Executive Pay Debated at P&G's Annual Meeting

Meanwhile, J&J Reports Surprisingly Strong Quarter

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BATAVIA, Ohio (AdAge.com) -- Procter & Gamble retirees at the company's annual meeting today backed criticism of Chairman-CEO A.G. Lafley's $25 million pay package.
A.G. Lafley
A.G. Lafley

At the meeting, Peter Flaherty, president of the National Legal and Policy Center, introduced a proposal to let shareholders hold advisory votes over executive compensation, calling Mr. Lafley's $25 million in pay last year and estimated $90 million in stock options "too much." The crowd showed surprising support during debate over the proposal, going so far as to boo James McNerney, chairman-CEO of Boeing, a P&G alum and chairman of the P&G board's compensation committee, when he said, "If anything, we suffer from too much disclosure" regarding executive pay.

A new line of reasoning
Mr. Flaherty backed his proposal with a novel theory that P&G and other companies' public affairs departments have been "taken over" by the "anti-corporate left" as a sort of quid pro quo for activists' silence regarding executive pay. "If you go to the P&G website, you won't find much about the free enterprise system or defense of capitalism," he said. "Instead you'll see words like sustainability."

Mr. Lafley said P&G already has numerous expert advisers and efforts to solicit opinions from shareholders "large, medium and small" regarding executive pay. On sustainability, he said P&G thinks of the matter "much more broadly" than most other companies. "We're focused first and foremost on consumers who want to make sustainable choices but do not want to make tradeoffs in performance or value," he said.

He deferred to Mr. McNerney to address his own compensation, saying it would be "inappropriate" for him to do so. Mr. McNerney said 90% of Mr. Lafley's compensation is "at risk" in the form of stock or options. "He is earning a lot more than the average CEO," Mr. McNerney said, "and he deserves it, because [shareholders] are all earning more."

Lafley supporters speak up
Shareholders also cheered retirees who praised Mr. Lafley's leadership and urged rejection of the advisory vote "for fear we could lose him," as one shareholder said. In the end, the proposal was voted down, but by a relatively close margin of 58% to 42%.

Mr. Lafley said he couldn't comment on results for the recently completed quarter or fiscal year because of a quiet period pending disclosure of the company's quarterly results later this month, but said leading brands, innovation and "passionate cost discipline and ongoing productivity improvement" were among factors that would sustain P&G through any economy.

He said P&G brands continue to gain in equity, market share and household penetration.

Mr. Lafley showed several recent examples of P&G adding value-focused messaging to ads, including one for Tide claiming it has more cleaning ingredients and less water than other brands, another for Charmin claiming people can use less because it's more absorbent, and a third from Gillette claiming its Fusion Power razor can be used for $1 a week.

P&G, generally a safe-harbor stock amid market turmoil, has seen its stock tank lately, down 12% compared to a year ago, quite a difference from a 12-day run-up of record closes prior to last year's stockholder meeting.

"It's more difficult to grow and sustain growth now than it's been at any time in the past 50 years," Mr. Lafley said at today's meeting.

J&J buoyant amid storm
But Johnson & Johnson made it look easy. In results announced today, J&J beat analyst earnings-per-share estimates by 6 cents at $1.17 and delivered a surprisingly strong 6.4% increase in global sales to $15.9 billion. U.S. sales grew only 0.4%, but were dragged down by patent expirations for key drugs.

J&J's consumer-products business posted a whopping 11.2% sales increase for the quarter -- better on an organic basis than the 8.2% sales increase outside the U.S. The consumer business, including such brands as Neutrogena, Aveeno, Listerine, Zyrtec and K-Y, accounts for more than 90% of J&J's annual $1.4 billion in measured-media spending, according to TNS Media Intelligence data, even though it only accounts for less than a third of J&J's sales.

The over-the-counter conversion of allergy drug Zyrtec led the way for J&J, helping push OTC sales up 19% for the quarter. Skincare also did well, with sales up 15%, apparently helped by growth of Neutrogena's SkinID line, sold direct via infomercials and internet advertising. And J&J's women's health business also prospered, with U.S. sales up 10% behind strong results for K-Y's "His and Hers" lubricants, which weren't affected by hard economic times.

The quarter marks the second straight strong performance of J&J's consumer businesses, which have rebounded from a slow 2007 when they were hurt as the company integrated its acquisition of Pfizer consumer brands.
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