2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 248 Compensation Discussion and Analysis 2017 PERFORMANCE AND COMPENSATION ................................................................................... 43 2017 Summary .................................................................................................................................. 43 2017 Company Performance ............................................................................................................ 44 CEO Performance and Compensation Decisions ............................................................................. 47 Other Named Executive Officer Performance ................................................................................... 48 2017 Compensation Decisions for 2016 Performance ...................................................................... 49 2017 Update on Performance of Performance Share Unit Awards versus Goals ............................. 52 Shareholder Outreach and Our Compensation Program .................................................................. 55 EXECUTIVE COMPENSATION PHILOSOPHY .................................................................................... 56 Key Features of Our Executive Compensation Program .................................................................. 56 Guiding Principles ............................................................................................................................. 56 COMPONENTS OF EXECUTIVE COMPENSATION ........................................................................... 57 Base Salary, Annual Performance Bonus, and Long-Term Incentives .............................................. 57 Executive Perquisites & Other Benefits ............................................................................................ 60 Compensation Target Setting Process and Pay Position .................................................................. 60 2017 Pay Mix at Target ...................................................................................................................... 60 PEER GROUPS FOR PAY AND PERFORMANCE ............................................................................... 61 Executive Peer Group ....................................................................................................................... 61 Competitor Composite Peer Group ................................................................................................... 62 COMPENSATION DECISION PROCESS ............................................................................................. 63 Importance of Credo Values in Assessing Performance ................................................................... 63 Assessing "The What" and "The How" .............................................................................................. 63 Aligning Compensation to "The What" and "The How" ..................................................................... 63 GOVERNANCE OF EXECUTIVE COMPENSATION ............................................................................ 64 Independence of Compensation Consultant ..................................................................................... 65 ADDITIONAL INFORMATION CONCERNING EXECUTIVE COMPENSATION .................................. 66 Use of Tally Sheets ............................................................................................................................ 66 Limited Employment Arrangements and Agreements ....................................................................... 66 Stock Ownership Guidelines for Named Executive Officers ............................................................. 66 Executive Compensation Recoupment Policy .................................................................................. 67 Tax Impact on Compensation ............................................................................................................ 67 2017 Compensation Decisions for 2016 Performance ...................................................................... 67 2018 Proxy Statement - 42 JOHNSON & JOHNSON