JJ's $28M chief delivers tiny returns Featured: W
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Featured: William Weldon, CEO, Johnson & Johnson
Originally published: March 23, 2012
Besides the growing pay gap between the top 1% and the rest of us, economists also worry about rapidly rising cost of health care, which makes it harder for many people to save enough for retirement.
Now, there's at least one CEO who embodies all three of these trends -- the widening pay gap, higher medical costs and their impact on retirement -- so I am making him my latest "One Percenter of the Week." He's Johnson & Johnson ( JNJ ) CEO William Weldon.
Recent financial reports show that Weldon stands to receive a whopping $154 million in retirement. That puts his pension easily among the top 10% retirement payouts for S&P 500 ( $INX ) CEOs, according to Paul Hodgson, a senior research associate at GMI Ratings, which offers independent corporate governance ratings.
He also got an impressive $26.8 million in pay last year, about three times the average for CEOs at large companies. Weldon was paid $28.7 million in 2010 and of $30.8 million in 2009. The median S&P 500 CEO pay for these years was in the $8 million-to-$10 million range.
In short, Weldon has struck it rich at Johnson & Johnson. And at least part of his mega-pay was made possible by rapidly rising health care costs since Weldon became CEO in 2002. From 2000 to 2008, health care spending in the U.S. rose 60%, according to the Kaiser Family Foundation, and that trend has continued in the ensuing three years.
Weldon's pay and retirement benefits paint a near-perfect portrait of the growing wealth gap in our country. Sure, CEOs should get paid more. But this much more?
- Besides being about three times the average for CEOs, Weldon's average annual pay of $28.8 million over that past three years dwarfs the $49,500 that U.S. households made in 2010. Assuming a 60-hour workweek and two weeks' vacation, Weldon made $9,592 an hour in the past three years. In any five hours, he made as much as the average American family earned in an entire year. Pretty amazing, but there's more.
- The value of his driver and "transportation services" alone last year, at $42,121, nearly matches annual U.S. household pay. And while many 99-percenters struggle with rising airfares, he got $178,920 worth of personal use of the corporate jet last year.
- In contrast to Weldon's $154 million retirement nest egg, the typical American has little saved for retirement. Among workers 55 or older, 40% have less than $100,000 saved, and 31% have less than $10,000 saved, according to a new study (.pdf file) by the Employee Benefit Research Institute. Just 22% in this age group have $250,000 or more salted away. Americans' confidence in their ability to retire comfortably is stuck at historic lows, according to the EBRI survey. But it's a safe bet Weldon is confident about his retirement.
- Weldon's payouts come at least in part on the backs of 99-percenters who have had to spend ever more money for health care. Johnson & Johnson’s health care products include Tylenol, Band-Aids, the arthritis drug Remicade ($5.5 billion in sales last year), the antipsychotic drug Risperdal Consta ($1.6 billion) and Velcade, a treatment for bone marrow cancer ($1.3 billion). It also sells joint replacement parts, surgical supplies and OneTouch blood monitoring devices for diabetics, among scores of other drugs and health care products. In short, almost all of us spent more on Johnson & Johnson health care products in the past decade.
Along with high pay, oddly enough, Weldon also received a 55% increase in his bonus last year, to $3.1 million. True, worldwide J&J sales increased a nice 5.6% to $65 billion. But this masks a negative trend. Operating profits fell, weighed down by ongoing product recalls and related legal expenses, and the closing of a plant. Over the past two years, on Weldon's watch, dozens of products, including hip replacements, Tylenol and Benadryl, have been recalled. Besides weighing on profits, recalls could also hurt Johnson & Johnson's brand. The company also experienced a shortage of its cancer drug Doxil.
In filings, J&J says Weldon deserved the high pay and bonus because he helped stabilize the business, delivered 5.6% sales growth, and helped the company develop a robust late-stage pharmaceutical pipeline and launch new medical devices.
Weldon has delivered solid sales and earnings growth during his tenure, says Morningstar ( MORN ) analyst Damien Conover. Sales grew 79%, from 2002 to 2011, and net income grew 46.6% to $9.67 billion. Weldon also deserves credit for helping the company produce significant free cash flow, $100 billion over 10 years, according to the company.
J&J spokesman Al Wasilewski adds that Weldon earned his post-retirement benefits over a 40-year career at J&J, including 10 years as CEO. Now 63, he plans to step down as CEO in April. But he will continue to serve as board chairman. J&J also produced a 3.6% total return (including dividends) during the 10 years through the end of last year, compared with 2.9% for the S&P 500, says Wasilewski.
Now, beating the market is a positive. But that works out to a 0.36% annual average return, and it's not much better than the return on the S&P 500 -- from companies whose CEOs generally get far less. If I were a shareholder counting on JNJ stock to boost my retirement account, I wouldn't consider 0.36% a job well done.
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