JP Morgan Chase 2009 Annual Report Download - page 26

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Performance isn’t always easy to judge
Managers responsible for businesses must
necessarily evaluate individuals along a spec-
trum of factors. Did these individuals act with
integrity? Did they hire and train good people?
Did they build the systems and products that
will strengthen the company, not just in the
current year but in future years? Did they
develop real management teams? In essence,
are they building something with sustainable,
long-term value? Making these determinations
requires courage and judgment.
Sometimes leaders should be supported and paid
even when a unit does poorly
If a company’s largest, and perhaps most
important, business unit is under enormous
stress and strain, unlikely to earn money
regardless of who is running it, a manager
might ask his best leader to take on the job.
This may be the toughest job in the company,
one that will take years to work through before
the ship has been righted. When the manager
asks a leader to take on the responsibility,
she quite appropriately will want to know
whether she will be supported in the toughest
of times: “Will you make sure the organization
doesn’t desert me?” “Will you stop the politics
of people using my unit’s poor performance
against me?” “Will you compensate me fairly?”
My answer to all of these questions would be
yes. And as long as I thought she were doing
the job well, I would want to pay her like our
best leaders, profits aside. Conversely, we all
know that a rising tide lifts all boats. When
that’s the case, paying that leader too much is
possibly the worst thing one can do – because
it teaches people the wrong lesson.
Evaluating the CEO
The CEO should be held strictly accountable
by the Board of Directors. The Board should
continually review the CEO’s performance
and give feedback (and coaching). The Board
alone should determine the compensation for
the CEO. At every regularly scheduled Board
meeting at JPMorgan Chase, the directors also
have a private meeting without me. Compen-
sation committees and the Board need to be
independent thinkers – and yours are. They
review lots of data to evaluate the performance
of the company, including reviewing competi-
tors’ performance and their compensation
practices. Our Board members do not rely on
compensation consultants to make decisions
for them. The Board members believe that
determining how to compensate the CEO (and
all of our senior management) is their respon-
sibility and cannot be outsourced.
In two of the last 10 years, I received no bonus,
which I thought was absolutely appropriate. In
2000, Bank One was in terrible shape – we had
to lay o approximately 10,000 people, and I
thought it completely inappropriate that I take
a bonus. That year, my rst at Bank One, I had
a guarantee – I gave it up. The second time
was in 2008, and our nancial results were just
too mediocre to contemplate a bonus for the
CEO. Since we did pay many other people in
those two years, we also lived by the principle
that the CEO does not have to be the highest
paid person in the company.
In all the years I’ve worked at this company,
much of my compensation (approximately
65%) has been in stock. I’ve never sold a share
and do not intend to do so as long as I’m in this
job. In fact, when I joined Bank One, I bought
a lot of stock outright, not because I thought it
was cheap (in fact, I thought it was overvalued)
but because I wanted to be tethered tightly to
the company and its performance.