JPMorgan Chase & Co., the biggest and most-profitable U.S. bank, is damping employees’ salary and bonus expectations as the lender wraps up year-end performance reviews, said three executives familiar with the process.
Managers are telling workers at the New York-based firm that total average compensation may be lower to unchanged from last year and that year-end bonuses mostly will depend on the company’s profit and the performance of their divisions.
JPMorgan, which posted a record $17.4 billion in net income last year, may earn $19.1 billion in 2011 even as revenue and profit margins shrink, according to projections by 12 analysts in a Bloomberg survey. Average 2011 compensation for the bank’s 256,000 employees will drop or stagnate as the company resists an industry trend of mass layoffs, the people said. Financial companies have cut more than 200,000 jobs worldwide this year.
“Firms are going to have to base bonuses much more on merit than strategy,” Paul Sorbera, president of Wall Street executive search firm Alliance Consulting, said yesterday in a phone interview. “There are groups and departments that will do well, and groups and departments not doing well, that’s where you see challenges to the bonus pool.”
Employees in JPMorgan’s investment bank are bracing for a smaller-than-usual share of the bonus pool, even as net income for the division during the first nine months of the year climbed 18 percent to $6.1 billion from a year earlier, said one of the people, who spoke on condition of anonymity because the company’s compensation practices aren’t public.
The board of directors, led by Chairman and Chief Executive Officer Jamie Dimon, opted to exclude certain paper gains from its performance equations, such as a so-called debt-valuation adjustment that added $1.9 billion of pretax profit to the investment bank’s third-quarter results, two of the people said.
The unit, which had 26,615 employees at the end of September, set aside $7.71 billion for compensation in the first three quarters, a 2 percent drop from a year earlier. The expense, which includes salaries, bonuses and benefits, was enough to give each of the division’s employees $289,611 for the first nine months of this year, compared with average compensation of $298,866 for the same period last year.
While the bank isn’t planning layoffs, “we always trim our sails,” Dimon, 55, told reporters during an Oct. 13 conference call. The unit reduced its workforce 4 percent in the third quarter from the previous three-month period.
JPMorgan will be “squeezing a little bit here and squeezing a little bit there” to further trim staff at the investment bank by about 1,000 people, or “maybe a little bit more,” in the next 18 months, Dimon said.
Average bonuses for employees in JPMorgan’s asset management division, which is projected to have weaker year-end results, also will be lower than last year, one of the people said. Executives in JPMorgan’s credit-card unit, where profit more than doubled, may see bonuses rise slightly due to their division’s stronger overall performance, the person said.
Average compensation figures are derived by dividing the overall compensation pool by the number of employees, and they don’t represent individual workers’ actual pay. Investment banks set aside revenue throughout the year for pay and typically decide bonuses at year-end.
Almost every week since August has brought news of firings by the world’s biggest banks. HSBC Holdings Plc, Europe’s biggest lender, announced that month it would eliminate 30,000 jobs by the end of 2013. In September, Bank of America Corp., the second-biggest U.S. lender, said it would cut the same number of jobs. Both banks are trimming about 10 percent of their employees.
BNP Paribas, France’s largest bank, said this month that it will cut about 1,400 jobs at its corporate and investment-banking unit, and UniCredit SpA, Italy’s biggest lender, said it plans to eliminate 6,150 positions by 2015.
“The firms that are stable and are performing well overall have some retention strength versus firms that are struggling, so that gives them a little flexibility on how deep they have to go on layoffs and how much they’re able to allocate to bonuses,” Sorbera said.