First, the facts…
- JPMorgan Chase came off of a record net income year in 2011 of $19b.
- The stock fell 22% over the same period.
- Losses of $2b (estimates updated to $6-7b) as a result of risky trades were disclosed May 10.
- CEO Jamie Dimon said, “This should have never happened…I can’t justify it” and “The buck always stops with me.”
- Shareholders approved a compensation package of $23m for Dimon with 91.5% of the vote, with most of the votes coming in before the disclosure of the losses.
- The compensation plan awarded Ina Drew (who oversaw the the Chief Investment Office responsible for the loss) $14m; JPMorgan is considering clawbacks of a portion of that.
- ISS Proxy Services advised shareholders to adopt JPMorgan’s plan despite stating that JPMorgan “continues to resist adopting incentive plans with pre-established goals and long-term objectives”.
And now for Pure Speculation…
It’s difficult to know exactly what happened, if JPMorgan violated SEC rules or it was simply a bad bet. That will take time to unravel, and I’ll leave that to investigators.
But there are other questions beyond the legalities that go to the heart of propriety and good faith that shareholders, the Board of Directors and the Comp Committee need to be asking:
- Do current compensation practices and incentives reward short-term gain and outsized risk at the expense of long-term performance?
- When was the appropriate time for disclosure of the loss? There had been rumblings in early April about risky trading by the “London Whale”, the trader at the center of the losses. Jamie Dimon dismissed those rumblings as a “tempest in a teapot.” If the problem had been disclosed earlier, would that have impacted the vote on Dimon’s compensation package?
- The scandal notwithstanding, is the $23m package appropriately tied to performance? Dimon earned the same package the prior year, but the stock is down 22%. Comparatively the S&P 500 was essentially unchanged over the same period.
- Ultimately, who is accountable for performance and setting the tone for accountability for performance of the organization? If not the CEO, then who?