Dimon Widens Gap With JPMorgan as Wall Street Pay Slides
Jamie Dimon, awarded $23 million for running JPMorgan Chase & Co. (JPM) last year, earned 67 times the average amount set aside for his investment bankers and traders, the widest gap among firms that report divisional pay.
Dimon, 56, chief executive officer of the New York-based lender, was one of the few bank CEOs who avoided a pay cut for 2011. The ratio of his compensation to the average for all employees at JPMorgan’s investment bank increased from 62 times the previous year. At Morgan Stanley (MS), CEO James Gorman’s award was $10.5 million, 25 percent less than for 2010 and 40 times that company’s average of $264,996.
CEO pay in banking has dropped since peaking before the financial crisis, bringing the ratio at most firms to between 18-to-1 and 50-to-1 from some that topped 100-to-1 in 2006 and 2007. The ratios probably won’t rebound to those levels in the next decade because of lower profits, said Alan Johnson, president of compensation consultant Johnson Associates Inc.
“Thirty to 50 times is probably unsustainably low for the industry, but that’s somewhat consistent with the bummer of a year we had in 2011,” said Johnson, whose firm is based in New York. “If it stays there, that’s probably a really bad sign. It means the firms are still not doing very well.”
SEC Pay Rule
The ratio gives a picture of the rebound in CEO compensation from 2008, when most leaders didn’t take bonuses amid losses and government bailouts. That comes as lawmakers and regulators increase attention on the pay disparity between top executives and workers, and the Occupy Wall Street protests targeted income inequality.
The U.S. Securities and Exchange Commission is drafting a rule, mandated by the Dodd-Frank Act, that would force public companies to disclose the ratio of CEO compensation to median pay, the level at which half the employees are above and half below. The rule was pushed to address concerns about rising executive pay and income inequality.
Goldman Sachs Group Inc. (GS) CEO Lloyd Blankfein, 57, who set a Wall Street pay record in 2007, was awarded $12 million for 2011, a drop of 35 percent from a year earlier. That’s 33 times the average amount of $367,057 set aside for all employees at the New York-based bank, down from 43 in 2010 and 104 in 2007. Gorman’s ratio fell from the 179 times mark that predecessor John Mack set in 2005.
Josef Ackermann, 64, who will step down as CEO of Frankfurt-based Deutsche Bank AG (DBK) next month, made 6.3 million euros ($8.3 million) or 48 times the average compensation costs, down from 51 last year and 83 in 2007. Credit Suisse AG CEO Brady Dougan’s 2011 compensation of 5.82 million Swiss francs ($6.4 million) was 18 times the average pay per employee in his firm’s investment bank, down from 33 for 2010.
Barclays Plc (BARC), based in London, and UBS AG (UBSN) got new CEOs in 2011, and the firms paid them more than their predecessors. While Barclays’s Bob Diamond, 60, had his pay cut by almost a third to 6.3 million pounds ($10 million), his compensation was more than that of previous CEO John Varley. That increased the ratio to 31 times the average pay for Barclays Capital employees, from 17 in 2010.
Sergio Ermotti, 51, who took over Zurich-based UBS after a trading scandal prompted Oswald Gruebel to step down, received 6.35 million euros. That was 19 times the average pay set aside for investment-banking employees, up from 8 in 2010.
The average ratio among the seven lenders was 37 times, down from 38 a year earlier.
“If an organization or an industry sector doesn’t perform well, executive pay is going to suffer most, and we’re starting to see the rubber hit the road on that,” said Frank Glassner, a San Francisco-based partner at executive-pay consulting firm Meridian Compensation Partners LLC. “Both risks and rewards are greater in the C-suite than it’s ever going to be among the workforce.”
Dimon bucked the pay trend. His 2011 compensation, the same as the previous year, was 50 percent higher than that of any other CEO of a global investment bank. He helped steer JPMorgan through the financial crisis without posting a quarterly loss while the firm acquired Bear Stearns Cos. and Washington Mutual Inc. in 2008. The bank has since grown to be the largest lender in the U.S. by assets and the top global firm in investment banking and trading revenue.
“JPMorgan has outperformed its peers, and its executive pay reflected that,” Glassner said. “I don’t think there’s a JPMorgan shareholder out there who would be complaining about Jamie Dimon’s pay.”
‘Comp Arms Race’
Jes Staley, 55, CEO of JPMorgan’s investment bank, said at the firm’s investor day in February that the board and management team decided to pay individual employees a comparable amount to what other firms paid, rather than a similar percentage of revenue. That led to a drop in compensation costs for 2011 even as the division’s revenue climbed. The average pay at the firm’s investment bank last year was $341,552.
“We delivered the lowest comp-to-revenue ratio on the Street for the benefit of you, our shareholders,” Staley said. “It avoided a comp arms race. If we had paid a compensation-to-revenue ratio on average to the rest of the industry, we would have paid our traders, our bankers, our sales people significantly higher than the rest of the industry, and we’d be right back into the race we saw over the last 15 years.”
Jennifer Zuccarelli, a spokeswoman for JPMorgan in New York, declined to comment.
Average pay has continued to decline this year. Goldman Sachs said today that it set aside $4.4 billion to compensate staff in the first quarter, 16 percent less than a year earlier and enough to give each of its 32,400 employees $135,123.
Compensation costs at JPMorgan’s investment bank fell 12 percent to $2.9 billion in the first quarter, according to figures posted on the firm’s website last week. The expense was enough to pay each of the division’s 25,707 workers an average of $112,849 for the first three months of the year.
The average compensation figures don’t represent individual workers’ actual pay and are derived by dividing the compensation pool by the number of employees. Banks including Morgan Stanley and Goldman Sachs said total compensation costs were higher than actual pay because of deferred payments awarded in previous years and recognized in 2011. The pay figures for CEOs include what they were granted for performance in that year and don’t include gains from previously awarded stock or options.
The ratio allows for comparisons between banks of different size and business mix. The companies included are among the biggest that focus primarily on Wall Street activities such as underwriting, trading and asset management and that disclose pay and employee figures for their investment-banking divisions.
Citigroup Inc. (C) and Charlotte, North Carolina-based Bank of America Corp. (BAC) don’t break out compensation costs or personnel for their investment-banking divisions and feature large retail banks. Citigroup CEO Vikram Pandit earned 155 times the average pay expense for all workers at the New York-based bank, including tellers, while Bank of America’s Brian T. Moynihan received 54 times the average pay for employees at his company.
Pandit, 55, was awarded $15 million for 2011, up from $1 the previous year. Moynihan, 52, received $7 million, down from $10 million.
Citigroup shareholders today rejected the bank’s executive compensation plan in an advisory vote amid criticism it would let Pandit collect rewards too easily. About 45 percent of the votes were in favor of the plan, according to a preliminary tally at the New York-based firm’s annual meeting in Dallas. In addition to Pandit’s 2011 pay, Citigroup gave him a separate multi-year retention package that may be valued at $40 million.
Section 953(b) of the Dodd-Frank Act instructs the SEC to require public companies to disclose the ratio between the compensation of their CEOs and employee medians. The late management theorist Peter Drucker said that the ratio should stretch no wider than 25-to-1.
CEO pay in the U.S. in 2010 was 325 times what workers averaged, according to the annual survey “Executive Excess,” published by the Institute for Policy Studies, a Washington-based research group critical of high executive pay.
Compensation for bank CEOs raises “fairness questions” that go beyond spreads within their own companies, said Sarah Anderson, the organization’s global economy project director and one of the authors of the study.
“They were one of the drivers of the crash that left a lot of people in horrible financial straits, and now they’re bouncing back,” Anderson said. “The problems aren’t just how pay is structured, but when the overall levels of pay get so high, they encourage outrageous behavior.”
Another 2010 study, using a method similar to the one outlined in Dodd-Frank and conducted by Culpepper and Associates Inc., a compensation-survey firm based in Alpharetta, Georgia, found that the ratio was about 92-to-1 for companies with more than $2.5 billion in revenue.
The SEC has had many meetings with market participants about the requirement, which is “quite prescriptive,” agency Chairman Mary Schapiro said last month during a Congressional hearing. Among other things, companies will have to consider the value of benefits when computing median compensation figures.
“There are a lot of burdens to making the calculation because it’s an average of all employees that firms are really struggling with and we’re trying to work through,” Schapiro said. “It’s not just that we could take the W-2 forms and come up with an average and then compare it to the CEO’s compensation. It’s much more complex than that.”
SEC staff is working on a proposal that it intends to recommend to the commissioners in the first half of this year, according to a proposed timeline on the agency’s website. The provision has no mandated deadline, Schapiro said.
Some smaller companies have disclosed the data ahead of the requirement. Bond insurer MBIA Inc. (MBI) disclosed the average and median pay in its proxy filing last month. Excluding the executive officers named in the filing, the median salary and bonus of its 373 employees was $180,000. The average salary and bonus was $247,200.
Jay Brown, CEO of MBIA, declined a bonus for last year’s performance, collecting only his $500,000 salary. That would make his pay twice that of the average employee and 2.8 times the median.
Shareholders and regulators should want the ratio of CEO compensation to average pay to increase, since it serves more as an indicator of economic growth than as a breakdown of corporate governance, Johnson said. Still, Anderson of the Institute for Policy Studies said shareholders shouldn’t be concerned about their executives’ well-being.
“Even taking a year or two off from getting a bonus, in the grand scheme of things, they’re still going to wind up fabulously wealthy at the end of their careers,” Anderson said.
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