionee is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If an optionee holds the shares acquired upon exercise of an ISO for at least two years following the option grant date and at least one year following exercise, the optionee’s gain, if any, upon a subsequent disposition of such shares is long-term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee’s basis in the shares (which generally equals the exercise price). If an optionee disposes of shares acquired pursuant to exercise of an ISO before satisfying these holding periods, the optionee will recognize both ordinary income and capital gain in the year of disposition. We are not entitled to an income tax deduction on the grant or exercise of an ISO or on the optionee’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, we will be entitled to a deduction in the year the optionee disposes of the shares in an amount equal to the ordinary income recognized by the optionee.
In order for an option to qualify for ISO tax treatment, the grant of the option must satisfy various other conditions more fully described in the Code. We cannot guarantee that any option will qualify for ISO tax treatment even if the option is intended to qualify for such treatment. In the event an option intended to be an ISO fails to so qualify, it will be taxed as an NQSO as described below.
An optionee is not taxed on the grant of an NQSO. On exercise, the optionee recognizes ordinary income equal to the difference between the exercise price and the fair market value of the shares acquired on the date of exercise. We are entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income. The optionee’s gain (or loss) on subsequent disposition of the shares is long-term capital gain (or loss) if the shares are held for at least one year following exercise. We do not receive a deduction for this gain.
Stock Appreciation Rights
A grantee is not taxed on the grant of a stock appreciation right. On exercise, the individual recognizes ordinary income equal to the cash or the fair market value of any shares received. We are entitled to an income tax deduction in the year of exercise in the amount recognized by the individual as ordinary income.
Restricted Shares and Restricted Share Units
Grantees of restricted shares or restricted share units do not recognize income at the time of the grant. When the award vests or is paid, grantees generally recognize ordinary income in an amount equal to the fair market value of the shares or units at such time, and we will receive a corresponding deduction. However, no later than 30 days after a participant receives an award of restricted shares, the participant may elect to recognize taxable ordinary income in an amount equal to the fair market value of the shares at the time of receipt. Provided that the election is made in a timely manner, the participant will not recognize any additional income when the restrictions on the shares lapse. If the participant forfeits the shares any (e.g., upon the participant’s termination prior to vesting), the participant may not claim a deduction with respect to the income recognized as a result of the election. Dividends paid with respect to unvested restricted shares generally will be taxable as ordinary income to the participant at the time the dividends are received.
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Company Deduction and Section 162(m)
Section 162(m) generally allows the company to obtain tax deductions without limit for performance-based compensation. The Plan is designed to permit the grant of options and stock appreciation rights, and certain awards of restricted shares, restricted share units, performance shares and performance share units that are intended to qualify as “performance-based compensation” not subject to Section 162(m)’s $1,000,000 deductibility cap. However, the rules and regulations promulgated under Section 162(m) are complicated and subject to change from time to time, sometimes with retroactive effect. In addition, a number of requirements must be met in order for particular compensation to so qualify. As such, there can be no assurance that any compensation awarded or paid under the Plan will be deductible under all circumstances.
New Plan Benefits
The benefits that will be awarded or paid in the future under the Plan are not currently determinable. Such awards are within the discretion of the Committee, and the Committee has not determined future awards or who might receive them. As of December 30, 2016, the last trading day of fiscal year end 2016, the closing price of a share of our common stock was $115.21.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information as of January 2, 2017, concerning the shares of our Common Stock that may be issued under existing equity compensation plans:
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Plan Category
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(a)
Number of securities to be issued upon exercise of outstanding options and rights
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(b)
Weighted-average exercise price of outstanding options and rights
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(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
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Equity compensation plans approved by security holders
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137,289,904
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$68.72
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439,398,804
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