For JPMorgan Chase, 2013 was marked by litigation and legal penalties that reached $20 billion. The largest two of these losses were a $13 billion fine for selling troubled mortgages and a $1.7 billion suit for failing to report the suspicious actions of Bernard Madoff. These penalties led JPMorgan to its first quarterly loss since 2005. Amidst this PR nightmare, the stock price of the firm rose 33%, beating the S&P 500 stock index, which only rose 30% (Barrett).
After such a tumultuous year for the Wall Street Banking firm, the directors voted unanimously to award CEO James Dimon a 74% raise. They cited reasons for the raise including the long-term performance of JP Morgan during his time as CEO, the manner of his handling the lawsuits, and the continual growth in market share. The increase from $11.5 million to $20 million was a shock to some but after a deeper look, it is easy to see the argument behind why the board elected to reward Dimon.
If the firm had not been involved in any legal missteps, many of which predate Dimon’s association with JPMorgan, it is likely that they would have set a record level of earnings this year. Despite all of the losses, JPMorgan still posted a net operating income of $17.9 billion for the year. Dimon was also successful in keeping the support of most stakeholders since the firm’s stock price is still going up. When Dimon came to JP Morgan he claimed that stock prices would reach $100 and though they have not yet reached that mark, it is undeniable that he has made headway. In 2005 when he was named CEO the stock prices were in the thirties, and now the price is around $55.
While many people affected by the misconduct of JP Morgan were confused and even infuriated by the news of his raise, many top analysts in the field support the board’s decision. Warren Buffett called James Dimon a “bargain” and went on with his praises saying that if he were the man in charge of JPMorgan, he would have done the same as the board but give him an even larger raise.
Some believe that a man like Dimon who has no personal risk attached to the firm should not be making so steep a salary. However, in an attempt to increase his stake in the future of JPMorgan, the board is giving him $18.5 million of the 2013 package in restricted stock (Fitzpatrick). In accepting this deal he has bound himself to the firm for at least three more years. If he leaves before two years have passed he will lose all of his stock benefits. If he leaves before three years then half of his stock benefits will be forfeited.
Fitzpatrick, Dan, and Joann S. Lublin. “Dimon Gets Raise After Rough Year.” Wall Street Journal [Pittsburgh] 24 Jan. 2014: n. pag. Print.
Barrett, Devlin. “J.P. Morgan, U.S. Settle for $13 Billion.” The Wall Street Journal. Dow Jones & Company, 19 Nov. 2013. Web. 9 Feb. 2014.