The Director Compensation Project: JP Morgan Chase

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. 

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 "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

One can see some of the effects of these rules when looking at the director compensation table from JP Morgan Chase’s (NYSE: JPM) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Crandall C. Bowles	85,000	170,000	0	0	255,000
Stephen B. Burke	75,000	170,000	0	0	245,000
David M. Cote	75,000	170,000	0	0	245,000
James S. Crown	90,000	170,000	0	0	260,000
Ellen V. Futter	75,000	170,000	0	0	245,000
William H. Gray, III	100,000	170,000	0	0	270,000
Laban P. Jackson, Jr.*	210,000	170,000	0	0	380,000
David C. Novak	90,000	170,000	0	0	260,000
Lee R. Raymond	90,000	170,000	0	0	260,000
William C. Weldon	75,000	170,000	0	0	245,000

*Mr. Jackson received $110,000 in compensation during 2010 in consideration of his service as a director of J.P. Morgan Securities Ltd., an indirect wholly-owned subsidiary of JPMorgan Chase headquartered in London.

Director Compensation.  During the 2010 fiscal year, JP Morgan Chase held eight Board of Directors meetings and 39 Board Committee meetings.  Each director attended at least 75% of both the Board meetings and his or her committee meetings.  The directors’ compensation is made up of one-third cash and two-thirds stock-based compensation.  In 2010, each director received $75,000 and a grant of deferred stock units worth $170,000.  Members of the Audit Committee earn an additional $10,000 per year, and chairs of Board committees earn an additional $15,000 per year.  Directors’ compensation has remained the same since 2003.

Director Tenure.  Ellen V. Futter, William H. Gray, and Lee R. Raymond have each served as directors since 2001 and have the longest tenure on JP Morgan Chase’s Board.  The directors who have the shortest tenure are David M. Cote, who has served since 2007, and Crandall C. Bowles, who has served since 2006.  All of JP Morgan Chase’s directors sit on other boards.  For instance, Mr. Gray currently serves as a director for Prudential Financial, Inc., Dell Computer Corporation, and Pfizer Inc.  Laban P. Jackson was a director of Bank One Corporation from 1993-2004, was a director of the Federal Reserve Bank of Cleveland from 1987-1992, and is currently a director of Markey Cancer Foundation and Transylvania University.

CEO Compensation.  During the 2010 fiscal year, James Dimon, JP Morgan Chase’s Chief Executive Officer and Chairman, earned $23,000,000.  In 2010, Mr. Dimon earned a cash incentive of $5,000,000 and equity incentives worth $17,000,000.  JP Morgan Chase compensated Mr. Dimon with benefits of $95,293 for his personal use of aircraft, $45,730 for his personal use of cars, $421,458 for moving expenses, and $17,143 for other expenses.  James E. Staley, the Investment Bank Chief Executive Officer, earned $17,025,400 during the fiscal year.  Mr. Staley led JP Morgan Chase’s Asset Management division for 10 years before returning to lead the company’s Investment Bank division.