By Bart Naylor
James “Jamie” Dimon is the CEO of JP Morgan. He’s held that title since 2004, nearly two decades. JP Morgan is the nation’s largest bank. In his industry, he’s at the top – anything else would be a step down. He is now 66. He’s talked about retirement for a number of years, noting last August that he expected he might stay another five years.
And he’s generously paid. His basic pay last year was more than $34 million, a package that’s increased each year. In 2021 and 2020, he received $31.5 million.
The notion that he might jump ship – for more pay, for a bigger empire to run – seems remote.
Yet the JP Morgan board decided it needed to induce him to stay with a retention bonus. And that bonus was $52.6 million.
The board justified the $52.6 million bonus with these 132 words: “The special award granted to Mr. Dimon reflects the Board’s desire for him to continue to lead the Firm for a further significant number of years. In making the special award, the Board considered the importance of Mr. Dimon’s continuing, long-term stewardship of the Firm, leadership continuity, and management succession planning amidst a highly competitive landscape for executive leadership talent. The Board also took into account other factors, including the Firm’s strong performance under Mr. Dimon’s stewardship since 2005, his exemplary leadership, and his significant contributions to the Firm’s success during his tenure. The nature of this special award reflects the unique inflection point in Mr. Dimon’s tenure and the importance of his continued leadership and support of the Firm’s longer-term succession plans.”
Note that the board does not say that only Dimon can run this bank. That would be irresponsible, since any CEO and board must ensure that the ranks are strong enough to continue without any single person, even the CEO.
If the additional $52.6 million is meant to retain him, what was the $34 million in basic pay for? As for those other factors, such as his “strong performance” since 2005, then this $50 million addition is also belied by his annual pay, which is at the top of his industry peers.
As for his “significant contributions,” they include crashing the bank in 2008, when the government bailed out Dimon’s bank with $25 billion. Then there were the record fines paid for massive fraud under Dimon’s watch, including one for $13 billion. There was also the $6 billion loss from the so-called London Whale fiasco that Dimon initially failed to understand, calling it a “tempest in a teapot” before further study led him to acknowledge an “egregious” mistake. And this year, the stock is down more than 20%.
The board that made this award left the preceding 88 words out of their 123 words justification. The board is composed exclusively of business executives. Of the 10, five are retired, arguing that they might understand (if anybody does) what the “unique inflection point in Mr. Dimon’s tenure” may be. Undoubtedly, all are or were well compensated in their positions as CEOs.
They can’t possibly be thinking of hourly compensation, as $80 million translates into $40,000 per hour. Dimon gets nearly 1,000 times what the median paid worker at the bank earns. One person producing the same as 1,000? Ridiculous.
As it happens, JP Morgan’s own shareholders considered it ridiculous as well. All publicly traded firms must put executive pay packages to a vote, known as say-on-pay and created by SEC regulation. At the recent shareholder meeting, nearly 70% of shareholders opposed it. This came on the heels of advice from major proxy advisory service recommendations to reject the package.
Such votes are non-binding, meaning that Dimon still gets this ridiculous bonus. Congress should reform this process by making the votes binding. It can also cut the pay of directors who award such packages that are rejected by shareholders, an idea promoted by Dean Baker, an economist with the Center for Economic and Policy Research. Boards should also include workers, as proposed by U.S. Sen. Elizabeth Warren (D-Mass.)
Beyond this, escalating pay must be arrested. President Joe Biden should issue an executive order that restricts government contracts to companies with reasonable executive pay. Congress should tax exorbitant pay with confiscatory rates. Regulatory agencies should finalize basic banking compensation reform required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
At least half of pay beyond $1 million should be sequestered in a fund and used to pay penalties for misconduct. That relieves shareholders from paying the penalty, and ideally, motivates management to obey the law.
In the meantime, shareholders sent a message when they rejected Dimon’s bonus: there are limits.