JP Morgan Chase 2009 Annual Report Download - page 22

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• Pay our people for performing well over
multiple years and for helping to build
enduring performance.
• Ensure that nancial results – a key metric
(but not the only one) we use to pay our
people – always include prots adjusted
for risk; that is, the more capital a business
uses, the more it is assessed a charge for
that capital.
• Recognize revenue for complex and long-
dated trades or products over multiple years
to properly reflect the risk. Try to be as
conservative as possible regarding accounting
– aiming not to recognize prots at all when
we think doing so is inappropriate.
Some of our other compensation principles go
beyond what regulators have asked for but, we
believe, are equally important. For example:
• We do not have change-of-control agree-
ments, special executive retirement plans or
golden parachutes, or special severance pack-
ages for senior executives.
• We do not pay bonuses for completing
a merger, which we regard as part of the
job. When the merger has proved to be
successful, compensation might go up.
• We feel strongly that nancial outcomes
alone do not represent a comprehensive
picture of performance. Broader contribu-
tions – such as continually honing leadership
skills; maintaining integrity and compliance;
recruiting and training a diverse, outstanding
workforce; building better systems; and
fostering innovation, to name just some
important qualities – matter a great deal. In
fact, in our business, basing compensation
solely on financial or quantitative measures,
and ignoring qualitative measures, can be
disastrous. Good performance in a particular
year does not necessarily indicate that the
individual did a good job.
• We are mindful that a rising tide lifts all
boats so we take into account how much a
strong market, as opposed to the initiative
of the individual or group, contributed to
the results.
• We must be highly competitive on compen-
sation, which is absolutely crucial to being
a great company. While we aim to be a
company that pays its employees well, it
should be because we have been a well-
performing company.
• We want our employees to be shareholders.
All of the policies described above have
been eective in this regard: Our employees
own 488 million shares and options, a
signicant portion of which is unvested –
i.e., of no value to the individual if he or she
were to leave the company for a compet-
itor. Ownership does not guarantee that
our employees will act like owners, but it
certainly improves the odds.
How we pay individuals
Our starting point when it comes to compensa-
tion is, as it should be, risk-adjusted nancial
performance. We keep thousands of profit-and-
loss statements (by branch, by trading desk, etc.).
While we don’t maintain incentive compensa-
tion pools at such a granular level, we do have
hundreds of such pools; we try to maintain a
very disciplined approach to relate compensa-
tion as closely as possible to performance.
However, we do not stop there. We make
adjustments based on our own judgments
about how the company is doing (in absolute
and in competitive terms) and for very specific
business decisions, such as additions to sta
or large, new investments that aect profits. In
some cases, the impact of these sorts of discre-
tionary factors will be negligible. In other
cases, the discretion we exercise may have a
signicant eect on the size of an incentive
compensation pool. If we feel the pool amount
was not earned, we do not pay it.