Is Johnson & Johnson (NYSE:JNJ) CEO Bill Weldon the Adam Dunn of Big Pharma chairmen?
Followers of our national pastime probably know that during the recently completed baseball season, Dunn earned some $14 million from the Chicago White Sox in the first of a four-year $56 million contract. Dunn rewarded the team by putting up the lowest single-season batting average by any player qualified for a batting title since 1910, hitting a feeble .159 and striking out once every 3.5 at bats.
Perhaps his performance as CEO was better than Dunn’s as a hitter, but Weldon didn’t even come close to earning the $28.7 million he was paid in 2010 to lead J&J, according to many industry observers. As evidence of that, they point to the series of recalls that cost the company $600 million in sales.
Without those and other problems, Weldon would have earned even more money last year. Despite the setback, he was the highest paid Big Pharma executive in 2010. And Weldon made even more in 2009! During the past five years, he’s raked in a cool $150 million, with his compensation doubling since 2006. Unfortunately, J&J shareholders haven’t been so fortunate; since 2006, the company’s stock price has declined.
One big investor thinks Weldon’s pay is way out of whack and is suing the company. The George Leon Family Trust, which has owned J&J stock since 2008, wants Weldon to return part of his pay. The suit also contends that J&J is violating its own beliefs by paying Weldon so much, given the company under his watch has issued 26 recalls, been subject to repeated government probes of its drug marketing and manufacturing, and engaged in unsavory behavior, including paying kickbacks to Saddam Hussein’s government.
The suit probably has as much a chance of succeeding as Dunn has of hitting .350 and clubbing 50 home runs next season. Weldon’s buddies on the J&J board have already gone on record as praising the CEO’s record. They stated in the company’s proxy filed with the SEC that Weldon “… generally met expectations during 2010, a year with many successes and very visible challenges … In 2010, the company delivered solid adjusted earnings per share, free cash flow and long-term total shareholder return, while operational sales declined and fell below the goals for the year mounted a defense.”
As someone who worked in senior communications positions at three large pharma companies, this reporter isn’t surprised that the board extolled Weldon. After all, board members at large corporation’s like J&J usually take the “I’ll-scratch-your-back-and-you-scratch-mine” approach. What’s more, members of the board’s compensation committee are almost always CEO friendly; most all use the same small group of third-party compensation consultants to determine comp levels, which — surprise — is compared to those of other pharma companies.
Evidently Goldman Sachs doesn’t share the board’s enthusiasm for Weldon’s leadership. The investment bank recently downgraded the company’s rating from “buy” to “neutral” based on concerns that the company’s blood thinner Xarelto will fail to beat market expectations and that J&J’s medical devices and diagnostics segment will face market challenges.
If Goldman is right, Weldon may have to take a cut in pay in 2011. Wonder if he can learn to live on $22 million a year.
Barry Cohen is long JNJ.