Corporate Governance

The Director Compensation Project: JP Morgan

By Richard Jasik

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $120,000 in direct compensation, other than director's fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from the JP Morgan Chase & Co. (JPM-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

* Mr. Lipp retired on September 30, 2008 as a Director and did not receive director compensation but was paid a salary of $375,000 in 2008. Compensation amount reflects fees earned through retirement date.

** This amount includes $1,909 for the change in pension value and non-qualified deferred compensation earnings.

Director Compensation. JP Morgan Chase's board met eighteen times in 2008, and each director attended at least 75% of the total board meetings and committees on which he or she served. Mr. Dimon, the Chairman and CEO, did not receive director compensation in 2008. Mr. Lipp retired on September 30, 2008 and did not receive director compensation but instead was paid a salary of $375,000 and was eligible for a discretionary annual incentive compensation award. In January 2008, Mr. Lipp received a cash award of $1,625,000 and restricted stock units valued at $875,025. Excluding Mr. Dimon and Mr. Lipp, the board is currently comprised of non-employee directors. No director received over $100,000 in director cash compensation

Director Tenure. Five of the board members have served on the board of JP Morgan Chase or a predecessor company for over ten years. Mr. Raymond has the longest tenure, serving on the board since 1987. Several directors also sit on other boards. Mr. Gray is also a director of Dell Computer Corporation, Pfizer Inc., Prudential Financial Inc., and Visteon Corporation. In addition, Mr. Novak is also a director of Yum! Brands Foundation and a director of the Friends of the United Nations World Food Program.

CEO Compensation. James Dimon, who serves as Chairman and CEO, received $1,000,000 in total compensation for 2008. Of his total compensation, Mr. Dimon received $1,000,000 as base cash salary but did not receive any incentive compensation. Due to the poor performance of the firm, Mr. Dimon received 97% less in 2008 than his total 2007 compensation. However, Mr. Dimon did receive $16,841,200 in stock awards. In addition, Mr. Dimon was granted personal use of aircraft and cars, and he was reimbursed for moving expenses and taxes associated with moving, all of which totaled $348,101.

Full post as published by The Race to the Bottom on May 09, 2009 (boomark / email).