Johnson & Johnson Stock Compensation Guide

Vesting schedule

Current RSUs (under the 2022 Long-Term Incentive Plan) vest in three equal annual installments beginning on the first anniversary of grant - graded 1/3 per year over 3 years (10-K cites service periods of 6 months to 3 years). Legacy LTI Plan grants used a 3-year cliff; current structure is graded. Annual LTI grants (typically February) function as recurring refresh grants. PSUs are paid in shares after a 3-year performance period.

Refresh grants

Refresh (or "refresher") grants are common here -- employees often receive additional RSU awards over time on top of their initial grant. New grants start their own vesting schedule, so a long-tenured employee can have several overlapping grants vesting at once.

Tax treatment at vesting

RSUs are generally taxed as ordinary income when they vest, not when they are granted. On each vest date, the fair market value of the shares that vest is treated as supplemental wages and appears on your W-2. From that point, the shares are yours; any later change in price is a capital gain or loss measured from the vest-date value, and how long you hold afterward determines whether that gain is short- or long-term. This is general educational information, not tax advice.

Sell-to-cover mechanics

Because tax is due at vesting, most plans use a "sell-to-cover" arrangement: on the vest date a portion of the newly vested shares is automatically sold to cover withholding, and you keep the rest. It is worth knowing that the default withholding on this supplemental income is often a flat federal rate that can be lower than a high earner's actual marginal rate, which can leave a gap at tax time -- a point covered further in the tax section below.

Additional notes

FLAG (LTI election) CONFIRMED but CORRECTED: J&J runs an annual employee 'Your LTI Choice' election (hosted on a Fidelity NetBenefits portal) letting eligible employees elect how to receive their annual long-term incentive among STOCK OPTIONS, RSUs, or a MIX (employees report 100% RSUs, 100% options, or 50/50). CASH is NOT a confirmed option for the broad LTI election - the 'cash vs RSU vs options' framing appears inaccurate; cash-settled deferral is the separate 2004 Certificate of Extra Compensation (CEC) vehicle, not the annual options/RSU election. Eligibility: offered to LTI-eligible salaried employees (managers/professionals and up); lower bands typically receive RSUs only, options/election skew to higher bands (exact cutoffs not public). Options are nonqualified (historically 3-year vest, 10-year term). PSUs (executive-level): three equally weighted (1/3 each) metrics over 3 years = operational sales, 3-year cumulative adjusted operational EPS, and 3-year relative TSR vs a Competitor Composite Peer Group; payout 0-200%; TSR portion capped at 100% if absolute TSR is negative. Post-termination: qualifying retirement (age 55 + 10 yrs service with 5 consecutive prior, OR age 62) continues RSU vesting on original schedule; death/disability have preserving/accelerating provisions; non-qualifying termination and termination for cause forfeit unvested RSUs; change-in-control provisions exist in the plan.

Is a winning stock a reason to keep holding?

Strong past performance is often cited as a reason to diversify rather than concentrate further. Many of the largest single-stock fortunes in market history are also the ones that disappeared. Selling shares to fund a diversified portfolio is a common way investors protect what they've already earned.

How much of a portfolio in one stock is typically considered concentrated?

Many financial planners point to a guideline of keeping any single stock under 10 to 20 percent of total investable assets. Above that level, concentration risk often outweighs the upside, particularly when a paycheck and a portfolio both depend on the same company.

What's the risk of holding company stock long-term?

Employer stock and employment income are correlated. A difficult quarter for the company can affect a portfolio, a bonus, job security, and future equity grants at the same time. Diversification is the standard protection against that kind of compounding downside.

Why do equity-heavy employees often owe taxes at year-end?

Employers typically withhold 22 percent on supplemental income like RSU vests and ESPP purchases. For employees in higher brackets, actual federal-plus-state tax rates can reach 35 to 40 percent, and the gap shows up as a balance due at filing time.

Are there ways to reduce the tax bill on equity compensation?

Common approaches include spreading large vesting events across calendar years, harvesting capital losses against capital gains, and meeting the qualifying holding period on ESPP shares. The effectiveness of any approach depends on individual income, goals, and the specifics of the equity plan.

What's a common order of operations for excess cash?

A widely cited framework is: capture the full 401(k) match, build an emergency fund, fund an HSA if eligible, pay down high-interest debt, max the 401(k), then move to backdoor Roth IRAs and taxable brokerage. The right order varies by situation, but the framework helps avoid leaving employer benefits unused.

How do short-term and long-term goals fit together?

A common principle is to match the account type to the time horizon. Short-term goals under five years are often held in high-yield savings or short-duration Treasuries. Long-term goals are typically held in diversified equity portfolios. Mismatches in either direction tend to create unnecessary risk or unnecessary drag.

What does diversification typically look like alongside employer stock?

A diversified portfolio usually includes a mix of US stocks, international stocks, and bonds, sometimes with smaller allocations to alternatives. The general principle is that no single position should be large enough to materially change the retirement plan if that position underperforms.