The Proxy Advisors Were Flat Wrong About Jamie Dimon’s Pay

I have a question: What JPMorgan Chase shareholder in his right mind would vote against Jamie Dimon’s 2014, $20 million pay package? Yet in fact, a lot of them just did. Only 61.4% of Morgan’s shareholders voted this week to approve Jamie’s comp, compared to 77.9% who voted for it in 2013 (when he was also paid $20 million by the way), according to the Washington Post. The reason for the revolt, apparently, was that the two big proxy advisors were unhappy with the plan. ISS griped that a $7.4 million cash bonus was reintroduced “without a compelling rationale,” while Glass Lewis complained that there was a disconnect between Jamie’s pay and the company’s performance.

I’m having trouble imagining anything more bogus. First, Jamie is one of the most able CEOs in the banking industry, or any industry, for that matter. If you doubt it, consider how Morgan was able to navigate through the credit crunch relatively easily, even as the crunch brought a number of other big banks low and put others out of business entirely. Morgan’s performance was not a coincidence; the place is very well-run. Is Jamie Dimon worth $20 million a year? Yes. For perspective, JPMorgan Chase earned $20 billion last year and carries $2.6 trillion in assets.

And yet busybodies at places like Glass Lewis and ISS grouse about process and transparency. News flash: there is no proven, universal process for determining executive pay. Setting pay is one of the most important jobs of the (shareholder-elected) board of directors. You start, first, by looking around to see what other CEOs at similar institutions make, and go from there. Everything else—concocting “compelling rationales,” say–is make-work hooey. Beyond that, to the extent that companies do follow a formal process that ISS and Glass Lewis would approve of, the result is typically a number that’s skewed artificially higher. That formal process would likely settle on “comparable” CEOs that are especially amply paid, say, or might dream up—transparently!—rationalizations for special one-time awards or non-cash perks.

It’s all a racket, in other words. It’s bad enough that proxy advisors, with a straight face, will advise shareholders to vote against a pay package for one of the best bankers around. But it’s even worse that institutional shareholders—actual stewards of other people’s money—would take that advice. Suppose for a minute that a majority of shares really did vote down Jamie’s package. The vote wouldn’t have been binding of course. Still, imagine that the rebuke might have been enough to drive Jamie into moment of pique and then take Warren Buffett up on his offer. How do you suppose Morgan shares would have reacted to that?

This Jamie pay incident is another example of how the proxy advisory business is mostly useless. I’m surprised institutional investors subscribe to them.

What do you think? Let me know!