TO
:
Johnson & Johnson's Board of Directors
FROM
:
John Drake
DATE:
October 19, 2017
SUBJECT
:
Compensation Policy for Johnson & Johnson
Dear Board of Directors,
I believe that it is not in the firm's best interest to pay its employees for achieving target
performance. First, I believe that budget planning should be separated from compensation policy.
Tying budget planning to compensation policy has been proven to be ineffective and does not
benefit the firm in the long-run. The reason is that giving compensation to employees to achieve
target performance would encourage them to act in ways that might not be in the firm's best
interest. For example, an employee might push sales in the future period to the current period just
to achieve the target performance. Vice versa, an employee might also push current period sales
to future period because the minimum target is already achieved. With that being said, I do
believe that employees should still be compensated for good performance. However,
compensation policy should not be the baseline to evaluate performance.
Second, I believe that there are many external factors that could affect the operational plan.
Projected sales often do not consider external factors that are not under the manager's control,
such as changes in price, market condition, natural disaster, etc. Managers should not be held
accountable when the actual numbers are different from the budgeted target since there are many
factors that are uncontrollable by the managers.
