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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

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¨	Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

JOHNSON & JOHNSON

 

(Name of Registrant as Specified in Its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)

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¨	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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Notice of Annual Meeting and Proxy Statement

March 14, 2012

The Annual Meeting of Shareholders of Johnson & Johnson will be held on Thursday, April 26, 2012 at 10:00 a.m. at the Hyatt Regency Hotel, Two Albany Street, New Brunswick, New Jersey, to:

 

1.	Elect the Directors as named in the Proxy Statement;

 

2.	Conduct an advisory vote to approve named executive officer compensation;

 

3.	Approve a new long-term incentive plan;

 

4.	Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2012; and

 

5.	Transact such other business, including action on three shareholder proposals, as may properly come before the meeting, and any adjournment or postponement.

Shareholders are cordially invited to attend the meeting. If you plan to attend the meeting, please request an admission ticket in advance. Please note our admission ticket procedures detailed on page 4 of the Proxy Statement.

If you are unable to attend the meeting, you will be able to view and listen to the meeting via the Internet. We will broadcast the meeting as a live webcast through our website. The webcast will remain available for replay for three months following the meeting. Visit our Investor Relations website at www.investor.jnj.com and click on “Webcasts & Presentations” for details.

By order of the Board of Directors,

 

 

DOUGLAS K. CHIA

Secretary

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on April 26, 2012: The Proxy Statement and Annual Report to Shareholders are available at www.investor.jnj.com/annual-reports.cfm.

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2012 PROXY STATEMENT – SUMMARY			1
GENERAL INFORMATION			2
Shareholders Entitled to Vote			2
How to Vote			2
Changing Your Vote			3
Effect of Not Casting Your Vote			3
Proxy Solicitation			3
Electronic Access to Proxy Materials and Annual Report			4
Admission Ticket Procedures			4
Reduce Duplicate Mailings			4
Johnson & Johnson Employee Savings Plans			5
Advance Notice of Shareholder Proposals and Other Items of Business			5
CORPORATE GOVERNANCE			6
ITEM 1:      ELECTION OF DIRECTORS			13
Director Compensation – 2011			21
STOCK OWNERSHIP AND SECTION 16 COMPLIANCE			24
TRANSACTIONS WITH RELATED PERSONS			26
COMPENSATION COMMITTEE REPORT			27
COMPENSATION DISCUSSION AND ANALYSIS			28
Executive Summary			29
Executive Compensation Philosophy			33
Components of Executive Compensation			33
Setting Compensation & Performance Targets			35
Compensation Decision Process			38
2012 Compensation Decisions for 2011 Performance			39
Governance of Executive Compensation			50
Additional Information Concerning Executive Compensation			51
EXECUTIVE COMPENSATION			53
Summary Compensation Table			53
Grants of Plan-Based Awards – 2011			58
Outstanding Equity Awards at Fiscal Year-End – 2011			60
Option Exercises and Stock Vested – 2011			61
Pension Benefits – 2011			62
Non-Qualified Deferred Compensation – 2011			63
ITEM 2:      ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION			65
ITEM 3:       APPROVAL OF THE COMPANY’S 2012 LONG-TERM INCENTIVE PLAN			66
AUDIT COMMITTEE REPORT			73
ITEM 4:       RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			74
ITEM 5:      SHAREHOLDER PROPOSAL ON INDEPENDENT BOARD CHAIRMAN			76
ITEM 6:       SHAREHOLDER PROPOSAL ON BINDING VOTE ON POLITICAL CONTRIBUTIONS			78
ITEM 7:       SHAREHOLDER PROPOSAL ON ADOPTING NON-ANIMAL METHODS FOR TRAINING			80
OTHER MATTERS			82
APPENDIX A: JOHNSON  & JOHNSON 2012 LONG-TERM INCENTIVE PLAN			A-1

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Johnson & Johnson

2012 Proxy Statement — Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider. You should read the entire Proxy Statement carefully before voting.

 

 

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General Information

 

Shareholders Entitled to Vote		Shareholders of record of our Common Stock at the close of business on February 28, 2012 are entitled to notice of and to vote at the Annual Meeting of Shareholders and at any and all adjournments or postponements of the meeting. Each share entitles its owner to one vote. The holders of a majority of the shares entitled to vote at the meeting must be present in person or represented by proxy in order to constitute a quorum for all matters to come before the meeting. On February 28, 2012, there were 2,745,330,225 shares outstanding.   Each matter to be submitted to the shareholders, including the election of Directors, requires the affirmative vote of a majority of the votes cast at the meeting. For purposes of determining the number of votes cast with respect to a particular matter, only those cast “For” or “Against” are included. Abstentions and broker non-votes are counted only for purposes of determining whether a quorum is present at the meeting.

 

 

 

 

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Changing Your Vote		You may change your vote at any time before the proxy is exercised. For shareholders of record, if you voted by mail, you may revoke your proxy at any time before it is voted by executing and delivering a timely and valid later-dated proxy, by voting by ballot at the meeting or by giving written notice to the Secretary. If you voted via the Internet or by telephone you may also change your vote with a timely and valid later Internet or telephone vote, as the case may be, or by voting by ballot at the meeting. Attendance at the meeting will not have the effect of revoking a proxy unless (1) you give proper written notice of revocation to the Secretary before the proxy is exercised or (2) you vote by ballot at the meeting.   If your shares are held in street name, you must follow the specific voting directions provided to you by your bank, broker or other holder of record to change or revoke any instructions you have already provided. Alternatively, obtain a proxy from your bank, broker or other holder of record and bring it with you to hand in with a ballot in order to be able to vote your shares at the meeting.
Effect of Not Casting Your Vote		If you hold your shares in street name it is critical that you cast your vote if you want it to count in the election of Directors (Item 1). In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of Directors, your bank or broker was allowed to vote those shares on your behalf in the election of Directors, as they felt appropriate. Recent changes in regulation took away the ability of your bank or broker to vote your uninstructed shares in the election of Directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote in the election of Directors, no votes will be cast on your behalf. Your bank or broker will, however, have discretion to vote any uninstructed shares on the ratification of the appointment of our independent registered public accounting firm (Item 4). They will not have discretion to vote uninstructed shares on the advisory vote to approve named executive officer compensation (Item 2), the approval of the new long-term incentive plan (Item 3), or the shareholder proposals (Items 5, 6 and 7). If you are a shareholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting.
Proxy Solicitation		The accompanying proxy is solicited by our Board of Directors. This Proxy Statement is being mailed to our shareholders on or about March 14, 2012 concurrently with the mailing of our 2011 Annual Report to Shareholders. In addition to this solicitation by mail, several regular employees of Johnson & Johnson companies may solicit proxies in person or by telephone. We have also retained the firm of Georgeson Inc. to aid in the solicitation of brokers, banks and institutional and other shareholders for a fee of approximately $16,000, plus reimbursement of expenses. We will bear all costs of the solicitation of proxies. On the accompanying proxy, a shareholder may substitute the name of another person in place of those persons presently named as proxies. In order to vote, a substitute must present adequate identification to the Secretary before the voting occurs.

 

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Electronic Access to Proxy Materials and Annual Report		This Proxy Statement and our 2011 Annual Report are available on our website at www.investor.jnj.com/annual-reports.cfm. Instead of receiving paper copies of next year’s Proxy Statement and Annual Report by mail, you can elect to receive an e-mail message that will provide a link to those documents on the Internet. By opting to access your proxy materials via the Internet, you will:   •  gain faster access to your proxy materials;   •   save us the cost of producing and mailing documents to you;   •  reduce the amount of mail you receive; and   •   help preserve environmental resources.   Johnson & Johnson shareholders who have enrolled in the electronic access service previously will receive their materials online this year.   Shareholders of record may enroll in the electronic proxy and Annual Report access service for future Annual Meetings of Shareholders by registering online at www.computershare-na.com/green. If you vote via the Internet, simply follow the prompts that will link you to that website. Street name shareholders who wish to enroll for electronic access may register for online delivery of materials by going to http://enroll.icsdelivery.com/jnj.

 

 

Reduce Duplicate Mailings		We are required to provide an Annual Report to all shareholders who receive this Proxy Statement. If you are a shareholder of record and have more than one account in your name, or at the same address as other shareholders of record, you may authorize us to discontinue duplicate mailings of future Annual Reports (commonly referred to as “householding”). To do so, mark the designated box on each proxy card for which you wish to discontinue receiving an Annual Report. If you are voting via the Internet or by telephone, you can either follow the prompts when you vote or give instructions to discontinue duplicate mailings of future Annual Reports. Street name shareholders who wish to discontinue receiving duplicate mailings of future Annual Reports should review the information provided in the proxy materials mailed to them by their bank or broker.

 

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Johnson & Johnson Employee Savings Plans		If you are an employee of a Johnson & Johnson company and hold shares in one of our employee savings plans, you will receive one proxy card that covers those shares held for you in your savings plan, as well as any other shares registered in your own name (but not shares held in street name). If you vote via the Internet, by telephone or by mail, as described above, by 5:00 p.m. (Eastern) on April 24, 2012, the Trustee of your savings plan will vote your shares as you have directed (your voting instructions will be kept confidential). It is important that you direct the Trustee how to vote your shares. In accordance with the terms of the Johnson & Johnson Savings Plan and the Johnson & Johnson Puerto Rico Retirement Savings Plan, if you hold shares in either plan and do not vote, the plan Trustee will vote your shares in direct proportion to the shares held in that plan for which votes will be cast. If you hold shares in any other Johnson & Johnson employee savings plan, including the Johnson & Johnson Savings Plan for Union Represented Employees, and do not vote, the plan Trustee will not vote your shares. Participants in the Johnson & Johnson employee savings plans may attend the Annual Meeting. However, shares held in those plans can only be voted as described in this paragraph, and cannot be voted at the meeting.
Advance Notice of Shareholder Proposals and Other Items of Business		To be included in the Proxy Statement and proxy card for the 2013 Annual Meeting of Shareholders, a shareholder proposal must be received at our principal office on or before November 14, 2012 and must comply with Rule 14a-8 under the U.S. Securities and Exchange Act of 1934, as amended.   In addition, under the terms of our By-Laws, a shareholder who intends to present an item of business at the 2013 Annual Meeting of Shareholders (other than a proposal submitted for inclusion in our proxy materials) must provide us with written notice of such business, which must be received on or before November 14, 2012.   Proposals and other items of business should be directed to the attention of the Secretary at our principal office, One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933.

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Corporate Governance

Director Independence. The Board of Directors has determined that the following Directors, comprising all of the Non-Employee Directors, are “independent” under the listing standards of the New York Stock Exchange (“NYSE”) and our Standards of Independence: Dr. Coleman, Mr. Cullen, Mr. Davis, Dr. Johns, Dr. Lindquist, Ms. Mulcahy, Mr. Mullin, Mr. Perez, Mr. Prince, Dr. Satcher and Mr. Williams. In order to assist the Board in making this determination, the Board has adopted Standards of Independence as part of our Principles of Corporate Governance, which can be found on our website at www.investor.jnj.com/governance/policies.cfm. These Standards identify, among other things, material business, charitable and other relationships that could interfere with a Director’s ability to exercise independent judgment.

As highly accomplished individuals in their respective industries, fields and communities, the Non-Employee Directors are affiliated with numerous corporations, educational institutions, hospitals and charities, as well as civic organizations and professional associations, many of which have business, charitable or other relationships with the company. The Board considered each of these relationships in light of the Standards of Independence and determined that none of these relationships conflict with the interests of the company or would impair the relevant Non-Employee Director’s independence or judgment. The following table describes the relationships that were considered in making this determination. The nature of the transactions, relationships and arrangements summarized in the table below, and the role of each of the Directors at their respective organizations, were such that none of the Non-Employee Directors had any direct business relationships with the company in 2011 or received any direct personal benefit from any of these transactions, relationships or arrangements.

 

Director		Organization		Type of Organization		Relationship to Organization		Type of Transaction, Relationship or Arrangement		2011 Aggregate Magnitude
M. S. Coleman		University of Michigan		Educational institution		Executive officer		Sales of health care products and services; educational and research grants and fellowships; conference exhibit fees		<1%
M. M. E. Johns		Emory University		Educational institution		Employee		Sales of health care products and services; royalty payments; educational and research grants and fellowships; conference exhibit fees		<1%
S. L. Lindquist		Massachusetts Institute of Technology		Educational institution		Employee		Educational and research fellowships and grants; other research related payments		<1%; <$1 million
W. D. Perez		Cornell University		Educational Institution		Trustee		Tuition; grants and fellowships		<1%; <$1 million
D. Satcher		Morehouse School of Medicine		Educational institution		Employee		Research payments; grants		<1%; <$1 million

All of the transactions, relationships and arrangements of the type listed above were entered into, and payments were made or received, by us in the ordinary course of business and on competitive terms. Aggregate payments to each of the relevant organizations did not exceed the greater of $1 million or 1% of that organization’s consolidated gross revenues for 2009, 2010 or 2011. The company’s transactions with, or discretionary charitable contributions to, each of the relevant organizations (not including gifts made under our matching gifts program) did not exceed the greater of $1 million or 1% of that organization’s consolidated gross revenues for 2009, 2010 or 2011.

 

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In the event of Board-level discussions pertaining to a potential transaction, relationship or arrangement involving an organization with which a Director is affiliated, that Director would be expected to recuse himself or herself from the deliberation and decision-making process. In addition, none of the Non-Employee Directors have the authority to review, approve or deny any grant to, or research contract with, an organization.

Board Meetings. During 2011, the Board of Directors held seven regularly scheduled and five special meetings. Each Director attended at least 75% of the total regularly scheduled and special meetings of the Board of Directors and the committees on which he or she served. A discussion of the role of the Board of Directors in our strategic planning process can be found on our website at www.investor.jnj.com/governance/strategic-planning.cfm.

Annual Meeting Attendance. It has been our longstanding practice for all Directors to attend the Annual Meeting of Shareholders. All Directors who were elected to the Board at the 2011 Annual Meeting were in attendance.

Board Leadership Structure. William C. Weldon, our current Chief Executive Officer (CEO), is also the Chairman of our Board of Directors. Our independent Directors determined that for effective Board governance, it was appropriate to have an independent Presiding Director. In February 2012, our Board decided to appoint Alex Gorsky, currently Vice Chairman, Executive Committee, as our new CEO, effective as of the date of our 2012 Annual Meeting of Shareholders. Mr. Gorsky has also been nominated to the Board for election at the 2012 Annual Meeting. Mr. Weldon will remain Chairman of our Board and continue to be an employee of our company. Because Mr. Weldon will not be an independent Chairman, our Board will continue to have a Presiding Director, and has designated James G. Cullen to serve as Presiding Director for 2012.

Our independent Directors believe that each of the possible leadership structures for a board has its particular pros and cons, which must be considered in the context of the specific circumstances, culture and challenges facing a company, and that such consideration falls squarely on the shoulders of a company’s board and necessitates a diversity of views and experiences. As discussed in “Item 1: Election of Directors” on pages 13 to 20 of this Proxy Statement, our independent Directors come from a variety of organizational backgrounds with direct experience with a wide range of leadership and management structures. The makeup of our Board puts it in a very strong position to evaluate the pros and cons of the various types of board leadership structures and to ultimately decide which one will work in the best interests of our stakeholders, as they are defined in Our Credo.

The combined Chairman/CEO model is a leadership model that has served our shareholders well for many generations, through numerous economic cycles and through a succession of effective leaders. Our Board believes that in the context of the upcoming transition to a new CEO, it will be in the best interests of the company to have our former CEO remain as Chairman and work closely with our new CEO to ensure a seamless transition of leadership. During this time, all day-to-day management and operational responsibilities will be transferred to our new CEO. Our Chairman will remain as an employee of the company, but will not be a member of our Executive Committee, which is the principal management group responsible for strategic operations and allocations of the resources of the company. Our CEO will lead our Executive Committee and will also be a member of our Board.

After the 2012 Annual Meeting, the duties and responsibilities of the Chairman of the Board will primarily consist of:

 

•

Working with the Board of Directors. The Chairman will convene and preside over Board meetings, providing leadership to the Board, establish processes for managing the responsibilities of the Board and its committees, organize and establish Board agendas with assistance from the CEO, committee chairmen, Corporate Secretary and Presiding Director, plan Board agendas, supervise circulation of Board materials in a timely fashion, and establish committee assignments in collaboration with the Chairman of the Nominating & Corporate Governance Committee and Presiding Director.

 

•

Facilitating Board-Management Communication. The Chairman will facilitate communication among the Directors, and between the Board and the CEO and other senior members of management.

 

•

Leading Evaluation Processes. The Chairman will lead the Board in evaluating its own performance and evaluating the performance of the CEO.

 

 

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•

Assisting the CEO. The Chairman will assist the CEO in business planning and strategy and serve as a mentor and sounding board to the CEO.

 

•

Building External Relationships. The Chairman will represent the Board and the company before governmental and other external organizations. The Chairman will also represent the Board in communicating with investors and other key stakeholders, when appropriate.

 

•

Chair the Finance Committee. The Chairman will act as Chairman of the Finance Committee, which exercises the authority of the Board during the intervals between Board meetings.

The Chairman will be designated annually by our Board of Directors.

In 2002, our Board created the position of independent Presiding Director and established policies to ensure that each of our Board’s standing Audit Committee, Compensation & Benefits Committee and Nominating & Corporate Governance Committee consists solely of independent Directors, including the committee chairmen.

The duties and responsibilities of the Presiding Director primarily consist of:

 

•

Reviewing Board Agendas and Schedules. The Presiding Director reviews in advance the schedule of Board and committee meetings and participates in setting the agenda for each Board meeting in order to ensure that the interests and requirements of shareholders, the independent Directors and other stakeholders are appropriately addressed.

 

•

Convening Board Executive Sessions. The Presiding Director has called and chaired, and has the authority to call and schedule, Executive Sessions of the independent Directors, which are held as part of every regularly-scheduled Board meeting.

 

•

Communicating with Management. After each Executive Session of the independent Directors, the Presiding Director communicates with the Chairman and the CEO to provide feedback and also to effectuate the decisions and recommendations of the independent Directors. In addition, the Presiding Director acts as intermediary between the Non-Employee Directors and the Chairman and management on a regular basis and when special circumstances exist or communication out of the ordinary course is necessary.

 

•

Evaluating the Performance of the CEO. The Presiding Director is a key participant in the annual performance evaluation of the CEO and the other executive officers.

 

•

Communicating with Shareholders and Employees. Under the Board’s guidelines for handling shareholder and employee communications to the Board, the Presiding Director is advised promptly of any communications directed to the Board or any member of the Board that allege misconduct on the part of company management, or raise legal, ethical or compliance concerns about company policies or practices.

In addition, our Presiding Director is regularly apprised of inquiries from shareholders and involved in correspondence responding to these inquiries. Our Presiding Director is designated annually by the independent Directors. Our independent Directors have selected Mr. Cullen to serve as the designated Presiding Director for 2012.

Our independent Directors, through the Nominating & Corporate Governance Committee, will continue to periodically review our Board’s leadership structure in a serious and open-minded fashion to ensure it is still appropriate for the company.

Standing Board Committees. The Board of Directors has a standing Audit Committee, Compensation & Benefits Committee and Nominating & Corporate Governance Committee, each composed entirely of Non-Employee Directors determined to be “independent” under the listing standards of the NYSE and our Standards of Independence. Under their written charters adopted by the Board, each of these committees is authorized and assured of appropriate funding to retain and consult with external advisors, consultants and counsel. In addition, the Board has a standing Public Policy Advisory Committee, Science & Technology Advisory Committee, and Finance Committee, each composed of independent Directors and members of management. The Board has undertaken to create a Regulatory & Compliance Committee. See discussion under “Special Committees” below.

 

 

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The following table shows the Directors who are currently members or chairmen of each of the standing Board Committees and the number of meetings each committee held in 2011.

Board Committee Membership

 

Director Audit Compensation & Benefits Nominating & Corporate Governance Public Policy Advisory Science & Technology Advisory Finance Mary Sue Coleman James G. Cullen(1) Ian E. L. Davis Michael M. E. Johns Susan L. Lundquist Anne M. Mulcahy Leo F. Mullin William D. Perez Charles Prince David Satcher William C. Weldon Ronald A. Williams Number of meetings in 2011 4(2) 9 4 4 5 0 Chairman of the Board Chair Member Independent Director

 

 

(1)	Designated as an “audit committee financial expert” for purposes of Section 407 of the Sarbanes-Oxley Act.

 

(2)	Does not include teleconferences held prior to each release of quarterly earnings (four in total) and teleconferences held prior to the filing of each Quarterly Report on Form 10-Q (three in total).

The Audit Committee represents and assists the Board by providing oversight of financial management and the independent auditors and ensuring that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets are safeguarded and that financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management’s policies and procedures. In addition, the Audit Committee assists the Board in oversight of legal compliance programs. In performing these functions, the Audit Committee meets periodically with the independent auditors, management, and internal auditors (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. In addition, the Audit Committee recommends the independent auditors for appointment by the Board of Directors. A copy of the charter of the Audit Committee is available on our website at www.investor.jnj.com/governance/materials.cfm.

Any employee or other person who wishes to contact the Audit Committee to report fiscal improprieties or complaints about internal accounting control or other accounting or auditing matters can do so by writing to them c/o Johnson & Johnson, One Johnson & Johnson Plaza, Room WH 2136, New Brunswick, NJ 08933 or by using the online submission form at www.investor.jnj.com/governance/communication.cfm. Such reports may be made anonymously.

The Board has designated Mr. Cullen, the Chairman of the Audit Committee and an independent Director, as an “audit committee financial expert” under the rules and regulations of the SEC after determining that he meets the requirements for such designation. This determination was based on Mr. Cullen’s experience while President and Chief Executive Officer of Bell Atlantic Enterprises, New Jersey Bell and President and Chief Operating Officer of Bell Atlantic Corporation, where he actively supervised persons performing the functions of principal financial officer, principal accounting officer and controller.

The primary function of the Compensation & Benefits Committee is to discharge the Board’s duties and responsibilities relating to compensation of our Non-Employee Directors and executive officers, and oversee the design and management of the various pension, long-term incentive, savings, health and welfare plans that cover our employees.

The Compensation & Benefits Committee’s duties and responsibilities under its charter with respect to the compensation of our Directors and executive officers include:

 

•

recommending to the Board the Chairman/CEO’s compensation based on the independent Directors’ annual evaluation of his or her performance;

 

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•

reviewing and approving compensation decisions recommended by the Chairman/CEO for the other executive officers, including setting base salaries, annual performance bonuses, long-term incentive awards, severance benefits and perquisites;

•

reviewing and providing oversight of the development of our compensation philosophy and composition of the group of peer companies used for comparison of executive compensation;

 

•

approving the establishment of competitive targets versus the group of peer companies used for comparison of executive compensation and all equity-based plans requiring shareholder approval;

 

•

reviewing the eligibility criteria and award guidelines for the corporate-wide compensation programs in which the executive officers participate; and

 

•

reviewing, and recommending for approval by the Board, the compensation for the Non-Employee Directors.

The Compensation & Benefits Committee has retained an independent compensation consultant from Frederic W. Cook & Co., Inc. for matters related to executive officer and Director compensation. Frederic W. Cook & Co., Inc. does not provide any other services to the company. The compensation consultant reports directly to the Committee. For further discussion of the role of the Compensation & Benefits Committee in the executive compensation decision-making process, and for a description of the nature and scope of the consultant’s assignment, see the section entitled “Compensation Discussion and Analysis – Governance of Executive Compensation” on page 50 of this Proxy Statement.

The Compensation & Benefits Committee also reviews the compensation philosophy and policies of the Management Compensation Committee (the “MCC”), a non-Board committee composed of Mr. Weldon (Chairman/CEO), Mr. Dominic J. Caruso (Chief Financial Officer) and Mr. Peter M. Fasolo (Vice President, Global Human Resources), which, under delegation from the Compensation & Benefits Committee, determines management compensation and establishes perquisites and other compensation policies for employees (except for our executive officers). The Compensation & Benefits Committee is also responsible for the oversight of our annual performance bonus and long-term incentive plans and is the approving authority for management recommendations with respect to performance bonuses and long-term incentive awards under those plans. A copy of the charter of the Compensation & Benefits Committee can be found on our website at www.investor.jnj.com/governance/materials.cfm.

The Nominating & Corporate Governance Committee is responsible for overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board of Directors. The Nominating & Corporate Governance Committee also oversees the process for performance evaluations of the committees of the Board. It is also within the charter of the Nominating & Corporate Governance Committee to review our executive succession plans and executive resources, review and recommend director orientation and continuing orientation programs for Board members, and consider questions of possible conflicts of interest, as such questions arise. In addition, the Nominating & Corporate Governance Committee reviews possible candidates for the Board, as discussed on page 13 of this Proxy Statement, and recommends the nominees for Directors to the Board for approval. A copy of the charter of the Nominating & Corporate Governance Committee can be found on our website at www.investor.jnj.com/governance/materials.cfm.

The Public Policy Advisory Committee consists of independent Directors, one of our Vice Chairmen, Executive Committee, and the Vice Presidents for Global Corporate Affairs, Global Supply Chain, and Government Affairs and Policy. The Public Policy Advisory Committee reviews our policies, programs and practices on public health issues regarding the environment and the health and safety of employees. The Public Policy Advisory Committee also reviews our governmental affairs and other public policy issues facing the company. The Public Policy Advisory Committee advises and makes recommendations to the Board on these issues, as appropriate.

The Science & Technology Advisory Committee is composed of independent Directors and our Vice President, Science and Technology. It assists the Board in monitoring the overall strategy, direction and effectiveness of our research and development organization; in monitoring the effectiveness of the scientific aspects of our product safety processes; in overseeing major business development activities as they relate to the acquisition of new science or technology; and in identifying and comprehending significant emerging science and technology policy issues and trends that may impact our overall business strategy.

The Finance Committee is composed of the Chairman and Presiding Director of the Board. The Committee exercises the authority of the Board during the intervals between Board meetings, as permitted by law. The Finance Committee generally does not hold formal meetings and instead acts from time-to-time between Board meetings by unanimous written consent in lieu of a meeting, as needed. Any such action is taken pursuant to specific advance delegation by the Board or is later ratified by the Board.

 

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Special Committees. The Board also has the authority to appoint such additional committees as it may from time-to-time determine. A Special Committee was appointed by the Board in 2010 to investigate and evaluate demands made by certain shareholders and claims asserted in certain shareholder derivative suits. The members of the Special Committee were Messrs. Perez and Prince, Dr. Johns and Ms. Mulcahy. Mr. Prince served as the Chairman of the Special Committee. In July 2011, the Special Committee completed its work and issued a report that recommended (1) the company reject the shareholder demands and take whatever steps are necessary or appropriate to secure dismissal of the derivative litigation, and (2) the Board of Directors create a new Regulatory & Compliance Committee charged with responsibility for monitoring and oversight of our Health Care Compliance and Quality & Compliance systems and issues. The Board unanimously adopted the Special Committee’s recommendations.

Executive Sessions. During 2011, each of the Audit, Compensation & Benefits and Nominating & Corporate Governance Committees met in Executive Sessions without members of management present at each of their regularly-scheduled meetings. The independent Directors met seven times during 2011 in Executive Sessions, without the Chairman/CEO or any other member of management present, at which the Presiding Director acted as Chairman.

Board Oversight of Risk Management. The Board believes that overseeing how management manages the various risks we face is one of its most important responsibilities to our stakeholders. Our enterprise risk management framework reflects a collaborative process, whereby our Board of Directors, management and other personnel apply a common risk management approach to strategy setting and other decisions across the enterprise that is designed to identify potential events that may affect the entity and manage the associated risks and opportunities.

The Board believes that, in light of the interrelated nature of the risks we face, oversight of risk management is ultimately the responsibility of the full Board. In carrying out this critical responsibility, the Board meets at regular intervals with key members of management with primary responsibility for risk management in their respective areas of responsibility. The subject matter of these meetings can generally be grouped into the following categories and risk areas:

 

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Strategy: Business Vitality; Strategic Planning; Talent Management; Reputation; Sustainability; Diversity

 

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Reporting: Financial Results; Finance/Accounting; Internal Audit; Independent Audit; Tax; Treasury

 

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Compliance: Law/Legal Proceedings; Legislative/Regulatory Environment; Health Care Compliance; Foreign Corrupt Practices Act; Environment, Health & Safety; Privacy; Quality; Product Safety/Scientific Issues

 

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Operations: Supply Chain (including Manufacturing/Business Continuity Planning); Security (including security of products, sites, personnel, and information); Research & Development

The Board also receives regular reports on aspects of our risk management from senior representatives of our independent auditor. In addition, the Audit Committee (the current Chairman of which is also the independent Presiding Director) meets in private sessions with the Chief Financial Officer; General Counsel; Chief Compliance Officer; Vice President of Corporate Internal Audit; and representatives of our independent auditor at the conclusion of every regularly-scheduled meeting, where aspects of risk management are discussed.

Risk Related to Executive Compensation. The following characteristics of our executive compensation program work to reduce the possibility of our executive officers, either individually or as a group, making excessively-risky business decisions that could maximize short-term results at the expense of long-term value:

 

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Balanced Mix of Pay Components: The target compensation mix is not overly weighted toward annual incentive awards and represents a balance of cash and long-term equity-based compensation vesting over three years.

 

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Balanced Approach to Performance-Based Awards:

 

–  Performance targets are tied to multiple financial metrics, including operational sales growth, free cash flow, earnings per share growth, and long-term total shareholder return.

–  Performance-based awards are based on the achievement of strategic and leadership objectives in addition to financial metrics.

 

 

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Performance Period and Vesting Schedules: The performance period and vesting schedules for long-term incentives overlap, and therefore, reduce the motivation to maximize performance in any one period. Performance Share Units, Restricted Share Units, and Stock Options vest three years from the grant date.

 

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Capped Incentive Awards: Salary increases, annual performance bonuses, and long-term incentive awards are capped at 200% of target.

 

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Stock Ownership Guidelines: The guidelines require our Chairman/CEO to directly or indirectly own equity in our company of five times salary, and our other executive officers to own equity of three times salary, and to retain this level of equity at all times while employed by Johnson & Johnson.

 

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Executive Compensation Recoupment Policy: The policy gives our Board the authority to recoup executive officers’ past compensation in the event of a material restatement of our financial results.

 

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No Employment or Change-in-Control Arrangements: None of our executive officers have in place any employment or change-in-control arrangements that would result in guaranteed payouts.

Communication with the Board. Shareholders, employees and others may contact the Board or any of our Directors (including the Presiding Director) by writing to them c/o Johnson & Johnson, One Johnson & Johnson Plaza, Room WH 2136, New Brunswick, NJ 08933. Shareholders, employees and others may also contact the Board or any of the Non-Employee Directors by using the online submission form on our website at www.investor.jnj.com/governance/communication.cfm. General comments to the company (including complaints or questions about a product) should be sent by accessing https://secure-www.jnj.com/wps/wcm/jsp/contactus.jsp. Our process for handling communications to the Board or the individual Directors has been approved by the independent Directors and can be found at www.investor.jnj.com/governance/communication.cfm.

Corporate Governance Materials. Shareholders can see our Restated Certificate of Incorporation; By-Laws; Principles of Corporate Governance; Charters of the Audit Committee, Compensation & Benefits Committee, Nominating & Corporate Governance Committee and Science & Technology Advisory Committee; Policy on Business Conduct for employees; and Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers on our website at www.investor.jnj.com/governance/materials.cfm. Copies of these documents, as well as additional copies of this Proxy Statement, are available to shareholders, without charge, upon request to the Secretary at our principal address.

Majority Vote Standard in Uncontested Director Elections. Our By-Laws require that, in uncontested elections (those where the number of nominees does not exceed the number of Directors to be elected), Director nominees receive the affirmative vote of a majority of the votes cast in order to be elected to our Board of Directors. The majority standard applies only to uncontested Director elections. Ballots for uncontested elections, including the election of Directors at the 2012 Annual Meeting, will allow shareholders to vote “For” or “Against” each nominee and also will allow shareholders to “Abstain” from voting on any nominee. In accordance with New Jersey law, abstentions will have no effect in determining whether the required majority vote has been obtained.

Under our By-Laws and in accordance with New Jersey law, a Director’s term extends until his or her successor is duly elected and qualified, or until he or she resigns or is removed from office with cause by a majority vote of shareholders entitled to vote. Thus, an incumbent Director who fails to receive the required vote for re-election at our Annual Meeting of Shareholders would continue serving as a Director (sometimes referred to as a “holdover director”), generally until the next meeting of shareholders. In order to address the situation where an incumbent Director receives more votes “Against” his or her re-election than votes “For” his or her re-election in an uncontested election, the Board has adopted a Director Resignation Policy for Incumbent Directors in Uncontested Elections, which would require that Director to promptly tender an offer of his or her resignation following certification of the shareholder vote. The Nominating & Corporate Governance Committee and the Board would then consider and take appropriate action on such offer of resignation in accordance with the Policy.

Contested Director elections (those where the number of Director nominees exceeds the number of Directors to be elected) would be governed by the plurality standard under New Jersey law. Ballots for contested elections would allow shareholders to vote “For” each nominee or “Withhold” from voting on any nominee, as is typically the practice under the plurality standard. The Director Resignation Policy for Incumbent Directors in Uncontested Elections would not apply to contested elections.

Our By-Laws and Principles of Corporate Governance, including the Director Resignation Policy for Incumbent Directors in Uncontested Elections, can be found on our website at www.investor.jnj.com/governance/materials.cfm.

 

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Item 1: Election of Directors

Director Nomination Process. The Nominating & Corporate Governance Committee of the Board of Directors reviews possible candidates for the Board and recommends the nominees for Directors to the Board for approval. The Board has adopted General Criteria for Nomination to the Board of Directors, which, as part of the Principles of Corporate Governance, are posted on our website at www.investor.jnj.com/governance/policies.cfm. These criteria describe specific traits, abilities and experience that the Nominating & Corporate Governance Committee and the Board look for in determining candidates for election to the Board, including:

 

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the highest ethical character and shared values with Our Credo;

 

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reputation consistent with our image and reputation;

 

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accomplishment within a candidate’s respective field, with superior credentials and recognition;

 

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active and former chief executive officers of public companies and leaders of major complex organizations, including scientific, government, educational and other non-profit institutions;

 

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widely recognized leaders in the fields of medicine or biological sciences, including those who have received the most prestigious awards and honors in their fields;

 

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relevant expertise and experience and the ability to offer advice and guidance to the CEO based on that expertise and experience;

 

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independence, without the appearance of any conflict in serving as a Director, and ability to represent all shareholders;

 

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ability to exercise sound business judgment; and

 

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diversity reflecting gender, ethnic background and professional experience.

The Nominating & Corporate Governance Committee annually considers the size, composition and needs of the Board in light of these criteria and accordingly considers and recommends candidates for membership on the Board.

The Nominating & Corporate Governance Committee considers suggestions from many sources, including shareholders, regarding possible candidates for Directors. Such suggestions, together with appropriate biographical information, should be submitted to the Secretary at our principal office at One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933. Possible candidates suggested by shareholders are evaluated by the Nominating & Corporate Governance Committee in the same manner as other possible candidates.

Nominees. There are 13 nominees for election as Directors of the company to hold office until the next Annual Meeting and until their successors have been duly elected and qualified.

If the enclosed proxy is properly executed and received in time for the meeting, it is the intention of the persons named in the proxy to vote the shares represented thereby “For” or “Against” the persons nominated for election as Directors, or “Abstain” from voting, as instructed. See “Corporate Governance – Majority Vote Standard in Uncontested Director Elections” on page 12 of this Proxy Statement. If any nominee should refuse or be unable to serve, an event which is not anticipated, the proxy will be voted for such person as shall be designated by the Board of Directors to replace such nominee or, in lieu thereof, the Board of Directors may reduce the number of Directors.

Except for Ronald A. Williams, who was appointed to the Board in June 2011, and Mr. Gorsky, all of the nominees were elected to the Board at the last Annual Meeting. Except Mr. Gorsky, all of the nominees are currently serving as Directors of the company. Mr. Williams was initially identified as a potential nominee by the Chairman/CEO and recommended for nomination by the Nominating & Corporate Governance Committee. Mr. Gorsky was initially identified as a potential nominee by members of the Board. The Nominating & Corporate Governance Committee recommended Mr. Gorsky for nomination to the Board in connection with his appointment as CEO.

 

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Below are summaries of the background, business experience and descriptions of the principal occupations of the nominees.

 

Director since: 2003   Independent		MARY SUE COLEMAN, Ph.D., President, University of Michigan   Having served as President of two of the nation’s largest and most prestigious public universities and having a long and decorated career in the sciences, Dr. Coleman brings to our Board a unique point of view regarding organizational management and academic research vital to a company competing in science-based industries.   Dr. Coleman, 68, joined the Board of Directors in 2003 and is a member of the Audit Committee and the Science & Technology Advisory Committee. She has served as President of the University of Michigan since August 2002, after having served as President of the University of Iowa from 1995 to July 2002. In addition to her current position as President, Dr. Coleman is a professor of biological chemistry in the University of Michigan Medical School and a professor of chemistry in the University of Michigan College of Literature, Science and the Arts. Prior to 1995, Dr. Coleman served as Provost and Vice President for Academic Affairs at the University of New Mexico, Vice Chancellor for Graduate Studies & Research and Associate Provost and Dean of Research at the University of North Carolina at Chapel Hill, and a member of the biochemistry faculty and an administrator at the Cancer Center of the University of Kentucky in Lexington. Elected to the National Academy of Sciences’ Institute of Medicine in 1997, Dr. Coleman is a Fellow of the American Academy of Arts and Sciences and the American Association for the Advancement of Science. Dr. Coleman is a Trustee of the Gerald R. Ford Foundation.   Other Public Company Board Service: Meredith Corporation (1997 to present)
Director since: 1995   Independent   Presiding Director		JAMES G. CULLEN, Retired President and Chief Operating Officer, Bell Atlantic Corporation   With years of demonstrated managerial ability as CEO and COO of a large telecommunications company, and as the current independent, non-executive Chairman of the Board of Directors of Agilent Technologies, Inc. and NeuStar, Inc., Mr. Cullen brings to our Board a wealth of knowledge of organizational and operational management, as well as board leadership experience, essential to a large public company.   Mr. Cullen, 69, joined the Board of Directors in 1995 and is the Presiding Director of the Board, Chairman of the Audit Committee and a member of the Nominating & Corporate Governance Committee and the Finance Committee. Mr. Cullen retired as President and Chief Operating Officer of Bell Atlantic Corporation (communications) in 2000. He had assumed those positions in 1998, after having been Vice Chairman since 1995 and, prior to that, President since 1993. He was President and Chief Executive Officer of Bell Atlantic-New Jersey, Inc. from 1989 to 1993. Mr. Cullen is a Director of Eisenhower Medical Center.   Other Public Company Board Service: Agilent Technologies, Inc. (2000 to present; Non-Executive Chairman since 2005), NeuStar, Inc. (2005 to present; Non-Executive Chairman since 2010), Prudential Financial, Inc. (2001 to present; Lead Director since 2011)

 

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Director since: 2010   Independent		IAN E. L. DAVIS, Senior Advisor, Apax Partners; Former Chairman and Worldwide Managing Director, McKinsey & Company   Having served as Chairman and Worldwide Managing Director of one of the world’s leading management consulting firms, and as a consultant to a range of global organizations across the public, private and not-for-profit sectors, Mr. Davis brings considerable global experience, management insight and business knowledge to our Board.   Mr. Davis, 61, joined the Board of Directors in 2010 and is a member of the Audit Committee and the Public Policy Advisory Committee. Mr. Davis is currently a Senior Advisor at Apax Partners, a private equity advisory firm. Mr. Davis retired from McKinsey & Company (management consulting) in 2010 as a Senior Partner, having served as Chairman and Worldwide Managing Director from 2003 until 2009. In his more than 30 years at McKinsey, he served as a consultant to a range of global organizations across the public, private and not-for-profit sectors. Prior to becoming Chairman and Worldwide Managing Director, he was Managing Partner of McKinsey’s practice in the United Kingdom and Ireland. His experience includes oversight for McKinsey clients and services in Asia, Europe, the Middle East and Africa, as well as expertise in the consumer products and retail industries. Mr. Davis is a Director of Teach for All, a global network of independent social enterprises working to expand educational opportunities in their nations; a non-executive Director of global energy group, BP plc.; a non-executive member of the UK’s Cabinet Office Board; and a Director of the Big Society Trust. Mr. Davis serves on the International Advisory Committee of the King Abdullah Petroleum Studies and Research Centre.   Other Public Company Board Service: BP plc (2010 to present)
Management		ALEX GORSKY, Vice Chairman, Executive Committee, Johnson & Johnson   A proven leader who began his career with Johnson & Johnson in 1988, rising to positions of greater responsibility throughout his tenure to his most recent appointment as Chief Executive Officer and Chairman, Executive Committee (effective April 26, 2012), Mr. Gorsky brings a broad understanding of the issues facing a multinational business in the health care industry, and a full range of strategic management expertise, leadership skills and business insight to the Board and to our company.   Mr. Gorsky, 51, assumed his current position as Vice Chairman, Executive Committee in January 2011 and is responsible for our Medical Devices and Diagnostics Group; Global Supply Chain; Government Affairs & Policy Group; and Health Care Compliance and Privacy. Our Board of Directors named Mr. Gorsky Chief Executive Officer and Chairman, Executive Committee, effective following the Annual Meeting on April 26, 2012. Mr. Gorsky began his career at Johnson & Johnson as a sales representative with Janssen Pharmaceutica Inc. in 1988. Over the next 15 years, he advanced through positions of increasing responsibility in sales, marketing, and management. In 2001, Mr. Gorsky was appointed President of Janssen Pharmaceutica Inc., and in 2003, he was named Company Group Chairman of our pharmaceuticals business in Europe, the Middle East and Africa. Mr. Gorsky left Johnson & Johnson in 2004 to join the Novartis Pharmaceuticals Corporation, where he served as head of the company’s pharmaceuticals business in North America. Mr. Gorsky returned to Johnson & Johnson in 2008 as Company Group Chairman for Ethicon. In January 2009, he was appointed Worldwide Chairman, Surgical Care Group and member of the Executive Committee. In September 2009, he was appointed Worldwide Chairman, Medical Devices and Diagnostics Group. Mr. Gorsky serves on the boards of the Advanced Medical Technology Association (AdvaMed), InHealth Institute for Health Technology Studies and the Travis Manion Foundation.   Other Public Company Board Service: None

 

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Director since: 2005   Independent		MICHAEL M. E. JOHNS, M.D., Chancellor, Emory University   Having served in numerous senior leadership positions at some of the nation’s most prestigious academic institutions, hospitals and health care systems, Dr. Johns provides a valuable combination of experience at the highest levels of both patient care and medical research, as well as organizational management skills and public health policy expertise, making him an integral board member of a company in the health care industry.   Dr. Johns, 70, joined the Board of Directors in 2005 and is a member of the Compensation & Benefits Committee and the Science & Technology Advisory Committee. He has served since October 2007 as Chancellor of Emory University. From 1996 to 2007, Dr. Johns served as Executive Vice President for Health Affairs and Chief Executive Officer of the Robert W. Woodruff Health Sciences Center of Emory University. As the Executive Vice President for Health Affairs, he oversaw Emory University’s widespread academic and clinical programs in health sciences and led strategic planning initiatives for both patient care and research. In addition, from 1996 to 2007, he served as the Chairman of the Board of Emory Healthcare, the largest health care system in Georgia. From 1990 to 1996, Dr. Johns served as Dean of the Johns Hopkins School of Medicine and Vice President of the Medical Faculty at Johns Hopkins University. Dr. Johns is Past Chair of the Council of Teaching Hospitals, a fellow of the American Association for the Advancement of Science and a member of the Institute of Medicine. He is a member of the editorial board of the Journal of the American Medical Association (JAMA) and chairs the Publication Committee of the journal Academic Medicine.   Other Public Company Board Service: AMN Healthcare Services, Inc. (2008 to present), Genuine Parts Company (2000 to present)
Director since: 2004   Independent		SUSAN L. LINDQUIST, Ph.D., Member and Former Director, Whitehead Institute for Biomedical Research; Professor of Biology, Massachusetts Institute of Technology   With her long and decorated career in scientific research and her global reputation as a pioneer in biomedical innovation, Dr. Lindquist brings to our Board an incomparable perspective on the intersection of academic and commercial medical research critical to a company in the health care industry.   Dr. Lindquist, 62, joined the Board of Directors in 2004 and is a member of the Science & Technology Advisory Committee and the Public Policy Advisory Committee. She is a member of the Whitehead Institute, a non-profit, independent research and educational institution, a Professor of Biology at the Massachusetts Institute of Technology and an Investigator of the Howard Hughes Medical Institute. Dr. Lindquist served as Director of the Whitehead Institute from 2001 to 2004. Previously she was affiliated with the University of Chicago where she was the Albert D. Lasker Professor of Medical Sciences in the Department of Molecular Genetics and Cell Biology. Dr. Lindquist was elected to the American Academy of Arts and Sciences in 1996, the National Academy of Sciences in 1997, the American Philosophical Society in 2003 and the Institute of Medicine in 2006. She received the Novartis/Drew Award for Biomedical Research in 2000, the Dickson Prize in Medicine in 2002, the Sigma Xi William Procter Prize for Academic Achievement in 2006, the Nevada Silver Medal for Scientific Achievement in 2007, the Genetics Society of America Medal and the Centennial Medal of the Harvard University Graduate School of Arts and Sciences in 2008. In 2010, she received the Mendel Medal from the Genetics Society (UK), The Delbrück Medal from Bayer Schering, and the National Medal of Science (USA). She is a member of the Scientific Advisory Board of the Institut für Molekulare Biotechnologie GmbH. Dr. Lindquist is also a Co-Founder of FoldRx Pharmaceuticals, Inc., a subsidiary of Pfizer Inc.   Other Public Company Board Service: None

 

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Director since: 2009   Independent		ANNE M. MULCAHY, Former Chairman and Chief Executive Officer, Xerox Corporation   Having served as Chairman and CEO of a large, global manufacturing and services company with one of the world’s most recognized brands and track record for innovation, Ms. Mulcahy presents valuable insight into organizational and operational management issues crucial to a large public company, as well as a strong reputation for leadership in business innovation and talent development.   Ms. Mulcahy, 59, joined the Board of Directors in 2009 and is a member of the Compensation & Benefits Committee and the Nominating & Corporate Governance Committee. Ms. Mulcahy was both Chairman and Chief Executive Officer of Xerox Corporation (business equipment and services) until July 2009, when she retired as CEO after eight years in the position. Prior to serving as CEO, Ms. Mulcahy was President and Chief Operating Officer of Xerox. She has also served as President of Xerox’s General Markets Operations, which created and sold products for reseller, dealer and retail channels. During a career at Xerox that began in 1976, Ms. Mulcahy also served as Vice President for Human Resources with responsibility for compensation, benefits, human resource strategy, labor relations, management development and employee training; and Vice President and Staff Officer for Customer Operations, covering South America and Central America, Europe, Asia and Africa, and China. Ms. Mulcahy has been a U.S. Board Chair of Save the Children since March 2010.   Other Public Company Board Service: Target Corporation (1997 to present), The Washington Post Company (2008 to present)   Recent Past Public Company Board Service: Citigroup Inc. (2004 to 2009), Xerox Corporation (2000 to 2010; Executive Chairman 2009 to 2010)
Director since: 1999   Independent		LEO F. MULLIN, Retired Chairman and Chief Executive Officer, Delta Air Lines, Inc.   Mr. Mullin’s depth and breadth of exposure to complex issues from having served as Chairman and CEO of one of the nation’s largest airlines, and his long and distinguished career in the banking industry, make him a skilled advisor who provides critical insight into organizational and operational management, global business and financial matters.   Mr. Mullin, 69, joined the Board of Directors in 1999 and is a member of the Audit Committee and Chairman of the Public Policy Advisory Committee. Mr. Mullin currently serves as a Senior Advisor, on a part-time basis, to Goldman Sachs Capital Partners, a private equity fund group. Mr. Mullin retired as Chief Executive Officer of Delta Air Lines, Inc. (transportation) in December 2003 and Chairman in April 2004, after having served as Chief Executive Officer of Delta since 1997 and Chairman since 1999. Mr. Mullin was Vice Chairman of Unicom Corporation and its principal subsidiary, Commonwealth Edison Company, from 1995 to 1997. He was an executive of First Chicago Corporation from 1981 to 1995, serving as that company’s President and Chief Operating Officer from 1993 to 1995, and as Chairman and Chief Executive Officer of American National Bank, a subsidiary of First Chicago Corporation, from 1991 to 1993. Mr. Mullin is immediate past Board Chairman of the Juvenile Diabetes Research Foundation (JDRF) and served as interim Chief Executive Officer of JDRF from July through December 2008.   Other Public Company Board Service: ACE Limited (2007 to present), Education Management Corporation (2009 to present)

 

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Director since: 2007   Independent		WILLIAM D. PEREZ, Senior Advisor, Greenhill & Co., Inc.; Retired President and Chief Executive Officer, Wm. Wrigley Jr. Company   With his experience as CEO of several large, consumer-focused companies across a wide variety of industries, Mr. Perez contributes to our Board significant organizational and operational management skills, combined with a wealth of experience in global, consumer-oriented businesses vital to a large public company in the consumer products space.   Mr. Perez, 64, joined the Board of Directors in 2007 and is Chairman of the Nominating & Corporate Governance Committee and a member of the Compensation & Benefits Committee. Mr. Perez is currently a Senior Advisor at Greenhill & Co., Inc., (investment banking). Mr. Perez served as President and Chief Executive Officer for the Wm. Wrigley Jr. Company (confectionary and chewing gum) from 2006 to 2008. Before joining Wrigley, Mr. Perez served as President and Chief Executive Officer of Nike, Inc. Previously, he spent 34 years with S.C. Johnson & Son, Inc., including eight years as its President and Chief Executive Officer. Mr. Perez is a Trustee for Cornell University and Northwestern Memorial Hospital.   Other Public Company Board Service: Campbell Soup Company (2009 to present), Whirlpool Corporation (2009 to present)   Recent Past Public Company Board Service: Wm. Wrigley Jr. Company (2006 to 2008)
Director since: 2006   Independent		CHARLES PRINCE, Retired Chairman and Chief Executive Officer, Citigroup Inc.   Having served as Chairman and CEO of the nation’s largest and most diversified financial institution, Mr. Prince brings to our Board a strong mix of organizational and operational management skills combined with well-developed legal, global business and financial acumen critical to a large public company.   Mr. Prince, 62, joined the Board of Directors in 2006 and is Chairman of the Compensation & Benefits Committee and a member of the Nominating & Corporate Governance Committee. Mr. Prince served as Chief Executive Officer of Citigroup Inc. (financial services) from 2003 to 2007 and as Chairman from 2006 to 2007. Previously he served as Chairman and Chief Executive Officer of Citigroup’s Global Corporate and Investment Bank from 2002 to 2003 and Chief Operating Officer from 2001 to 2002. Mr. Prince began his career as an attorney at U.S. Steel Corporation in 1975. Mr. Prince is a member of the Council on Foreign Relations and The Council of Chief Executives.   Other Public Company Board Service: Xerox Corporation (2008 to present)   Recent Past Public Company Board Service: Citigroup Inc. (2003 to 2007; Executive Chairman 2006 to 2007)

 

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Director since: 2002   Independent		DAVID SATCHER, M.D., Ph.D., Director, Center of Excellence on Health Disparities; Director, Satcher Health Leadership Institute and Poussaint-Satcher-Cosby Chair in Mental Health, Morehouse School of Medicine   With his long and decorated career in the field of public health policy, including service as Surgeon General of the United States, as well as his valuable experience in medical academia and patient care, Dr. Satcher provides unparalleled experience and vision for a company in the health care industry.   Dr. Satcher, 71, joined the Board of Directors in 2002 and is Chairman of the Science & Technology Advisory Committee and a member of the Public Policy Advisory Committee. Dr. Satcher assumed his current post at Morehouse School of Medicine in 2004 and served as the School’s Interim President from 2004 until 2006 and Director of the School’s National Center for Primary Care from 2002 through 2004. In 2002, Dr. Satcher completed his four-year term as the 16th Surgeon General of the United States. He also served as the U.S. Assistant Secretary for Health from 1998 to 2001. From 1993 to 1998, Dr. Satcher served as Director of the Centers for Disease Control and Prevention and Administrator of the Agency for Toxic Substances and Disease Registry. Dr. Satcher served as President of Meharry Medical College in Nashville, Tennessee from 1982 to 1993. Dr. Satcher is a fellow of the American Academy of Family Physicians, the American College of Preventive Medicine and the American College of Physicians. He has received numerous honorary degrees and awards, including the Jimmy and Rosalynn Carter Award for Humanitarian Contributions to the Health of Humankind, the New York Academy of Medicine Lifetime Achievement Award and the National Association of Mental Illness Distinguished Service Award. Dr. Satcher serves on the boards of Action for Healthy Kids, Kaiser Family Foundation and Save the Children.   Other Public Company Board Service: MetLife, Inc. (2007 to present)
Director since: 2001   Management   Chairman		WILLIAM C. WELDON, Chairman, Board of Directors and Chief Executive Officer; Chairman, Executive Committee, Johnson & Johnson   Having started his career at Johnson & Johnson in 1971 and been promoted to positions of increasing responsibility across business segments, culminating with his appointment as Chairman/CEO in 2002, Mr. Weldon brings vast knowledge of the company’s business, structure, history and culture to the Board and the Chairman position. Mr. Weldon continues to be one of the longest-tenured and most well-respected executives in the healthcare industry.   Mr. Weldon, 63, joined the Board of Directors and was named Vice Chairman of the Board in 2001, and assumed his current responsibilities in 2002. Mr. Weldon joined Johnson & Johnson in 1971, and served in several sales, marketing and international management positions before becoming President of the company’s affiliate, Ethicon Endo-Surgery, Inc. in 1992 and Company Group Chairman of Ethicon Endo-Surgery in 1995. He was appointed to the Executive Committee and named Worldwide Chairman, Pharmaceuticals Group, in 1998. Mr. Weldon is a member of The Business Council, the Business Roundtable, the Executive Committee of the Health Leadership Council, and the Sullivan Alliance to Transform America’s Health Profession. He is a Trustee of Quinnipiac University and serves on the Liberty Science Center Chairman’s Advisory Council. Mr. Weldon also serves on the CEO Roundtable on Cancer.   Other Public Company Board Service: J.P. Morgan Chase & Co. (2005 to present)

 

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Director since: 2011   Independent		RONALD A. WILLIAMS, Former Chairman and Chief Executive Officer, Aetna Inc.   With his long and distinguished career in the health care industry, from his experience leading one of Fortune’s Most Admired health care companies to his career-long role as an advocate for meaningful health care reform, Mr. Williams provides our Board with an exceptional combination of operational management expertise and insight into both public health care policy and the health care industry critical to a large public company in the health care industry.   Mr. Williams, 62, joined the Board of Directors in June 2011 and is a member of the Compensation & Benefits Committee and the Public Policy Advisory Committee. Mr. Williams served as Chairman and Chief Executive Officer of Aetna Inc. (managed care and health insurance) from 2006 to 2010, and as Chairman from 2010 until his retirement in April 2011. He currently serves on President Obama’s Management Advisory Board, which is helping to bring the best of business practices to the management and operation of federal government. He is also an advisor to the private equity firm, Clayton, Dubilier & Rice, LLC, and serves as Chairman of the board of Emergency Medical Services Corporation, a leading provider of facility-based physician services and medical transportation services in the U.S. In addition, Mr. Williams lends his time and expertise to a number of organizations, such as the International Federation of Health Plans, GE Healthymagination Advisory Committee, and the Wall Street Journal CEO Council. He also serves on the boards of the Peterson Institute for International Economics and Save the Children. Previously, Mr. Williams served as Chairman of the Council for Affordable Quality Healthcare from 2007 to 2010 and Vice Chairman of The Business Council from 2008 to 2010.   Other Public Company Board Service: The Boeing Company (2010 to present); American Express Company (2007 to present)   Recent Past Public Company Board Service: Aetna Inc. (2006 to 2011; Executive Chairman 2010 to 2011)

Other Information. U.S. Securities and Exchange Commission (“SEC”) regulations require us to describe certain legal proceedings, including bankruptcy and insolvency filings, involving nominees for the Board of Directors or companies of which a nominee was an executive officer. Mr. Mullin retired as Chief Executive Officer of Delta Air Lines, Inc. in December 2003 and Chairman in April 2004. In September 2005, Delta Air Lines voluntarily filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Nominating & Corporate Governance Committee of the Board of Directors does not believe that this proceeding is material to an evaluation of Mr. Mullin’s ability to serve as a Director.

 

 

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Director Compensation — 2011

The following table provides information concerning the compensation of our Non-Employee Directors for 2011. Mr. Weldon is an employee of the company and therefore received no additional compensation for his service as a Director. For a complete understanding of the table, please read the footnotes and the narrative disclosures that follow the table.

 

A		B				C				D				E
Name		Fees Earned or Paid in Cash ($)				Stock Awards ($)				All Other Compensation($)				Total ($)
M. S. Coleman			$120,000				$99,974				$19,998				$239,972
J. G. Cullen			155,000				99,974				20,000				274,974
I. E. L. Davis			120,000				99,974				0				219,974
M. M. E. Johns			122,500				99,974				10,000				232,474
S. L. Lindquist			120,000				99,974				2,200				222,174
A. M. Mulcahy			122,500				99,974				0				222,474
L. F. Mullin			130,000				99,974				20,000				249,974
W. D. Perez			132,500				99,974				20,000				252,474
C. Prince			137,500				99,974				20,000				257,474
D. Satcher			130,000				99,974				20,000				249,974
R. A. Williams(1)			60,000				67,060				0				127,060

 

(1)	Mr. Williams joined the Board in June 2011. Cash fees are pro-rated for partial service year. Stock Award reflects one-time stock grant of 1,000 shares of Common Stock upon joining the Board.

Fees Earned or Paid in Cash (Column B)

Board Retainer. Each Non-Employee Director received an annual cash retainer of $110,000 for his or her service as a member of our Board of Directors, except as noted above in the table.

Committee Retainer. Each Non-Employee Director received an annual cash retainer of $5,000 for service on a Board committee, or $15,000 if he or she was Chairman of a Board committee, except as noted above in the table. Directors who served on the Special Committee received a pro rata amount as such committee was dissolved in July 2011.

Presiding Director Retainer. Mr. Cullen, as the Presiding Director, was paid an additional annual cash retainer of $25,000.

Meeting Fees. Non-Employee Directors were eligible to receive meeting fees of $1,500 per day if they attended a Board or committee meeting held on a day other than a regularly-scheduled Board or committee meeting day. Meeting fees are not paid for participation in telephonic committee meetings. In 2011, no meeting fees were paid to any Director.

Stock Awards (Column C)

All figures in Column C represent the grant date fair value, computed in accordance with U.S. GAAP.

Restricted Shares. Each Non-Employee Director receives non-retainer equity compensation in the first quarter of each year under the Long-Term Incentive Plan in the form of shares of restricted Common Stock having a value of $100,000 on the grant date. Accordingly, each Non-Employee Director was granted 1,650 shares of restricted Common Stock under the Long-Term Incentive Plan on February 15, 2011, except Mr. Williams who joined the Board in June 2011. The restricted shares become freely transferable on the third anniversary of the grant date.

One-Time Stock Award. To immediately tie our Directors to creating shareholder value, each Non-Employee Director received a one-time grant of 1,000 shares of unrestricted Common Stock upon first becoming a member of the Board. Mr. Williams received 1,000 shares in June 2011 upon joining the Board.

 

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Stock Options. We ceased granting stock options to Non-Employee Directors after February 2004. The aggregate number of stock options outstanding for each Non-Employee Director is indicated in the table below. The compensation costs for all of these options were recognized by the company for financial reporting purposes prior to fiscal 2006.

 

Name		Options (#)
M. S. Coleman			7,600
J. G. Cullen			13,900
S. L. Lindquist			7,600
L. F. Mullin			13,900
D. Satcher			13,900

Stock Ownership Guidelines. Non-Employee Directors are required to own stock equal to three times the annual Board retainer. Stock ownership for the purpose of these guidelines includes stock initially granted upon joining the Board, restricted shares and stock units, but does not include shares underlying vested or unvested stock options. Non-Employee Directors are required to achieve the ownership threshold within five years after first becoming a Director. Our policy prohibits Non-Employee Directors from transacting in derivative instruments linked to the performance of our securities. As of March 1, 2012, all of our Non-Employee Directors, except for Messrs. Davis and Williams who each joined the Board within the past two years, had met the stock ownership threshold.

All Other Compensation (Column D)

Charitable Matching Contributions. All amounts in Column D reflect contributions made under our charitable matching gift program. Non-Employee Directors are eligible to participate in our charitable matching gift program on the same basis as employees, pursuant to which we will contribute, on a two-to-one basis, up to $20,000 per year per person to certain charitable institutions.

Deferred Fee Plan for Non-Employee Directors

Voluntary Deferrals into Stock Units. Under the Deferred Fee Plan for Non-Employee Directors, a Non-Employee Director may elect to defer payment of all or a portion of his or her cash retainers until termination of his or her directorship. Deferred fees earn additional amounts based on a hypothetical investment in our Common Stock. As a Non-Employee Director who has served on the Board since prior to January 1, 1996, Mr. Cullen may elect to “invest” deferred fees into Certificates of Long-term Compensation under the Certificates of Long-term Compensation Plan up to the time of termination of his directorship. Currently, Mr. Cullen has not elected this option. All stock units held in each Non-Employee Director’s Deferred Fee Account accrue dividend equivalents in the same amount and at the same time as dividends on our Common Stock. In 2011, Dr. Coleman, Dr. Johns and Dr. Lindquist elected to defer all of their 2011 cash retainers.

Deferred Compensation Balances. At December 31, 2011, the aggregate number of stock units (including dividend equivalents) held in each Non-Employee Director’s Deferred Fee Account was as follows:

 

Name		Stock Units (#)
M. S. Coleman			15,376
J. G. Cullen			31,820
I. E. L. Davis			0
M. M. E. Johns			12,733
S. L. Lindquist			13,470
A. M. Mulcahy			0
L. F. Mullin			10,252
W. D. Perez			5,000
C. Prince			5,369
D. Satcher			6,626
R. A. Williams			0

 

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Additional Arrangements

We pay for or provide (or reimburse Directors for out-of-pocket costs incurred for) transportation, hotel, food and other incidental expenses related to attending Board and committee meetings or participating in director education programs and other director orientation or educational meetings.

2012 Non-Employee Director Compensation

On September 12, 2011, the Board approved the following 2012 compensation for Non-Employee Directors:

 

•

Annual Cash Retainer of $110,000

 

•

Restricted Stock valued at $100,000

 

•

Grant of Deferred Share Units valued at $45,000

In addition, the Presiding Director will receive an annual cash retainer of $30,000, the Chairman of the Audit Committee will receive an annual cash retainer of $25,000, and the Chairmen of all other Board committees will receive an annual cash retainer of $20,000. The committee member cash retainer, the one-time stock award upon joining the Board and meeting fees were all eliminated.

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Stock Ownership and Section 16

Compliance

The following table sets forth information regarding beneficial ownership of our Common Stock for each Director; our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers named in the tables in the section “Executive Compensation” on pages 53 to 64 of this Proxy Statement (each a “named executive officer”); and by all Directors and executive officers as a group. Each of the individuals/groups listed below is the owner of less than 1% of our outstanding shares. Because they serve as co-trustees of two trusts which hold stock for the benefit of others, Mr. Weldon and Ms. McCoy are deemed to “control” an additional 7,045,463 shares of our stock in which they have no economic interest. In addition to such shares, the Directors and executive officers as a group own/control a total of 880,033 shares. In the aggregate, these 7,925,496 shares represent less than 1% of the shares outstanding. All stock ownership is as of February 28, 2012 (except shares held in our Savings Plans, which are included as of January 31, 2012).

 

Name		Number of Common Shares (1) (#)				Common Stock Equivalent Units (2) (#)				Shares Under Exercisable Options (3) (#)
Dominic J. Caruso			48,132				11,662				335,284
Mary Sue Coleman			14,352				16,070				7,600
James G. Cullen			8,404				32,514				13,900
Ian E. L. Davis			4,193				694				0
Russell C. Deyo			166,718				0				842,463
Alex Gorsky			66,296				0				0
Michael M. E. Johns			14,356				13,427				0
Susan L. Lindquist			14,605				14,164				7,600
Sherilyn S. McCoy			81,370				0				309,135
Anne M. Mulcahy			5,789				694				0
Leo F. Mullin			22,633				10,946				13,900
William D. Perez			26,122				5,694				0
Charles Prince			21,445				6,063				0
David Satcher			13,530				7,320				13,900
William C. Weldon			486,682				0				2,790,150
Ronald A. Williams			3,650				694				0
All Directors and executive officers as a group (18)			880,033				119,942				3,589,245

 

(1)

The shares described as “owned” are shares of our Common Stock directly or indirectly owned by each listed person and by members of his or her household and are held individually, jointly or pursuant to a trust arrangement. The Directors and executive officers disclaim beneficial ownership of an aggregate of 50,674 of these shares, including 17,292 shares listed as owned by Ms. McCoy, 800 shares listed as owned by Mr. Prince, and 32,582 shares listed as owned by Mr. Weldon.

 

(2)	Includes Common Stock equivalent units credited to Non-Employee Directors under our Deferred Fee Plan for Non-Employee Directors and Common Stock equivalent units credited to the executive officers under our Executive Income Deferral Plan.

 

(3)	Includes shares under options exercisable on February 28, 2012 and options that become exercisable within 60 days thereafter.

 

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As of March 1, 2012, the following are the only persons known to us to be the beneficial owner of five percent or more of any class of our voting securities:

 

Name and  Address of Beneficial Owner		Title of Class		Amount and Nature of Beneficial Ownership (#)				Percent of Class
BlackRock, Inc. 40 East 52nd Street New York, NY 10022		Common Stock			152,162,902 shares(1)				5.6%(1)
State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111		Common Stock			138,691,489 shares(2)				5.1%(2)

 

(1)

Based solely on an Amendment to Schedule 13G filed with the SEC on February 13, 2012, BlackRock, Inc. (“BlackRock”) reported aggregate beneficial ownership of approximately 5.6%, or 152,162,902 shares, of our Common Stock as of December 31, 2011. BlackRock reported that it possessed sole voting and dispositive power of 152,162,902 shares. BlackRock also reported that it did not possess shared voting or dispositive power over any shares beneficially owned.

 

(2)

Based solely on a Schedule 13G filed with the SEC on February 9, 2012, State Street Corporation, acting in various fiduciary capacities (“State Street”), reported aggregate beneficial ownership of approximately 5.1%, or 138,691,489 shares, of our Common Stock as of December 31, 2011. State Street reported that it possessed sole voting power of 0 shares, shared voting power of 138,691,489 shares, and shared dispositive power of 138,691,489 shares. State Street also reported that it did not possess sole dispositive power over any shares beneficially owned.

As a result of being a beneficial owner of more than 5% of our stock, BlackRock is currently considered a “related person” under our Policy on Transactions with Related Persons. Certain of our U.S. and international employee savings and retirement plans have retained BlackRock and its affiliates to provide investment management services. In connection with these services, we paid BlackRock approximately $2.2 million in fees during fiscal year 2011.

Similarly, State Street is also currently considered a “related person” under our Policy on Transactions with Related Persons as a result of being a beneficial owner of more than 5% of our stock. Certain of our U.S. and international employee savings and retirement plans and other affiliates have retained State Street and its affiliates to provide certain banking services, including trustee, custodial, investment management, administrative, and ancillary investment services. In connection with these services, we paid State Street approximately $8.3 million in fees during fiscal year 2011.

Section 16(a) Beneficial Ownership Reporting Compliance

We believe that during 2011 all reports for our executive officers and Directors that were required to be filed under Section 16 of the Securities Exchange Act of 1934 were filed on a timely basis, except for two reports to disclose one transaction each by Mr. Russell C. Deyo that were not filed on a timely basis. The reports were subsequently filed.

 

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Transactions with Related Persons

For the period beginning January 1, 2011 and ending March 1, 2012, there were no transactions, or currently proposed transactions, in which the company was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest, except for the following:

Mr. Michael Ullmann is Vice President, General Counsel of the company. Mr. Ullmann’s brother, Mr. Robert Ullmann, is a partner in the law firm Nutter, McClennen & Fish LLP (“Nutter McClennen”). The company has engaged Nutter McClennen from time to time since 1974 in the ordinary course of its business and on an arm’s length basis. The relationship between the company and Nutter McClennen began before Mr. Michael Ullmann was employed by the company and before Mr. Robert Ullmann was employed by Nutter McClennen. In 2011, the company paid approximately $8.6 million to Nutter McClennen for legal services, of which less than 1% was billed by Mr. Robert Ullmann. Mr. Michael Ullmann has formally recused himself from any involvement with respect to the company’s retention of, or payments to, Nutter McClennen. This relationship was ratified by the Nominating & Corporate Governance Committee in compliance with our Policy on Transactions with Related Persons described below.

See additional information regarding certain related parties on page 25.

Policies and Procedures. Our written Policy on Transactions with Related Persons requires the approval or ratification by the Nominating & Corporate Governance Committee for any transaction or series of transactions exceeding $120,000 in which the company is a participant and any related person has a material interest (other than solely as a result of being a director or trustee or less than 10% owner of another entity). Related persons would include our Directors and executive officers and their immediate family members and persons sharing their households. It would also include persons controlling more than 5% of our outstanding Common Stock.

Under our Principles of Corporate Governance and Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers, all of our Directors and executive officers have a duty to report to the Chairman, Vice Chairman or the Presiding Director potential conflicts of interest, including transactions with related persons. Management also has established procedures for monitoring transactions that could be subject to approval or ratification under the Policy on Transactions with Related Persons.

Once a related person transaction has been identified, the Nominating & Corporate Governance Committee will review all of the relevant facts and circumstances and approve or disapprove of the entry into the transaction. The Committee will take into account, among other factors, whether the transaction is on terms no more favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.

If advance Committee approval of a transaction is not feasible, the transaction will be considered for ratification at the Committee’s next regularly scheduled meeting. If a transaction relates to a member of the Committee, that member will not participate in the Committee’s deliberations. In addition, the Committee Chairman (or, if the transaction relates to the Committee Chairman, the Presiding Director) may pre-approve or ratify any related person transactions involving up to $1 million.

The following types of transactions have been deemed by the Committee to be pre-approved or ratified, even if the aggregate amount involved will exceed $120,000:

 

•

compensation paid by the company for service as a Director or executive officer of the company;

 

•

transactions with other companies where the related person’s only relationship is as a non-executive employee; less than 10% equity owner; or limited partner, and the transaction does not exceed the greater of $1 million or 2% of that company’s annual revenues;

 

•

contributions by the company to charitable organizations where the related person is an employee and the transaction does not exceed the lesser of $500,000 or 2% of the charitable organization’s annual receipts;

 

•

transactions where the related person’s only interest is as a holder of company stock and all holders receive proportional benefits, such as the payment of regular quarterly dividends;

 

•

transactions involving competitive bids;

 

•

transactions where the rates or charges are regulated by law or government authority; and

 

•

transactions involving bank depositary, transfer agent, registrar, trustee, or party performing similar banking services.

 

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Compensation Discussion and Analysis

 

 

TABLE OF CONTENTS

 

EXECUTIVE SUMMARY			29
Say on Pay			29
Changes to the Long-Term Incentive Program			30
2011 Performance and CEO Compensation			31
Key Features of Our 2012 Executive Compensation Program			32
EXECUTIVE COMPENSATION PHILOSOPHY			33
Guiding Principles			33
Importance of Credo Values in Assessing Performance			33
COMPONENTS OF EXECUTIVE COMPENSATION			33
Base Salary			33
Annual Performance Bonus			33
Long-Term Incentives			34
Executive Perquisites & Other Benefits			34
SETTING COMPENSATION & PERFORMANCE TARGETS			35
Use of Peer Groups for Pay and Performance			35
Executive Peer Group			35
Competitor Composite Peer Group			37
Setting Compensation Targets			38
COMPENSATION DECISION PROCESS			38
Timing			38
2011 Compensation Decisions for 2010 Performance			38
Individual Performance Assessment			39
0% to 200% Range of Awards as a Percent of Target			39
2012 COMPENSATION DECISIONS FOR 2011 PERFORMANCE			39
2011 Company Performance			39
CEO Pay			41
Other Named Executive Officer Pay			45
2012 Compensation Values for 2011 Performance			48
GOVERNANCE OF EXECUTIVE COMPENSATION			50
Compensation & Benefits Committee			50
Independent Members of the Board of Directors			50
Chairman/CEO			50
Independent Compensation Consultant			50
ADDITIONAL INFORMATION CONCERNING EXECUTIVE COMPENSATION			51
Use of Tally Sheets			51
No Employment Arrangements and Agreements			51
No Change-in-Control Arrangements and Agreements			51
No Option Repricing			51
No Long-Term Incentive Backdating			51
Stock Ownership Guidelines for Named Executive Officers			51
Executive Compensation Recoupment Policy			51
Tax Impact on Compensation			52

 

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Executive Summary

 ^{SAY ON PAY} 

Last year, we held our first annual advisory vote to approve named executive officer compensation, commonly known as “Say on Pay”. Approximately 61% of the votes cast voted in favor of our executive compensation as disclosed in our 2011 Proxy Statement. We realized that these results, while representing firm majority support for the named executive officer compensation, deviated significantly from those of the average of peer companies in 2011 and from what we would deem satisfactory. We were disappointed in our vote result, recognized the need to better understand our investors’ opinions, and initiated a review to gain further feedback from key stakeholders on their perspectives of our executive compensation programs.

 

		STAKEHOLDER OUTREACH AND ENGAGEMENT   Our Board and management embarked on a multi-pronged effort to gather feedback from key stakeholders regarding our executive compensation programs and Board decisions in 2011. This included telephonic and in-person discussions with individual and institutional shareholders (including representatives of mutual fund families, investment managers, non-U.S. investment funds, “socially responsible investment” funds, public pension funds, and labor union pension funds), review of written correspondence submitted by individual and institutional shareholders to the Board and management, internal discussions with employees, analysis of market practices at peer companies, advice from the Compensation & Benefits Committee’s independent compensation consultant, discussions with proxy advisory services and corporate governance research firms, and examination of media reports regarding our executive compensation programs and Board decisions.

As highlighted above the Committee reviewed:

 

•

The results of the Say on Pay vote

 

•

Feedback from individual and institutional shareholders

 

•

Feedback from proxy advisory services and corporate governance research firms

 

•

Management recommendations based on Johnson & Johnson’s strategic direction and market practices

 

		CHANGES MADE IN RESPONSE TO STAKEHOLDER FEEDBACK   As a result of the review, we identified that shareholders and other key stakeholders wanted to see an enhanced link of pay and performance embedded in the design of our programs. Consequently, the following actions were taken:   • We significantly changed the architecture of the long-term incentive program – the largest component of compensation for our named executive officers   • We discontinued the use of cash-based long-term incentives that have been in place for over 60 years   • We introduced Performance Share Units (“PSUs”) with payouts contingent on achievement of sales, earnings per share (“EPS”), and total shareholder return (“TSR”) goals   The design changes, as well as our reasoning behind them, are described below.

 

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 ^{KEY FEATURES OF OUR 2012 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.

 

•  CEO Pay is Aligned with Performance: The CEO’s actual pay is aligned with actual total shareholder returns.   •  Appropriately Targets Total Compensation: Total compensation is targeted appropriately compared to our relative size within the Executive Peer Group.   • Majority of Pay is Long-Term Incentives: Over two-thirds of pay for the named executive officers is long-term incentives.   •  Long-Term Incentives Linked to Company Performance: The long-term incentives are linked to growing sales, EPS and TSR.   • Balance of Short-Term and Long-Term Incentives: The incentive programs provide an appropriate balance of annual and long-term incentives and include multiple measures of performance.   •  Award Caps: Awards under both the annual and long-term incentive plans are capped at 200% of target.		• No Dividend Equivalents on Unvested Long-Term Incentives: Since 2010, we do not pay dividend equivalents on unvested awards and do not pay any dividend equivalents under our new long-term incentive program.   • No Employment Agreements: No named executive officer is covered by an employment agreement or special arrangement regarding payments or benefits upon termination.   • No Change-in-Control Benefits: No named executive officer is covered by a change-in-control agreement and there are no change-in-control provisions in any of our compensation plans.   • No Option Repricing without Shareholder Approval   • No Hedging of Company Stock: The named executive officers are prohibited from hedging their company stock.
•  Mitigates Excessive Risk-taking Behaviors: The executive compensation program includes features that reduce the possibility of the named executive officers, either individually or as a group, making excessively risky business decisions that could maximize short-term results at the expense of long-term value.   •  Stock Ownership Guidelines: The CEO must own 5x salary and the other named executive officers must own 3x salary worth of our Common Stock.   • Executive Compensation Recoupment Policy: The Board has the authority to recoup compensation that resulted from a material misstatement of financial results.

 

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Executive Compensation Philosophy

 ^{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 set all components of compensation competitively. We compare our practices against appropriate peer companies so we can continue to attract, retain and motivate high-performing executives in an environment where companies are increasingly competing for high-caliber talent.

 

•

Pay for Performance: We tie all components of compensation to 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.

 

•

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.

 ^{IMPORTANCE OF CREDO VALUES IN ASSESSING PERFORMANCE} 

For more than 65 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.

Components of Executive Compensation

 ^{BASE SALARY} 

We provide competitive base salaries to our named executive officers in recognition of their job responsibilities. In addition to competitive data, we consider individual work experience, leadership, time in position, knowledge, and internal parity among those performing like jobs when setting salary levels. Annual salary increases are predominantly driven by individual performance in the prior performance year.

 ^{ANNUAL PERFORMANCE BONUS} 

We establish competitive annual performance bonus opportunities as a percent of salary for our named executive officers that:

 

•

motivate attainment of short-term goals;

 

•

link annual cash compensation to achievement of the annual priorities and key objectives of the business, which includes business unit/function and overall company performance; and

 

•

reward individual performance and contribution.

Our named executive officers participate in the Executive Incentive Plan (the “EIP”). Under the EIP, payments of annual performance bonuses to named executive officers are prohibited unless Consolidated Earnings, as shown on the audited consolidated statement of income of our company, are positive. 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 the other named executive officers.

 

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 ^{LONG-TERM INCENTIVES} 

We establish competitive long-term incentive opportunities as a percent of salary for our named executive officers that:

 

•

motivate achievement of long-term operational goals and increased total shareholder return;

 

•

align the interests of participants with shareholders;

 

•

vary in the size of award, based primarily on individual performance; and

 

•

vary in the ultimate actual value of the awards based on: (1) the degree to which long-term operational goals are attained and (2) the company’s actual total shareholder return.

We provide long-term incentives to our named executive officers using three types of equity awards to provide an appropriate balance of incentives tied to internal measures of performance (sales and earnings per share) and external measures of success (share price appreciation and equity value). The forms of equity awards and their weightings for our named executive officers are as follows:

 

LONG-TERM INCENTIVE MIX FOR EXECUTIVES Restricted Share Units Stock Options Performance Share Units 20% 30% 50%

We granted our named executive officers the following long-term incentives for their 2011 performance:

 

•

Performance Share Units, which are paid in shares of our Common Stock after the end of a three-year performance period. Performance share units receive no dividend equivalents and are earned based on performance against the following metrics:

 

•

Sales: 1-year Operational Sales for each year of the performance period

 

•

Earnings Per Share: 3-year Cumulative Adjusted Operational EPS

 

•

Relative Total Shareholder Return: 3-year Compound Annual Growth Rate versus the Competitive Composite Peer Group

 

•

Stock Options, with an exercise price equal to the fair market value of our Common Stock on the grant date and which vest 100% on the third anniversary of the grant date and expire 10 years from the grant date.

 

•

Restricted Share Units, which receive no dividend equivalents and are paid in shares of Common Stock on the 3rd anniversary of the grant date.

 ^{EXECUTIVE PERQUISITES & OTHER BENEFITS} 

Our named executive officers receive the same employee benefits as provided to all other non-union U.S. employees, with the exception of the Executive Life Insurance Program, which is provided to approximately 430 employees. The Executive Life Insurance premiums paid for named executive officers are disclosed in the table under “All Other Compensation (Column H)” on page 57 of this Proxy Statement.

In addition to the benefits offered to all employees, our named executive officers are provided benefits intended for business purposes. In some cases, these benefits may be used for personal use, which would then be

 

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considered part of a named executive officer’s total compensation and would be treated as taxable income under the applicable tax laws. In 2011, this included: 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 monitoring fees.

Setting Compensation & Performance Targets

 ^{USE OF 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 as 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 Committee considers relevant market pay practices when setting executive compensation to ensure our ability to recruit and retain high performing talent. In assessing market competitiveness, the compensation of our named executive officers is reviewed against executive compensation at a designated set of companies (the “Executive Peer Group”). The Executive Peer Group, which is reviewed by the Committee on an annual basis, consists of companies that generally:

 

•

are similar to Johnson & Johnson in terms of certain factors, including one or more of the following: size (i.e., revenue, net income, market capitalization), industry, gross margin, global presence and research and development investment;

 

•

have named executive officer positions that are comparable to ours in terms of breadth, complexity and scope of responsibilities; and

 

•

compete with us for executive talent.

The Executive Peer Group does not include companies headquartered outside the United States (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.

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Johnson & Johnson 2012 Proxy Statement  •  35

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The following table lists the companies in the 2011 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, 2011.

Executive Peer Group

 

Company (Ticker Symbol)

Revenue ($ in millions)

Net Income ($ in millions)

Market Cap ($ in billions)

Common Industry

Gross Margin (>40%)

Global Presence (International >33% of Sales)

Business Complexity

Innovation Emphasis (R&D> or = 5% of Sales)

3M Company (MMM)

$29,611

$4,283

$57

ü

ü

ü

ü

ü

Abbott Laboratories (ABT)

38,851

4,729

88

ü

ü

ü

ü

ü

The Boeing Company (BA)

68,735

4,018

55

ü

ü

ü

Bristol-Myers Squibb Company (BMY)

21,244

3,701

60

ü

ü

ü

ü

ü

Cisco Systems, Inc. (CSCO)

44,844

6,998

97

ü

ü

ü

ü

The Coca-Cola Company (KO)

46,542

8,572

159

ü

ü

ü

Eli Lilly & Co. (LLY)

24,287

4,348

48

ü

ü

ü

ü

ü

General Electric Company (GE)

147,300

13,120

189

ü

ü

ü

ü

Hewlett-Packard Company (HPQ)

124,979

5,937

51

ü

ü

ü

Honeywell International Inc. (HON)

36,529

2,067

42

ü

ü

Intel Corporation (INTC)

53,999

12,942

123

ü

ü

ü

ü

International Business Machines Corporation (IBM)

106,916

15,855

217

ü

ü

ü

ü

Merck & Co., Inc. (MRK)

48,047

6,272

115

ü

ü

ü

ü

ü

PepsiCo, Inc. (PEP)

66,504

6,443

104

ü

ü

ü

Pfizer Inc. (PFE)

67,425

10,009

166

ü

ü

ü

ü

ü

The Procter & Gamble Company (PG)

85,142

10,097

184

ü

ü

ü

ü

United Technologies Corporation (UTX)

58,190

4,979

66

ü

ü

Johnson & Johnson (JNJ)

$65,030

$9,672

$179

ü

ü

ü

ü

ü

Johnson & Johnson’s Ranking

8th

6th

4th

Johnson & Johnson’s Percentile Rank

61st

74th

86th

 

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 ^{COMPETITOR COMPOSITE PEER GROUP} 

The Committee compares overall company performance to the 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:

 

•

Product Relevance (i.e., must be a direct competitor to one of our business segments)

 

•

Financial Comparison:

 

		–  Sales growth
		–  Net income growth and Net income margin
		–  Earnings per share growth
		–  Total shareholder return

 

•

Global Presence

For 2011, our Competitor Composite Peer Group consisted of the following companies broken down by business segment:

 

 

		COMPETITOR COMPOSITE PEER GROUP
		Pharmaceuticals		Medical Devices and Diagnostics		Consumer
		Abbott Laboratories   Amgen Inc.   AstraZeneca PLC   Bristol-Myers Squibb Company   Eli Lilly and Company   GlaxoSmithKline plc   Merck & Co., Inc.   Novartis AG   Pfizer Inc.   Roche Holding AG   Sanofi SA		Abbott Laboratories (Vascular & Diagnostics)   Allergan, Inc. (Obesity and Aesthetics)   Bayer AG (Diagnostics)   Boston Scientific Corporation   C. R. Bard, Inc.   Covidien plc   Edwards Lifesciences Corporation   Medtronic, Inc.   The Cooper Companies, Inc. (CooperVision)   Roche Holdings AG (Diagnostics)   Smith & Nephew plc   St. Jude Medical, Inc.   Stryker Corporation   Synthes, Inc.(1)   Zimmer Holdings Inc.		Beiersdorf AG   Colgate-Palmolive Company   GlaxoSmithKline plc (Consumer Healthcare)   Kimberly-Clark Corporation   The L’Oréal Group   Novartis AG (Consumer Healthcare)   The Procter & Gamble Company   Merck & Co., Inc. (Consumer Care)   Pfizer Inc. (Consumer Healthcare)
		(1)    Synthes, Inc. will be removed from the Competitor Composite Peer Group upon completion of the planned acquisition by Johnson & Johnson

 

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 ^{SETTING COMPENSATION TARGETS} 

Compensation Target Setting Process and Pay Position

Before each fiscal year begins, compensation targets are set to ensure that we can compete for talent in the competitive marketplace and to maintain compensation equity and balance among positions with like responsibilities. An annual review of publicly available information and executive compensation surveys is conducted to determine current Executive Peer Group pay levels.

As shown in the Executive Peer Group table on page 36, our company is at the 86^th percentile in market capitalization, 61^st percentile in revenue, and 74^th percentile in net income (based on 2011 results). The Committee determined that due to Johnson & Johnson’s size relative to the Executive Peer Group, it was appropriate to target total compensation for its named executive officers between the 50^th and 75^th percentiles of the Executive Peer Group. Actual compensation, in any given year, may fall outside that range based on a variety of factors, including individual and company performance, additional responsibilities and tenure in a particular position.

2011 Pay Mix at Target

The pay mix at target for our named executive officers is a result of the compensation targets which emphasize long-term compensation versus short-term compensation. Actual salary levels, annual performance bonus awards and long-term incentive awards will vary based on an individual’s experience, responsibilities, performance, and business unit/function results.

The pay mix at target for the Chairman/CEO and the other named executive officers for 2011 is displayed below.

 

 

CEO PAY MIX AT TARGET Base Salary 10% Annual Performance Bonus 17% Long-Term Incentives 73% OTHER NAMED EXECUTIVE OFFICERS PAY MIX AT TARGET Base Salary 15% Annual Performance Bonus 18% Long-Term Incentives 67%

Compensation Decision Process

 ^TIMING 

Compensation for named executive officers is reviewed and approved by the Committee (and, for the Chairman/CEO, the independent members of the Board) during the first quarter of each year based on performance during the prior year. 2011 compensation includes base salary earned during the fiscal year, the annual performance bonus earned for 2011 performance and paid in January 2012, and the long-term incentive grants made in January 2012 based on 2011 individual performance.

 ^{2011 COMPENSATION DECISIONS FOR 2010 PERFORMANCE} 

Some of the compensation figures included in the tables in the “Executive Compensation” section of this Proxy Statement were paid to the named executive officers in 2011 for performance in 2010. The decisions regarding these awards and payments were discussed in detail in our 2011 Proxy Statement dated March 16, 2011. For a full understanding of these decisions, please refer to the section of our 2011 Proxy Statement entitled “Compensation Discussion and Analysis — Executive Compensation Decisions — 2011 Compensation for 2010 Performance.”

 

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 ^{INDIVIDUAL PERFORMANCE ASSESSMENT} 

Each of the named executive officers is evaluated against a set of financial and strategic goals. The Committee approves the Chairman/CEO’s annual financial and strategic goals, and the Chairman/CEO approves each of the other named executive officers’ goals, during the first quarter of each year. At the end of the performance period, the named executive officers are assessed against these goals and how they accomplished them.

The individual performance evaluations are based on overall business performance as well as the performance of the business segment or function that they lead. In addition, we consider whether the executive achieves business results in a manner that is consistent with the values embodied in Our Credo. The independent members of the Board of Directors evaluate the performance of the Chairman/CEO. The Committee receives an assessment from the Chairman/CEO for each of the other named executive officers and reviews these assessments, relying on its own judgment and knowledge of our company to evaluate performance for each of the named executive officers.

The individual performance assessments are used by the Committee to determine compensation actions for each of the named executive officers. The Committee reviews individual performance and considers the recommendations provided by the Chairman/CEO to assist it in determining appropriate salary increases, bonuses, and long-term incentives for named executive officers other than the Chairman/CEO.

The Committee determines base salary increases, annual performance bonuses and long-term incentive awards based on total direct compensation targets, as well as on a component-by-component basis. Target pay position (of total direct compensation) relative to the Executive Peer Group is also taken into account. The performance of each named executive officer is evaluated, and the ultimate compensation decisions are determined, based on the judgment and experience of the independent members of the Board (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. An executive’s previous long-term incentive awards and total equity ownership are not considered when making annual long-term incentive awards.

 ^{0% TO 200% RANGE OF AWARDS AS A PERCENT OF TARGET} 

An individual employee has the opportunity to earn from 0% to 200% of the applicable target for: (1) salary increases; (2) annual performance bonuses; and (3) long-term incentives based on his or her individual performance. This broad range allows for meaningful differentiation based on performance. However, we must also manage to a total available budget for each compensation component across all employees. Because the total available budget for a component is equal to the sum of all employees’ awards at target, higher awards for some employees must be offset by lower awards for others.

2012 Compensation Decisions for 2011 Performance

 ^{2011 COMPANY PERFORMANCE}

Financial Results

In 2011, we delivered solid financial results, with 5.6% sales growth and our 28^th consecutive year of adjusted earnings increases.

 

•

Our operational sales growth of 2.8% and adjusted earnings per share growth of 5.0% (excluding special items) met internal expectations. These results reflect ongoing success in emerging markets, the strength of new product launches in our Pharmaceutical business, steady performance across our MD&D franchises, and continued science-based innovations in our Consumer business.

 

•

While we generated below-target free cash flow of $11.4 billion, we maintained our AAA credit rating and remained one of only four industrial companies with this rating.

 

Johnson & Johnson 2012 Proxy Statement  •  39

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•

Our 2011 total shareholder return of nearly 10% exceeded the S&P 500 and the Dow Jones Index, and continues to compare favorably over the long term with the relevant indices; however, it fell below some indices over the three-year cycle.

 

•

We have delivered 49 years of consecutive dividend increases for our shareholders, making us one of only 5 companies in the S&P 100 to achieve that record.

Please refer to the 2011 Company Performance table on page 31 for details.

Strategic Results

In 2011, we met overall objectives against our strategic objectives for the company, delivering against annual objectives, while setting the stage for sustainable long-term results.

 

•

Our Innovative Products met objectives:

 

–  In our Pharmaceutical sector, we were the U.S. leader in new molecular entity approvals with the approval of ZYTIGA® for prostate cancer, EDURANT® for HIV, and XARELTO® for cardiovascular disease. We also received approval of INCIVO® for Hepatitis C in Europe.

–  In our Consumer sector, we realized strong results in our skin care and oral care businesses, with the launch of LISTERINE Zero™, NICORETTE QuickMist, NEUTROGENA Naturals, and AVEENO Smart Essentials™.

–  In our MD&D sector, numerous products were launched globally that have strengthened our competitiveness in key platforms including: electrophysiology, energy, diabetes, orthopaedics and vision care.

 

•

Robust Pipelines exceeded objectives: We continued our commitment to research and development (“R&D”) by investing more than $7.5 billion in R&D this year, bringing the total over the last five years to nearly $37 billion. We are seeing the returns on these investments by bringing life-enhancing products to market that address significant unmet healthcare needs.

 

–  The Pharmaceutical pipeline portfolio is healthy and resurgent as demonstrated by significant pipeline advances, including TMC 435, canagliflozin, and bapineuzumab. Our development and registration success rate in Phase III testing is about 75%, well above the industry median of 50%-55%. Our collaborative efforts on an anti-cancer compound with Pharmacyclics, Inc., and our expansion into vaccines with the acquisition of Crucell N.V. continues to build our world-class platforms in our pharmaceutical sector.

–  In MD&D, roughly three-quarters of the pipeline progressed to its next major milestone in 2011, including potential breakthroughs like SEDASYS® and the Fibrin Pad. Our recent acquisition of SterilMed, Inc. positions us to enter a fast-growing segment of the surgical market, and the pending acquisition of Synthes, Inc. would create the leading orthopaedics and neurological company in the world.

–  Consumer R&D continued to develop new technologies and products (e.g., NICORETTE® QuickMist, and LISTERINE® Essencial in Brazil) that met the health and wellness needs of consumers in developed and emerging markets, changing the paradigm of self care.

 

•

Global Presence overall met objectives: Sales in emerging markets were strong—up 13% operationally in the BRIC markets (Brazil, Russia, India and China). In addition, we launched six new pharmaceuticals products in Japan, the world’s second-largest pharmaceuticals market.

 

•

People and Leadership Objectives were met overall: Retention, Leadership Pipeline of key talent, and Engagement objectives were all met. Engagement scores for our company exceeded external benchmark goals. We continue to maintain our focus and commitment to our diversity and inclusion priorities across the enterprise. We made strong progress on succession planning at the leadership level, expanding the roles of the Vice Chairmen in 2011, successfully appointing a new Chief Executive Officer in 2012, and continuing the development and appointment of globally diverse Worldwide Chairmen.

 

•

Healthcare Environment met objectives: As a global leader in healthcare, we worked to improve healthcare access and investment around the world. We worked with governments and partners to gain support on priority issues such as healthcare screenings, wellness and prevention, physician training and public health education programs.

 

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•

Social Responsibility and Good Citizenship, Quality and Compliance, Consistency in Product Supply, and Recognized Reputational Standards overall met objectives

 

–   Our reputation continued to be challenged, most notably by the ongoing product recalls and related issues surrounding the McNeil Consumer Healthcare Division of McNEIL-PPC, Inc. and the DePuy ASR™ Hip. Recovery and remediation of McNeil has been our priority, and we’ve achieved the major commitments to-date under our consent decree with the U.S. Food & Drug Administration. Since the decision to recall the DePuy ASR™ Hip was made, DePuy has worked to provide patients and surgeons around the world with the information and support they need, including a help line and a reimbursement program for recall-related testing and treatment that has assisted thousands of patients.

–   Despite ongoing reputational challenges, we have taken several steps to address our reputation externally and internally with employees, which is helping to fortify our reputation for the long-term. Although year-over-year external reputation measures remained lower in 2011, Johnson & Johnson’s reputation rated as “strong,” according to proprietary Reputation Institute survey data. In late 2011, employee satisfaction returned to the highest levels measured in three years, after experiencing a significant decline in Q2 2011.

–   We improved overall customer service levels by increasing reliable product supply and reducing back orders year-on-year. However, we were deeply disappointed in our continued challenges to restore a reliable supply of our cancer drug, DOXIL®/CAELYX® . We remain steadfast in our efforts to work through these challenges and are encouraged by our continued progress to return DOXIL®/CAELYX® to patients and physicians as quickly as possible.

–   We excelled in our commitments to social responsibility and good citizenship through our philanthropy, focus on the environment, inclusiveness, and health and safety of our employees. We were recognized as a leader in the world in these efforts as demonstrated by the receipt of the United Nations 2011 Humanitarian of the Year Award.

Conclusion

In summary, we delivered solid financial results by returning to sales growth in 2011, advancing a robust pipeline, and maintaining a disciplined portfolio management and investment strategy. With continued diligence around our product supply and manufacturing, we are poised to deliver sustainable growth and meaningful innovations that will make a difference to our patients and customers.

 ^{CEO PAY} 

 

 

William C. Weldon: Chairman/CEO

 

 

Performance:

The Board believes that Mr. Weldon performed well in 2011 to advance our mission as a global leader in health care. The Board’s assessment of Mr. Weldon’s performance is based primarily on the evaluation of company performance as summarized under “2011 Company Performance” on page 31 and pages 39 to 41. Mr. Weldon successfully managed our company through a challenging economic environment in 2011, marked by progress in stabilizing the business, while continuing to ensure our long-term success. In assessing Mr. Weldon’s compensation, the Board reviewed the performance against a number of financial and strategic measures as highlighted below, including our product pipeline, quality and reputation, talent development and impact on healthcare legislation.

Under Mr. Weldon’s leadership, the company delivered solid financial results with 5.6% sales growth and a 28th consecutive year of adjusted earnings increases.

In addition, under Mr. Weldon’s leadership, the commitment to investing in the long term is realizing returns. Mr. Weldon positioned the company for a resurgent year in the Pharmaceuticals sector where the product pipeline was deemed as one of the most robust in the industry, and the 2011 productivity of new molecular entity approvals was the highest in the U.S. His oversight ensured we maintained our competitive position as the leading Medical Devices and Diagnostics company in the world with new product launches and strategic acquisitions. He helped ensure that our Consumer business stayed focused on remediation, while delivering strong results in skin care and oral care. All three sectors further built the foundation of new long-term growth platforms through portfolio management decisions, strategic acquisitions (e.g., Crucell and the pending acquisition of Synthes, Inc.) and strategic partnerships (e.g., Pharmacyclics), and investments in emerging markets.

 

Johnson & Johnson 2012 Proxy Statement  •  41

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The Board recognizes that despite progress made on the quality front in 2011 with new quality and compliance procedures, continued focus is needed to address critical product supply and quality issues that impact our responsibility of being able to deliver products to patients and customers who need them.

Mr. Weldon made significant progress on the talent front, most notably in developing excellent candidates for CEO succession, which ultimately led to an internal candidate being designated as our new CEO in April 2012. Under Mr. Weldon’s leadership, retention of key talent also remained a high priority with overall very positive results. The Committee considered Mr. Weldon’s commitment to leadership development and his continuing focus on advancement and retention of global, diverse talent.

Mr. Weldon also demonstrated credible industry leadership. He worked with the U.S. government on understanding the impact of potential regulation and legislation on healthcare. He also demonstrated his commitment to improving healthcare around the world by participating in leadership forums such as the Asia Pacific Economic Cooperation (APEC).

Compensation Decisions:

Based on the assessment of his performance for 2011, the Board awarded Mr. Weldon an annual performance bonus, long-term incentive grant, and salary increase at 100% of the target amounts. Mr. Weldon’s total direct compensation is within the targeted range of the 50th to 75th percentiles of the Executive Peer Group. Please see the “2012 Award Values for Individual Pay Components” and “2012 Salary Increases” on page 49 for details on the awards, total direct compensation, and the salary increase.

On April 26, 2012, Mr. Weldon will step down from the role of Chief Executive Officer of Johnson & Johnson. Mr. Weldon will continue to serve the company as the Chairman of the Board. The Board of Directors will consider the appropriate compensation for Mr. Weldon in his role as Chairman going forward, and the company will make the required disclosures promptly after any decisions are made.

Historical CEO Pay versus Performance

Historical Background and Context: The Dodd-Frank Wall Street Reform and Consumer Protection Act will require that companies disclose “information that shows the relationship between executive compensation actually paid and financial performance of the [company], taking into account any change in value of the shares of stock and dividends of the [company] and any distributions.” The disclosure “may include a graphic representation of the information required to be disclosed.” While the SEC has not yet issued the rules to implement this requirement, shareholders have asked for more disclosure of the relationship of CEO pay and performance and we believe that additional, clear disclosure will be useful to both shareholders and the SEC.

Performance – Total Shareholder Return: We compare CEO pay to TSR because: creating value is an important objective of our incentive programs; shareholders view TSR as the most important long-term measure of performance; and TSR is readily available and comparable across companies.

CEO Pay Approaches: Since there is no consensus on how to measure CEO pay in these comparisons, we show three approaches and discuss the merits and drawbacks of each approach. The three approaches are as follows (with details in each subsection below):

 

1.

Total Actual Compensation

2.

Total Summary Compensation Table Compensation (“Total SCT Compensation”)

3.

Realizable Pay

 

42  •  Johnson & Johnson 2012 Proxy Statement

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1. Total Actual Compensation and 2. Total SCT Compensation versus TSR: The following graph and table shows the comparison of the CEO’s Total Actual Compensation and Total SCT Compensation to Johnson & Johnson’s TSR for 2007 – 2011.

 

CEO PAY VERSUS PERFORMANCE TOTAL ACTUAL COMPENSATION & TOTAL SCT COMPENSATION TSR% Millions $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 Total Actual Compensation Total SCT Compensation TSR% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 2007 2008 2009 2010 2011

 

CEO Pay Versus Performance		2007		2008				2009		2010		2011
Total Actual Compensation		$30,850,020			$7,626,372			$47,107,877		$24,913,562		$29,676,268
Total SCT Compensation		$28,404,762			$29,127,432			$30,813,844		$28,720,491		$26,797,939
Total Shareholder Return		3.6%			(7.8%)			11.3%		(0.6%)		9.9%

1. Total Actual Compensation: The following table shows the detail of the CEO’s Total Actual Compensation for 2007 – 2011. Total Actual Compensation includes all of the categories that are included in the Summary Compensation Table. However, actual realized and unrealized long-term incentives are included in Total Actual Compensation rather than grant-date present values for equity awards and payouts for cash-based awards.

 

Total Actual Compensation ($)		2007				2008				2009				2010				2011
Salary			$1,725,000				$1,792,019				$1,802,500				$1,851,154				$1,907,215
Annual Performance Bonus			3,500,000				3,700,000				3,600,000				1,976,000				3,065,280
Long-Term Incentive Gains (Losses)
Realized			4,224,000				6,485,500				7,598,566				8,737,743				12,687,417
Unrealized			16,543,509				(10,754,767	)			28,666,224				6,596,229				8,260,203
Total Long-Term Incentive Gains (Losses)			20,767,509				(4,269,267	)			36,264,790				15,333,972				20,947,620
Total Actual Direct Compensation			$25,992,509				$1,222,752				$41,667,290				$19,161,126				$25,920,115
Change in Pension Value			4,585,754				6,099,932				5,244,000				5,498,000				3,435,000
All Other Compensation			271,757				303,688				196,587				254,436				321,153
Total Actual Compensation			$30,850,020				$7,626,372				$47,107,877				$24,913,562				$29,676,268

 

Johnson & Johnson 2012 Proxy Statement  •  43

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Total Actual Compensation includes the values that actually impact a long-term incentive participant: the amounts actually realized and the change in value of the outstanding awards. This approach to valuing long-term incentives parallels TSR which includes both realized and unrealized gains during the year – with realized gains in the form of dividends paid and unrealized gains in the form of share price appreciation. This analysis focuses on the pay and performance relationship, but it does not address pay magnitude relative to our peer companies.

Since most of our CEO’s pay is in the form of long-term incentives and there is a direct causal relationship between the changes in our stock price and the value of his equity incentives, it is not surprising to see that his Total Actual Compensation is aligned with TSR for 2007-2011. We believe that this approach most fairly “shows the relationship between executive compensation actually paid and financial performance of [our company], taking into account any change in value of the shares of stock and dividends” in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

2. Total SCT Compensation: The CEO’s Total SCT Compensation amounts for 2007 – 2011 are the Total Compensation figures as reported in the Summary Compensation Table (on page 53 of this Proxy Statement and in the Summary Compensation Tables in the 2008 through 2011 Proxy Statements).

Under this approach equity incentive awards are valued using their grant-date present values. Since actual changes in the value of long-term incentives due to changes in the stock price are not included, you should expect to see little apparent correlation between pay and performance using this approach (and other approaches that use grant-date present values for long-term incentives).

3. Realizable Pay Percentile versus TSR Percentile: The following graph shows the comparison of our company’s TSR percentile to our CEO’s Realizable Pay percentile for 2008 – 2010 (both compared to our Executive Peer Group). This approach (with some variations) has been used by other companies and promoted by some executive compensation consultants. Companies that fall between the diagonal lines are viewed as having pay and performance alignment.

 

2008-2010 REALIZABLE PAY PERCENTILE VERSUS TOTAL SHAREHOLDER RETURN PERCENTILE Realizable Pay Percentile EXECUTIVE PEER GROUP JNJ 0% 25% 50% 75% 100% Total Shareholder Return Percentile 0% 25% 50% 75% 100%

The definition of Realizable Pay adds income during the 3-year period to balances at the end of the 3-year period:

 

•

Income during the 3-year period includes:

 

– Salary paid

 

– Annual performance bonus earned

 

– Performance-based long-term incentive payouts

 

•

Balances at the end of the 3-year period include the “in-the-money” value of options and restricted share units granted during the 3-year period

 

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While this approach includes a comparison of pay magnitude, it does not capture the size of our company relative to the Executive Peer Group companies. In this comparison, our company is at the 86^th percentile in market capitalization, 66^th percentile in revenue, and the 96^th percentile in net income. Realizable Pay is less comprehensive than Total Actual Compensation because it does not include long-term incentives granted before the 3-year period. It is also less timely than the other analyses since the availability of peer compensation data limits the analysis to the 2008-2010 period.

This analysis shows that our Realizable Pay and TSR percentiles are aligned; our CEO’s 2008 – 2010 Realizable Pay is at the 74th percentile and our TSR is at the 66th percentile. Unlike the comparison of Total Actual Compensation to TSR, there is no direct causal link between our TSR percentile and our Realizable Pay percentile. So, the degree of alignment could vary significantly in future years due to factors other than the design of our compensation programs.

 ^{OTHER NAMED EXECUTIVE OFFICER PAY} 

 

 

Dominic J. Caruso: Vice President, Finance; Chief Financial Officer

 

 

Mr. Caruso is the Chief Financial Officer and during 2011 had additional responsibility for the Information Technology and Procurement functions.

Performance:

Mr. Caruso performed well during 2011, contributing to the company’s performance as a member of the Executive Committee. (See “2011 Company Performance” on pages 39 to 41 for the Committee’s evaluation of the company’s performance for 2011.) In addition to his contribution to our company’s overall performance, the following highlights were considered in the evaluation of his performance:

 

•

With Mr. Caruso’s disciplined financial focus, we continued to deliver adjusted earnings growth, made important strategic investments, and maintained our AAA credit rating despite economic headwinds. We also maintained a strong cash flow and balance sheet to provide financial strength for future dividends, investments in acquisitions, the successful launch of new products, the advancement of our product pipelines, and other actions important to the continued success of the business.

 

•

Mr. Caruso continued to build on his strong relationship with the financial community by proactively conveying the company’s strategy, strengths, and growth prospects to them, an effort that was recognized by external benchmarks.

 

•

Under Mr. Caruso’s direction, the Information Technology function improved I/T controls and risk management, drove more efficiency in I/T infrastructures, reinvested savings in the business, and moved ahead with critical new technology platforms to increase mobile and video conferencing capabilities that will improve workforce productivity.

 

•

Under Mr. Caruso’s direction, the Procurement function continued to enable revenue enhancing improvements through supplier innovation; generated significant savings through best-in-class procurement practices; and continues to be recognized by several external organizations for its leadership in Supplier Diversity initiatives.

Compensation Decisions:

Based on the assessment of his performance for 2011, the Committee awarded Mr. Caruso an annual performance bonus and salary increase at 100% of the target amounts and long-term incentives at 107% of target. Mr. Caruso’s total direct compensation is below the targeted range of the 50^th to 75^th percentiles of the Executive Peer Group. This positioning is due to a year-on-year increase in the market data that the Committee will monitor in future years. Please see “2012 Award Values for Individual Pay Components” and “2012 Salary Increases” on page 49 for details on the awards, total direct compensation, and the salary increase.

 

Johnson & Johnson 2012 Proxy Statement  •  45

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Russell C. Deyo: Vice President, General Counsel

 

 

During 2011, Mr. Deyo served as Vice President, General Counsel with additional responsibility for the offices of Health Care Compliance & Privacy, Security and Aviation. After a distinguished career with Johnson & Johnson spanning almost 27 years, Mr. Deyo has announced he will retire on March 31, 2012.

Performance:

Mr. Deyo performed very well during 2011, contributing to the company’s performance as a member of the Executive Committee. (See “2011 Company Performance” on pages 39 to 41 for the Committee’s evaluation of the company’s performance for 2011.) In addition to his contribution to our company’s overall performance, the following highlights were considered in the evaluation of his performance:

 

•

The Law Department, under Mr. Deyo’s leadership, provided critical advice to executives and effectively managed the global legal affairs of our company. Significant litigations, arbitrations, and government investigations were well-handled, with largely successful outcomes. The Law Department provided effective legal guidance on a significant number of complex acquisitions, licensing arrangements, and divestitures, and on complex regulatory issues.

 

•

The Law Department effectively extended our intellectual property portfolio. More patents were awarded in 2011 than any other year in our company’s history, and no product of a Johnson & Johnson company was removed from any market based on intellectual property challenges.

 

•

The Law Department helped shape significant changes to U.S. patent law, resulting in a framework that appropriately protects and rewards our innovations. The Law Department also engaged in effectively shaping the external environment in areas such as civil justice reform and regulatory matters.

 

•

The Health Care Compliance & Privacy Organization successfully implemented global training programs and a comprehensive risk assessment process as part of its effort to provide effective guidance to Johnson & Johnson companies.

Compensation Decisions:

Based on the assessment of his performance for 2011, the Board awarded Mr. Deyo an annual performance bonus at 122% of the target amount. Due to his planned retirement, the Committee did not award him a salary increase or long-term incentives. As a result, Mr. Deyo’s total direct compensation is below the targeted range of the 50^th to 75^th percentiles of the Executive Peer Group. Please see “2012 Award Values for Individual Pay Components” and “2012 Salary Increases” on page 49 for details on the awards, total direct compensation, and the salary increase.

 

 

Alex Gorsky: Vice Chairman, Executive Committee

 

 

For 2011, Mr. Gorsky served as a Vice Chairman of the Executive Committee. For 2011, Mr. Gorsky’s responsibilities included the Medical Devices & Diagnostics Group, Supply Chain, Government Affairs & Policy, and Corporate Development.

Performance:

 

Financial Objective - MD&D		Goal		2011 Results
2011 Sales Growth (Operational)		5.8% –7.2%		1.7%
Management Net Income Growth(1)		5.1% – 9.3%		8.3%
Cash Flow Metric(2) ($ in millions)		($1,830) – ($2,020)		($1,419)

 

(1)	Excluding special items.

 

(2)	The cash flow metric is defined as the operational change in trade receivables plus the operational change in net inventories, less capital expenditures. A cash flow metric figure that is greater (less negative) than the goal is above target.

 

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Mr. Gorsky performed very well during 2011, contributing to the company’s performance as a member of the Executive Committee. (See “2011 Company Performance” on pages 39 to 41 for the Committee’s evaluation of the company’s performance for 2011.) In addition to his contribution to our company’s overall performance, the following highlights were considered in the evaluation of his performance:

 

•

The MD&D Group’s management net income growth met target and its cash flow metric exceeded target. The group achieved 1.7% operational sales growth, which was below target due largely to slower-than-expected market and share growth overall, as well as specific challenges in the group’s drug-eluting stent and orthopaedics businesses. Sales growth, excluding drug-eluting stents, exceeded overall market growth.

 

•

Under Mr. Gorsky’s leadership, MD&D’s focus on growth was augmented with the recent acquisition of SterilMed, in a fast-growing segment of the surgical market. The pending acquisition of Synthes would create the leading orthopaedics and neurological company in the world.

 

•

Additionally, numerous new products were launched globally in 2011 that have strengthened competitiveness in key platforms, including Energy, Contact Lenses, Blood Glucose Monitoring Systems, Electrophysiology, and Neurovascular. In MD&D, roughly three-quarters of the pipeline progressed to its next major milestone, including SEDASYS® and the Fibrin Pad.

 

•

Supply Chain continues to advance a new operating model that is delivering quality, service, and cost improvements. More than 625 new products were launched in 2011 across the enterprise, with customer service levels improving.

Compensation Decisions:

Based on the assessment of his performance for 2011, the Committee awarded Mr. Gorsky an annual performance bonus at 120% of target, a long-term incentive grant at 106% of target, and a salary increase at 120% of the target. Mr. Gorsky’s 2011 total direct compensation is within the targeted range of the 50th to 75th percentiles of the Executive Peer Group for his position in 2011. Please see “2012 Award Values for Individual Pay Components” and “2012 Salary Increases” on page 49 for details on the awards, total direct compensation, and the salary increase.

On February 14, 2012, the Board of Directors approved an annual base salary for Mr. Gorsky of $1,200,000 in connection with his being named Chief Executive Officer, effective April 26, 2012.

 

 

Sherilyn S. McCoy: Vice Chairman, Executive Committee

 

 

For 2011, Ms. McCoy served as a Vice Chairman of the Executive Committee. Ms. McCoy’s responsibilities include the Pharmaceuticals Group, the Consumer Group, the Corporate Office of Science & Technology, and Corporate Affairs.

Performance:

 

Financial Objective - Pharmaceuticals		Goal				2011 Results
2011 Sales Growth (Operational)		0.4% – 0.5%				6.7%
Management Net Income Growth(1)		1.2% – 5.3%				10.6%
Cash Flow Metric(2) ($ in millions)		($635) – ($700)				($1,378)

 

Financial Objective - Consumer		Goal				2011 Results
2011 Sales Growth (Operational)		1.1% – 1.3%				(1.4%)
Management Net Income Growth(1)		(7.0%) – (10.6%)				(2.4%)
Cash Flow Metric(2) ($ in millions)		($890) – ($985)				($959)

 

(1)	Excluding special items.

 

(2)	The cash flow metric is defined as the operational change in trade receivables plus the operational change in net inventories, less capital expenditures. A cash flow metric figure that is greater (less negative) than the goal is above target.

 

Johnson & Johnson 2012 Proxy Statement  •  47

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Ms. McCoy performed very well during 2011, contributing to the company’s performance as a member of the Executive Committee. (See “2011 Company Performance” on pages 39 to 41 for the Committee’s evaluation of the company’s performance for 2011.) In addition to her contribution to our company’s overall performance, the following highlights were considered in the evaluation of her performance:

 

•

In aggregate, the Pharmaceuticals Group exceeded its sales and net income financial commitments; launched four products and a dozen major regional brands; entered a new strategic category through the acquisition of Crucell, a vaccines company; accelerated growth of launch and key priority products, and executed a timely and seamless integration of REMICADE® and SIMPONI® in 50 markets acquired through the resolution of arbitration with Merck & Co., Inc., with additional markets to transition in 2012. Strong growth of launch and key priority products more than offset declines due to a loss of exclusivity for mature products, resulting in overall business growth versus prior year. While cash flow was lower than target, this result was significantly impacted by higher levels of trade receivables, inventory, and capital driven by higher than forecasted sales and the addition of new businesses during the year.

 

•

The Pharmaceuticals Group advanced the pipeline in all five key therapeutic areas, with an unprecedented and industry-leading four New Molecular Entity and numerous Line Extension regulatory approvals, two of them on accelerated basis in the United States and European Union, and launching new compounds for the treatment of advanced prostate cancer, treatment naïve HIV, cardiovascular disease, and hepatitis C. The group also advanced other key products in the pipeline in key therapeutic areas and initiated a co-development agreement for an important oncology asset.

 

•

In emerging markets, the Pharmaceuticals Group delivered strong growth and launched many new products. In China, the group also significantly strengthened R&D capabilities. In Japan, the second largest pharmaceuticals market, six new products were launched, and the group significantly strengthened its pipeline.

 

•

Under Ms. McCoy’s leadership, progress was made in restoring McNeil and its brands to health, stabilizing the United States (excluding McNeil US OTC), launching successful new products, while realizing strong growth in emerging markets. While Consumer Group sales were below plan, primarily due to supply chain issues at McNeil OTC, the group delivered its income target. With the goal of returning to growth in 2012, the Consumer Group developed a robust strategy to focus investments, prioritize resources and create a more effective organization. Actions against priority initiatives are well underway.

Compensation Decisions:

Based on the assessment of her performance for 2011, the Committee awarded Ms. McCoy an annual performance bonus at 113% of target, a long-term incentive grant at 103% of target, and a salary increase at 120% of the target. Ms. McCoy’s total direct compensation is within the targeted range of the 50th to 75th percentiles of the Executive Peer Group. Please see “2012 Award Values for Individual Pay Components” and “2012 Salary Increases” on page 49 for details on the awards, total direct compensation, and the salary increase.

 ^{2012 COMPENSATION VALUES FOR 2011 PERFORMANCE} 

How Compensation Decisions are Reported

Each year, based on the performance assessments of the named executive officers, the Committee determines the salary rate for the upcoming year, the annual performance bonus earned for the prior year’s performance, and long-term incentive awards that are granted in the first quarter of the year for each named executive officer. Decisions regarding these elements are discussed above and the amounts for 2011 are summarized in the 2012 Award Values for Individual Pay Components table and 2012 Salary Increases table below. The Committee believes that these tables best summarize the actions taken on the named executive officers’ compensation for the 2011 performance year. By contrast, most of the amounts required by the rules of the SEC to be reported in the table captioned “Summary Compensation Table” on page 53 are the result of compensation decisions from prior years, earnings from prior long-term incentive awards, or participation in long-standing programs.

 

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2012 Award Values for Individual Pay Components

The following table shows the annual performance bonus and long-term incentive grants approved in January 2012 for performance in 2011 for each named executive officer.

 

Name						Cash Compensation								Long-Term Incentive Compensation
		Approval/ Award Date				Salary (1) ($)				Annual Performance Bonus (2) ($)				PSUs Granted (3) (#)				PSUs Granted ($)				Options Granted (4) (#)				Options Granted ($)				RSUs Granted (5) (#)				RSUs Granted ($)				Total Direct Compen- sation ($)
W. C. Weldon			1/17/12				$1,907,215				$3,065,280				114,182				$6,699,971				628,911				$4,019,999				45,673				$2,680,000				$18,372,465
D. J. Caruso			1/17/12				773,023				970,625				31,537				1,850,528				173,702				1,110,303				12,615				740,223				5,444,702
R. C. Deyo			1/17/12				895,269				1,100,000				0				0				0				0				0				0				1,995,269
A. Gorsky			1/17/12				847,692				1,275,000				42,112				2,471,048				231,951				1,482,631				16,845				988,431				7,064,802
S. S. McCoy			1/17/12				897,806				1,275,000				42,112				2,471,048				231,951				1,482,631				16,845				988,431				7,114,916

 

(1)	The amounts reported represent base salaries paid to each of the named executive officers for the 2011 fiscal year.

 

(2)	The annual performance bonuses paid to named executive officers in 2012 were paid 15% in stock and 85% in cash.

 

(3)	The estimated grant date fair value used to determine the number of PSUs granted was $58.678. 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.

 

(4)

The grant date fair value used to determine the number of options granted was $6.392. The option exercise price was $65.37. The Black-Scholes option valuation model was used to calculate the grant date fair value with the following assumptions: volatility of 18.39% based on a blended rate of four-year daily historical average volatility rate and a five-week average implied volatility rate based on at-the-money traded Johnson & Johnson stock options with a life of two years; dividend yield of 3.60%; risk-free interest rate of 1.06% based on a U.S. Treasury rate of six years; and a six-year option life.

 

(5)

The grant date fair value used to determine the number of RSUs granted was $58.678. 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 ($65.37) and discounted by an expected dividend yield of 3.60% due to the lack of dividends paid on the RSUs prior to vesting.

2011 – 2012 Year-on-Year Change in Total Direct Compensation

The following table shows the total direct compensation for performance in 2010 and 2011 (2011 and 2012 award values, respectively) and the year-on-year change in total direct compensation for each named executive officer.

 

		Total Direct Compensation
Name		Performance Year 2010 (2011 Award Values) ($)				Performance Year 2011 (2012 Award Values) ($)				Change ($)				Change (%)
W.C. Weldon			$17,455,342				$18,372,465				$917,123			5%
D. J. Caruso			5,223,369				5,444,702				221,333			4
R. C. Deyo			5,799,700				1,995,269				(3,804,431	)		(66)
A. Gorsky			5,559,771				7,064,802				1,505,031			27
S. S. McCoy			5,943,722				7,114,916				1,171,194			20

2012 Salary Increases

The following table shows the increase in the annual base salary rate approved on January 17, 2012 for each named executive officer. The annual base salary rates are all effective as of February 20, 2012. The 2011 salary increase (merit) budget in the U.S. is 3.0% and the range based on individual performance is 0% to 6.0%.

 

Name		2011 Annual Base Salary Rate ($)				Salary Increase (%)				2012 Annual Base Salary Rate ($)
W. C. Weldon(1)			$1,915,800				3.0	%			$1,973,300
D. J. Caruso			776,500				3.0				800,000
R. C. Deyo			899,300				0.0				899,300
A. Gorsky(2)			850,000				3.6				880,600
S. S. McCoy			900,000				3.6				932,400

 

(1)

On April 26, 2012, Mr. Weldon will step down from the role of Chief Executive Officer of Johnson & Johnson. Mr. Weldon will continue to serve the company as the Chairman of the Board. The Board of Directors will consider the appropriate compensation for Mr. Weldon in his role as Chairman going forward, and the company will make the required disclosures promptly after any decisions are made.

 

(2)	On February 14, 2012, the Board of Directors approved an annual base salary for Mr. Gorsky of $1,200,000 in connection with his being named Chief Executive Officer, effective April 26, 2012.

 

Johnson & Johnson 2012 Proxy Statement  •  49

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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} 

 

•

Acts on behalf of the Board by setting the principles that guide the design of our compensation and benefits programs

 

•

Sets the executive compensation philosophy and composition of the Executive Peer Group

 

•

Approves the setting of competitive compensation target levels

 

•

Ensures that compensation programs and principles are designed to link executive pay with company and individual performance

 

•

Recommends to the Board the Chairman/CEO’s compensation

 

•

Reviews and approves compensation decisions recommended by the Chairman/CEO for each of the other named executive officers

 

•

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 independent compensation consultant reports directly to the Committee and the Committee has sole authority to negotiate the terms of service, including all fees paid to FWC. FWC does not, and will not, perform any other service for the company. In 2011, the independent compensation consultant:

 

•

Attended all Committee meetings, at the request of the Committee

 

•

Advised the Committee on market trends, regulatory issues and developments and how they may impact our executive compensation programs

 

•

Reviewed the compensation strategy and executive compensation programs for alignment with our strategic business objectives

 

•

Advised on the design of executive compensation programs to ensure the linkage between pay and performance

 

•

Provided market data analyses to the Committee

 

•

Advised the Committee on setting the Chairman/CEO’s pay

 

•

Reviewed the annual compensation of the other named executive officers as recommended by the Chairman/CEO

 

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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.

 ^{NO EMPLOYMENT ARRANGEMENTS AND AGREEMENTS} 

None of the named executive officers are covered by any special arrangements or agreements regarding benefits or payments upon termination. We offer broad-based, non-discriminatory separation benefits to full-time U.S. employees who are involuntarily terminated, based on level. This coverage provides employees, including the named executive officers, with two weeks pay for each year of service, with a minimum of twelve weeks pay.

 ^{NO CHANGE-IN-CONTROL ARRANGEMENTS AND AGREEMENTS} 

We do not have any change-in-control agreements or arrangements in place for any of its named executive officers. In addition, there are no change-in-control provisions in any of our compensation plans or instruments.

 ^{NO OPTION REPRICING} 

We have not re-priced or re-issued stock options when the stock price has declined to a level below the grant price. Furthermore, the 2005 Long-Term Incentive Plan and the proposed 2012 Long-Term Incentive Plan prohibit repricing options without shareholder approval.

  ^{NO LONG-TERM INCENTIVE BACKDATING} 

Long-term incentive awards are granted on a fixed schedule. Annual awards are granted in the first quarter on the date that the Committee meets to approve all components of year-end compensation.

 ^{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:

 

Name		Stock Ownership Guideline as a Multiple of Base Salary				2011  Compliance with Stock Ownership Guidelines?
W. C. Weldon		5x				Yes
D. J. Caruso		3x				Yes
R. C. Deyo		3x				Yes
A. Gorsky		3x				Yes
S. S. McCoy		3x				Yes

Stock ownership for the purpose of these guidelines does not include shares underlying vested or unvested stock options, unvested RSUs or unvested PSUs. Individuals subject to these guidelines are required to achieve the relevant ownership threshold within five years after first becoming subject to the guidelines. The Nominating & Corporate Governance Committee of the Board reviews 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.

 ^{EXECUTIVE COMPENSATION RECOUPMENT POLICY} 

Under our compensation recoupment policy, in the event of a material restatement of the company’s financial results, the Board is authorized to take such actions it deems necessary and appropriate, including the recoupment

 

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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.

 ^{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 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, 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 2011 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. Weldon, (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 Summary Compensation Table on page 53). In addition, the grant of PSUs to the named executive officers will not qualify for deductibility if and when they are paid out in three years because the PSUs are being granted under the 2005 Long-Term Incentive Plan, which was approved by shareholders more than five years ago. We anticipate future grants of PSUs will be eligible for deductibility if they are made under the 2012 Long-Term Incentive Plan that is being submitted to shareholders for approval at this Annual Meeting.

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Executive Compensation

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 2011 and, for those executive officers who were named in the 2011 and 2010 Proxy Statements, for fiscal 2010 and 2009. 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
Name and Principal Position		Fiscal 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 ($)
William C. Weldon			2011			$	1,907,215			$	2,608,694			$	4,189,483			$	14,336,394			$	3,435,000			$	321,153			$	26,797,939
Chairman/CEO			2010				1,851,154				2,773,851				4,713,177				12,043,200				7,084,673				254,436				28,720,491
			2009				1,802,500				2,762,532				5,238,069				12,831,146				7,983,010				196,587				30,813,844
Dominic J. Caruso			2011				773,023				676,740				1,086,780				2,971,065				885,000				49,694				6,442,302
VP, Finance;			2010				749,854				566,102				961,873				2,550,400				732,237				71,819				5,632,285
CFO			2009				723,739				486,847				923,105				2,441,300				601,651				43,708				5,220,350
Russell C. Deyo			2011				895,269				783,714				1,258,614				3,967,694				1,999,000				70,744				8,975,035
VP, General			2010				867,377				622,707				1,058,060				3,831,820				2,359,313				112,688				8,851,965
Counsel			2009				831,838				611,372				1,159,245				3,608,760				2,374,644				45,535				8,631,394
Alex Gorsky			2011				847,692				673,222				1,081,161				2,836,003				1,316,000				82,782				6,836,860
Vice Chairman,  Executive Committee
Sherilyn S. McCoy			2011				897,806				705,437				1,132,912				3,924,807				2,008,000				64,716				8,733,678
Vice Chairman, Executive Committee			2010				780,377				679,311				1,154,247				3,221,760				1,602,966				78,443				7,517,104
			2009				747,731				407,599				772,833				2,626,630				1,188,351				36,890				5,780,034

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.

Stock Awards (Column D)

The amounts reported in Column D represent the grant date fair value of Restricted Share Unit (“RSU”) awards, in accordance with U.S. GAAP, for the listed fiscal year. Under U.S. GAAP, the fair value of RSU awards is estimated on the grant date and discounted for dividends because dividends are not paid on RSUs during the vesting period.

Restricted Share Unit Fair Values

 

		RSU Grant Date
		2/9/09				2/8/10				1/10/11
Common Stock Fair Market Value(1)			$58.33				$62.62				$62.20
Dividend Yield			3.30	%			3.30	%			3.60	%
RSU Fair Value			$  52.832				$  56.718				$  55.832

 

(1)

Average of the high and low prices of our Common Stock on the NYSE on the grant date.

 

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Option Awards (Column E)

The amounts reported in Column E represent the grant date fair value of stock option awards granted in accordance with U.S. GAAP for the listed fiscal year.

Under U.S. GAAP, the fair value of each stock option award is estimated on the grant date using the Black-Scholes option valuation model based on the assumptions noted in the following table. The expected life of an option is determined using historical data. Expected volatility represents a blended rate of a four-year daily historical average volatility rate and a five-week average implied volatility rate based on at-the-money traded Johnson & Johnson stock options with a life of two years. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

Black-Scholes Assumptions

 

		Option Grant Date
		2/9/09				2/8/10				1/10/11
Common Stock Fair Market Value(1)		$	58.33			$	62.62			$	62.20
Risk Free Rate			2.71	%			2.78	%			2.42	%
Expected Volatility			19.48	%			17.43	%			18.27	%
Expected Life			6 yrs				6 yrs				6 yrs
Dividend Yield			3.30	%			3.30	%			3.60	%
Fair Value		$	8.348			$	8.031			$	7.472

 

(1)

Average of the high and low prices of our Common Stock on the NYSE on the grant date.

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. The specific amounts included in Column F are shown below.

 

Name		Fiscal Year				Annual Performance Bonus ($)				Value of CLCs That Vested in Fiscal Year ($)				Value of CLPs That Vested in Fiscal Year ($)				Value of CLC Dividend Equivalents Received During the Fiscal year ($)				Value of CLP Dividend Equivalents Received During the Fiscal year ($)				Total ($)
W. C. Weldon			2011			$	3,065,280			$	5,148,900			$	1,253,475			$	4,826,250			$	42,489			$	14,336,394
			2010				1,976,000				5,541,250				0				4,525,950				0				12,043,200
			2009				3,600,000				5,091,296				0				4,139,850				0				12,831,146
D. J. Caruso			2011				970,625				991,640				453,430				540,000				15,370				2,971,065
			2010				900,000				1,144,000				0				506,400				0				2,550,400
			2009				1,004,000				974,100				0				463,200				0				2,441,300
R. C. Deyo			2011				1,100,000				495,820				635,822				1,714,500				21,552				3,967,694
			2010				1,080,000				1,144,000				0				1,607,820				0				3,831,820
			2009				1,164,000				974,100				0				1,470,660				0				3,608,760
A. Gorsky			2011				1,275,000				915,360				363,327				270,000				12,316				2,836,003
S. S. McCoy			2011				1,275,000				1,525,600				399,660				711,000				13,547				3,924,807
			2010				1,125,000				1,430,000				0				666,760				0				3,221,760
			2009				1,205,000				811,750				0				609,880				0				2,626,630

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 in the form of 85% cash and 15% company Common Stock as determined by the Committee.

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 will continue to vest and be paid out in accordance with their original terms.

 

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The dollar value of the vested CLCs reported in this column was determined using the fiscal year-end 2010, 2009, and 2008 value of $38.14, $35.75 and $32.47 per CLC, respectively. The dollar value of the vested CLPs reported in this column was determined using the fiscal year-end 2010 value of $4.26 per CLP.

CLC dividend equivalents are paid to CLC Plan participants during the fiscal year on vested and unvested CLCs in the same amount and at the same time as dividends on our Common Stock. The amounts of dividend equivalents on unvested CLCs received in 2011 were for Mr. Weldon: $438,750, Mr. Caruso: $92,250, Mr. Deyo: $34,650, Mr. Gorsky: $128,250 and Ms. McCoy: $173,250. No dividend equivalents are paid on CLPs that have not vested.

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 (for most of the named executive officers); and

 

•

The normal retirement age, the assumed commencement of benefits, is one year closer for most of the named executive officers.

The present value can also increase or decrease in value due to changes in actuarial assumptions. Between fiscal year-end 2007 and fiscal year-end 2008, the mortality table changed from the 1994 Group Annuity Mortality Table (the “GAM 1994 Table”) projected to 2004 to the 1994 Uninsured Pensioner Mortality Table (the “UP-1994 Table”) projected to 2008, to reflect improvements in life expectancy. Between fiscal year-end 2008 and fiscal year-end 2009, the mortality table was changed to the UP-1994 Table projected to 2009. Between fiscal year-end 2009 and fiscal year-end 2010, the mortality table was changed to the UP-1994 Table projected to 2011 and the discount rate decreased from 6.50% to 5.98%. Between fiscal year-end 2010 and fiscal year-end 2011, the mortality table was changed to the RP-2000 Table projected to 2019 and the discount rate decreased from 5.98% to 5.22%. No other actuarial assumptions changed between fiscal year-end 2007 and fiscal year-end 2011.

Change In Non-Qualified Deferred Compensation Earnings

We no longer grant CLCs and CLPs to our named executive officers. Previously granted CLCs and CLPs will continue to vest and be paid out in accordance with their original terms. The CLC and CLP Plans are cash-based long-term incentive plans. The value of unit awards under both of these plans is disclosed in several tables in this Proxy Statement:

 

•

Grants of units are included in the Grants of Plan-Based Awards table.

 

•

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.

 

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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.

We use 120% of the December 2011 applicable federal long-term interest rate (“AFR”) as the reference rate to compare potential returns of CLCs and CLPs. 120% of the AFR for December 2011 was 3.37%. The CLC unit value decreased 2.57% in 2011, from $38.14 as of fiscal year-end 2010 to $37.16 as of fiscal year-end 2011. The CLP unit value decreased 0.94% in 2011, from $4.26 as of fiscal year-end 2010 to $4.22 as of fiscal year-end 2011.

Since the changes in CLC and CLP unit values during 2011 were both below the reference rate, the above-reference rate calculations are negative. Since negative figures are not included according to the SEC’s rules, the figures for 2011 are all zeroes ($0s).

The table below shows the specific amounts of change in pension value and above-reference-rate calculation for vested CLCs and CLPs for 2009, 2010, and 2011 included in Column G using 120% of the AFR as the reference rate. There were no vested CLPs in 2009 and 2010.

 

Name		Fiscal Year				Change in Pension Value ($)				Above-Reference- Rate Calculation for Vested CLCs ($)				Above-Reference- Rate Calculation for Vested CLPs ($)				Total ($)
W. C. Weldon		2011				$	3,435,000				$0			$0				$	3,435,000
		2010					5,498,000				1,586,673								7,084,673
		2009					5,244,000				2,739,010								7,983,010
D. J. Caruso		2011					885,000				0			0					885,000
		2010					581,000				151,237								732,237
		2009					369,000				232,651								601,651
R. C. Deyo		2011					1,999,000				0			0					1,999,000
		2010					1,718,000				641,313								2,359,313
		2009					1,217,000				1,157,644								2,374,644
A. Gorsky		2011					1,316,000				0			0					1,316,000
S. S. McCoy		2011					2,008,000				0			0					2,008,000
		2010					1,429,000				173,966								1,602,966
		2009					926,000				262,351								1,188,351

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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, and insurance premiums. The following table shows the specific amounts included in Column H.

 

Name		Fiscal Year				Perquisite and Other Personal Benefits(1) ($)				Tax Reimbursements(2) ($)				Registrant Contributions to Defined Contribution Plans ($)				Insurance Premiums(3) ($)				Total ($)
W. C. Weldon			2011				$223,113				$11,272				$85,825				$943				$321,153
			2010				121,122				6,320				83,302				43,692				254,436
			2009				114,995				480				81,112				0				196,587
D. J. Caruso			2011				8,610				162				34,786				6,136				49,694
			2010				26,182				0				33,743				11,894				71,819
			2009				11,140				0				32,568				0				43,708
R. C. Deyo			2011				29,610				341				40,287				506				70,744
			2010				42,465				0				39,032				31,191				112,688
			2009				8,102				0				37,433				0				45,535
A. Gorsky			2011				38,969				0				38,146				5,667				82,782
S. S. McCoy			2011				19,380				407				40,401				4,528				64,716
			2010				32,988				0				35,117				10,338				78,443
			2009				3,242				0				33,648				0				36,890

 

(1)

Under SEC Rules, companies are required to identify by type all perquisites and other personal benefits for a named executive officer if the total value for that individual equals or exceeds $10,000, and to report and quantify each perquisite or personal benefit that exceeds the greater of $25,000 or 10% of the total amount of perquisites and other personal benefits for that individual.

 

•

Mr. Weldon: The aggregate value of perquisites and other personal benefits for Mr. Weldon in fiscal 2011 was $223,113. This amount comprised: personal use of company aircraft ($178,920); car and driver for commutation and other personal transportation ($42,121); and home security system monitoring fees.

 

•

Mr. Caruso: The aggregate value of perquisites and other personal benefits for Mr. Caruso in fiscal 2011 was $8,610. This amount comprised personal use of company aircraft.

 

•

Mr. Deyo: The aggregate value of perquisites and other personal benefits for Mr. Deyo in fiscal 2011 was $29,610. This amount comprised: personal use of company aircraft ($28,533) and home security monitoring fees.

 

•

Mr. Gorsky: The aggregate value of perquisites and other personal benefits for Mr. Gorsky in fiscal 2011 was $38,969. This amount comprised personal use of company aircraft.

 

•

Ms. McCoy: The aggregate value of perquisites and other personal benefits for Ms. McCoy in fiscal 2011 was $19,380. This amount comprised personal use of company aircraft.

Amounts for fiscal 2010 and 2009 for the named executive officers were reported in our 2011 and 2010 Proxy Statements.

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. Executives 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, except for Mr. Weldon, who, due to company policy, is required to use a company car for commutation purposes and receives tax reimbursements for such use.

 

(2)

Represents tax reimbursements for use of company aircraft or company cars by family members when accompanying a named executive officer on business travel. In addition, for Mr. Weldon, amount also represents tax reimbursements for use of company car for commutation purposes.

 

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(3)

No insurance premiums are reported in this table for 2009 because the executive life insurance premiums for fiscal 2009 were actually paid at the beginning of fiscal 2010. The insurance premiums paid in fiscal 2010 for fiscal 2009 were as follows: Mr. Weldon: $19,068; Mr. Caruso: $5,882; Mr. Deyo: $14,993; Ms. McCoy: $4,994. These premiums are included in the total premiums for 2010.

Total Compensation (Column I)

The amounts reported in Column I are the sum of Columns C through H for each of the named executive officers. All compensation amounts reported in Column I include amounts paid and amounts deferred.

Grants of Plan-Based Awards – 2011

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 2011. 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

Name

Grant Date

Non-Equity Incentive Plan Awards (Certificates of Long-term Performance)

Estimated Future Payouts Under Non-Equity Incentive Plan Awards (Annual Performance Bonus)

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 Awards ($)

Grant Date Fair Value of Option Awards ($)

Units Granted (#)

Unit Present Value ($)

Thresh- old ($)

Target ($)

Maximum ($)

W. C. Weldon

1/10/11

1,357,855

$5.03

$0

$3,065,280

$6,130,560

46,724

560,691

$62.20

$62.16

$2,608,694

$4,189,483