The Director Compensation Project: JP Morgan Chase & Co.

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 2010 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 known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from JP Morgan Chase & Co. (NYSE:JPM) 2010 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	45,000
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	185	270,185
Laban P. Jackson, Jr.	100,000	170,000	0	0	270,000
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

Director Compensation.  During fiscal year 2009, JP Morgan Chase held 11 board meetings and 35 committee meetings, which includes the audit, compensation, corporate governance, public responsibility, and risk policy committees. Each director attended 75% or more of the total board meetings and committee meetings on which they sat. The board’s compensation program consists of roughly one-third cash and two-thirds stock-based compensation. Each non-management director received an annual cash retainer of $75,000 and an annual grant of deferred stock units valued at $170,000.This compensation package has not changed since 2003. In addition, each member of the audit committee receives an additional $10,000 in cash, and each chair of a board committee receives and additional $15,000 in cash. Deferred stock units are distributed in shares of the firm’s common stock in either a lump sum or in annual installments for up to 15 years immediately following a director’s termination.

Director Tenure.  The directors with the longest tenure have sat on the board since the merger of JP Morgan & Co. and The Chase Manhattan Corporation in 2000, making them members of the current board since 2001.These directors are Lee R. Raymond (formerly director of JP Morgan & Co. from 1987 to 2000), William H. Gray, III (formerly director of The Chase Manhattan Corp. from 1992 to 2000), and Ellen V. Futter (formerly director of JP Morgan & Co. from 1997 to 2000). Mr. Weldon is the CEO of Johnson & Johnson. Mr. Novak is the Chairman of Yum! Brands, Inc. Mr. Gray holds the most current director positions as Co-Chairman of GrayLoeffler, LLC, and a director at Dell Computer Corporation (since 2000), Pfizer, Inc. (since 2000), and Prudential Financial, Inc. (since 1991).  He was also a director of Visteon Corporation until 2009. Mr. Gray was also a member of the United States House of Representatives from 1979 to 1991.

CEO Compensation.  The Chairman and CEO of JP Morgan Chase is James Dimon.He attained this position on December 31, 2006 after previously having served as CEO and President since December 31, 2005. He had previously been Chairman and CEO at Bank One Corporation since March 2000 until the merger in July of 2004. For fiscal year 2009, Mr. Dimon earned $1 million in cash as a base salary, no cash incentives, and was awarded equity incentives worth $14,196,700 in the form of restricted stock units and stock appreciation rights. There are two individuals who have the next highest salary: former Co-CEO of the Investment Bank, William T. Winters, and Vice Chairman Steven D. Black. Mr. Winters was paid a salary of $500,000 and a cash incentive of $13,759,200 for a total of $14,259,200. Mr. Black was paid a salary of $500,000, cash incentives of $2 million, and stock incentives worth $11,759,200 for a total of $14,259,200.