The board of JPMorgan announced Friday that it had awarded Chairman and Chief Executive Jamie Dimon a 74% raise, upping his salary to $20 million, despite repeated calls throughout the year for him to either step down or give up one of his titles, the bank’s first quarterly loss since 2004, and payments for legal settlements that reached as high as his pay package.
JPMorgan’s board said Friday that it had agreed to a $20 million compensation package for Jamie Dimon for 2013. Of that, $18.5 million comes in the form of restricted stock units that he will receive over three years, half after one year and the other half after two years. His base salary is the same from 2012, $1.5 million, with no cash bonus, only the restricted stock units. In a filing, the company said that Dimon’s compensation package is tied to “the company’s future performance, including continued progress on the company’s regulatory agenda.”
The board decided to raise Dimon’s 2013 compensation after slashing it in half last year, when it was reduced to $11.5 million as a symbolic penalty for the more than $6 billion loss JPMorgan suffered in a derivatives trade known as the “London Whale.” A year before that, in 2011, Dimon’s $23.1 million compensation ranked as the highest among his megabank peers. As lofty as those figures are, he hasn’t climbed back to his pre-financial crisis peak compensation, when he made $30 million in 2007 and $27 million in 2006.
Against the backdrop of the legal settlements and shareholder unrest, the New York Times reported that the board meetings to set Dimon’s compensation had “turned heated at times.” But a JPMorgan spokesman said that characterization was incorrect.
In a statement, JPMorgan said that the board looked to the bank’s “sustained long-term performance,” its increased market share, and “the regulatory issues the Company has faced and the steps the Company has taken to resolve those issues” in determining Dimon’s compensation. “The Company has fortified its control infrastructure and processes and strengthened each of its key businesses while continuing to focus on strengthening the Company’s leadership capabilities across all levels,” the company said.
But one CEO attending the World Economic Forum in Davos, Switzerland, who spoke to BuzzFeed on the condition of anonymity, described Dimon’s compensation as “hard to justify given the year.” And Stefan Van Geyt, the chief investment officer of KBL European Private Bankers, a private bank based in Luxembourg with institutional and private clients and over $56 billion in assets under management, said, “I think from this year it really sounds strange — is it something he would have wanted for himself? It shows how far from reality he is. From Dimon’s point of view, I find it strange. I wonder if he’s really in touch with reality.”
One of the groups that campaigned to strip Dimon of his chairman role, CtW Investment Group — which works with the pension funds for unions in the labor federation Change to Win — said they were still reviewing the board’s statement.
“It’s remarkable, just a few years ago, no one was interested in this type of thing,” said senior analyst Michael Pryce-Jones.
One hedge fund manager at Davos, however, supported the board’s decision and felt Dimon’s raise was “not surprising” given JPMorgan’s financial performance. And thus far there hasn’t been any widespread activist furor over Dimon’s pay.
The sanguine outlook stems from the fact that the bank’s stock performance in 2013 was in line with its peers despite the massive fines, settlements, and payouts. In 2013, JPMorgan shares rose 33%, from $43.84 to $58.48, while the broader S&P 500 rose 30% and an index of financial companies also rose 33%. JPMorgan’s revenue over the past three full years has been relatively steady: $96.6 billion in 2013, $97 billion in 2012, and $97.2 billion in 2011.
Its profit, however, has swung around more, thanks to a slowdown in the housing market and its own legal troubles. The banks made a total of $16.6 billion in 2003, down from $19.9 billion in 2012 and $17.6 billion in 2011. JPMorgan also suffered its only loss during Dimon’s reign, when it reported a $380 million loss thanks mainly to a $9.2 billion pretax charge to cover litigation and legal costs brought on by federal prosecutors’ and regulators’ investigation into its packaging and sale of mortgage backed securities before the financial crisis.
This year alone, JPMorgan was ordered to pay out over $22 billion in fines, penalties, and compensations for homeowners and mortgage-bond investors. The bank’s combined $13 billion settlement with the Justice Department, some state regulators, and the Federal Housing Finance was described by the Justice Department as “the largest settlement with a single entity in American history.” Its $1.7 billion payment to settle charges that it had violated Bank Secrecy Act rules in its failure to report its suspicions that Bernie Madoff was running a Ponzi scheme was the “largest ever bank forfeiture and and Department of Justice penalty for a Bank Secrecy Act violation” according to the U.S. Attorney for the Southern District of New York.
Just over a week ago, JPMorgan reported a 7.3% drop in fourth-quarter profit over the year, down to $5.3 billion, partially thanks to $1.1 billion in legal costs, $850 million attributed to its settlements over Bernie Madoff.
Viewed through that prism, Dimon’s steep raise from 2012 stands in contrast with some executives who have taken voluntary pay cuts due to either poor financial performance or legal troubles: Virginia Rometty, the CEO of IBM, announced this week that she was giving up her annual bonus in light of the company missing earnings expectations; James Murdoch, then head of News Corp’s British newspaper publisher News International, gave up his bonus in 2011 in light of the company’s phone-hacking scandal.
The granting of the raise shows that Dimon still maintains the loyalty of the bank’s board, despite challenges from shareholders and a change in its composition in the last year. Following the company’s annual meeting, two JPMorgan directors who got just-over-majority support from shareholders for reelection departed the board, while a proposal to appoint an independent chairman and take away the Dimon’s chairman role got only 32% support from shareholders.
It remains to be seen whether shareholders will support the board. At the company’s annual meeting, which will probably be held this spring, shareholders could have a “say-on-pay” vote, a nonbinding vote to object to Dimon and other executives’ compensation. Public companies are required to have one every three years; in a 2012 vote, over 90% of shareholders approved JPMorgan executives’ pay.
Since say-on-pay votes went into effect in 2011, the only megabank executive lose one was Vikram Pandit in 2012; 55% of Citi shareholders rejected executive compensation packages, and six months later, Pandit was ousted as CEO. Shareholders could also elect new directors that would then cut Dimon’s pay.
“If the shareholders find the board’s explanation unsatisfactory, they will so act,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “The ultimate say is by the investors.”