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Wednesday, 17 September 2014

More blubber

Dimon's pay represents board's own whale of a fail

Jamie Dimon’s bonus represents another whale of a fail for JPMorgan. The board’s decision to give its chairman and chief executive a 73 percent raise, to $20 million, is unjustifiable after last year’s performance. Shareholders should have a loud say against this pay – and lead director Lee Raymond.

For starters, Dimon’s pay increased far faster than did the company’s stock. JPMorgan’s shares were up a third, just keeping pace with U.S. universal banking rivals. Core earnings also weren’t anything to brag about. At $42 billion, before taxes and provisions and after adjusting for one-off items, according to Citigroup analysts, that represented a 2.4 percent decline from 2012.

Directors weren’t convincing with their rationale either. Gaining market share is only good if it comes with more profit. Improving customer satisfaction is encouraging, but an inadequate metric on which to base a pay raise. Trying to deflect the legal bills by blaming much of it on pre-acquisition Washington Mutual and Bear Stearns ignores the fact that Dimon signed those deals. Claiming the bank has improved controls “under Mr Dimon’s stewardship” is plain laughable. Regulators forced them on him.

The payout bonanza probably won’t help employee morale at JPMorgan. The bank set aside just 1 percent more for salaries and bonuses last year than in 2012. Shareholders, too, should be outraged by such unwarranted profligacy on executive compensation. Unlike staff, they at least get to vote on the matter at the upcoming annual meeting.

Though not binding, such ballots can have some influence. Citi’s board scrambled to appease investors after they rejected pitifully low targets in 2012 for then-boss Vikram Pandit to receive a big financial reward. Within months, he was gone.

Shareholders also can have their voices heard about JPMorgan’s directors, some of whom seem to have been browbeaten or wholly captured by Dimon, evidenced by a New York Times report that they feared they might “alienate the chief executive” by cutting his pay. Compensation committee members Stephen Burke and William Weldon deserve scrutiny. So, too, does Raymond, the onetime Exxon Mobil boss, who has the heightened responsibility of keeping watch over a boss with concentrated power. Their pay decision reveals an oversight failure as big as Dimon’s of his chief investment office.

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Context News

JPMorgan Chase Chairman and Chief Executive Jamie Dimon has been awarded a total pay package of $20 million for 2013, the bank said in a regulatory filing on Jan. 24.

Dimon’s salary was $1.5 million and the rest paid in restricted stock units. Half of them vest in two years and the other half a year later.

The package represents a 73 percent increase from 2012, when his compensation was halved as a result of the $6 billion lost in the London Whale trading fiasco.

In justifying the increase, JPMorgan directors said they “took into account several key factors, among them: the Company’s sustained long-term performance; gains in market share and customer satisfaction; and the regulatory issues the Company has faced and the steps the Company has taken to resolve those issues, including those arising from events at Washington Mutual and Bear Stearns that predated the Company’s ownership.”

In 2013, JPMorgan set aside $7.6 billion to cover legal expenses and reached settlements on several cases that amount to a total payout of about $20 billion.

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