The JPMorgan Chase CEO deserves every dollar of his recent pay raise. That statement places us at odds with most commentators. Marketwatch’s David Weidner just published a piece whose headline uses the phrase “mocks accountability” to describe the raise. Forbes bashed not only the CEO but also an “ineffective board” in its article a few days prior to Weidner’s. Other negative opinions were expressed in such disparate places as The Wall Street Journal and The New York Times.
Few of these headlines point out that the board had previously, almost a year ago, halved Mr. Dimon’s compensation to $11.5 million from about $22 million in the “London Whale’s” wake. So while his recent raise looks enormous, he is still making less than he was before. But whether we call it a pay raise or a smaller pay cut from his highest compensation, I believe this current increase was deserved for the following reasons.
First, as noted in a post on this blog at the time the “Whale” surfaced, Mr. Dimon tackled the problem of his rogue London trader within days. He very quickly dismissed both the individual trader and the head of the London hedging operation, went public without excuses on the $6 Billion loss, and tightened the reins of that operation.
Other problems that faced JPMorgan Chase were problems that crossed multiple banks: Libor rate setting, foreign currency exchange rates and mortgage packages. You can be sure that the Libor and foreign exchange rate fixing, the collusion of personnel across multiple banks in multiple countries, was not out in the open for their respective CEOs to observe. As for the mortgage securities, we have all too easily forgotten that at the peak of the financial meltdown in September 2008, the federal government seized Washington Mutual and sold it to JPMorgan Chase. These were not securities that Dimon’s operation created.
Following the exposure of the “Whale,” Mr. Dimon acted swiftly on each of these problems, cooperated fully with all investigations, worked to settle with the government and initiated programs to develop and implement additional controls. The same was true when one of his department’s involvement in the Madoff scandal came to light.
As for the board, they acted quickly and publicly to slam Mr. Dimon’s compensation last year. They reportedly argued strongly over this most recent compensation adjustment. I find those to be healthy signs of an involved board.
Contrast this with Aubrey McClendon and the board of Chesapeake Energy, the company who gave us fracking. Mr. McClendon treated the company as his own fiefdom long after it went public. He leveraged his operation as much as he could and when gas prices came down he was caught short. The board did nothing until it was too late, primarily because the board had been filled with McClendon’s friends.
Over a ten month period Mr. Dimon has settled each of the issues for the bank, while still making healthy profits and delivering shareholders a strong improvement in share price. In every case Dimon has directed his team to examine internal processes and strengthen them. He has not hesitated to remove personnel, which is a key to strengthening internal corporate culture.
In short, Mr. Dimon is exactly what you want in a professional executive and he deserves every dollar. His board also deserves more credit than they have been getting.
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