No pay rises for JPMorgan employees on average as legal woes slash bank's profit
JPMorgan Chase plans to keep overall compensation per employee roughly flat this year from last year, lagging gains at rivals, as the bank’s massive legal settlements weigh on its results, two sources familiar with the matter said.
Bonuses were largely set early this week, though payouts could change in unusual situations or if there is an unexpected change in the company’s results during the last six weeks of the year, said the sources, who spoke on the condition of anonymity.
It is not yet clear what chief executive Jamie Dimon’s bonus for this year will be.
Pay increases have been muted across much of the banking sector in the aftermath of the financial crisis, but JPMorgan’s plans are at the low end of what experts forecast for the industry this year.
Earlier this month, compensation consultant Johnson Associates estimated that commercial and retail bankers overall will get bonuses that are unchanged to 5 per cent higher this year.
It estimated bonuses across all of Wall Street, including large asset management firms, will be up 5 to 10 per cent.
Recruiting firm Options Group estimated that average pay will rise 4 per cent.
But JPMorgan has higher legal expenses than rivals. On Tuesday, the bank agreed to pay US$13 billion to the US government to settle charges it misrepresented the quality of mortgages it sold to investors before the housing crisis.
After taxes, that settlement is equal to nearly half of what the bank can earn in a year.
Without legal settlements, JPMorgan’s profit would have been about 27 per cent higher in the first three quarters than in the same period last year, an increase that would have made it easier for the company to boost pay per employee this year.
The bank could have taken more dramatic steps to cut costs after recent settlements, like cutting pay across the board or reducing staff.
But its executives believe the legal costs are a temporary drain on profits and do not want to force current employees to bear too much of the burden of the settlements.
Dimon said this week that it would not be fair to penalise current employees for actions that occurred years ago, largely at banks that JPMorgan acquired in the heat of the crisis.
“We have never blamed employees broadly for mistakes that were made away from them,” Dimon said on Tuesday in response to a question from a stock analyst about compensation expense.
Even if pay on average will be more or less unchanged, an individual’s pay may rise or fall, depending on the performance of the employee’s unit, and his or her own work, the sources said.
The company’s headcount has fallen a little since the end of last year, when it was about 259,000, but most of the job cuts have been in lower-wage jobs rather than the investment bank.
Even after the substantial cheques JPMorgan has written, its legal and regulatory issues are not over. The bank faces at least nine other government probes, covering everything from its hiring practices in China to whether it manipulated the Libor benchmark interest rate. It may still also face criminal charges linked to mortgage matters.
In the third quarter, JPMorgan lost US$380 million after it set aside more than US$7 billion, after taxes, to cover litigation expenses. It was the bank’s first quarterly loss since 2004.