JP Morgan Board Adhering to Pay-For-Performance Principles

by Malak Kazan, CECP, CCP, CBP, GRP 17. January 2013 14:34

Research assistance provided by Ben Croudace, ERI Subscriber Services Associate

One of the key principles substantiating pay-for-performance is that the executive needs to be able to impact or influence an outcome, or have some “measure of control” over the results. The Board of JP Morgan held CEO Jaime Dimon accountable for the unconventional investment approach that was not approved and, subsequently, resulted in $6B in losses, as explained in a report issued by a JPMorgan Task Force. Possibly heeding the missteps of Citigroup and other public corporations regarding executive compensation recommendations, the Board filed an 8-K on January 16, 2013, announcing a 50% reduction in annual compensation for Dimon. 

Dimon’s compensation reduction is based on the 2011 annual compensation of $23,000,000, and has been adjusted to $11.5M.  As reported in the Proxy JP Morgan filed April 2012, the annual compensation includes the salary, bonus, stock award, and options awards.  JP Morgan’s bonuses are discretionary cash; stock awards are delivered via restricted stock units (RSUs) ; and options awards are delivered via stock appreciation rights (SARs).  A notable change in Dimon’s pay package is that it now includes base salary and RSUs only. They eliminated discretionary cash and SARs.  Unrelated to the reduction, the Board also extended the January 22, 2013 vesting date of SARs for an additional 18 months, which is subject to Board review of performance goals achieved. 

How does Jaime Dimon’s new pay level compare to the market?  Let’s take a look at an industry benchmark  from ERI’s Executive Compensation Assessor for a CEO of a $24B Financial Institution, anchored to the U.S. National Average, as shown in the below table. 

Benchmark

Salary

Incentive Compensation

Annual Compensation

 CEO Dimon

1,500,000 

10,000,000

 11,500,000

ERI 

1,005,733

10,615,445

11,621,178

 

The external benchmark results in $11,621,178 annual compensation based on ERI’s January 1, 2013 database.  It appears that the big banks’ pay levels are affected by the regulatory changes and current events transpiring from shareholder and institutional investor constituents.  Note, the incentive compensation benchmark data includes salary, bonus, stock award, options and non-equity incentive plan compensation.  Although JP Morgan does not have non-equity incentive plans (e.g., excluded from Summary Compensation Table per SEC guidelines only when a company does not offer such pay elements), this type of pay is characteristically included in incentive compensation.  For more information about these benchmarks and related analysis, contact ERI.