JPMorgan Chase & Co. paid investment bankers and traders about 3% less in 2012 as shaky economies in the U.S. and Europe put a damper on deals, said two people with knowledge of the firm’s compensation.
Portfolio managers and other executives in asset management received an average 6% increase in salary and bonuses, according to two other people briefed on pay at New York-based JPMorgan, the largest U.S. lender by assets.
Senior investment bankers and traders had braced for steeper reductions exceeding 10%, one person said, after global deals slid 13% to $2.67 trillion in 2012. Net income at JPMorgan’s investment bank for the first nine months of 2012, before it was merged with the corporate bank and treasury services divisions, dropped 15% to $5.2 billion.
The cuts pale next to those inflicted on JPMorgan Chief Executive Officer Jamie Dimon and on some peers at rival banks. Dimon’s pay was halved after the bank suffered its worst-ever trading loss in the so-called London Whale episode. Top employees at UBS AG, Switzerland’s biggest lender, will take a 7% reduction in their bonus pool and get paid with bonds whose value could be wiped out.
Senior executives at JPMorgan bore a heavier share of bonus cuts in the investment bank to insulate junior and mid-level staff from harsher reductions, said one of the people, who requested anonymity because pay discussions are private. Joe Evangelisti, a company spokesman, said the firm had no comment. JPMorgan paid the approximately 26,000 employees in its investment bank an average of $314,980 for the 12 months ended Sept. 30, the most recent data available.
Average pay per worker doesn’t reflect the amount of money employees actually receive. Top executives and revenue producers sometimes get multimillion-dollar awards, while clerical workers are paid smaller salaries.
JPMorgan’s U.S.-based employees received the cash portion of their 2012 bonuses on Jan. 22, according to two people. The highest-paid executives receive about 50% of their bonus in cash and the rest in deferred stock awards and stock options, one of the people said. Most senior officers, senior vice presidents in the retail bank and managing directors on the broker-dealer side receive at least 35% in equity.
Employees whose total compensation fell by 10% or more are generally among the weakest performers and at the highest risk of losing their jobs, said one person.
Fee revenue from mergers and acquisitions fell 17% for the year while equity underwriting fees tumbled 13%. The company stopped reporting profit for investment banking activities after the division was combined with corporate lending and cash management services in the fourth quarter.
Record-low corporate financing rates and a resurgence in investor confidence late in the year helped propel debt deals and trading to record highs. That saved JPMorgan bankers and traders from more drastic bonus cuts and boosted debt underwriting fees 13% for 2012 to $3.3 billion. Fixed- income trading rose 4.3% to $15.4 billion.
The firm rewards employees based on performance of the entire company, followed by their division, their unit and then their own personal results, said three executives. JPMorgan’s 2012 profit rose 12% to a record $21.3 billion.
The asset-management division, which includes private banking, mutual funds and Highbridge Capital Management, produced a 7% gain in net income to $1.7 billion. That helped boost bonuses and wages by about 6% for portfolio managers, private bankers and traders in asset management, said two people with knowledge of the matter.
JPMorgan’s corporate division, which includes the unit that produced the bank’s record trading setback last year, lost $2.1 billion, falling from a profit of $822 million in 2011. The chief investment office lost more than $6.2 billion on derivatives in the first nine months of 2012, and most of the traders and managers involved were fired or left. The lead trader responsible was nicknamed the London Whale because his positions were so large.
Other employees in the division were not necessarily penalized for the loss, said one person familiar with their pay.
Total compensation expense in the broader division, which includes corporate functions like human resources and public relations, was up 13% for the year to $2.6 billion while the workforce expanded by a little more than half that rate to 22,747 people, the company said when it reported earnings Jan. 16. Total compensation costs include wages, bonuses, retirement costs and other benefits.
JPMorgan’s board of directors sliced Dimon’s 2012 pay to $11.5 million, citing the 56-year-old CEO’s failure to properly supervise the chief investment office and for allowing lax risk management practices.
Companywide compensation expenses increased 5% to $7 billion last year, the New York bank said last month. Headcount slipped to 258,965 employees from 260,157.
Pay reductions at competitors include Morgan Stanley’s 7.6% cut in total compensation for investment bank employees last year. The New York-based firm is also deferring bonuses for employees who have both total pay of more than $350,000 and incentive compensation of at least $50,000, a person briefed on the matter said last month.