Johnson & Johnson changing its bonus program to increase uniformity, reward performance more

J&J changing bonus plan to reward performance more

TRENTON, N.J. — Thousands of Johnson & Johnson employees will get lower bonuses next year, due to an overhaul of its bonus program meant to make the extra payments more uniform across the sprawling company.

The world’s biggest maker of health care products said Thursday that 38 percent of employees will see a reduction in bonus payments, 27 percent will see an increase and 35 percent will see no change.

“There’s no change to the base salary as a result of this initiative,” J&J spokeswoman Carol Goodrich added in an interview.

She said overall compensation costs would be reduced by less than 5 percent after the program kicks in during the first quarter of 2011.

“That is really not why we implemented this program,” Goodrich said.

She said the goal was to create a “more equitable and competitive global compensation program that aligns with our growth priorities” and is “consistent and competitive in local markets across our company and around the world.” Emphasizing J&J’s long-standing focus on pay for performance was another factor.

Goodrich said the New Brunswick, N.J.-based company has been working on the changes for several years. That would predate the slump in the company’s sales and profits last year — when total revenue declined for the first time since the Great Depression — as the recession reduced sales of medical devices and prescription drugs and consumers opted for cheaper brands over Johnson & Johnson consumer products.

Across the device, drug and consumer business units, Johnson & Johnson owns more than 250 different companies, which operate with considerable autonomy, an unusual arrangement in the health care industry. Those companies have approximately 115,000 employees in 60 countries.

“We think that this new framework is also going to facilitate the movement of talent, internal talent, across the company and around the world,” Goodrich added.

The bonus changes, first reported Thursday in The Wall Street Journal, come as the entire pharmaceutical industry is going through a cycle of extensive layoffs and other cost cuts. Those are driven by a wave of blockbuster drugs launched in the 1990s getting generic competition, higher research and development costs, and a dearth of major new products all hurting profits.

Goodrich said the company will comply with union contract rules. She could not say whether executives would be affected. Their very generous bonuses are detailed in their employment contracts.

Johnson & Johnson on Nov. 3 announced its biggest restructuring ever, with plans to eliminate about 8,000 jobs globally. And earlier this month, Bristol-Myers Squibb said it will freeze salaries to save money.

In afternoon trading, J&J shares rose 41 cents to $64.39.