Finance

Dimon life: Will JPMorgan boss’s bonus rub shareholders up the wrong way?

Aw, you shouldn’t have.

JPMorgan Chase’s board surprised investors by giving chief executive officer Jamie Dimon 1.5 million stock options on top of his considerable compensation as long as he sticks around and hits performance targets for five more years, according to a securities filing.

Dimon, a 65-year-old cancer survivor who last year had emergency heart surgery, can’t sell the shares until 2031.

It is hard to say how much more that motivates the billionaire banker to stay, but it is clear where the board’s sentiment is coming from. Going back to the time of its purchase of Bank One in July 2004, which brought Dimon to its executive suite, JPMorgan’s shares have produced a total return of 524%, blowing away the 145% return of the S&P 1500 Financials Index.

Was his leadership responsible for at least some of that excess performance? Arguably yes.

But what about the next five years? Some back-of-the-envelope math could make a strong case that his “surprise” award is prudent. If one assumes that American banks return 5% a year going forward but that a JPMorgan led by Dimon performs a mere one hundredth of a percentage point better, then shareholders would be $270 million richer in 2026.

Dimon hasn’t expressed a desire to hang up his boots, but if there was a 1-in-5 chance that he changed his mind, then the award would pay for itself based on the approximate value of those options.

On the other hand, big companies are like a flywheel. They can run well for a while with an empty suit at the helm. And keeping one person on top for 20 years risks alienating talented executives. Of all people, Dimon should grasp that. He was helping to run Citigroup in 1998 with his longtime mentor, Sandy Weill, but was fired.

“The problem was in 1999 he wanted to be CEO and I didn’t want to retire,” said Weill to the New York Times in 2010.

Instead, Weill was succeeded as CEO in 2003 by the underwhelming Charles Prince, now best remembered for his 2007 quote about leveraged buyouts as the financial crisis loomed: “As long as the music is playing, you’ve got to get up and dance.”

READ Meet the top contenders for Jamie Dimon’s throne at JPMorgan

With the benefit of hindsight, Citigroup’s board should have laid out a transition for Weill, who was the same age when he fired his protégé as Dimon is today. The billions that Dimon has since earned at Bank One and JPMorgan Chase would have been a bargain.

Those sorts of calculations show why lavish executive-pay packages can be at once rational and ridiculous. Median S&P 500 CEO pay last year hit a record $12.7 million, according to a study by Equilar. From each individual board’s perspective, hiring somebody slightly less talented could be a case of false economy.

Meanwhile, the benchmark for deciding pay is what peers make, so it is impossible to recruit a boss who will work cheaply. That is despite the evidence that CEOs who earn huge multiples of their employees’ pay — even Dimon, who makes 395 times his company’s median, according to Equilar — clearly don’t deserve it as a group, no matter how stressful the job.

READ Shareholders gear up for showdowns over exec pay

US companies mainly pay lip service to measures designed to make pay more reasonable. Say-on-pay votes instituted as part of the Dodd-Frank Act give shareholders a vote on the compensation of top executives. According to David Kokell, head of U.S. compensation research at Institutional Shareholder Services, just 2.1% of companies in the Russell 3000 saw the nonbinding votes fail last year.

Reining in corporate pay is easy to support overall but tougher when it is your star CEO. Abigail Disney, a major Disney shareholder and an economic-equality activist, famously said, “Jesus Christ himself isn’t worth 500 times his median workers’ pay,” but quickly clarified that former superstar CEO Robert Iger, who earned 1,424 times his median workers’ pay in 2019, is a “brilliant man” who “deserves to be rewarded well.”

Just how well, and for how long, is a tricky question.

Write to Spencer Jakab at [email protected]

This article was published by Dow Jones Newswires

To contact the author of this story with feedback or news, email Justin Cash

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