JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon, who got a 74 percent raise for his work in 2013, stands to reap a separate and bigger payday within months.
The bank's board of directors, having delayed a decision for more than a year, has yet to say whether Dimon, 57, can collect 2 million stock options originally granted in 2008 and now worth about $34 million. Last week, the board increased his annual pay to $20 million from $11.5 million a year ago, when he was penalized for faulty oversight of botched derivatives bets.
After Dimon's incentive package was created six years ago, JPMorgan grew to become the nation's largest bank with shares outperforming the industry, and then snapped a three-year run of record profits as costs from government probes surged. The board's decision to boost Dimon's annual pay despite mounting legal settlements shows he probably will get the full options award, said Alan Johnson, founder of compensation-consulting firm Johnson Associates Inc.
"It's obvious the board wanted to send a signal about what they think of him," Johnson said. "It'd be very inconsistent to say, 'You're our guy, and we want to send an emphatic public message that we think very highly of you.' And then, 'Oh by the way, you didn't earn this over the last five years.'"
Joe Evangelisti, a JPMorgan spokesman, declined to comment.
In January 2008, the compensation committee gave options to Dimon and other managers to "further motivate the executives to focus on the firm's long-term success by providing greater ownership opportunity and to reinforce the partnerships that will help produce that success." The options had a 10-year term, with Dimon's set to vest in January 2013.
The board said when creating the award that it would determine how many of the 2 million options to make exercisable based on Dimon's performance in the five years that followed. As the deadline arrived last year, the board announced Dimon bore some responsibility for oversight of a trader known as the London Whale, whose derivatives bets lost more than $6.2 billion. The board deferred vesting Dimon's award until as late as July 2014.
Last week, the compensation committee, headed by lead independent director Lee Raymond, awarded Dimon an $18.5 million stock bonus for his 2013 performance and left his salary unchanged at $1.5 million. While the firm's net income dropped 16 percent to $17.9 billion last year, its shares rose 33 percent. It was the world's top trading firm for 2013.
The bank announced more than $23 billion in settlements last year as it faced regulatory and criminal investigations. The legal costs, causing JPMorgan's first quarterly loss under Dimon, mounted amid probes into the firm's derivatives bets, mortgage-bond sales, energy trading and oversight of banking services provided to Ponzi scheme operator Bernard Madoff.
"This board should be embarrassed and ashamed to reward this CEO after the year this bank just had," said Dennis Kelleher, president of Washington-based Better Markets Inc., a nonprofit group that supports stricter financial regulation, and a former chief counsel to the chairman of the Senate Democratic Policy Committee.
Dimon overhauled the unit that employed the London Whale, whose nickname was inspired by the size of the derivatives bets. The CEO assigned at least 5,000 employees to bolster controls companywide, and he's spending $2 billion to improve compliance by the end of 2014. He told journalists earlier this month that he couldn't predict whether he might be able to put the legal disputes behind the bank this year.
In raising Dimon's annual pay, the board of directors cited "sustained long-term performance; gains in market share and customer satisfaction; and the regulatory issues the company has faced and the steps the company has taken to resolve those issues," according to a Jan. 24 regulatory filing.
The restricted stock disclosed last week vests 50 percent after two years and the rest after three years, the bank said. Awarding Dimon's total bonus in shares ties his pay "to the company's future performance, including continued progress on the company's regulatory agenda," the company said.
JPMorgan was the third-largest U.S. lender at the start of 2008, trailing Citigroup Inc. and Bank of America Corp. (BAC) As the credit crisis escalated that year, Dimon oversaw acquisitions of Bear Stearns Cos. and Washington Mutual Inc.'s banking operations. His firm was alone among the six largest U.S. lenders in avoiding a quarterly loss.
Dimon took a $1 million salary with no bonus for 2008. He got $15.2 million for 2009, and $23 million for each of the two years that followed.
From the beginning of 2008 through the end of last year, JPMorgan shares returned 54 percent, including dividends, while U.S. bank indexes declined. Citigroup's return was negative 79 percent, while Bank of America's was negative 55 percent. Wells Fargo & Co. topped JPMorgan with a 72 percent total return.
Dimon's 2008 options have a $39.83 strike price and expire in January 2018. JPMorgan's stock closed last week at $55.09, making the options worth about $34 million if they could be exercised now, according to data compiled by Bloomberg.
"The beauty of an option is there's only value there if the stock has appreciated since the grant date," said Joseph Sorrentino, a managing director at Steven Hall & Partners, a New York-based compensation consulting firm. "Clearly, the market has valued JPMorgan as a pretty good performer since that time."
While Sorrentino and Johnson said another major legal setback or trading loss could threaten Dimon's options, last week's pay increase sends the message that the board is willing to give him the full amount.
"I don't think the bank performed at a $20 million level, but I think they were trying to send a signal that they think he's the guy," Johnson said. "Unless something happens in the next six months, he's highly likely to get it."