Question

Jamie Dimon is the CEO and chairman of JPMorgan Chase. He has held both roles since 2005--that is, before, during, and after the financial crisis. Few executives on Wall Street are as respected and recognized, or as well compensated—for instance, in 2013 it was approximately $11.5 million; in 2014, $20 million; and in 2015, $27 million.
In one sense, this is typical of total executive compensation in the finance industry. Mr. Dimon's straight salary is often $1.5 million, and the rest (more than 90 percent) is tied to some measure of firm performance, such as stock price and profitability.
However, JPMorgan and others have come under considerable pressure for what the compensation package doesn't consider directly--ethics. During this same period, JPMorgan has settled legal claims in excess of $25 billion! A few notable examples include: $920 million for allowing traders to fraudulently overvalue investments and conceal losses; $1 billion related to securities fraud and concealment of losses in the "London Whale" trading fiasco (JPMorgan lost $6.2 billion apart from the fines); $13 billion in settlement of risky mortgages; and another $2 billion for not identifying the Madoff Ponzi scheme and the losses it caused its own investors.money
To be fair, Dimon's low $11.5 million year was intended to reflect his role related to the London Whale debacle, but this bonus reduction took place only due to pressure from Congress (Dimon earned $23 million the year before). Defenders of Dimon, and the JPMorgan board of directors who granted the pay, say he deserves such rewards for negotiating smaller fines and for producing industry-leading profitability. JPMorgan had record profits in 2015.
This scenario nevertheless raises an obvious question: Is JPMorgan's pay for performance really pay for profits without consideration of other activities that are costing it billions of dollars in penalties and fines? Dimon was CEO before, during, and since all of these billions in penalties were paid. He did not inherit the problems of a previous executive. And a corporate ethics monitoring group reported that since the financial crisis of 2008 "there appears to be no change in the frequency of the ethical issues facing the company which suggests different types of intervention are needed." The combination of these details leads some to argue that Dimon should be fired.
What Would You Do?
As you may know, the board of directors is ultimately responsible for the performance of the firm, its CEO, and all executives' compensation. With this in mind, assume JPMorgan replaced its entire board. You are now the chair, and Jamie Dimon is only the CEO. What would you recommend?
a. Would you fire Mr. Dimon outright or suggest some other changes to keep this from happening again? Defend your choice.
b. Your answer to #1 aside, what recommendations do you have for the CEO's compensation from here on? Explain.
c. Details of the case aside, describe how you could be sure pay-for-performance for the CEO also includes performance related to ethical conduct.

Answer 1

Answer: The answer is provided below

Explanation:

a. Ethics play a very important role in any organization. Ethics ensures the legitimacy and reputation of the organization. Therefore, it cannot be ignored that Mr. Dimon has disregarded the ethical norms when serving as the CEO and Chairman of JPMorgan. Even though the business is earning profits, such fraudulent and unfair business activities should not be acceptable by the company.

With regards to this, as the chairman, I would fire Mr. Dimon for his immoral way in conducting business activities. This will also set an example for others.

b) As far as the CEO's compensation is concerned, pay shouldn't be just for business performance or profits but also for ethical performance. A business without values and ethics cannot succeed in the long run. Even though profits are vital, they shouldn't be at the cost of morality and ethics.

Therefore, it is vital to compensate the CEO after considering every essential factors and not just on the basis of the businesss performance.

c) A proper Performance Analysis in an organization is made up of all the criterias required to measure the performance of both the company and the employees. Regarding the situation in the question, the ethical dilemma can be solved through the consideration of ethical conduct as an equal and important factor when evaluating pay for performance. Therefore, the pay for performance should include ethical and business aspects together which will lead to more transparency when assessing the compensation.