Article Summary and Reflection
The article by Halah Touryalai appearing in Forbes talks about the decision by the board of JP Morgan, America’s biggest bank, to award CEO Jamie Dimon a 74% pay rise in 2013. The increase saw Jamie take home $20 million in 2013 despite the bank having one of its worst years that saw it report its first ever quarterly loss under Dimon’s stewardship. 2013 was also the year that JPM paid a $13 billion settlement with the Department of Justice for making serious misrepresentations about its mortgage-backed securities which saw many Americans lose their homes. The $20 million included Restricted Stock Units (RSUs) of $18.5 million that would vest over three years and which would tie Mr. Dimon’s 2013 pay to the company’s future profitability (Touryalai).
In a statement released by the board, the reason for the pay hike was that under Mr. Dimon’s stewardship the bank had fortified its processes, control infrastructure, and key businesses while also improving the bank’s leadership capabilities across numerous platforms. Other factors were taken into consideration in determining Dimon’s compensation such as the upsurge in market share and customer satisfaction, as well as the steps the company had taken to resolve regulatory issues it was facing.
Halah contends that the reason for the pay hike could be a way of the board trying to convince Dimon to stay longer, although numerous shareholders do not favor Dimon’s all-powerful reign and have even demanded him to resign his role as chairman. The pay hike would also raise questions among regulators and politicians who have serious issues with the bank’s unscrupulous way of doing business that saw the bank face several high-profile investigations which ended with the settlement of around $20 billion in legal claims.
Relation to Class Material
This article is of pivotal importance as it relates to numerous issues enshrined in Chapter 43 of the textbook. One of the ways in which the article covers course material is that it deals with the issue of director’s compensation. In class, it was taught that compensation committees are responsible for the review and approval of the salaries, bonuses, stock options, and other benefits of company executives, in this case, the Chairman and CEO of JPM. The text book also goes on to articulate how the public and Congress lament the approval of large compensation packages and how the board independence fails to rein in such compensation.
The article also shows how too much power is harmful to a company, and how the Wall Street Rule: support management or sell the shares, comes into play. Many JPM shareholders do not favor Dimon, but they have not been able to oust him due to the power he commands. Additionally, the article highlights the issue of the fiduciary duty of care owed by directors to the corporation. JPM management has not acted in the best interests of the corporation and the same year even admitted to massive issues with its mortgage-backed securities as well as flouting various regulatory requirements that saw JPM pay over $20 billion in legal charges. The bank also faced a loss in the same year but despite this, the Board increased Mr. Dimon’s salary package and still insists on maintaining him as the chairman despite opposition from shareholders. Lastly, the article highlights the separation between management and the corporations whereby as agents of the company, directors can hold multiple stations as exhibited by Mr. Dimon being both the chairman and CEO of JPM.
In conclusion, the management of corporations has been largely explored due to its significance to the performance of the corporation. The decisions of the board are conclusive and binding to the company, so if directors act in bad faith, the shareholders will suffer. On numerous occasions, directors flout the regulations that govern how they represent the corporation, and may act to further their selfish ends instead of those of the company.
Touryalai, Halah. Jamie Dimon Gets $20 Million For His Worst Year As CEO, Why The Big Raise? 24 January 2014. Document. 02 May 2016.