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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Check the appropriate box:
[ ] Preliminary Proxy Statement
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
JOHNSON & JOHNSON
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
[Johnson & Johnson Logo]
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
March 10, 2004
The Annual Meeting of the Shareholders of Johnson & Johnson will be held on
Thursday April 22, 2004 at 10:00 a.m. at the Hyatt Regency Hotel, Two Albany
Street, New Brunswick, New Jersey, to:
1. Elect directors;
2. Ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for 2004; and
3. Transact such other business, including action on a shareholder
proposal, as may properly come before the meeting.
Shareholders are cordially invited to attend the meeting. PLEASE NOTE OUR
NEW ADMISSION CARD PROCEDURES:
- If you are a registered shareholder, you will not find an enclosed
Request for Admission Card. Instead, there is a box on the proxy card
which you should mark to request an Admission Card if you plan to attend.
- If you are a registered shareholder and vote by telephone or the
Internet, there will be applicable instructions to follow when voting to
indicate if you would like to receive an Admission Card.
- If you are a shareholder whose shares are not registered in your own name
and you plan to attend, you must request an Admission Card by writing to
the Office of the Corporate Secretary, Johnson & Johnson, One Johnson &
Johnson Plaza, New Brunswick, New Jersey 08933. Evidence of your stock
ownership, which you can obtain from your bank or stockbroker, must
accompany your letter.
If you are unable to attend the meeting, you will be able to access the
meeting on the Internet. The Company will broadcast the meeting as a webcast
through the Johnson & Johnson website at www.jnj.com. The webcast will remain
available for replay for three months following the meeting. Visit the Johnson &
Johnson website at www.jnj.com and click on the Calendar of Events in the
Investor Relations section for details.
By order of the Board of Directors,
MICHAEL H. ULLMANN
Secretary
YOU CAN VOTE IN ONE OF THREE WAYS:
(1) Use the toll-free telephone number on your proxy card to vote by phone;
(2) Visit the website noted on your proxy card to vote via the Internet; or
(3) Sign, date and return your proxy card in the enclosed envelope to vote
by mail.
Shareholders are invited to visit the Corporate Governance section of our
website at
www.investor.jnj.com/governance.
GENERAL INFORMATION
SHAREHOLDERS ENTITLED TO VOTE. Holders of shares of the Common Stock of
the Company of record at the close of business on February 24, 2004 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 the record date there
were 2,967,840,022 shares outstanding.
Other than the election of directors, which requires a plurality of the
votes cast, each matter to be submitted to the shareholders 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.
HOW TO VOTE. Shareholders of record (that is, shareholders who hold their
shares in their own name) can vote any one of three ways:
(1) By Mail: Sign, date and return your proxy card in the enclosed
postage-paid envelope. If you sign and return your proxy card but do not
give voting instructions, the shares represented by that proxy will be
voted as recommended by the Board of Directors.
(2) By Telephone: Call the toll-free number on your proxy card to vote
by phone. You will need to follow the instructions on your proxy card and
the voice prompts.
(3) By Internet: Go to the website listed on your proxy card to vote
through the Internet. You will need to follow the instructions on your
proxy card and the website. If you vote through the Internet, you may incur
telephone and Internet access charges.
If you vote by telephone or the Internet, your electronic vote authorizes
the named proxies in the same manner as if you signed, dated and returned your
proxy card. IF YOU VOTE BY TELEPHONE OR THE INTERNET, YOU SHOULD NOT RETURN YOUR
PROXY CARD.
If your shares are held in the name of a bank, broker or other holder of
record (that is, "street name"), you will receive instructions from the holder
of record that you must follow in order for your shares to be voted. Telephone
and Internet voting also will be offered to shareholders owning shares through
most banks and brokers.
PROXY SOLICITATION. The accompanying proxy is solicited by the Board of
Directors of the Company. In that connection, this Proxy Statement is being
mailed to the shareholders on or about March 10, 2004 concurrently with the
mailing of the Company's 2003 Annual Report. In addition to this solicitation by
mail, several regular employees of the Company may solicit proxies in person or
by telephone. The Company has also retained the firm of Georgeson Shareholder
Communications, Inc. to aid in the solicitation of brokers, banks and
institutional and other shareholders for a fee of approximately $12,500, plus
reimbursement of expenses. All costs of the solicitation of proxies will be
borne by the Company. 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.
CHANGING YOUR VOTE. You may change your vote at any time before the proxy
is exercised. 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 by telephone or the Internet you may also change your vote with a
timely and valid later telephone or Internet vote, as the case may be.
Attendance at the meeting will not have the effect of revoking a proxy unless
you give proper written notice of revocation to the Secretary before the proxy
is exercised or you vote by written ballot at the meeting.
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ELECTRONIC DELIVERY OF PROXY MATERIALS AND ANNUAL REPORT. This Proxy
Statement and the Company's 2003 Annual Report are available on the Company's
Internet site at www.jnj.com. Instead of receiving paper copies of next year's
Proxy Statement and Annual Report in the mail, shareholders can elect to receive
an e-mail message which will provide a link to these documents on the Internet.
By opting to receive your proxy materials online, you will save the Company 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 enrolled in the electronic proxy delivery service last year
will receive their materials online this year.
Shareholders of record may enroll in the electronic proxy and Annual Report
delivery service for future Annual Meetings of Shareholders by registering
online at www.econsent.com/jnj. If you vote by Internet, simply follow the
prompts that will link you to www.econsent.com/jnj. Beneficial or "street name"
shareholders who wish to enroll in electronic delivery service should review the
information provided in the proxy materials mailed to them by their bank or
broker.
JOHNSON & JOHNSON EMPLOYEE SAVINGS PLANS. If you are an employee and hold
stock in one of the Johnson & Johnson employee savings plans, you will receive
one proxy card which covers those shares held for you in your savings plan, as
well as any other shares registered in your own name. If you vote in any of the
three ways described above by 5:00 pm on April 20, the Trustee of your savings
plan will vote your shares as you have directed. 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 Savings Plan for Union
Represented Employees, and do not vote, the Plan Trustee will not vote your
shares.
REDUCE DUPLICATE MAILINGS. The Company is 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 the Company to
discontinue mailings of multiple Annual Reports. To do so, mark the designated
box on each proxy card for which you wish to discontinue receiving a duplicate
Annual Report. If you are voting by telephone or the Internet you can either
follow the prompts when you vote or give us instructions to discontinue mailings
of future duplicate Annual Reports.
SHAREHOLDER PROPOSALS. To be included in the Board of Directors' proxy
statement and proxy card for the 2005 Annual Meeting of Shareholders, a
shareholder proposal must be received by the Company on or before November 11,
2004. In addition, under the terms of the Company's By-Laws, a shareholder who
intends to present an item of business at the 2005 Annual Meeting of
Shareholders (other than a proposal submitted for inclusion in the Company's
proxy materials) must provide notice of such business to the Company on or
before November 11, 2004. Proposals and other items of business should be
directed to the attention of the Secretary at the principal office of the
Company, One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933.
ELECTION OF DIRECTORS
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 the persons nominated for election as directors
unless authority to vote shall have been withheld. 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.
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Except for Dr. Mary Sue Coleman (who was elected to the Board of Directors
in September 2003), Mr. Steven S Reinemund (October 2003) and Dr. Susan L.
Lindquist (February 2004), all of the nominees were elected to the Board at the
last Annual Meeting and all are currently serving as directors of the Company.
Mr. James T. Lenehan, former Vice Chairman of the Board and President of the
Company, who was elected to the Board of Directors at the last Annual Meeting,
has announced his intention to retire from the Company and resigned from the
Board effective February 1, 2004.
Following are summaries of the background and business experience and
descriptions of the principal occupations of the nominees.
[Gerard N. Burrow, GERARD N. BURROW, M.D., President and Chief Executive
M.D. Photo] Officer, Sea Research Foundation.
Dr. Burrow, 71, was elected to the Board of Directors in
1993 and is a member of the Nominating & Corporate
Governance Committee and Chairman of the Science &
Technology Advisory Committee. He has been serving in his
current position since January 1, 2002, following 10 years
at Yale University. Dr. Burrow had served as Special Advisor
to the President of Yale University for Health Affairs since
1997, following service since 1992 as Dean of the Yale
University School of Medicine. He previously served as Vice
Chancellor for health sciences and Dean of the University of
California, San Diego School of Medicine. Dr. Burrow is a
member of the Institute of Medicine of the National Academy
of Sciences and a Fellow of the American Association for the
Advancement of Science. He is also a Director of The
University of Connecticut Health Center and Sea Research
Foundation.
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[Mary Sue Coleman, Ph.D. MARY SUE COLEMAN, Ph.D., President, University of Michigan.
Photo] Dr. Coleman, 60, was elected to the Board of Directors in
September 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. She co-chairs the Institute of Medicine's Committee
on the Consequences of Uninsurance. Dr. Coleman is a
director of Meredith Corporation.
4
[James G. Cullen JAMES G. CULLEN, Retired President and Chief Operating
Photo] Officer, Bell Atlantic Corporation.
Mr. Cullen, 61, was elected to 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. Mr. Cullen retired as
President and Chief Operating Officer of Bell Atlantic
Corporation 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. He is a Director of Prudential Life Insurance
Company, Agilent Technologies, Inc. and Quantum Bridge
Communications Inc.
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[Robert J. Darretta, ROBERT J. DARRETTA, Vice Chairman, Board of Directors; Chief
Photo] Financial Officer and Member, Executive Committee.
Mr. Darretta, 57, was elected to the Board of Directors in
2002. Mr. Darretta joined the Company in 1968 and held
several accounting and finance positions before becoming
Managing Director of Ethicon Italy in 1985. He was named
President of IOLAB Corporation in 1988 and in 1995 became
Treasurer of the Company. Mr. Darretta was named Vice
President, Finance and Chief Financial Officer and appointed
to the Executive Committee in 1997. He was appointed
Executive Vice President in 2002 and Vice Chairman in
January 2004.
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[M. Judah Folkman, M. JUDAH FOLKMAN, M.D., Senior Associate in Surgery and
M.D. Photo] Director, Surgical Research Laboratory, Children's Hospital
and Andrus Professor of Pediatric Surgery and Professor of
Cell Biology, Harvard Medical School, Department of Surgery.
Dr. Folkman, 71, was elected to the Board of Directors in
1998 and is a member of the Science & Technology Advisory
Committee and the Public Policy Advisory Committee. Dr.
Folkman has been with Children's Hospital since 1967, having
served as Surgeon-in-Chief of Children's Hospital from 1967
to 1981, and with Harvard Medical School since 1967. He is a
member of the National Academy of Sciences and the American
Academy of Arts and Sciences. In recognition of his founding
the field of angiogenesis research he has received numerous
honorary degrees and awards, including, the 2002 Ronald
McDonald House Charities Award of Excellence, The Franklin
Institute's 2001 Benjamin Franklin Award in Life Science,
the 1998 Keio University (Tokyo) Medical Science Prize and
the 1997 Charles S. Mott Prize of the General Motors Cancer
Research Foundation.
5
[Ann Dibble Jordan ANN DIBBLE JORDAN, Former Director, Social Services
Photo] Department, Chicago Lying-In Hospital, University of
Chicago Medical Center. Mrs. Jordan, 69, was elected
to the Board of Directors in 1981 and is a member of
the Compensation & Benefits Committee and the
Chairman of the Public Policy Advisory Committee.
She assumed her previous responsibilities at Chicago
Lying-In Hospital in 1970 after having served as a
Caseworker and then a Senior Caseworker at the
University of Chicago Hospital. She is also a former
Assistant Professor at the University of Chicago
School of Social Service Administration. She is a
Director of Automatic Data Processing, Catalyst and
Citigroup Inc. Mrs. Jordan is also a Director of The
Phillips Collection, The National Symphony Orchestra
(Chairman of the Board), Sloan Kettering Medical
Center, The University of Chicago and WETA (public
broadcasting station).
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[Arnold G. Langbo ARNOLD G. LANGBO, Retired Chairman of the Board and
Photo] Chief Executive Officer, Kellogg Company. Mr.
Langbo, 66, was elected to the Board of Directors in
1991 and is a member of the Nominating & Corporate
Governance Committee and Chairman of the
Compensation & Benefits Committee. Mr. Langbo
retired as Chairman of the Board of Kellogg Company
in 2000. He had held that position since 1992 after
having been President and Chief Operating Officer of
Kellogg since 1990. He also served as Chief
Executive Officer from 1992 until 1999. Mr. Langbo
joined Kellogg Canada Inc. in 1956 and served in a
number of management positions in Canada and the
United States before being named President of
Kellogg International in 1986. Mr. Langbo is a
Director of Weyerhaeuser Company, Whirlpool
Corporation and The International Youth Foundation.
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[Susan L. Lindquist, Ph.D. SUSAN L. LINDQUIST, Ph.D., Director, Whitehead
Photo] Institute for Biomedical Research; Professor of
Biology, Massachusetts Institute of Technology. Dr.
Lindquist, 54, was elected to the Board of Directors
in February 2004 and is a member of the Science &
Technology Advisory Committee and the Public Policy
Advisory Committee. Dr. Lindquist has served
concurrently as Director of Whitehead Institute, a
non-profit, independent research and educational
institution, and a Professor of Biology at
Massachusetts Institute of Technology since 2001.
Previously she had been affiliated with the
University of Chicago for over 20 years, most
recently as the Albert D. Lasker Professor of
Medical Sciences in the Department of Molecular
Genetics and Cell Biology. Between 1988 and 2001,
Dr. Lindquist was also an Investigator in the Howard
Hughes Medical Institute. She was elected to the
American Academy of Arts and Sciences in 1996 and
the National Academy of Sciences in 1997 and became
a Fellow in the American Academy of Microbiology in
1997. Dr. Lindquist has received the Novartis Drew
Award in Biomedical Research (2000) and in 2002 was
named by Discover Magazine as one of the 50 most
important women in science. She is a Director of
Fold-Rx, a private start-up company.
6
[Leo F. Mullin Photo] LEO F. MULLIN, Chairman and Retired Chief Executive Officer,
Delta AirLines, Inc.
Mr. Mullin, 61, was elected to the Board of Directors in
1999 and is a member of the Audit Committee and the
Nominating & Corporate Governance Committee. Mr. Mullin
retired as Chief Executive Officer of Delta in December 2003
and plans to retire as 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 also a
Director of BellSouth Corporation. He is a member of The
Business Council.
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[Steven S Reinemund STEVEN S REINEMUND, Chairman and Chief Executive Officer,
Photo] PepsiCo.
Mr. Reinemund, 55, was elected to the Board of Directors in
October 2003 and is a member of the Compensation & Benefits
Committee and the Nominating & Corporate Governance
Committee. Mr. Reinemund has been Chairman and Chief
Executive Officer of PepsiCo since May 2001. He was elected
a director of PepsiCo in 1996 and before assuming his
current position, served as President and Chief Operating
Officer from September 1999 until May 2001. Mr. Reinemund
began his career with PepsiCo in 1984 at Pizza Hut, Inc. and
held various management positions until 1992 when he became
President and Chief Executive Officer of Frito-Lay, Inc.,
and Chairman and Chief Executive Officer of the Frito-Lay
Company in 1996. Mr. Reinemund also serves on the Boards of
The United Negro College Fund and the Darden Business School
at the University of Virginia.
7
[David Satcher, M.D., DAVID SATCHER, M.D., Ph.D., Director, National Center for
Ph.D. Photo] Primary Care, Morehouse School of Medicine.
Dr. Satcher, 63, was elected to the Board of Directors in
2002 and is a member of the Science & Technology Advisory
Committee and the Public Policy Advisory Committee. Dr.
Satcher assumed his current post at Morehouse School of
Medicine in September 2002. In February 2002, Dr. Satcher
completed his four-year term as the Surgeon General of the
United States. He also served as the U.S. Assistant
Secretary for Health from February 1998 to January 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, American Foundation
for Suicide Prevention, Kaiser Family Foundation and Task
Force on Child Survival.
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[Henry B. Schacht HENRY B. SCHACHT, Senior Advisor and Director and Former
Photo] Chairman of the Board and Chief Executive Officer, Lucent
Technologies Inc.; Managing Director and Senior Advisor,
E.M. Warburg, Pincus & Co. (currently on non-paid leave of
absence).
Mr. Schacht, 69, was elected to the Board of Directors in
1997 and is a member of the Audit Committee and the Chairman
of the Nominating & Corporate Governance Committee. At
Lucent Technologies, Mr. Schacht served as Chairman of the
Board from February 1996 until February 1998 and Chief
Executive Officer from February 1996 to October 1997. He
returned to Lucent in October 2000 as Chairman and Chief
Executive Officer and served in the latter position until
January 2002, and as Chairman of Lucent until February 2003.
Mr. Schacht continues to serve as a Senior Advisor and
Director of Lucent. Mr. Schacht served as Chairman of the
Lucent spin-off, Avaya Inc., in 2000 until his return to
Lucent. Mr. Schacht was Chairman (1977-1995) and Chief
Executive Officer (1973-1994) of Cummins Engine Company,
Inc. He is also a Director of Aluminum Company of America
and The New York Times Company, as well as a member of The
Business Council. Mr. Schacht is a former Chairman of the
Board of Trustees of The Ford Foundation and a Trustee of
the Metropolitan Museum of Art.
8
[William C. Weldon WILLIAM C. WELDON, Chairman, Board of Directors and
photo] Chief Executive Officer; Chairman, Executive Committee.
Mr. Weldon, 55, was elected to the Board of Directors
and named Vice Chairman of the Board in 2001 and assumed
his current responsibilities in 2002. Mr. Weldon joined
the Company in 1971, and served in several sales,
marketing and international management positions before
becoming President of Ethicon Endo-Surgery 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 and the Sullivan Commission on Diversity in
the Healthcare Workforce. He is a Trustee of Quinnipiac
University and serves on the Liberty Science Center
Chairman's Advisory Council. Mr. Weldon also serves as a
member of the Board of Directors, Executive Committee
member and Treasurer of the Pharmaceutical Research and
Manufacturers of America.
DETERMINATION OF INDEPENDENCE
The Board of Directors has determined that the following directors,
comprising all of the non-employee directors, should be deemed "independent"
under the listing standards of the New York Stock Exchange, as well as in the
assessment of the Board: Dr. Burrow, Dr. Coleman, Mr. Cullen, Dr. Folkman, Mrs.
Jordan, Mr. Langbo, Dr. Lindquist, Mr. Mullin, Mr. Reinemund, Dr. Satcher, and
Mr. Schacht. In order to assist the Board in making this determination, the
Board has adopted "Standards of Independence" as part of the Company's
Principles of Corporate Governance, which is annexed to this Proxy Statement as
Exhibit 2. These Standards identify material relationships that a director may
have with the Company (or any affiliate) which would interfere with the
director's ability to exercise independent judgment. Each of the directors
identified above is deemed to meet the standards set forth in those Standards of
Independence.
STOCK OWNERSHIP/CONTROL
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock owned by each director and each executive officer
named in the Summary Compensation Table and by all directors and executive
officers as a group. Each of the individuals/groups listed below is the owner of
less than one percent of the Company's outstanding shares. Because they serve as
co-trustees of two trusts which hold stock for the benefit of others, Messrs.
Weldon and Darretta "control" an additional 12,253,502 shares of the Company's
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 1,529,891
shares, the aggregate of 13,783,393 shares representing less than 1% of the
shares outstanding. All stock ownership is as of February 12, 2004 (except
shares held in the Company's Savings Plans, which are listed as of January 30,
2004).
NUMBER OF COMMON STOCK SHARES UNDER
COMMON EQUIVALENT EXERCISABLE
NAME SHARES(1) UNITS(2) OPTIONS(3)
---- --------- ------------ ------------
Gerard N. Burrow.......... 9,156 6,775 25,650
Mary Sue Coleman.......... 633 473 --
James G. Cullen........... 65,642 17,230 25,650
Robert J. Darretta........ 209,100 14,254 577,000
Roger S. Fine............. 221,045 13,552 584,400
M. Judah Folkman.......... 1,300 9,941 20,650
Ann Dibble Jordan......... 5,962 14,124 25,650
Arnold G. Langbo.......... 1,979 34,717 25,650
9
NUMBER OF COMMON STOCK SHARES UNDER
COMMON EQUIVALENT EXERCISABLE
NAME SHARES(1) UNITS(2) OPTIONS(3)
---- --------- ------------ ------------
James T. Lenehan............................. 208,562 16,406 864,000
Susan L. Lindquist........................... 190 -- --
Leo F. Mullin................................ 6,408 6,937 18,650
Per A. Peterson.............................. 54,876 -- 243,900
Steven S Reinemund........................... 1,200 322 --
David Satcher................................ 660 1,331 6,300
Henry B. Schacht............................. 2,382 11,232 23,450
William C. Weldon............................ 192,180 8,836 643,400
All directors and executive officers as a
group(23).................................. 1,529,891 176,613 4,918,750
------------------
(1) The shares described as "owned" are shares of the Company's Common Stock
owned by each listed person and by members of his or her household and are
held either individually, jointly or pursuant to a trust arrangement. The
directors and executive officers disclaim beneficial ownership of an
aggregate of 84,028 of these shares, including, 400 shares listed as owned
by Dr. Burrow, 30,000 shares listed as owned by Mr. Cullen, 38,063 shares
listed as owned by Mr. Fine, 900 shares listed as owned by Mr. Langbo and
1,880 shares listed as owned by Mr. Lenehan.
(2) Includes Common Stock equivalent units credited to non-employee directors
under the Deferred Fee Plan for Nonemployee Directors and Common Stock
equivalent units credited to the executive officers under the Executive
Income Deferral Plan.
(3) Includes shares under options exercisable on February 12, 2004 and options
which become exercisable within 60 days thereafter.
DIRECTORS' FEES, COMMITTEES AND MEETINGS
Directors who are employees of the Company receive no compensation for
their services as directors or as members of committees. Each director who is
not an employee of the Company receives an award valued at approximately $10,000
in the form of the Company's Common Stock upon first becoming a member of the
Board of Directors and receives an annual fee of $65,000 for his or her services
as director. Of such annual fee, $20,000 is required to be deferred in Common
Stock equivalent units under the Deferred Fee Plan for Nonemployee Directors
until termination of his or her directorship. Directors also receive
non-retainer equity compensation each year in the form of a stock option grant.
The number of options granted is determined annually. In February 2004, the
non-employee directors were each granted options to acquire 7,600 shares under
the Company's 2000 Stock Option Plan. Options granted to non-employee directors
become exercisable on the first anniversary of date of grant. In addition,
directors receive $5,000 for service on a committee of the Board of Directors,
or $8,000 if chairperson of the committee. Non-employee directors may receive a
meeting fee of $1,500 per day if they attend a committee meeting held on a day
other than a Board of Directors meeting day. In fiscal year 2003, a total of
$3,000 was paid to two directors for attending such additional committee
meetings. A director may elect to defer payment of all or a part of the fees
until, or beyond, termination of his or her directorship. Deferred fees (other
than the required deferral referred to above) may earn additional amounts based
on a hypothetical investment in the Company's Common Stock or, in the case of
directors who have served on the Board since prior to January 1, 1996, on the
increase in value of units under the Certificate of Extra Compensation Program,
up to the time of termination of his/her directorship. Deferred fees beyond
termination of directorship can only earn additional amounts based on a
hypothetical investment in the Company's Common Stock. All Common Stock
equivalent units held in each non-employee director's Deferred Fee Account
receive dividend equivalents.
10
During the last fiscal year the Board of Directors held seven regularly
scheduled meetings and two special telephonic 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 the Company's strategic planning process can
be found on the Company's website at www.investor.jnj.com/governance in the
Corporate Governance section.
The Board of Directors has a standing Audit Committee, Compensation &
Benefits Committee and Nominating & Corporate Governance Committee. Under their
Charters, each of these Committees is authorized and assured of appropriate
funding to retain and consult with external advisors, consultants and counsel.
The members of the Audit Committee are Dr. Coleman, Mr. Mullin, Mr. Schacht
and Mr. Cullen (Chairman). The Audit Committee is comprised entirely of
non-employee members of the Board of Directors, each of whom has been determined
to be "independent" under the listing standards of the New York Stock Exchange.
The Committee operates under a written charter adopted by the Board of
Directors, which is required to be provided to shareholders every three years,
unless amended earlier. A copy of the Charter of the Audit Committee, as amended
in February 2004, is attached as Exhibit 1 and posted to the Company's website
at www.investor.jnj.com/governance. The Audit Committee assists the Board of
Directors by providing oversight of financial management and the independent
auditors and ensuring that management is maintaining an adequate system of
internal controls 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 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. The Audit
Committee met five times during the last fiscal year, plus four telephonic
meetings were held prior to the release of the quarterly earnings with the
Chairman of the Audit Committee and with other Committee members participating.
The Board has determined that Mr. Cullen, the Chairman of the Audit Committee
and an independent director, is an "audit committee financial expert" under the
rules and regulations of the Securities and Exchange Commission for purposes of
Section 407 of the Sarbanes-Oxley Act.
The members of the Compensation & Benefits Committee are Mrs. Jordan, Mr.
Reinemund and Mr. Langbo (Chairman), each of whom has been determined to be
"independent" under the listing standards of the New York Stock Exchange. The
primary function of the Compensation & Benefits Committee is to discharge the
Board's duties and responsibilities relating to compensation of the Company's
directors and executive officers and oversee the management of the various
pension, savings, health and welfare plans that cover the Company's employees.
The Committee also reviews the compensation philosophy and policy of the
Management Compensation Committee, a non-Board committee composed of Messrs.
Weldon (Chairman), Darretta (Vice Chairman), Deyo (Vice President,
Administration) and Valeriani (Vice President, Human Resources) which determines
management compensation and establishes fringe benefit and other compensation
policies (except for executive officers of the Company). The Compensation &
Benefits Committee is also responsible for the administration of the Company's
stock option plans and is the approving authority for management recommendations
with respect to option grants. During the last fiscal year there were six
meetings of the Compensation & Benefits Committee. A copy of the Charter of the
Compensation & Benefits Committee, as amended in February 2004, can be found on
the Company's website at www.investor.jnj.com/governance.
The members of the Nominating & Corporate Governance Committee are Dr.
Burrow, Mr. Cullen, Mr. Langbo, Mr. Mullin, Mr. Reinemund and Mr. Schacht
(Chairman). Each of the members of the Nominating & Corporate Governance
Committee has been determined to be
11
"independent" under the listing standards of the New York Stock Exchange. 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 Committee also oversees the process for
performance evaluations of each of the Committees of the Board. It is also
within the Charter of the Nominating & Corporate Governance Committee to review
the Company's management succession plans and executive resources. In addition,
the Nominating & Corporate Governance Committee reviews possible candidates for
the Board of Directors and recommends the nominees for directors to the Board of
Directors for approval. The Nominating & Corporate Governance Committee met
seven times during the last fiscal year. A copy of the Charter of the Nominating
& Corporate Governance Committee can be found on the Company's website at
www.investor.jnj.com/governance. In addition, the Charter was included in the
Company's proxy statement for the 2003 Annual Meeting.
CORPORATE GOVERNANCE
DIRECTOR NOMINATION PROCESS. The Nominating & Corporate Governance
Committee reviews possible candidates for the Board of Directors and recommends
the nominees for directors to the Board of Directors for approval. The Board of
Directors has adopted General Criteria for Nomination to the Board of Directors,
which, as part of the Principles of Corporate Governance, is attached to this
proxy statement as Exhibit 2, and can also be found on the Company's website at
www.investor.jnj.com/governance. These Criteria describe specific traits,
abilities and experience that the Nominating Committee and the Board look for in
determining candidates for election to 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 of the Company at One Johnson & Johnson Plaza, New Brunswick, New
Jersey 08933. Possible candidates who have been suggested by shareholders are
evaluated by the Nominating & Corporate Governance Committee in the same manner
as are other possible candidates. During the past year, the Nominating &
Corporate Governance Committee retained a third party executive recruitment firm
to assist the Committee members in the process of identifying and evaluating
potential nominees for the Board.
Since the 2003 Annual Meeting of Shareholders, the Board of Directors has
elected Dr. Coleman, Dr. Lindquist and Mr. Reinemund to the Board. Each of these
individuals were recommended for election and nominated by the independent
directors on the Nominating & Corporate Governance Committee.
SHAREHOLDER COMMUNICATION WITH THE BOARD. Shareholders, employees and
others may contact any of the Company's directors (including the Presiding
Director) by writing to them c/o Johnson & Johnson, One Johnson & Johnson Plaza,
Room WH 2133, New Brunswick, NJ 08933 USA. Shareholders, employees and others
may also contact any of the non-employee directors by assessing and submitting
an e-mail at www.jnj.com/PresidingDirector. General comments to the Company
(including complaints or questions about a product) should be sent by accessing
www.jnj.com/contact _ us/general _ inquiries. The Company's process for handling
shareholder communications to the Board has been approved by the independent
directors and can be found at www.investor.jnj.com/governance.
ANNUAL MEETING OF SHAREHOLDERS. It has been the longstanding practice of
the Company for all directors to attend the Annual Meeting of Shareholders. All
directors who were elected to the Board at the last Annual Meeting were in
attendance.
EXECUTIVE SESSIONS. Each of the Audit, Compensation & Benefits and
Nominating & Corporate Governance Committees met at least twice during 2003 in
Executive Sessions without members of management present. The non-employee
directors met seven times during 2003 in Executive
12
Sessions (following each regularly scheduled Board Meeting) without the
Chairman/CEO or any other member of management present.
PRESIDING DIRECTOR. The non-employee directors have selected Mr. Cullen to
serve as the Presiding Director to chair Executive Sessions of the non-employee
directors. In addition, the Presiding Director reviews the schedule of and
agendas for Board meetings. The Presiding Director is also looked upon to act as
an intermediary between the non-employee directors and management of the Company
when special circumstances exist or communication out of the ordinary course is
necessary.
CONSULTING AGREEMENT. The Company has entered into a consulting agreement
with Dr. Folkman, a member of the Board, pursuant to which, at the Company's
request, he may attend and participate in occasional scientific meetings of the
Company and its affiliates. In 2003, Dr. Folkman attended two such meetings and
received payment of $3,000 in the aggregate.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 2003 all reports for the Company's
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 that
two reports were filed late by Mr. Brian D. Perkins, Member of the Executive
Committee, to reflect a sale of common stock and the exercise of an employee
stock option, both in November 2003. These transactions have subsequently been
reported.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reports to and acts on behalf of the Board of Directors
by providing oversight of the financial management, independent auditors and
financial reporting procedures of the Company. The Company's management is
responsible for preparing the Company's financial statements and the independent
auditors are responsible for auditing those financial statements. The Audit
Committee is responsible for overseeing the conduct of these activities by the
Company's management and the independent auditors.
In this context, the Committee has met and held discussions with management
and the independent auditors (including private sessions with the internal
auditors, the independent auditors, the Chief Financial Officer and the General
Counsel). Management represented to the Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent auditors.
The Committee has discussed with the independent auditors matters required
to be discussed by Statement on Auditing Standards No. 61 (Communication With
Audit Committees), as amended (including significant accounting policies,
alternative accounting treatments and estimates, judgments and uncertainties).
In addition, the independent auditors provided to the Audit Committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee and the
independent auditors have discussed the auditors' independence from the Company
and its management, including the matters in those written disclosures.
Additionally, the Committee considered the non-audit services provided by the
independent auditors and the fees and costs billed and expected to be billed by
the independent auditors for those services (as shown on page 26 of this proxy
statement). All of the non-audit services provided by the independent auditors
since February 10, 2003, and the fees and costs incurred in connection with
those services, have been pre-approved by the Committee in accordance with the
Audit and Non-Audit Services Pre-Approval Policy, as adopted by the Committee.
(This policy is discussed in further detail on page 27 of this proxy statement.)
When approving the retention of the independent auditors for these non-audit
services, the Committee has considered whether the retention of the independent
auditors to provide those services is compatible with maintaining auditor
independence.
13
In reliance on the reviews and discussions with management and the
independent auditors referred to above, the Committee believes that the
non-audit services provided by the independent auditors are compatible with, and
did not impair, auditor independence.
The Committee also has discussed with the Company's internal and
independent auditors, with and without management present, their evaluations of
the Company's internal accounting controls and the overall quality of the
Company's financial reporting.
In further reliance on the reviews and discussions with management and the
independent auditors referred to above, the Audit Committee recommended to the
Board of Directors on February 9, 2004, and the Board has approved, the
inclusion of the audited financial statements in the Company's Annual Report on
Form 10-K for the fiscal year ended December 28, 2003, for filing with the
Securities and Exchange Commission. The Audit Committee also recommended to the
Board of Directors, and the Board has approved, subject to shareholder
ratification, the selection of the Company's independent auditors.
Mr. James G. Cullen, Chairman
Dr. Mary S. Coleman
Mr. Leo F. Mullin
Mr. Henry B. Schacht
COMPENSATION & BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION & BENEFITS COMMITTEE OF THE BOARD
The Compensation & Benefits Committee is composed entirely of non-employee,
independent members of the Board of Directors. It is the Compensation & Benefits
Committee's responsibility to review and approve all compensation actions for
the Chief Executive Officer and other executive officers of the Company, to
administer the Company's stock option program and to provide oversight of the
Company's compensation programs and philosophy.
JOHNSON & JOHNSON COMPENSATION POLICY AND OBJECTIVES
Johnson & Johnson's executive compensation programs are designed to enable
the Company to attract, retain and motivate the high caliber of executives
required for the success of the business. Overall, it is the intent of Johnson &
Johnson to provide executives with compensation opportunities that are
comparable to the opportunities provided by a select group of high performing
companies similar to Johnson & Johnson, as described below. This objective is
achieved through a variety of compensation programs, summarized below, which
support both the current and long-term performance of the business.
The primary responsibility of the Company's Chief Executive Officer and
other executive officers is to ensure the long-term health and growth of the
Company. This responsibility is summarized in the Johnson & Johnson Credo, which
defines the obligations of Johnson & Johnson employees to strengthen the
ethical, human and business foundations of the Company. The Credo describes the
responsibilities of the Company to its customers and others with whom it does
business, to its employees, to the communities in which the Company has a
presence as well as to the world community, and to its shareholders. The Credo
merges these business and ethical responsibilities by stating: "When we operate
according to these principles, the stockholders should realize a fair return."
The compensation of Johnson & Johnson's Chief Executive Officer is
determined by the Compensation & Benefits Committee based on its assessment of
the Company's financial and non-financial performance against the background of
the factors and principles outlined in the Credo. With respect to financial
performance, the Committee has identified several factors that are critical to
the success of the business, including Sales Growth, Earnings Per Share (EPS)
Growth, increase in Cash Flow, New Product Flow and growth in Shareholder Value.
In evaluating
14
performance against these factors, Johnson & Johnson's results are compared to
results of a top quality group of high performing companies in the consumer,
pharmaceutical, medical device and diagnostics health care fields with
comparable sales volumes and above average EPS growth rates and financial
strength. There are currently forty-five companies in this comparison group,
which is subject to occasional change as the Company or its competitors change
their focus, merge or are acquired, or as new competitors emerge.
Sales Growth is measured as the percentage increase in sales volume from
one year to the next. EPS Growth is assessed in the same manner. Cash Flow is
measured as the Net Cash Flows from Operating Activities as reported in the
Consolidated Statement of Cash Flows. New Product Flow is assessed by reviewing
the percentage of sales resulting from the sale of new products introduced in
the past five years. Shareholder Value is measured as the increase in stock
price plus dividend return over a five-year period.
The Committee also reviews non-financial factors as part of the overall
evaluation of performance. Such non-financial factors typically include managing
Credo responsibilities, talent management (including developing a diverse
superior talent pool), Process Excellence and progress in research and
development.
The Compensation & Benefits Committee believes it is crucial that these
financial and non-financial factors are managed well, in order to ensure
superior return to Johnson & Johnson's shareholders over the long-term.
Therefore, while performance in these areas is reviewed on an annual basis, the
primary consideration in assessing performance is corporate results over a
longer period, usually five years. No specific fixed weighting or formula is
applied to these factors in determining performance. Rather, the Compensation &
Benefits Committee exercises its judgment in evaluating these factors and in
determining appropriate compensation.
A discussion of 2003 performance can be found under "Decisions on 2003
Compensation."
JOHNSON & JOHNSON'S COMPENSATION PROGRAMS
BASE SALARY
The Base Salary for all employees exempt from the Fair Labor Standards Act,
which includes executives, is managed through the Johnson & Johnson Salary
Administration Program. Under this Program, increases in Base Salary are
governed by guidelines covering three factors: Merit (an individual's
performance); Market Parity (to adjust salaries of high performing individuals
based on the competitive market); and Promotions (to reflect increases in
responsibility). In assessing Market Parity, the Company targets to pay base
salaries that are, overall, equal on average to the select group of top quality
companies referred to above.
These guidelines are set each year and vary from year to year to reflect
the competitive environment and to control the overall cost of salary growth.
Merit increases are based on individual performance and can range from 0% to
over 200% of the merit guideline.
The domestic salary guideline for all exempt employees for 2003 was 4.0%
for merit increases and will be 3.5% for 2004. Guidelines for market parity and
promotion adjustments are as approved in each operating company's budget. Those
guidelines are determined based on each unit's overall competitive position with
respect to salaries paid versus the marketplace.
CASH AND STOCK INCENTIVE COMPENSATION PROGRAMS
To reward performance, Johnson & Johnson provides its executive officers
with additional current compensation in the form of executive cash bonus and
stock awards which is competitive with annual incentives provided by other
companies in the peer community. No fixed weighting or formula is applied by the
Compensation & Benefits Committee to corporate performance versus
15
individual performance in determining incentive cash bonus and stock awards for
the Chief Executive Officer and other executive officers. The amounts of Awards
to executive officers are determined by the Committee acting in its discretion
subject to the maximum amounts specified in the Company's Executive Incentive
Plan. The Committee, acting in its discretion, may determine to pay a lesser
Award than the maximum specified. In making these determinations, the Committee
considers such other matters as it deems relevant, including recommendations by
the Chief Executive Officer for Awards for the other executive officers. For the
Chief Executive Officer and other executive officers the amount of the total
incentive is divided between cash and stock at the discretion of the Committee.
STOCK OPTIONS
The Stock Option Plan is a long-term plan designed to link executive
rewards with shareholder value over time. Johnson & Johnson's award practice
uses a percentage of each year's base salary, expressed as a range of
opportunity, to arrive at the range of option shares available to be granted.
Individual grants are made annually and vary within that range based on
performance. This "annual multiple" approach results in grants which vary from
year to year based on assessed performance, stock price and base salary.
Additionally, stock options are administered based on guidelines that are
benchmarked annually and consequently adjusted as appropriate based on that
benchmark data. This annual adjustment to guidelines may also result in
variations in stock option grants from year to year.
No stock option awards are made in the absence of satisfactory performance.
Performance is evaluated by the Compensation & Benefits Committee based on the
executive's individual contribution to the long-term health and growth of the
Company and the Company's performance based on the factors discussed above. No
fixed weighting or formula is applied to corporate performance versus individual
performance in determining stock option awards. Specifically, for the Chief
Executive Officer and other named executive officers, the Committee does not
apply a mathematical formula that relates financial and/or non-financial
performance to the number of options awarded.
In the event that the stock price declines to a level below the option
grant price, options are not revalued or reissued. Vesting in awards made prior
to December 1997 generally occurred over a period from two to six years. Vesting
in awards granted in or after December 1997 generally occurs three years from
grant.
CERTIFICATES OF EXTRA COMPENSATION
Certificates of Extra Compensation (CECs) provide deferred compensation
that is paid at the end of an executive's career. CECs are performance units
that measure the Company's value based on a formula composed of one-half of the
Company's net asset value and one-half of its earning power value, relative to
the number of shares of Johnson & Johnson Common Stock outstanding. Earning
power value is calculated by taking the capitalized value of earnings averaged
over the previous five years.
The CEC program uniquely reflects Johnson & Johnson's commitment to the
long-term. No awards are paid out to executives during employment. Although the
units vest over a five-year period from grant, the final value of those units is
not determined until retirement or termination of employment. The value of the
program is purely performance driven. The Company pays dividend equivalents on
units awarded. Dividend equivalents are paid at the same rate provided to
shareholders on a share of Johnson & Johnson Common Stock, and are paid
quarterly.
Awards of CECs to the Chief Executive Officer and executive officers are
targeted to provide an above average long-term compensation opportunity as
compared to the peer community. Award amounts are based on the Compensation &
Benefits Committee's evaluation of individual performance, based on the
executive's individual contribution to the long-term health and growth of
16
the Company and the Company's performance based on the factors discussed above.
No fixed weighting or formula is applied to corporate performance versus
individual performance in determining CEC awards.
DECISIONS ON 2003 COMPENSATION
In reviewing and approving compensation actions for the Chief Executive
Officer and the other executive officers, the Compensation & Benefits Committee
of the Board evaluated Johnson & Johnson's performance in 2003 versus goals
identified for both financial and non-financial factors.
Johnson & Johnson's performance for the most recent five year period ranked
in the upper half of the peer community companies in all financial factors
considered: Sales Growth, Shareholder Value, EPS Growth Rate and increase in
Cash Flow. The Company met its goal for New Product Flow. The Committee reviewed
details of five-year and most recent year sales growth, net earnings growth and
increase in cash flow for the Company overall and by each business segment. The
Committee considered Total Shareholder Return, which ranked in the upper half of
peer companies on a five-year basis. Overall, the Committee found that the
Company had outperformed overall and in each business segment compared to peer
industry companies for each of these measures.
With respect to non-financial performance, management continued to excel in
the area of managing Credo responsibilities, talent management, Process
Excellence and progress in research and development. Various initiatives
undertaken by Johnson & Johnson embody the principles of the Credo by addressing
its responsibilities to its customers, employees and the community. Progress was
made in developing a high performing, superior talent pool, that is also diverse
in many ways, including race, gender, cultural background and experiences. The
Company realized significant results from various Process Excellence
initiatives, and progress was documented in new product development. Details of
the pharmaceutical and other new product pipelines were reviewed, and the
Committee determined that the Company was well positioned for continued future
growth.
The Compensation & Benefits Committee met with members of an external
compensation consulting firm as part of their review both with internal staff
and separately in Executive Session. The Committee also met in Executive Session
to discuss compensation decisions for all executive officers. The Committee
assessed Mr. Weldon's overall current cash compensation (base salary and annual
incentive) in comparison to his long-term compensation (stock option and CEC
grants). The Committee determined that Mr. Weldon's total compensation package
was more heavily weighted toward long-term compensation than peer community
practices. Based on this review, the Committee decided to adjust the mix of Mr.
Weldon's current and long-term compensation to better align his overall
compensation package with competitive practices.
Consequently, in February 2004, the Committee awarded Mr. Weldon an annual
incentive payment (comprised of cash bonus and stock award) for 2003 of
$1,950,000. This amount, which was above-target, reflects the Committee's
assessment of the Company's significantly above-target performance and the
realignment of Mr. Weldon's compensation, as discussed in the preceding
paragraph. Awards in February 2004 under the Stock Option and Certificate of
Extra Compensation program were based on competitive practices and reflect the
Compensation & Benefits Committee's assessment of performance. The stock option
awards and CECs shown in the Summary Compensation Table reflect awards made in
February 2004 for 2003 performance. These compensation awards were made based
upon the Compensation & Benefits Committee's assessment of the Company's
financial performance in the five areas outlined above and its non-financial
performance against the background of the Credo as outlined above.
Mr. Weldon was awarded an annual salary increase in March 2003 of 7.39%, as
a result of superior performance.
The above performance results were evaluated based on the overall judgment
of the Compensation & Benefits Committee with no fixed or specific mathematical
weighting applied to
17
each element of performance. Based on the Compensation & Benefits Committee's
judgment, compensation awards for 2003, in total, were consistent with
established targets.
TAX DEDUCTIBILITY CONSIDERATIONS
The Compensation & Benefits Committee has reviewed the Company's
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 Internal Revenue Service and
the Department of the Treasury. Based on this review, the Committee has
determined that the Johnson & Johnson Stock Option Plans, as previously approved
by shareholders, meet the requirements for deductibility under the Act. In order
to permit the future deductibility of cash bonus and stock incentive awards for
certain executive officers of the Company, the Committee and the Board of
Directors have adopted an Executive Incentive Plan that was approved by
shareholders. As a result, all bonus and stock awards qualify as performance
based and are not subject to the tax deductibility limitation of Section 162(m).
In addition, the Committee has approved the Executive Income Deferral Plan that
allows an individual to elect to defer a portion of Base Salary, CEC Dividend
Equivalents and Cash and Stock Bonus Awards. Participation in the Plan is
limited to Executive Committee members and is voluntary. Accordingly, any
amounts that would otherwise result in non-tax deductible compensation may be
deferred under the Plan. As a result of the implementation of the Johnson &
Johnson Executive Incentive Plan and elections made under the Executive Income
Deferral Plan, the Company maximizes the tax deduction available under Section
162(m). However, in some cases, the Compensation & Benefits Committee may elect
to exceed the tax-deductible limits. This may be necessary for the Company to
meet competitive market pressures and to ensure that it is able to attract and
retain top talent to successfully lead the organization.
Arnold G. Langbo, Chairman
Ann D. Jordan
Steven S Reinemund
18
SHAREHOLDER RETURN PERFORMANCE GRAPHS
Set forth below are line graphs comparing the cumulative total shareholder
return on the Company's Common Stock for periods of five years and ten years
ending December 31, 2003 against the cumulative total return of the Standard &
Poor's 500 Stock Index, the Standard & Poor's Pharmaceutical Index and the
Standard & Poor's Health Care Equipment Index. The graphs and tables assume that
$100 was invested on December 31, 1998 and December 31, 1993 in the Company's
Common Stock, the Standard & Poor's 500 Stock Index, the Standard & Poor's
Pharmaceutical Index and the Standard & Poor's Health Care Equipment Index and
that all dividends were reinvested.
FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN (1998-2003)
[LINE GRAPH]
--------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
--------------------------------------------------------------------------------
Johnson & Johnson $100.00 $112.45 $128.49 $146.26 $134.74 $131.95
S&P 500 Index $100.00 $121.04 $110.02 $96.96 $75.54 $ 97.19
S&P Pharm Index $100.00 $88.02 $119.97 $102.53 $81.99 $ 89.19
S&P H/C Equip Index $100.00 $92.18 $135.29 $128.41 $112.17 $148.09
19
TEN-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN (1993-2003)
[LINE GRAPH]
----------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------------------------
Johnson & Johnson $100.00 $124.99 $198.87 $234.89 $315.51 $407.06 $457.73 $523.05 $595.43 $548.48 $537.12
S&P 500 Index $100.00 $101.32 $139.34 $171.32 $228.45 $293.74 $355.54 $323.18 $284.80 $221.88 $285.49
S&P Pharm Index $100.00 $116.63 $186.55 $234.12 $359.59 $535.77 $471.58 $642.75 $549.33 $439.26 $477.87
S&P H/C Equip Index $100.00 $122.27 $206.44 $240.10 $295.22 $417.94 $385.26 $565.43 $536.68 $468.82 $618.93
20
EXECUTIVE COMPENSATION
The following table shows, for each of the last three fiscal years, the
annual compensation paid to or earned by the Company's Chief Executive Officer
and the other four most highly compensated executive officers in 2003 (the
"Named Officers") in all capacities in which they served:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG TERM
------------------------------------ COMPENSATION
NAME OTHER AWARDS
AND ANNUAL ------------ ALL OTHER
PRINCIPAL COMPEN- OPTIONS COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) (#) SATION($)
--------- ---- ---------- ---------- ---------- ------------ ---------
(2) (3) (4)(5) (6)
William C. Weldon 2003 $1,266,154 $1,950,000 $1,192,514 325,000 $ 56,977
Chairman/CEO 2002 1,097,115 1,207,500 786,924 450,000 49,370
2001 863,462 871,761 415,144 600,000 38,856
James T. Lenehan(7) 2003 $1,037,308 $ 860,000 $1,087,667 -- $571,102
Vice Chairman/ 2002 930,769 897,750 841,734 250,000 41,885
President 2001 842,308 864,965 644,161 400,000 37,904
Robert J. Darretta 2003 $ 873,077 $ 759,750 $ 699,784 150,000 $ 39,288
Vice Chairman/CFO 2002 790,385 640,000 515,569 135,000 35,567
2001 750,000 604,679 452,689 150,000 33,750
Per A. Peterson 2003 $ 744,231 $ 660,000 $ 391,089 150,000 $ 33,490
Chairman, R&D 2002 672,385 558,250 327,598 135,000 30,257
Pharmaceuticals 2001 596,554 431,743 179,785 150,000 26,845
Group
Roger S. Fine(8) 2003 $ 730,577 $ 628,060 $1,178,294 -- $ 31,647
Vice President, 2002 667,308 475,000 1,042,090 110,000 30,029
General Counsel 2001 635,000 471,229 820,686 125,000 28,575
------------------
(1) Includes amounts paid and deferred.
(2) Bonus amounts are comprised of cash and the fair market value of stock
awards on the date award is issued. Bonus amounts listed for 2003 were
awarded in February 2004 as compensation for performance in fiscal year
2003. In 2001, the Compensation Committee changed the timing of paying
year-end bonus amounts to all eligible employees, including executive
officers of the Company. Starting with fiscal year 2001, annual cash bonus
and stock awards are awarded in February of the following year. As a result,
no annual bonus was awarded to the Named Officers in fiscal year 2001.
However, the bonus amounts awarded to the Named Officers in February 2003
and 2002, as compensation for performance in the prior fiscal year, are
listed as compensation for 2002 and 2001, respectively.
(3) Amounts include dividend equivalents paid under the Certificate of Extra
Compensation (CEC) Program (long-term incentive plan).
(4) Stock option awards listed for 2003 were granted on February 9, 2004 as
compensation for fiscal year 2003. The options were granted at an exercise
price equal to the fair market value of the Company's Common Stock on the
date of grant. All of the options become exercisable on the third
anniversary of date of grant, which is the same vesting schedule for all
executives granted options on such date.
(5) In 2001, the Compensation Committee changed the timing of granting annual
stock option grants to all eligible employees, including executive officers
of the Company. For fiscal year 2000 and prior years, annual stock option
awards were granted to executive officers in
21
December of each year. Starting with fiscal year 2001, stock option awards
are granted in February of the following year. As a result, no stock
options were granted to the Named Officers in fiscal year 2001. However,
the stock option awards granted to the Named Officers in February 2002, as
compensation for performance in 2001, are listed as compensation for 2001
and the stock option awards granted in February 2003, as compensation for
performance in 2002, are listed as compensation for 2002.
(6) Amount shown is the Company's matching contribution to the 401(k) Savings
Plan and related supplemental plan. In addition, the amount shown for Mr.
Lenehan for 2003 also includes a future payment, as described in footnote
(7) below.
(7) Mr. Lenehan has announced his decision to retire from the Company as of June
30, 2004. In anticipation of his retirement, Mr. Lenehan resigned from the
Board of Directors and as Vice Chairman and President of the Company
effective February 1, 2004. Until his retirement, Mr. Lenehan will be
engaged in the transition of his management responsibilities. Consistent
with the terms of a retirement program which has been offered to certain
employees and executives of the Company, Mr. Lenehan will receive a payment,
upon retirement, of one week's pay for each year of service to the Company.
Mr. Lenehan has 27 years of service with the Company, and the approximate
payment he will receive, in the amount of $525,000, is included under "All
Other Compensation" for 2003. In addition, consistent with the terms of the
retirement program, the amount of the retirement benefit under the pension
plan received by Mr. Lenehan will be determined as if he retired at age 62.
Mr. Lenehan will receive no other retirement or severance payments, and no
other retirement perquisites. The Compensation & Benefits Committee of the
Board of Directors approved allowing Mr. Lenehan to retire upon these same
terms and conditions as offered to such other employees and executives of
the Johnson & Johnson organization.
(8) Mr. Fine's long-term compensation for 2003 reflects his anticipated
retirement in April 2004.
STOCK OPTIONS
Starting with fiscal year 2001, stock option awards are granted to all
eligible employees, including executive officers of the Company, in February, as
compensation for performance in the prior fiscal year. The following table
contains information with respect to the grant of stock options under the
Company's 2000 Stock Option Plan to the Named Officers in February 2004, as
compensation for performance in 2003.
OPTION GRANTS WITH RESPECT TO LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FOR 2003 ($/SH) DATE VALUE($)(2)
---- ------------- ---------- -------- ---------- -----------
William C. Weldon... 325,000 0.7% $53.93 2/7/14 $4,260,750
James T. Lenehan.... -- -- -- -- --
Robert J. Darretta.. 150,000 0.3% $53.93 2/7/14 $1,966,500
Per A. Peterson..... 150,000 0.3% $53.93 2/7/14 $1,966,500
Roger S. Fine....... -- -- -- -- --
------------------
(1) The options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on February 9, 2004, the date of grant. All of
the options become exercisable on the third anniversary of the date of
grant, which is the same vesting schedule for all executives granted options
on such date.
(2) The grant date present values per option share were derived using the
Black-Scholes option pricing model in accordance with the rules and
regulations of the Securities and Exchange
22
Commission and are not intended to forecast future appreciation of the
Company's stock price. The options expiring on February 7, 2014 had a grant
date present value of $13.11 per option share. The Black-Scholes model was
used with the following assumptions: volatility of 27% based on a historical
weekly average over five years; dividend yield of 1.76%; risk free interest
of 3.15% based on a U.S. Treasury rate of five years; and a five year option
life.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT YEAR END IN-THE-MONEY OPTIONS AT
SHARES 2003(#) YEAR END 2003($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
William C. Weldon............ 57,000 $ 2,158,576 643,400 1,050,000 $ 4,461,116 $ --
James T. Lenehan............. 78,800 $ 3,293,976 1,094,800 650,000 $17,276,008 $ --
Robert J. Darretta........... 56,000 $ 2,256,572 577,000 285,000 $ 4,806,960 $ --
Per A. Peterson.............. 56,000 $ 1,844,760 259,900 285,000 $ 3,367,866 $ --
Roger S. Fine................ 67,400 $ 3,090,290 597,200 235,000 $ 8,002,564 $ --
------------------
(1) Based on the New York Stock Exchange Composite closing price as published in
the Wall Street Journal for the last business day of the fiscal year
($50.62).
CERTIFICATE OF EXTRA COMPENSATION PROGRAM
The following table provides information concerning awards made in February
2004 as compensation for performance during the last fiscal year to the Named
Officers under the Company's Certificate of Extra Compensation (CEC) Program.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
ESTIMATED
NUMBER PERIOD UNTIL FUTURE
NAME OF UNITS(#) PAYOUT(2) PAYOUT($)(3)
---- ----------- ------------ ------------
William C. Weldon............................ 134,000 $2,298,100
James T. Lenehan............................. 0 0
Robert J. Darretta........................... 160,000 2,744,000
Per A. Peterson.............................. 30,000 514,500
Roger S. Fine................................ 0 0
---------------
(1) Since 2001, annual long-term incentive compensation has been awarded to all
eligible employees, including executive officers of the Company, in
February, as compensation for performance in the prior fiscal year.
Accordingly, this table shows the CEC units awarded to the Named Officers in
February 2004, as compensation for performance in 2003.
(2) Awards are paid out upon retirement or other termination of employment.
(3) The value used is the value as of the end of the last fiscal year and was
$17.15 per CEC unit. The value of the CEC units is subject to increase or
decrease based on the performance of the Company.
Since 1947, the Company has maintained a deferred compensation program
under which awards of CEC units may be made to senior management and other key
personnel of the Company
23
and its subsidiaries worldwide. Typically, an award of CEC units provides for a
specified number of units which vest over a five year period, though no awards
are paid out to a participant until retirement or other termination of
employment. During employment, dividend equivalents are paid to participants on
CEC units in the same amount and at the same time as dividends on the Company's
Common Stock. The CEC units are valued in accordance with a formula based on the
Company's net assets and earning power over the five preceding fiscal years.
Until paid at retirement or termination of employment, the final value of the
CEC units is subject to increase or decrease based on the performance of the
Company. The value as of the end of the last fiscal year was $17.15 per CEC
unit. The cumulative number of CEC units earned as of the end of the last fiscal
year by each of the Named Officers during their careers with the Company, valued
for illustrative purposes at the $17.15 per unit value, are: Mr. W. C. Weldon
574,000 CEC units ($9,844,100); Mr. J. T. Lenehan 814,400 CEC units
($13,966,960); Mr. R. J. Darretta 564,000 CEC units ($9,672,600); Dr. P. A.
Peterson 196,000 CEC units ($3,361,400); and Mr. R. S. Fine 1,028,000 CEC units
($17,630,200).
RETIREMENT PLAN
The following table shows the estimated annual retirement benefit payable
at normal retirement age on a straight life annuity basis to participating
employees in the compensation and years of service classifications indicated,
under the Company's Retirement Plan. The Retirement Plan generally covers
salaried U.S. employees of the Company and designated subsidiaries on a non-
contributory basis.
PENSION PLAN TABLE
5 YEAR
AVERAGE ANNUAL BENEFITS FOR YEARS OF SERVICE
COVERED --------------------------------------------------------------------
COMPENSATION 10 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
------------ -------- -------- -------- -------- -------- --------
1,000,000 163,600 327,300 409,100 490,900 572,700 654,600
1,200,000 197,000 394,000 492,500 590,900 689,400 787,900
1,400,000 230,300 460,600 575,800 691,000 806,100 921,300
1,600,000 263,700 527,300 659,200 791,000 922,800 1,054,600
1,800,000 297,000 594,000 742,500 891,000 1,039,500 1,188,000
2,000,000 330,300 660,700 825,900 991,000 1,156,200 1,321,400
2,200,000 363,700 727,400 909,200 1,091,000 1,272,900 1,454,700
2,400,000 397,000 794,000 992,600 1,191,100 1,389,600 1,588,100
2,600,000 430,400 860,700 1,075,900 1,291,100 1,506,300 1,721,400
2,800,000 463,700 927,400 1,159,300 1,391,100 1,623,000 1,854,800
3,000,000 497,000 994,100 1,242,600 1,491,100 1,739,600 1,988,200
3,200,000 530,400 1,060,800 1,326,000 1,591,100 1,856,300 2,121,500
Covered compensation includes regular annual earnings, dividend equivalents
paid on non-vested CEC units, amounts paid under the Company's Standards of
Leadership Award Program, amounts paid under the Company's Executive Incentive
Plan and amounts deferred under the Company's Executive Income Deferral Plan.
The calculation of retirement benefits is based upon final average earnings (the
average of the highest covered compensation during the five consecutive years
out of the last ten years of employment with the Company). The benefits are
subject to an offset based on the Age 65 Primary Social Security Benefit.
Five-Year Average Covered Compensation for the Named Officers as of the end of
the last fiscal year is: Mr. W. C. Weldon $2,252,970; Mr. J. T. Lenehan
$1,809,155; Mr. R. J. Darretta $1,453,689; Dr. P. A. Peterson $1,135,096 and Mr.
R. S. Fine $1,237,880. Mr. Lenehan has announced his decision to retire from the
Company as of June 30, 2004, as described in footnote (7) to the Summary
Compensation Table. Consistent with the terms of a retirement program which has
been offered to certain employees and executives of the Company, Mr. Lenehan's
retirement benefit will be determined as
24
if he retired at age 62, with 27 years of service. The approximate years of
service for each Named Officer as of the end of the last fiscal year are: Mr. W.
C. Weldon 32 years; Mr. J. T. Lenehan 27 years; Mr. R. J. Darretta 36 years; Dr.
P. A. Peterson 10 years; and Mr. R. S. Fine 30 years.
As permitted by the Employee Retirement Income Security Act of 1974, the
Company has adopted a supplemental plan which is designed to provide the amount
of retirement benefits which cannot be paid from the Retirement Plan by reason
of certain Internal Revenue Code limitations on qualified plan benefits. The
amounts shown in the Pension Plan Table include the amounts payable under the
supplemental plan.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed PricewaterhouseCoopers LLP as the
independent auditors for the Company and its subsidiaries for the fiscal year
2004. Shareholder ratification of the appointment is not required under the laws
of the State of New Jersey, but the Board has decided to ascertain the position
of the shareholders on the appointment. The Board of Directors will reconsider
the appointment if it is not ratified. The affirmative vote of a majority of the
shares voted at the meeting is required for ratification.
During fiscal years 2002 and 2003, PricewaterhouseCoopers not only acted as
the independent auditors for the Company and its subsidiaries (work related to
auditing the annual financial statements for those fiscal years and reviewing
the financial statements included in the Company's Forms 10-Q), but also
rendered on behalf of the Company and its subsidiaries other services.
In January 2002, in response to public concerns about the integrity of
independent audits, Johnson & Johnson adopted a policy which prohibited the
Company or any of its affiliates from entering into most non-audit related
management consulting arrangements with its independent auditors. The policy
applied to all "Management Consulting Services" as shown in the table below. The
policy did not affect pre-existing arrangements, which were allowed to continue,
but could not be expanded in scope or renewed. The fees listed below as incurred
in 2002 for "Management Consulting Services" included systems design and
implementation for both financial and other systems and other management
consulting services. Those services were all incurred pursuant to arrangements
which were in effect prior to January 2002. In addition, substantially all of
those fees listed below as incurred in 2002 for "Management Consulting Services"
were incurred in connection with services provided by PricewaterhouseCoopers
Consulting, the management consulting division of PricewaterhouseCoopers, which
was divested by PricewaterhouseCoopers and acquired by IBM as of October 1,
2002.
Furthermore, new rules under the Sarbanes-Oxley Act prohibit an independent
auditor from providing certain non-audit services for an audit client. These
rules became effective on May 6, 2003 for new engagements. All engagements with
independent auditors to perform a prohibited non-audit service entered into
prior to May 6, 2003 must be completed before May 6, 2004. The services listed
below as "Benefit Plan Assistance" and a portion of the services included below
in "Dispute Analysis" represent non-audit services which must be completed
before May 6, 2004. It is expected that the independent auditors will continue
to provide certain accounting, additional auditing, tax and other services to
Johnson & Johnson and its affiliates, which are permitted under applicable rules
and regulations.
25
The following table sets forth the aggregate fees billed or expected to be
billed by PricewaterhouseCoopers for 2003 and 2002 for audit and non-audit
services (as well as all "out-of-pocket" costs incurred in connection with these
services) and are categorized as Audit Fees, Audit-Related Fees, Tax Fees and
All Other Fees. The nature of the services provided in each such category is
described following the table.
ACTUAL FEES
-------------------------
2003 2002
----------- -----------
Audit Fees.................................................. $12,550,000 $10,200,000
Audit-Related Fees.......................................... 5,030,000 3,500,000
----------- -----------
Total Audit and Audit-Related Fees..................... $17,580,000 $13,700,000
----------- -----------
Tax Fees.................................................... $18,150,000 $13,375,000
----------- -----------
All Other Fees:
Dispute Analysis.......................................... 2,650,000 5,000,000
Benefit Plan Assistance................................... 300,000 725,000
Other Services............................................ 2,150,000 2,100,000
Management Consulting Services............................ -- 58,000,000
----------- -----------
Total All Other Fees................................... 5,100,000 65,825,000
----------- -----------
Total Fees.................................................. $40,830,000 $92,900,000
=========== ===========
The nature of the services provided in each of the categories listed above
is described below:
Audit Fees -- Consists of professional services rendered for the audits of
the consolidated financial statements of the Company, quarterly reviews,
statutory audits, issuance of comfort letters, consents, income tax provision
procedures, and assistance with and review of documents filed with the SEC.
Audit-Related Fees -- Consists of assurance and related services related to
employee benefit plan audits, due diligence related to mergers and acquisitions,
accounting consultation and audits in connection with acquisitions and
dispositions, internal control reviews, attest services that are not required by
statute or regulation, assistance with the preparation of statutory financial
statements, consultations concerning financial accounting and reporting
standards and, in 2003, Sarbanes-Oxley (Section 404) start-up time and readiness
assistance.
Tax Fees -- In 2003, approximately 60% of Tax Fees were related to tax
compliance (review and preparation of corporate and expatriate tax returns,
assistance with tax audits, review of the tax treatments for certain expenses,
extra-territorial income analysis, transfer pricing documentation for compliance
purposes and tax due diligence relating to acquisitions). Other tax services
included, state and local tax planning and consultations with respect to various
domestic and international tax matters.
Dispute Analysis -- Consists of services related to economic analysis and
data accumulation in connection with certain business and contractual matters.
Benefit Plan Assistance -- Consists of actuarial valuation services and
consultation on defined benefit plans rendered under the then existing and
transitional independence rules.
Other Services -- Consists of reviews for compliance with various
government regulations relating to the healthcare industry and privacy
standards, risk management reviews and assessments, audits of various
contractual arrangements to assess compliance, validation reviews of systems to
assess compliance with FDA rules, and projects relating to reviewing security
controls in systems.
26
Management Consulting Services -- Consisted of systems design and
implementation for both financial information and other systems and other
management consulting services, which were provided in 2002.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
Under the Audit and Non-Audit Services Pre-Approval Policy, as adopted by
the Audit Committee in 2003, the Audit Committee must pre-approve all audit and
non-audit services provided by the independent auditors. The policy, as
described below, sets forth the procedures and conditions for such pre-approval
of services to be performed by the independent auditor. The policy utilizes both
a framework of general pre-approval for certain specified services and specific
pre-approval for all other services.
In the fourth quarter of each year, the Audit Committee is asked to
pre-approve the engagement of the independent auditors, and the projected fees,
for audit services, audit-related services (assurance and related services that
are reasonably related to the performance of the auditor's review of the
financial statements or that are traditionally performed by the independent
auditor) and tax services (such as tax compliance, tax planning and tax advice)
for the following year. In addition, the following specific routine and
recurring other services may also be pre-approved generally for the following
year: audits or reviews of third parties to assess compliance with contracts;
risk management reviews and assessments; dispute analysis; healthcare compliance
reviews related to privacy and other regulatory matters and certain projects to
evaluate systems security.
The fee amounts approved at such fourth quarter meeting are updated to the
extent necessary at the regularly scheduled meetings of the Audit Committee in
the following year. Additional pre-approval is required before actual fees for
any service can exceed 5% of the originally pre-approved amount, excluding the
impact of currency.
If the Company wants to engage the independent auditor for other services,
that are not considered subject to general pre-approval as described above, then
the Audit Committee must approve such specific engagement as well as the
projected fees. Additional pre-approval is required before any fees can exceed
those fees approved for any such specifically-approved services.
If the Company wishes to engage the independent auditor for additional
services that have not been generally pre-approved as described above, then such
engagement will be presented to the Audit Committee for pre-approval at its next
regularly scheduled meeting. If the timing of the project requires an expedited
decision, then the Company may ask the Chairman of the Audit Committee to
pre-approve such engagement. Any such pre-approval by the Chairman is then
reported to the other Committee members at the next Committee meeting. In any
event, pre-approval of any engagement by the Audit Committee or the Chairman of
the Audit Committee is required before the independent auditors may commence any
engagement.
In 2003, there were no fees paid to PricewaterhouseCoopers under a de
minimis exception to the rules that waives pre-approval for certain non-audit
services.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting of Shareholders and will be allowed to make a statement if
they wish. Additionally, they will be available to respond to appropriate
questions from shareholders during the meeting.
SHAREHOLDER PROPOSAL ON CHARITABLE CONTRIBUTIONS
The following shareholder proposal has been submitted to the Company for
action at the meeting by Mr. Raymond B. Ruddy of Dover, Massachusetts, who owns
66 shares of stock. The
27
affirmative vote of a majority of the shares voted at the meeting is required
for approval of the shareholder proposal. The text of the proposal is as
follows:
"Resolved, the shareholders recommend to board of directors of Johnson &
Johnson to cease making charitable contributions.
SUPPORTING STATEMENT
Choice is a popular word in our culture. By making charitable
contributions at the corporate level we have usurped the right and duty of
individuals to support the charities of their choice. We may also be
forcing thousands of people to support causes they may disagree with on a
most profound level. For example, abortion rights advocates often use the
word choice, without mentioning what the choice is all about, i.e.,
abortion. Today there are a number of prominent charities advocating for
abortion. Other charities, often times involved in research for cures of
disease, may advocate the destruction of human embryos for research
purposes. These may be more controversial examples, but they illustrate the
point today, many charities are involved in activities that are divisive
and not universally supported. Employees and shareholders represent a broad
range of interests. It is impossible to be sensitive to the moral,
religious and cultural sensitivities to so many people. Rather than compel
our stakeholders to support potentially controversial charitable groups we
should refrain from giving their money away to them. Let each person
choose. The importance of individual choice and the importance of each
individual cannot be underestimated."
MANAGEMENT'S STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS FAVORS A VOTE AGAINST THE ADOPTION OF THIS PROPOSAL
FOR THE FOLLOWING REASONS:
The charitable contributions of Johnson & Johnson are a powerful reflection
of our values and of our responsibility "to the communities in which we live and
work and to the world community as well," as articulated in Our Credo. Our
Corporate Contributions Program is a hallmark of the Johnson & Johnson Family of
Companies. Beyond financial generosity, our efforts are based on partnerships
with outstanding not-for-profit and community organizations, and our objective
for these partnerships is improvement in the quality of life in our communities.
Through our Corporate Contributions Program, we play a major role in creating
healthy futures for people all over the world.
Further, our charitable contributions support our commitment to be "good
citizens -- support good works and charities," also a fundamental tenet of Our
Credo. These contributions support programs that are far-reaching in geographic
and substantive scope, from a program that helped in de-worming children in
Brazil, to Interchurch Medical Assistance, Inc., which coordinated a relief
effort for approximately 300,000 people displaced by a natural disaster in the
Congo, to Mobile AIDS Support Services, which assists people living with HIV and
AIDS in rural Alabama.
It is contrary to our values and to our mission to improve health care for
people all over the world to consider a cessation to our charitable
contributions program.
IT IS, THEREFORE, RECOMMENDED THAT THE SHAREHOLDERS VOTE AGAINST THIS
PROPOSAL.
OTHER MATTERS
The Board of Directors does not intend to bring other matters before the
meeting except items incident to the conduct of the meeting, and the Company has
not received timely notice from any shareholder of an intent to present a
proposal at the meeting. On any matter properly brought before the meeting by
the Board or by others, the persons named as proxies in the accompanying proxy,
or their substitutes, will vote in accordance with their best judgment.
28
EXHIBIT 1
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF JOHNSON & JOHNSON
The Audit Committee (the "Committee") shall report to and assist the Board
of Directors (the "Board") of Johnson & Johnson (the "Company") by providing
oversight of the financial management, independent auditors and financial
reporting procedures of the Company, as well as such other matters as directed
by the Board or this Charter.
MEMBERSHIP OF THE COMMITTEE
1. The Committee shall be comprised of not less than three members of the
Board.
2. The composition of the Committee shall meet all the requirements of the
Audit Committee Policy of the New York Stock Exchange, which, among
other things, prohibits any officer or employee of the Company from
serving on the Committee.
3. Each Committee member shall have no other relationship to the Company
that may interfere with the exercise of his or her independence from
management and the Company, including the receipt from the Company of
any compensation other than directors' fees and other compensation
related to their service as a director.
4. Each Committee member shall be financially literate or shall become
financially literate within a reasonable period of time after
appointment to the Committee.
MEETINGS OF THE COMMITTEE
1. The Committee will meet formally at least four times each fiscal year.
2. The Committee will hold separate private meetings at least twice each
fiscal year with each of the Vice President of Internal Audit, a
representative of the independent auditors, the General Counsel and the
Chief Financial Officer.
KEY RESPONSIBILITIES
The Company's management is responsible for preparing the Company's
financial statements and the independent auditors are responsible for auditing
these financial statements. The Committee is responsible for assisting the Board
in overseeing the conduct of these activities by the Company's management and
the independent auditors, and the integrity of the Company's financial
statements. The financial management and the independent auditors of the Company
have more time, knowledge and more detailed information on the Company than do
Committee members. Consequently, in carrying out its oversight responsibilities,
the Committee is not providing any expert or special assurance as to the
Company's financial statements or any professional certification as to the
independent auditors' work. The Committee is also responsible for preparing the
Report of the Audit Committee that SEC rules require be included in the
Company's annual proxy statement.
In carrying out its oversight responsibilities, the Committee shall perform
the following functions:
Oversight of Independent Auditors.
In the course of its oversight of the independent auditors as provided
under this Charter, the Committee will be guided by the premise that the
independent auditors are ultimately accountable to the Board and the Committee.
29
1. The Committee, subject to any action that may be taken by the full
Board, shall have the ultimate authority and responsibility to appoint,
retain, compensate, evaluate and, when appropriate, terminate the
independent auditors. This responsibility includes resolving
disagreements between management and the independent auditors regarding
financial reporting. The Committee shall assist the Board in its
oversight of the qualifications, independence and performance of the
independent auditors.
2. The Committee shall:
(i) receive from the independent auditors annually, a formal written
statement delineating the relationships between the auditors and
the Company consistent with Independence Standards Board Standard
Number 1;
(ii) discuss with the independent auditors the scope of any such
disclosed relationships and their impact or potential impact on
the independent auditors' independence and objectivity; and
(iii) recommend that the Board take appropriate action in response to
the independent auditors' report to satisfy itself of the
auditor's independence.
3. The Committee shall review and approve the original proposed scope of
the annual independent audit of the Company's financial statements and
the associated engagement fees, as well as any significant variations
in the actual scope of the independent audit and the associated
engagement fees.
4. The Committee shall set hiring policies for employees or former
employees of the independent auditors.
5. At least annually, the Committee shall obtain and review a report by
the independent auditors describing: the firm's internal
quality-control procedures; any material issues raised by the most
recent internal quality-control review, or peer review, of the firm, or
by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or more
independent audits carried out by the firm, and any steps taken to deal
with any such issues; and (to assess the auditor's independence) all
relationships between the independent auditors and the Company.
6. The Committee shall review with the independent auditors any
difficulties the auditors encountered in the course of the audit work,
including restrictions on the scope of work or access to requested
information, and any significant disagreements with management.
Oversight of Internal Auditors.
The Committee shall review and discuss with management and the independent
auditors:
1. The quality and adequacy of the Company's internal accounting controls.
2. The organization of the internal audit department, the adequacy of its
resources and the competence and performance of the internal audit
staff.
3. The audit risk assessment process and the proposed scope of the
internal audit department for the upcoming year and the coordination of
that scope with independent auditors.
4. Results of the internal auditors' examination of internal controls
including summaries of inadequate reports issued and/or management
improprieties together with management's response thereto.
Oversight of Management's Conduct of the Company's Financial Reporting Process.
1. Audited Financial Statements. The Committee shall discuss with
management and the independent auditors the audited financial
statements to be included in the Company's
30
Annual Report on Form 10-K (or the Annual Report to Shareowners if
distributed prior to the filing of Form 10-K) and review and consider
with the independent auditors the matters required to be discussed by
the applicable Statement of Auditing Standards ("SAS"). Based on these
discussions, the Committee will advise the Board of Directors whether
it recommends that the audited financial statements be included in the
Annual Report on Form 10-K (or the Annual Report to Shareowners).
2. Interim Financial Statements. The Committee, through its Chairman or
the Committee as a whole, will review with management and the
independent auditors, prior to the filing thereof, the Company's
interim financial results to be included in the Company's quarterly
reports on Form 10-Q and the matters required to be discussed by the
applicable SAS. The Committee will also discuss the Company's annual
audited financial statements and quarterly financial statements with
management and the independent auditors, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
3. Financial Reporting Practices. The Committee shall review:
(i) Changes in the Company's accounting policies and practices and
significant judgments that may affect the financial results.
(ii) The nature of any unusual or significant commitments or contingent
liabilities together with the underlying assumptions and estimates
of management.
(iii) The effect of changes on accounting standards that may materially
affect the Company's financial reporting practices.
4. Financial Information Disclosure. The Committee shall in a general
manner discuss earnings press releases, as well as the types of
financial information and earnings guidance that are given to analysts
and rating agencies.
5. Risk Assessment. The Committee shall discuss with management the
guidelines, policies and processes relied upon and used by management
to assess and manage the Company's exposure to risk.
Assist the Board in Oversight of the Company's Compliance with Policies and
Procedures Addressing Legal and Ethical Concerns.
1. The Committee shall review and monitor, as appropriate:
(i) Results of compliance programs, including the Company's Policy on
Business Conduct.
(ii) Litigation or other legal matters that could have a significant
impact on the Company's financial results.
(iii) Significant findings of any examination by regulatory authorities
or agencies, in the areas of securities, accounting or tax, such
as the Securities and Exchange Commission or the Internal Revenue
Service.
(iv) The Company's disclosure controls and procedures.
2. By approving and adopting recommendations of management, the Committee
shall ensure that procedures have been established for the receipt,
retention and treatment of complaints from Company employees on
accounting, internal accounting controls or auditing matters, as well
as for the confidential, anonymous submissions by Company employees of
concerns regarding questionable accounting or auditing matters.
31
3. The Committee shall report regularly to the Board on its meetings and
discussions and review with the Board significant issues or concerns
that arise at Committee meetings, including its evaluation of the
independent auditors.
4. The Committee shall conduct an annual evaluation of its performance in
fulfilling its duties and responsibilities under this Charter.
5. The chairman or any one or more members of the Committee, as designated
by the Committee, may act on behalf of the Committee.
6. The Committee shall have authority and appropriate funds to retain and
consult with outside legal, accounting or other advisors as the
Committee may deem appropriate.
7. The adequacy of this Charter shall be reviewed by the Committee on an
annual basis. The Committee will recommend to the Board any
modifications to this Charter, which the Committee deems appropriate,
for approval by the Board.
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EXHIBIT 2
PRINCIPLES OF CORPORATE GOVERNANCE
OF JOHNSON & JOHNSON
Johnson & Johnson is governed by the values set forth in Our Credo, created
by General Robert Wood Johnson in 1943. These values have guided us for many
years and will continue to set the tone of integrity for the entire Company. All
of us at Johnson & Johnson, the employees, officers and directors, are committed
to the ethical principles embodied in Our Credo.
Our Credo values extend to our corporate governance. In fact, over sixty
years ago, General Johnson recognized our responsibility to four groups of
stakeholders -- our customers, our employees, our communities and our
shareholders. These Principles of Corporate Governance build on the foundation
of our Credo.
We believe that good corporate governance results from sound processes that
ensure that our directors are well supported by accurate and timely information,
sufficient time and resources and unrestricted access to management. The
business judgment of the Board must be exercised independently and in the
long-term interests of our shareholders.
We also believe that ethics and integrity cannot be legislated or mandated
by directive or policy. So while we adopt these Principles of Corporate
Governance, we reaffirm our belief that the ethical character, integrity and
values of our directors and senior management remain the most important
safeguards of corporate governance at Johnson & Johnson.
1. DUTIES AND RESPONSIBILITIES OF THE COMPANY AND THE BOARD OF DIRECTORS
RESPONSIBILITIES OF THE BOARD. All directors are elected annually by the
shareholders as their representatives in providing oversight of the operation of
the Company. The directors select, oversee and monitor the performance of the
senior management team, which is charged with the day-to-day conduct of the
Company's business. The fundamental responsibility of the directors is to
exercise their business judgment on matters of critical and long-term
significance to the Company in furtherance of what they reasonably believe to be
in the best interest of the Company, and therefore its shareholders.
BOARD MEETINGS. Directors are expected to attend Board meetings and
meetings of the Committees on which they serve, to spend the time needed and to
meet as frequently as necessary to properly discharge their responsibilities.
Meetings should include presentations by management and, when appropriate,
outside advisors or consultants, as well as sufficient time for full and open
discussion.
WRITTEN MATERIALS. Written materials that are important to the Board's
understanding of the agenda items to be discussed at a Board or Committee
meeting should be distributed to the directors sufficiently in advance of the
meeting to allow the directors the opportunity to prepare. Directors are
expected to review these materials thoroughly in advance of the meeting.
AGENDA FOR BOARD MEETINGS. The Chairman of the Board will set the agenda
for Board meetings with the understanding that certain items necessary for
appropriate Board oversight will be brought to the Board periodically for
review, discussion and decision-making. The Presiding Director will review the
agenda for each Board meeting in advance of the meeting and may request changes
as he or she deems appropriate in order to ensure that the interests and
requirements of the non-employee directors are appropriately addressed. Any
director may request that an item be included on any meeting agenda.
EXECUTIVE SESSIONS OF NON-EMPLOYEE DIRECTORS. The non-employee directors
will meet in regular executive sessions without any members of management
present at least four times each
33
year. The Presiding Director will chair these executive sessions. In addition,
the Chairman and Chief Executive Officer will hold private meetings with the
non-employee directors, on a regular basis.
PRESIDING DIRECTOR. On an annual basis, the non-employee directors will
select a non-employee member of the Board to serve as Presiding Director. The
Presiding Director will chair executive sessions of the Board when the
non-employee directors meet without the Chairman and Chief Executive Officer
present. The Presiding Director will perform such other functions as the Board
may direct, including, acting as an intermediary between the non-employee
directors and management when special circumstances exist or communication out
of the ordinary course is necessary, participating in the performance evaluation
of the Chief Executive Officer and reviewing the schedule of Board and Committee
meetings and the agendas for Board meetings.
CONFLICTS OF INTEREST. Every employee and director has a duty to avoid
business, financial or other direct or indirect interests or relationships which
conflict with the interests of the Company or which may affect his or her
loyalty to the Company. Each director must deal at arm's length with the Company
and should disclose to the Chairman, Vice Chairman or Presiding Director any
conflict or any appearance of a conflict of interest. Any activity which even
appears to present such a conflict must be avoided or terminated, unless after
appropriate disclosure and discussion, it is determined that the activity is not
harmful to the Company or otherwise improper.
OTHER BOARD SEATS. A director should engage in discussion with the
Chairman prior to accepting an invitation to serve on an additional public
company board.
2. DIRECTOR QUALIFICATIONS
INDEPENDENCE. It is our goal that at least two-thirds of our directors
should be "independent," not only as that term may be defined legally or
mandated by the New York Stock Exchange, but also without the appearance of any
conflict in serving as a director. To be considered independent under these
Principles, the Board must determine that a director does not have any direct or
indirect material relationship with the Company (other than in his or her
capacity as a director). We have established guidelines to assist in determining
whether a director has a direct or indirect material relationship. These
guidelines are attached to these Principles as Annex A.
GENERAL CRITERIA FOR NOMINATION TO THE BOARD. Attached to these Principles
as Annex B is the General Criteria for Nomination to the Board which has been
adopted by the Nominating & Corporate Governance Committee. These General
Criteria set the traits, abilities and experience that the Board looks for in
determining candidates for election to the Board. Among the criteria, the Board
has reaffirmed the mandatory retirement age of 72 for directors.
TERM LIMITS. We do not believe that our directors should be subject to
term limits. Due to the complexity of the businesses of the Company, we value
the increasing insight which a director is able to develop over a period of
time. We believe that a lengthy tenure on our Board provides an increasing
contribution to the Board and is therefore in the interests of our shareholders.
However, renomination to the Board is based on an assessment of each director's
performance and contribution and is not automatic.
STOCK OWNERSHIP. While each director is awarded stock upon his or her
initial election to the Board and required to defer a portion of his or her
directors' fees into phantom stock units (which are tied to the performance of
the Common Stock of the Company and not available for withdrawal until
retirement from the Board), we believe that there should not be other minimum
requirements for stock ownership.
RESIGNATION. Directors should offer their resignation in the event of any
significant change in their personal circumstances, including a change in their
principal job responsibilities.
34
3. RIGHTS OF THE BOARD OF DIRECTORS
As the elected representatives of the shareholders, the directors are
entitled to certain rights that enable them to fulfill their responsibilities
more effectively, including the following:
ACCESS TO OFFICERS AND EMPLOYEES. Directors have full and free access to
officers and employees of the Company. The directors will use their judgment to
ensure that any such contact is not disruptive to the business operations of the
Company and will, to the extent not inappropriate, inform the Chief Executive
Officer of any significant communication between a director and an officer or
employee of the Company.
COMPENSATION. Non-employee directors should be compensated for their time
dedicated to and other contributions on behalf of the Company. The Compensation
& Benefits Committee will annually review and approve or suggest changes to the
compensation of directors. In fulfilling this responsibility, the members of the
Compensation & Benefits Committee should take into consideration the following
factors, among others: compensation should fairly pay directors for the
responsibilities and duties undertaken in serving as a director of a company of
the size and complexity of the Company; compensation should align the directors'
interests with the long-term interests of shareholders; and non-employee
director compensation should be targeted to be consistent with the compensation
philosophy applicable to senior management of the Company. Furthermore,
director's fees (which include all fees, stock awards, stock options and other
consideration given to directors in their capacity as directors) are the only
compensation that members of the Audit Committee may receive from the Company.
Directors who are employees of the Company should receive no additional
compensation for their services as directors.
OUTSIDE ADVISORS. The Board and each Committee has the authority to engage
independent legal, financial or other advisors as it may deem necessary, without
consulting or obtaining the approval of any officer of the Company in advance,
but each Committee will notify the Chairman and the Presiding Director of any
such action. Management of the Company will cooperate with any such engagement
and will ensure that the Company provides adequate funding.
4. RIGHTS OF THE SHAREHOLDERS
Our shareholders are also entitled to certain rights, many of which are
mandated by the Securities and Exchange Commission, the New York Stock Exchange
and Federal and state laws and regulations. In addition to those rights, we
recognize the following rights of our shareholders:
MANAGEMENT OF THE COMPANY. Management of the Company must be ethical,
strive to uphold the highest standards of business practice and act in the
long-term interests of the Company and its shareholders.
ANNUAL ELECTION OF DIRECTORS. All directors are elected annually by the
shareholders. We do not have staggered terms or elect directors for longer
periods. Any vacancies on the Board may be filled or new directors appointed by
the Board between Annual Meetings of the Shareholders, but any such appointment
will only remain in effect until the next Annual Meeting of the Shareholders,
when any such appointee will be presented to the shareholders for election.
ACCESS TO MANAGEMENT. Subject to reasonable constraints of time and topics
and the rules of order, shareholders are allowed to direct comments to or ask
questions of the Chairman and Chief Executive Officer during the Annual Meeting
of the Shareholders.
COMMUNICATION WITH DIRECTORS. Shareholders, employees and others may
contact any of our directors (including our Presiding Director) by writing to
them c/o Johnson & Johnson, One Johnson & Johnson Plaza, Room WH 2133, New
Brunswick, NJ 08933 USA. Employees, and others, who wish to contact the Board
(or any member of the Audit Committee) to report any complaint or concern with
respect to accounting, internal accounting controls, auditing matters or
corporate governance may do so anonymously by using that address. Shareholders,
employees and
35
others may also contact any of the non-employee directors by submitting an
e-mail at www.jnj.com/PresidingDirector. General comments to the Company
(including complaints or questions about a product) should be sent by accessing
www.jnj.com/contact_us/general_inquiries.
5. ELECTION OF DIRECTORS
The directors are elected each year by the shareholders at the Annual
Meeting of Shareholders. The Board proposes a slate of nominees to the
shareholders for election to the Board. The Board also determines the number of
directors on the Board provided that there are at least 9 and not more than 18
directors. Any vacancies on the Board may be filled or new directors appointed
by the Board between Annual Meetings of the Shareholders, but any such
appointment will only remain in effect until the next Annual Meeting, when any
such appointee would be presented to the shareholders for election.
Shareholders may propose nominees for consideration by the Nominating &
Corporate Governance Committee by submitting the names and supporting
information to: Office of the Corporate Secretary, Johnson & Johnson, One
Johnson & Johnson Plaza, New Brunswick, NJ 08933.
6. BOARD COMMITTEES
COMMITTEE STRUCTURE. It is the general policy of the Company that all
major decisions be considered by the Board as a whole. As a consequence, the
committee structure of the Board is limited to those committees which public
companies are required to establish and those committees which focus on areas of
critical importance to the Company, like science and technology, and utilize the
specific talents and expertise of certain members of the Board. Currently, the
Board has the following committees: Audit Committee, Compensation & Benefits
Committee, Nominating & Corporate Governance Committee, Public Policy Advisory
Committee, Science & Technology Advisory Committee and Finance Committee. The
Board may, from time to time, eliminate committees or establish or maintain
additional committees, as it deems necessary or appropriate.
COMMITTEE MEMBERS. The members and chairmen of these committees are
appointed annually by the Board, upon recommendation of the Nominating &
Corporate Governance Committee. The Audit Committee, Compensation & Benefits
Committee and Nominating & Corporate Governance Committee are comprised of
independent directors only.
COMMITTEE MEETINGS. The Chairman of each Committee, in consultation with
the other Committee members and management, will develop the agendas for and
determine the frequency and length of the Committee meetings. Each Committee
will meet in executive sessions from time to time, as required or as requested
by any member; provided that the Audit Committee, Compensation & Benefits
Committee and Nominating & Corporate Governance Committee will each hold at
least two executive sessions each year without members of management present.
COMMITTEE CHARTERS. The Audit Committee, Compensation & Benefits Committee
and Nominating & Corporate Governance Committee will each have its own charter,
which will be adopted, and may be amended, by the Board.
7. ANNUAL PERFORMANCE EVALUATIONS
The Board and each Committee will conduct an annual self-evaluation. These
self-evaluations are intended to facilitate an examination and discussion by the
entire Board and each Committee of its effectiveness as a group in fulfilling
its Charter requirements (if applicable) and other responsibilities, its
performance as measured against these Principles and areas for improvement. The
Nominating & Corporate Governance Committee will propose the format for each
annual self-evaluation.
36
8. DIRECTOR ORIENTATION
The Company has a comprehensive orientation program for all new
non-employee directors. All new directors receive extensive written materials
and meet in one-on-one sessions with members of senior management to discuss the
Company's business segments, strategic plans, financial statements, significant
financial, accounting and legal issues, compliance programs and business conduct
policies. All directors can receive periodic updates throughout their tenure.
9. SENIOR MANAGEMENT PERFORMANCE EVALUATIONS AND SUCCESSION
In consultation with all non-employee directors, the Compensation &
Benefits Committee, in conjunction with the Presiding Director, will conduct an
annual review of the performance of the Chairman and Chief Executive Officer and
the Vice Chairman. In light of the critical importance of executive leadership
to the success of the Company, the Board will also work with senior management
to ensure that effective plans are in place for management succession. As part
of this process, the Chairman/Chief Executive Officer will report at least
annually to the Board on succession planning. The Board will evaluate potential
successors to the Chairman and Chief Executive Officer and the Vice Chairman,
and certain other senior management positions.
10. PERIODIC REVIEW OF THESE PRINCIPLES
These Principles will be reviewed annually by the Nominating & Corporate
Governance Committee and may be amended by the Board from time to time.
ANNEX A
STANDARDS OF INDEPENDENCE FOR BOARD OF DIRECTORS OF JOHNSON & JOHNSON
As contemplated under the Rules of the New York Stock Exchange, the Board
of Directors of Johnson & Johnson (the "Company") has adopted these Standards of
Independence in order to assist it in making determinations of independence.
(A) No Material Relationships with the Company. No director qualifies as
"independent" unless the Board of Directors affirmatively determines
that the director has no material relationship with Johnson & Johnson
(other than in his or her capacity as a director). In making such
determinations, the Board will broadly consider all relevant facts and
circumstances. In particular, when assessing the materiality of a
director's relationship with the Company, the Board should consider the
issue not merely from the standpoint of the director, but also from
that of persons or organizations with which the director has an
affiliation.
(B) Business Relationships. The New York Stock Exchange has identified
specific relationships that automatically preclude a director from
being considered independent. Pursuant to the requirements of the New
York Stock Exchange:
(i) A director who is an employee, or whose immediate family member is an
executive officer, of Johnson & Johnson is not independent until three
years after the end of such employment relationship;
(ii) A director who receives, or whose immediate family member receives,
more than $100,000 per year in direct compensation from Johnson &
Johnson, other than director and committee fees and pension or other
forms of deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service), is
not independent until three years after he or she ceases to receive
more than $100,000 per year in such compensation;
37
(iii) A director who is affiliated with or employed by, or whose immediate
family member is affiliated with or employed in a professional
capacity by, the present or former internal or external auditor of
Johnson & Johnson is not "independent" until three years after the
end of the affiliation or the employment or auditing relationship;
(iv) A director who is employed, or whose immediate family member is
employed, as an executive officer of another company where any of
Johnson & Johnson's present executives serve on that company's
compensation committee is not "independent" until three years after
the end of such service or the employment relationship; and
(v) A director who is an executive officer or an employee, or whose
immediate family member is an executive officer, of a company that
makes payments to, or receives payments from, Johnson & Johnson for
property or services in an amount which, in any single fiscal year,
exceeds the greater of $1 million, or 2% of such other company's
consolidated gross revenues, is not "independent" until three years
after falling below such threshold.
(C) Charitable Relationships.
(i) The Board recognizes that the relationship between the Company and a
charitable organization of which a director serves as an executive
officer, director or trustee could be deemed to be a material
relationship. For purposes of these Standards of Independence, such a
charitable relationship will not be considered a "material
relationship" if the Company's discretionary charitable contributions
to any such organization in each of the past three fiscal years are
less than two percent (2%) (or $1,000,000, if greater) of that
organization's consolidated gross revenues. (The amount of any "match"
of employee charitable contributions will not be included in
calculating the amount of the Company's contributions for this
purpose.)
(ii) For charitable relationships that do not fall within the guidelines
in paragraph (C)(i) above, the determination as to whether a director
has a material relationship with the Company, and therefore may not
be independent, will be made in good faith by the other directors who
satisfy all of these Standards of Independence. For example, if a
director is an officer of a charitable foundation that receives
greater than two percent (2%) of its revenues from Johnson & Johnson,
the other independent directors could determine, after considering
all of the relevant circumstances, that such relationship was
nonetheless not material, and that the director could therefore be
considered independent. If the independent directors so determine
that any such charitable relationship is not material and would not
otherwise impair the director's independence or judgment, then the
Company will disclose in its next proxy statement the basis for such
determination.
(D) Other Relationships. In addition to the business and charitable
relationships described in paragraphs (B) and (C) above, the Board
should consider any other relationships between each director and the
Company, including:
- If the director provides banking, consulting, legal, accounting or
similar services to the Company;
- If the director is a partner or shareholder with an ownership interest
of 5% or more of any organization that provides such services to or
otherwise has a significant relationship with the Company; and
- If a similar relationship exists between the Company and an immediate
family member of the director. Any such relationship will not be
deemed a "material relationship" if such relationship is at arm's
length, does not conflict with the interests of the Company and would
not impair the director's independence or judgment.
(E) Definitions. As used in these Standards of Independence, the terms
"Company" and "Johnson & Johnson" will be deemed to include Johnson &
Johnson and any subsidiaries
38
in a consolidated group with Johnson & Johnson and the term "immediate
family member" of a director will mean his or her spouse, parents,
children, siblings, mother and father-in-law, sons and
daughters-in-law, brothers and sisters-in-law and anyone (other than
domestic employees) who share such director's home.
ANNEX B
GENERAL CRITERIA FOR NOMINATION TO THE BOARD OF DIRECTORS OF
JOHNSON & JOHNSON
1. Directors should be of the highest ethical character and share the values of
Johnson & Johnson as reflected in the Credo.
2. Directors should have reputations, both personal and professional,
consistent with the image and reputation of Johnson & Johnson.
3. Directors should be highly accomplished in their respective field, with
superior credentials and recognition.
4. In selecting Directors, the Board should generally seek active and former
chief executive officers of public companies and leaders of major complex
organizations, including scientific, government, educational and other
non-profit institutions.
5. At the same time, in recognition of the fact that the foundation of the
Company is in medical science and technology, the Board should also seek
some Directors who are widely recognized as leaders in the fields of
medicine or the biological sciences, including those who have received the
most prestigious awards and honors in their field.
6. Each Director should have relevant expertise and experience, and be able to
offer advice and guidance to the chief executive officer based on that
expertise and experience.
7. All outside Directors on the Board should be and remain "independent," not
only as that term may be legally defined in SEC and New York Stock Exchange
rules and regulations, but also without the appearance of any conflict in
serving as a Director. In addition, Directors should be independent of any
particular constituency and be able to represent all shareholders of the
Company.
8. Each Director should have the ability to exercise sound business judgment.
9. Directors should be selected so that the Board of Directors is a diverse
body, with diversity reflecting gender, ethnic background, country of
citizenship and professional experience.
10. The Board also reconfirms the mandatory retirement age of 72.
39
(JOHNSON & JOHNSON LOGO)
NOTICE OF
2004 ANNUAL
MEETING AND
PROXY
STATEMENT
Johnson & Johnson
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS ON APRIL 22, 2004
The undersigned hereby appoints R.J. Darretta and R.C. Deyo and each or
either of them as proxies, with full power of substitution and revocation, to
represent the undersigned and to vote all shares of the Common Stock of Johnson
& Johnson which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held on April 22, 2004 at 10:00 a.m. at the
Hyatt Regency Hotel, Two Albany Street, New Brunswick, New Jersey, and any
adjournments or postponements thereof, upon the matters listed on the reverse
side hereof and, in their discretion, upon such other matters as may properly
come before the meeting. The proxies appointed hereby may act by a majority of
said proxies present at the meeting (or if only one is present, by that one).
Election of Directors. Nominees:
01. Gerard N. Burrow, 02. Mary S. Coleman, 03. James G. Cullen, 04. Robert J.
Darretta, 05. M. Judah Folkman, 06. Ann D. Jordan, 07. Arnold G. Langbo, 08.
Susan L. Lindquist, 09. Leo F. Mullin, 10. Steven S Reinemund, 11. David
Satcher, 12. Henry B. Schacht, 13. William C. Weldon.
(change of address/comments)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
(If you have written in the above
space, please mark the corresponding
box on the reverse side of this card)
IF YOU DO NOT PLAN TO VOTE BY TELEPHONE OR THE INTERNET, PLEASE RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. TO VOTE IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATIONS JUST SIGN THE REVERSE SIDE; NO BOXES NEED TO
BE MARKED.
----------------
|SEE REVERSE SIDE|
----------------
--------------------------------------------------------------------------------
- DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR THE INTERNET -
ELECTRONIC DELIVERY OF PROXY MATERIALS
SIGN UP TO RECEIVE NEXT YEAR'S ANNUAL REPORT AND PROXY MATERIALS VIA THE
INTERNET. NEXT YEAR WHEN THE MATERIALS ARE AVAILABLE, WE WILL SEND YOU AN E-MAIL
WITH INSTRUCTIONS WHICH WILL ENABLE YOU TO REVIEW THESE MATERIALS ON-LINE. TO
SIGN UP FOR THIS OPTIONAL SERVICE, VISIT HTTP://WWW.ECONSENT.COM/JNJ.
JOHNSON & JOHNSON EMPLOYEE SAVINGS PLANS
IF YOU ARE AN EMPLOYEE AND HOLD STOCK IN ONE OF THE JOHNSON & JOHNSON EMPLOYEE
SAVINGS PLANS, THIS PROXY CARD COVERS THOSE SHARES HELD FOR YOU IN YOUR SAVINGS
PLAN, AS WELL AS ANY OTHER SHARES REGISTERED IN YOUR OWN NAME. BY SIGNING AND
RETURNING THIS PROXY CARD (OR VOTING BY TELEPHONE OR THE INTERNET), YOU WILL
AUTHORIZE THE TRUSTEE OF YOUR SAVINGS PLAN TO VOTE THOSE SHARES HELD FOR YOU IN
YOUR SAVINGS PLAN AS YOU HAVE DIRECTED.
0409
PLEASE MARK
[X] YOUR VOTES AS
IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS, FOR
PROPOSAL 2 AND AGAINST PROPOSAL 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
FOR WITHHELD
------- --------
1. Election of Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
FOR AGAINST ABSTAIN
------- -------- --------
2. Ratification of appointment of [ ] [ ] [ ]
PricewaterhouseCoopers as independent
auditors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 3.
FOR AGAINST ABSTAIN
------- -------- --------
3. Proposal on charitable contributions [ ] [ ] [ ]
YES NO
------- --------
Request for Admission Ticket to Annual Meeting. [ ] [ ]
YES NO
------- --------
Request For Guest Ticket to Annual Meeting. [ ] [ ]
SPECIAL Discontinue [ ] Change of [ ]
ACTION Annual Report Address/
Mailing for this Comments on
Account Reverse Side;
Mark this box
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments or postponements thereof. Please sign exactly
as name appears hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
----------------------------------------------------------
----------------------------------------------------------
SIGNATURE(S) DATE
--------------------------------------------------------------------------------
DETACH HERE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE IF YOU ARE NOT VOTING
BY TELEPHONE OR THE INTERNET.
VOTE BY TELEPHONE OR THE INTERNET
QUICK O EASY O IMMEDIATE
Johnson & Johnson encourages you to take advantage of two cost-effective and
convenient ways to vote your shares.
You may vote your proxy 24 hours a day, 7 days a week, using either a touch-tone
telephone or through the Internet. YOUR TELEPHONE OR INTERNET VOTE MUST BE
RECEIVED BY 11:00 PM EASTERN TIME ON APRIL 21, 2004.
Your telephone or Internet vote authorizes the proxies named on the above proxy
card to vote your shares in the same manner as if you marked, signed and
returned your proxy card.
If you are a registered shareholder and vote by telephone or the Internet, there
will be applicable instructions to follow when voting to indicate if you would
like to receive an Admission Card for the Annual Meeting.
VOTE BY PHONE: ON A TOUCH-TONE TELEPHONE DIAL 1-877-PRX-VOTE (1-877-779-8683)
FROM THE U.S. AND CANADA OR DIAL 201-536-8073 FROM OTHER
COUNTRIES.
OR
VOTE BY INTERNET: POINT YOUR BROWSER TO THE WEB ADDRESS:
HTTP://WWW.EPROXYVOTE.COM/JNJ
OR
VOTE BY MAIL: Mark, sign and date your proxy card and return it in the
postage-paid envelope. IF YOU ARE VOTING BY TELEPHONE OR THE
INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.