JPMorgan Chase & Co. (NYSE:JPM, $JPM) is a financial holding company. The Company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. The annual meeting is coming up on May 17, 2016. ProxyDemocracy.org had collected the votes of one fund family when I checked. Vote AGAINST pay, compensation committee; FOR all shareholder proposals. I voted with the Board’s recommendations 53% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
JPMorgan: ISS Rating
From Yahoo! Finance: JPMorgan Chase & Co.’s ISS Governance QuickScore as of May 1, 2016 is 9. The pillar scores are Audit: 10; Board: 9; Shareholder Rights: 2; Compensation: 9. Brought to us by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus: Audit, Board, and Compensation.
JPMorgan: Compensation
JPMorgan’s Summary Compensation Table (back one page) shows the highest paid named executive officer (NEO) was CEO/Chair James Dimon at $27M. I’m using Yahoo! Finance to determine market cap ($224B) and Wikipedia’s rule of thumb regarding classification. JPMorgan is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay was considerably higher than that amount. JPMorgan’s shares outperformed the S&P 500 over the most recent two year time period but underperformed over the most recent one, five and ten year periods.
The MSCI GMIAnalyst report I reviewed gave JPMorgan an overall grade of ‘D.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 89% of companies in the home market. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
- The company has not disclosed specific, quantifiable performance target objectives for the CEO, essential for investors to assess the rigor of incentive programs.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures American Express Company’s wealth creation in comparison to other widely held issuers. “Superior” is the rating given. On the actual compensation advisory vote, Egan-Jones concludes:
Our qualitative review of this Company’s compensation has identified one minor issue: the CEO’s salary at $1,500,000 exceeds the $1 million dollar deducibility limit imposed by section 162m for salaries and non-qualified incentive payments. Failure to abide by IRS 162m rules results in loss of deductibility for the compensation in question and possibly increased and unnecessary tax payments. While this issue is not sufficient to trigger a negative vote alone, it does impact the Company’s overall compensation score, we would recommend the board investigate and consider alternative means of compensation for the CEO and any other 162m covered NEOs who exceed this limit in the future…
We believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value. Therefore, we recommend a vote “FOR” this Proposal.
Given the issues above, especially pay over median and underperformance, I voted AGAINST the pay package, and the compensation committee: Lee R. Raymond (Chairman), Stephen B. Burke and William C. Weldon.
JPMorgan: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.
JPMorgan: Board Proposals
As mentioned above, I voted against the pay package and the compensation committee. I’m also concerned that seven directors have served for ten years or longer. That’s too many.
JPMorgan: Shareholder Proposals
#4 Require Independent Board Chairman. I voted FOR this proposal by William Steiner. No CEO should be their own boss. Steiner’s proposals provides several reasons and there are many more.
#5 Reduce Supermajority Vote Requirement. I voted FOR this proposal by Newground Social Investment. Abstentions should never be counted as votes in favor. This is common sense. JPMorgan shouldn’t have their thumb on the scale.
#6 Limit/Prohibit Accelerated Vesting of Awards. I voted FOR this proposal by the AFL-CIO Reserve Fund to prohibit vesting of equity-based awards for senior executives due to a voluntary resignation to enter government service. Our executives should earn their pay through service to JPMorgan not through a Government Service Golden Parachute.
#7 Develop Plan to Divest Non-core Banking Segments. I voted FOR the proposal by Bartlett Naylor. Let’s get a report on what the parts are worth and assess whether or not JPMorgan is too big to manage. I’m willing to bet the parts and worth substantially more than the whole.
#8 Clawback Amendment. I voted FOR this proposal by Kenneth Steiner seeking a clawback policy to provide that a substantial portion of annual total compensation of Executive Officers be deferred for rolling ten year period and and be possibly forfeited in whole or part, at the discretion of Board, to help satisfy any monetary penalty associated with legal violation of law and that any forfeiture and relevant circumstances be reported to shareholders. I think this is a creative way to help incentivize better legal compliance, reducing the likelihood JPMorgan will continue to pay billions of dollars of fines in the future. Banks don’t violate the law; people do.
#9 Executive Compensation Philosophy with Social Factors. I vote FOR this proposal by Jing Zhao to have the board tie at least s
ome portion of executive compensation to social factors of the board’s own choosing. That’s a lot of flexibility.
JPMorgan: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on Texas Teachers (TRS), which voted per the board’s recommendations, except they voted FOR #4 to shift to an independent chairman. Egan-Jones Proxy Services voted with the board except FOR #4 and For #5 to not count abstentions as AGAINST on shareholder proposals.
JPMorgan: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- Proxy access ‘lite’ provision whereby a shareholder or group of no more than 20 stockholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors constituting up to the greater of two directors or 20% of the board.
JPMorgan: Mark Your Calendar
Under SEC rules, proposals that shareholders seek to have included in the proxy statement for our next annual meeting of shareholders (other than nominees for director) must be received by the Secretary of JPMorgan Chase not later than December 8, 2016.
Warnings
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime).I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.
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