In 2012 Alex Gorsky was appointed CEO of Johnson & Johnson (NYSE:JNJ). This report will, first, examine the CEO compensation levels in comparison to CEO compensation at other big companies. Then we'll look at a snap shot of the business growth. And finally - as a second measure of performance - we will look at the returns shareholders have received over the last few years. The aim of all this is to consider the appropriateness of CEO pay levels.
How Does Alex Gorsky's Compensation Compare With Similar Sized Companies?
According to our data, Johnson & Johnson has a market capitalization of US$355b, and paid its CEO total annual compensation worth US$20m over the year to December 2018. While this analysis focuses on total compensation, it's worth noting the salary is lower, valued at US$1.6m. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. We took a group of companies with market capitalizations over US$8.0b, and calculated the median CEO total compensation to be US$11m. There aren't very many mega-cap companies, so we had to take a wide range to get a meaningful comparison figure.
Thus we can conclude that Alex Gorsky receives more in total compensation than the median of a group of large companies in the same market as Johnson & Johnson. However, this doesn't necessarily mean the pay is too high. We can better assess whether the pay is overly generous by looking into the underlying business performance.
The graphic below shows how CEO compensation at Johnson & Johnson has changed from year to year.
Is Johnson & Johnson Growing?
Johnson & Johnson has reduced its earnings per share by an average of 8.6% a year, over the last three years (measured with a line of best fit). The trailing twelve months of revenue was pretty much the same as the prior period.
Unfortunately, earnings per share have trended lower over the last three years. And the flat revenue hardly impresses. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Shareholders might be interested in this free visualization of analyst forecasts.
Has Johnson & Johnson Been A Good Investment?
With a total shareholder return of 26% over three years, Johnson & Johnson shareholders would, in general, be reasonably content. But they probably wouldn't be so happy as to think the CEO should be paid more than is normal, for companies around this size.
We examined the amount Johnson & Johnson pays its CEO, and compared it to the amount paid by other large companies. We found that it pays well over the median amount paid in the benchmark group.
Neither earnings per share nor revenue have been growing sufficiently to impress us, over the last three years. And shareholder returns are decent but not great. So you may want to delve deeper, because we don't think the CEO pay is too low. If you think CEO compensation levels are interesting you will probably really like this free visualization of insider trading at Johnson & Johnson.
Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies, that have HIGH return on equity and low debt.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.