UPDATE: May 17, 2022: Shareholders rejected a special payout to JPMorgan Chase CEO Jamie Dimon on Tuesday, with the advisory referendum receiving only 31% of shareholder support.
The vote, the results of which the bank announced at its annual general meeting, is only advisory, and was in response to the $52.6-million Dimon received last year to remain CEO for at least five more years.
Proxy adviser Glass Lewis is recommending shareholders vote against JPMorgan Chase’s executive compensation at the bank’s annual meeting May 17, citing “excessive one-off grants to the CEO and [chief operating officer] amid tepid relative performance.”
The bank in July gave CEO Jamie Dimon a “special award” of 1.5 million share options, reflecting the board’s “desire” that he “continue to lead the Firm for a further significant number of years,” according to a securities filing.
The value of the award varies based on the bank’s stock price. But for accounting purposes, JPMorgan assigned a $52.6 million figure to the shares, which Dimon must hold until 2031.
JPMorgan gave a similar, though lesser, award of 750,000 restricted share options — valued at roughly $27.9 million, in December to the bank’s second-in-command, Daniel Pinto.
“The board is acting responsibly in shareholders’ best interests in case Mr. Pinto needs to once again serve as CEO as a result of unforeseen circumstances,” the bank said Friday in response to Glass Lewis’ recommendation, according to Bloomberg.
Pinto and now-retired Co-President Gordon Smith served as acting co-CEOs in March 2020, when Dimon needed emergency heart surgery.
“The lack of performance-based vesting conditions tied to the awards while the Company has not achieved adequate alignment between executive pay and performance warrants shareholders’ scrutiny,” Glass Lewis wrote. “Shareholders should generally be wary of awards granted outside of the standard incentive schemes, as such awards have the potential to undermine the integrity of a company's regular incentive plans, the link between pay and performance or both.”
JPMorgan wouldn’t be the only bank whose one-off awards rankled Glass Lewis. The proxy adviser recommended shareholders vote down Goldman Sachs’ executive compensation for similar reasons. Goldman in October offered CEO David Solomon and President John Waldron stock incentives worth $30 million and $20 million, respectively, in a move meant to “ensure leadership continuity” at least through 2026, the bank wrote in a filing at the time.
Glass Lewis’ warning on Goldman didn’t stick. Approximately 82% of votes cast at that bank’s annual meeting April 28 favored the compensation packages. Votes are nonbonding, and banks can choose to go against the advice of its shareholders.
Glass Lewis isn’t the only proxy adviser raising the red flag. Institutional Shareholder Services also advocated voting down JPMorgan’s pay scheme for 2021, Bloomberg reported Friday.
Glass Lewis, for one, noted a “sustained disconnect between executive pay and performance over the last nine years” at JPMorgan Chase. “Historically, the Company's size relative to peers has helped to mitigate some of our concerns,” it said.
Dimon's compensation during the past fiscal year was 3.4 times the median of the bank’s financial peers, Glass Lewis asserted. But the bank’s revenue and employee count stood at about 1.9 times that measure.
JPMorgan’s stock, which closed at $123.72 on Friday, has lost 26.4% of its value since a $168.23 high on Jan. 13 — the day before the bank announced fourth-quarter earnings. The bank posted a net profit for the year that exceeded its previous record by 32.7% but saw its net income dip 14% amid a double-digit percentage-point drop in trading revenue and a double-digit uptick in operating expenses.
The bank’s shares are down 17.4% from July 20, the day the bank announced Dimon’s award.
“While it is important to recognize that the awards vest over a longer time frame than the Company's regular equity incentives, we do not believe this fully alleviates concerns around the magnitude of the grants and what we consider their insufficient structural integrity,” Glass Lewis wrote. “Half of the awards are subject to protection-based vesting conditions, which are off-shoots of typical clawback provisions but are not sufficient substitutes for rigorous performance-based vesting conditions.”
The proxy adviser gave JPMorgan’s executive compensation plan a “D” rating — which is not the worst grade it has bestowed. (It gave the bank an F last year.)
JPMorgan, in a statement seen by Bloomberg, defended its award to Dimon, saying it “incentivizes a successful leadership transition by requiring the CEO’s leadership for at least five years before the awards vest and another five years until he may sell any vested shares.” That, the bank added, “ensures direct alignment with shareholder returns over the next decade.”