JPMorgan Chase announced Jan. 24 that Jamie Dimon, the company’s chairman and chief executive officer, will earn $20 million for 2013, amounting to 74 percent more than he earned the year before. This was done even though the investment bank paid out more than $ 20 billion in regulatory fines last year and laid off 4,000 employees. The story in the New York Times posted on the day of the announcement called 2013 a year of “bruising legal setbacks” for JPMorgan and concluded with a quote from Boston University professor of law Cornelius Hurley: “It doesn’t reconcile for JPMorgan to be paying out billions in fines while its CEO’s compensation is nearly doubled. You usually get fired for that, not rewarded.”
As of Feb. 2, a majority of the 181 comments from readers had agreed with Hurley; they expressed rage at JPMorgan’s conduct, specifically, and Wall Street’s in general. The fact that not one executive on the Street had been criminally charged did not escape their notice, either. Among the more noteworthy comments were these:
- “He got a raise? He should be doing time as one of the architects of the Great Recession.”
- “Shame on them. Shame on us for letting it happen.”
- “The fines are chump change. Too big to fail, too big to break up, too big to indict.”
- “Another victory for the big banking robber barons.”
But a week later, one of journalism’s heavyweight business reporters weighed in with a column titled “Accounting for a Big Raise in Pay for JPMorgan’s Chief.” Written by Pulitzer Prize winner and best-seller author (“Den of Thieves”) James Stewart, currently also a professor of business journalism at Columbia University’s Graduate School of Journalism, it offers explanatory justifications for Dimon’s payday, primarily from experts on executive compensation at business schools, coupled with a touch of “understanding” at the outrage from, well, the common folks in Anytown, U.S.A.
“I can totally understand the populist backlash,” said Christopher Armstrong, associate professor of accounting at the Wharton School. “This level of pay is difficult for the average person to wrap their heads around. But there’s a lot to be said for pay for performance.” (JPMorgan managed, despite the fines, to show a profit of $18 billion on close to $100 billion in revenues for 2013.)
Armstrong’s condescension toward the “average person” misses the key element of the outrage. “Average” Americans may not know that Dimon’s compensation equals approximately that of 450 “average” American families. They do understand, however, that it strikes many as “obscenely excessive, “given Dimon’s contribution to the general welfare of our citizens. And even if they may not get their heads around the level of his pay, they don’t want him and similar Wall Street hustlers to get their hands around it.
The comments on the New York Times story about the announcement of Dimon’s pay suggest either that “average” persons have infiltrated the ranks of the newspaper’s readership, or that some readers had not yet been exposed to professorial justifications in Stewart’s column, such as (Dimon’s) “package seems to be structured the right way,” by David Larcker, a Stanford University Business School expert in executive compensation.
At the conclusion of his column, Stewart concedes that the “right way” in rewarding Wall Street executives lavishly could be approached another way: “Ultimately, the dismay over Mr. Dimon is probably about something deeper than any one person’s pay.”
That “probably” is a deliciously placed red flag. Stewart proposes that the dismay may arise from a “deep disconnect between Wall Street and Main Street.” You betcha, but how did that disconnect come about – and who benefits from it? And who suffers?
Matt Taibbi’s Jan. 30 column in Rolling Stone (“Jamie Dimon’s Raise Proves U.S. Regulatory Strategy is a Joke”) gets much closer to why much of the press and its readers denounced Dimon’s raise as a “moral obscenity.” They see it quite correctly, he wrote, as “another example of the serial coddling of Wall Street’s habitually overcompensated executive class.”
His conclusion makes for a much sharper and broader indictment than the vague “disconnect” hinted at by Stewart: “(Attorney General) Eric Holder and (President) Barack Obama still haven’t caught on. They decided last year to make a big show of punishing JPMorgan Chase as a symbol of bank corruption, then forgot to punish the actual people who oversaw the bank’s misdeeds. This is like trying to rein in a class bully by halving his school’s budget. It doesn’t work. Crimes are committed by people, and justice has to target people, too. Or else the whole thing is a joke, as we found out last week.”
That’s precisely what “average” people understand, and it’s what fuels their rage, including their rage at their self-imposed helplessness. When the citizens in the Tacoma, Wash., area read about four car dealers who manipulated the odometers of 75 cars by rolling them back, they also learned that these men not only had to pay restitution of several hundred thousand dollars, but received prison sentences of up to two years. Odometer tampering, it seems, is a serious crime.
A unit of JPMorgan engaged in manipulative techniques to “obtain payments at above market rates” for electricity. The Washington Post described how the scheme worked: “JPMorgan allegedly bid minus-$30 per megawatt hour in the final hours of the day, then would jack up prices for the first hour or two of the next day to $999 per megawatt hour. The going rate at that time, between midnight and 2 a.m., averaged about $12 per megawatt hour.”
The result for of this scheme, in California primarily but also in the Midwest, was that regional electricity grid operators and their customers got stuck “paying tens of millions of dollars at rates far above market prices.”
A $400 million settlement, requested by the Federal Energy Regulatory Commission, was imminent, sources told the Washington Post. But unlike in the cases of those Washington State car dealers, criminal indictments and prison sentences were not.
What many average and above-average Americans have figured out from stories about crime on Main Street and crime on Wall Street is this: on Main Street, if you commit the crime, you go to jail. On Wall Street, if you commit a “regulatory lapse,” your firm pays the fine. Members of the money- and prestige-obsessed aristocracy, with degrees from the Harvard Law or Business School or the Wharton School, live under one system of justice; the rest of us live under another.
“Justice for all, but you get the justice you pay for” might replace the words now in the Pledge of Allegiance. Not all citizens are happy about that. Among the comments in the New York Times story about Dimon’s good fortune were these two:
- “Comes a revolution.”
- “Time to man the barricades?”
Even in the New York Times, some of the natives are restless.