Executive Compensation – JPMorgan Chase & Co. (2012)
WHEREAS:
Income inequality is a growing problem in the United States. According to the U.S. Census Bureau, in 2010, 46.2 million Americans lived in poverty—including more than 1 out of every 5 American children. (http://www.census.gov/hhes/www/poverty/data/ incpovhlth/2010/highlights.html) Many in America’s once robust middle class are now struggling to make ends meet.
While the bottom 99 percent of Americans face increasingly tough times, the share of income going to the top 1 percent, especially the top 0.1 percent, continues to grow. An October 2011 report from the Congressional Budget Office found that in 1979, the top 1 percent received about the same share of income as the bottom 20 percent; in 2007 the top 1 percent received more income than the bottom 40 percent combined. (http://www.cbo.gov/ doc.cfm?index=12485) According to the economist Joseph Stiglitz, the richest 1 percent of Americans now takes in nearly a quarter of our nation’s income. (http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105)
The compensation packages of Chief Executive Officers and other senior executives play a significant part in the growing income inequality in the United States. A 2010 working paper by professors at Williams College and Indiana University, entitled “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality”, found that executives, managers, supervisors, and financial professionals account for about 60 percent of the top 0.1 percent of income earners in recent years, and about 70 percent of the increase in the share of national income going to the top 0.1 percent. (http://ideas.repec.org/p/wil/wileco/2010-24.html)
Growing income inequality and the level of senior executive compensation at JPMorgan Chase & Co.—the Company’s Chief Executive Officer was given $20.8 million in total compensation for 2010, roughly 420 times the real median household income in 2010—combined with its perceived role in the 2008 financial crisis, has focused public ire on the Company. (http://www.census.gov/newsroom/releases/archives/income_wealth/ cb11-157.html) The Occupy movement, with its focus on the inequalities between the extreme wealth of the top 1 percent and the struggles of the other 99 percent of society, held demonstrations outside of our Company’s offices. Our Company has also been a primary focus of the Move Your Money project, a campaign that aims to encourage divestment from Wall Street banks. (http://moveyourmoneyproject.org/our-story)
A Watson Wyatt survey conducted before the 2008 financial crisis found that 85 percent of institutional investors believed that the prevalent executive compensation system in the United States was damaging to Corporate America’s image. A separate Watson Wyatt survey of 50 directors serving on corporate boards found that 61 percent believed that most executives were dramatically overpaid and 79 percent believed the executive pay model had damaged Corporate America’s image. (http://www.watsonwyatt.com/render.asp?catid=1&id=16180)
RESOLVED: Shareholders request that a committee of independent directors of the Board assess how the Company is responding to risks, including reputational risks, associated with the high levels of senior executive compensation at our firm and report to shareholders (at reasonable cost and omitting proprietary information) by December 31, 2012.v
J. P. Morgan Chase & Co. – Pay Disparity Report
WHEREAS
Recent events have increased concerns about the extraordinarily high levels of executive compensation at many U.S. corporations. Concerns about the structure of executive compensation packages have also intensified, with some suggesting that the compensation system incentivized excessive risk-taking.
In a Forbes article on Wall Street pay, the director of the Program on Corporate Governance at Harvard Law School noted that, “compensation policies will prove to be quite costly—excessively costly—to shareholders.” Another study by Glass Lewis & Co. declared that compensation packages for the most highly paid U.S. executives “have been so over-the-top that they have skewed the standards for what’s reasonable.” That study also found that CEO pay may be high even when performance is mediocre or dismal.
In 2008, Federal Appeals Court Judge Richard Posner stated that, “executive pay is out of control and the marketplace cannot be trusted to rein it in.” Legislative attempts to address executive compensation include the Excessive Pay Shareholder Approval Act, which mandates that no employee’s compensation may exceed 100 times the average compensation paid to all employees of a given company unless at least 60% of shareholders vote to approve such compensation.
A 2008 piece in BusinessWeek revealed that, “Chief executive officers at companies in the Standard & Poor’s 500-stock index earned more than $4,000 an hour each [in 2007].” It also noted that an S&P 500 CEO had to work, on average, approximately 3 hours in 2007 “to earn what a minimum wage worker earned for the full year.”
A September 2007 study of Fortune 500 firms showed that top executives’ pay averaged $10.8 million the previous year, or more than 364 times the pay of the average U.S. worker. Another study by the Economic Policy Institute found that between 1989 and 2007, average CEO pay rose by 163% while the wages of the average worker in the United States rose by only 10%.
RESOLVED
Shareholders request the Board’s Compensation Committee initiate a review of our company’s executive compensation policies and make available, upon request, a summary report of that review by October 1, 2010 (omitting confidential information and processed at a reasonable cost). We request that the report include:
1. A comparison of the total compensation package of senior executives and our employees’ median wage in the United States in July 2000, July 2004 & July 2009.
2. An analysis of changes in the relative size of the gap and an analysis and rationale justifying this trend.
3. An evaluation of whether our senior executive compensation packages (including, but not limited to, options, benefits, perks, loans and retirement agreements) are “excessive” and should be modified to be kept within reasonable boundaries.
4. An explanation of whether sizable layoffs or the level of pay of our lowest paid workers should result in an adjustment of senior executive pay to “more reasonable and justifiable levels” and whether JPMorgan Chase should monitor this comparison going forward.
2008 Advocacy Review
For our 2008 advocacy efforts, we’re pleased to report a fair amount of progress — never as much as we’d like (we’d like superhero powers), but enough to confirm that shareholder activism remains a potent tool for change.
Climate change. Our shareholder resolution at ConocoPhillips requesting a report on the environmental and social impacts of tar sands drilling won almost 28% of the vote, an impressive vote in this arena. Our resolution at Bank of America addressing its financing of coal-fired power plants and mountaintop coal removal was deemed inadmissible by the Securities and Exchange Commission (SEC), but we eventually sat down with bank officials to express our displeasure in a more intimate setting. Our takeaway: don’t expect BAC to stop funding these projects any time soon, even while it invests more and more in less carbon-intensive projects. Alliant Energy agreed to our request to report publicly on its efforts to incent customers to reduce their energy use, leading us to withdraw a resolution.
Human Rights. We co-filed a resolution led by our friends at Domini Social Investments at Nucor after media reports linked the company’s supply chain to forced labor. Nucor agreed to implement a formal policy and code of conduct expressing opposition to forced labor, and to dialogue with us on how to best report to shareholders on this issue, leading us to withdraw. We also spent time in conversation with Talbots, Target, Liz Claiborne, Nike, Gap and Jones Apparel on how their purchasing practices put pressure on their suppliers that can lead to a higher risk of labor violations.
Experts on the genocide in Darfur have declared that if anyone has any influence over the Sudanese government that is perpetrating the atrocities, it would be China. China sells arms to the government, and two Chinese oil companies operating in Sudan provide major revenues. Since we don’t own shares in any of the Chinese or other foreign firms in Sudan (and US firms are prohibited by sanctions), we’re talking to their investment bankers and investors on Wall Street. This last year we filed resolutions with Morgan Stanley, Merrill Lynch, and JP Morgan Chase. We withdrew at Morgan Stanley and Merrill after constructive dialogues on diminishing the risks they incur from these relationships. Our resolution at JP Morgan received 7.7%, enough for us to proceed with a re-filing should it prove necessary.
Political contributions transparency. How much corporate trade association money is being diverted to ads and groups that are shaping the election this year? No one knows for sure, but it could run to the hundreds of millions, according to the Center for Political Accountability. In 2008, our resolution at Procter & Gamble prompted the company to commit to greater transparency, while Ford Motor and General Motors remained resistant despite resolutions.
Employment nondiscrimination. We withdrew a resolution at Pentair after the company agreed to add sexual orientation to its nondiscrimination policy. Our resolution at Expeditors International on the same drew 52% in support – and a strange silence from company management and the Board of Directors. Perhaps they’re waiting for a super-majority, or just like flouting the will of their shareholders. We’ll re-file and let you know.
Environmental Justice. Chevron‘s shareholders defeated our resolution addressing the strength of the company’s global environmental standards in light of its issues in Ecuador, Nigeria and elsewhere. The good news, however, is a major break in the multibillion-dollar lawsuit Chevron faces in Ecuador for Texaco’s widespread rainforest pollution. After more than a decade, the company has finally agreed to explore a settlement.
After persistent nudging, Toyota Motor Corporation is starting to take seriously the contradiction between its supposed boycott of Burma, and the Burmese involvement of the independent company Toyota Tsusho that has a distributorship in that country. As this progresses, as the saying goes, you’ll read it hear first.
