• Operating earnings
• Credit and risk management
• Revenue growth
• Expense management
• Contribution across business lines
• Return on capital
| | • Investing for growth – business expansion and technology
• Improving client satisfaction
• Executing other major projects
• Improving operational efficiency
• Capital and liquidity management
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Qualitative criteria
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• Quality of earnings • Establishing, refining and executing long-term strategic plans
• Achieving and maintaining market leadership positions in key businesses
• Attracting, developing and retaining highly effective and diverse leaders
• Executing acquisition integration tasks
| | • Building an inclusive culture
• Thinking beyond your own business
• Maintaining compliance and controls
• Protecting the Firm’s integrity and reputation
• Supporting the Firm’s values
• Supporting and strengthening the communities we serve worldwide
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The Compensation Committee considers these factors in total. While we believe our approach is disciplined, it is not formulaic. We rely on our business judgment to determine the most appropriate compensation to recognize the contributions and potential of our leaders. In view of the wide variety and complexity of factors considered in connection with its evaluation of the Firm, business and individual executive performance, the Compensation Committee does not find it useful, and does not attempt, to rank or otherwise assign relative weight to these factors. Executive performance must be sustained at the highest levels over multiple time periods, and superior performance must be achieved across multiple factors to be considered outstanding. In considering the factors described above, individual members of the Compensation Committee and the Board of Directors may have given different weight to different factors.
Overview of 2008 performance –The Firm’s business results are discussed in detail in the Annual Report, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section of the Annual Report. The Firm also reviews its business and priorities in an annual Investor Day, most recently held February 26, 2009. The Annual Report and presentation materials for the 2009 Investor Day may be found on our Web site at www.jpmorganchase.com under Investor Relations.
An overview of the performance for the Firm as a whole and for each line of business is at pages 16 and 17. A comparison of 2008 performance against results for previous years on certain key operating metrics is at page 43, Appendix B.
15
Overview of 2008 performance
JPMorgan Chase differentiated itself from other large financial services firms.
The Firm reported 2008 net income of $5.6 billion, compared with $15.4 billion in 2007. These results were disappointing in absolute terms, but in relative terms should be considered within the context of a number of benchmarks and achievements, including:
- | | We outperformed nearly every other large financial company in 2008.
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- | | We were profitable in every quarter of 2008.
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- | | We continued to invest in all of our major businesses.
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- | | We maintained a strong balance sheet – with a year-end Tier 1 capital ratio of 10.9%.
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- | | We increased our allowance for credit losses by $13.7 billion to $23.8 billion.
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- | | We successfully completed two highly complex, significant acquisitions: Bear Stearns and the banking operations of Washington Mutual.
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- | | We grew the franchise in 2008, with new checking accounts in Retail Financial Services, credit card accounts in Card Services, growth in loan and liability balances in Commercial Banking and liability balances in Treasury & Securities Services, solid net inflows in Asset Management and growth in Investment Bank market share in all major fee categories.
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- | | We took a leadership role in implementing plans to modify billions of dollars of mortgages and continued to focus on safe and sound lending activities, extending more than $150 billion in new creditA meaningful ownership stake in the fourth quarter aloneFirm should be used to consumers, corporations, small businesses, municipalities and non-profits.reinforce alignment with shareholders
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Investment Bank
Total net income was a loss of $1.2 billion, driven by lower total net revenue, a higher provision for credit losses and higher noninterest expense. Total net revenue was down 33% from the prior year, reflecting, among other things, reduced market activity (investment banking); markdowns on mortgage-related exposures and on leveraged lending funded and unfunded commitments, partially offset by record performance in rates and currencies, credit trading, commodities and emerging markets (fixed income markets); and weak trading results, partially offset by strong client revenue across products, including prime services (equity markets). Notwithstanding the decline in financial results, the Investment Bank achieved the following:
- | | Managed the acquisition and integration of Bear Stearns.
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- | | Achieved substantial de-risking of key exposures in highly illiquid markets.
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- | | Managed multiple, simultaneous credit events, including a large broker-dealer default, as well as record market volumes.
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- | | First investment bank in history to be ranked #1 in global investment banking fees; debt, equity and equity-related; announced M&A; equity and equity-related; debt; as well as loans.
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- | | Remained “open for business” to support clients during periods of extreme market conditions.
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Retail Financial Services
Total net income decreased 70% from the prior year, primarily reflecting a significant increase in the provision for credit losses, partially offset by positive mortgage servicing asset risk management results and the positive impact of the Washington Mutual transaction. 2008 highlights and accomplishments include:
- | | Managed the Washington Mutual transaction, which expanded the Firm’s branch network to more than 5,000 (particularly in key new Chase markets such as California and Florida), bringing our national branch coverage to 23 states (3rd largest nationally) and 14,500 ATMs (2nd largest nationally).
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- | | Opened 126 new Chase and Washington Mutual branches.
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- | | Increased checking accounts by 9% – or 1.1 million – and added 12.6 million checking accounts from Washington Mutual for a total of 24.5 million.
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- | | Increased deposits to more than $360 billion.
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- | | Increased in-branch sales of credit cards by 14% (excluding Washington Mutual) or 20% (including Washington Mutual).
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- | | Launched extensive efforts to keep families in their homes whenever possible in leading The Way Forward, seeking to help avert more than 650,000 foreclosures by the end of 2010.
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16
Card Services
Net income declined 73% from 2007, driven by a significantly higher provision for credit losses, partially offset by higher total net revenue. 2008 highlights and accomplishments include:
- | | Became the nation’s leading MasterCard and Visa issuer with the Washington Mutual transaction.
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- | | Added 14.9 million new Visa, MasterCard, and private-label credit card accounts.
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- | | Increased year-over-year charge volume by more than $14 billion in an extremely challenging economic environment.
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- | | Continued execution of our multi-year strategy to enhance customer engagement model, through investment in our brands, rewards programs and partners, and customer experience.
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- | | Continued to drive improvements in acquisitions through the retail bank network, resulting in a 14% year-over-year increase of credit cards sold.
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- | | Continued improvements in risk management, customer satisfaction, systems and infrastructure.
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Commercial Banking
Net income in 2008 was a record and increased 27% from 2007, due to record total net revenue and the impact of the Washington Mutual transaction, partially offset by a higher provision for credit losses. 2008 highlights and accomplishments include:
- | | Achieved record results in gross investment banking revenue of $966 million, Treasury Services revenue of $2.6 billion, average loan balances of $82.3 billion and average liability balances of $103.1 billion.
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- | | Added in excess of 1,800 new relationships and expanded nearly 10,000 existing relationships through targeted calling and strategic marketing efforts.
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- | | Aligned the domestic Middle Market Banking and Treasury Services sales forces, providing more effective client coverage while improving efficiency.
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- | | Acquired Washington Mutual businesses, representing $44.5 billion in loans, and expect to complete integration of these businesses by early 2010.
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Treasury & Securities Services
Net income was a record and increased 26% from 2007 driven by higher total net revenue, partially offset by higher noninterest expense. 2008 highlights and accomplishments include:
- | | Remained #1 clearer of U.S. dollars globally, averaging $3.7 trillion in U.S. dollar transfers daily.
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- | | Increased number of investment funds for which fund accounting and administration services are performed by 33%.
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- | | Remained a leader in global custody with $13.2 trillion in assets under custody.
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- | | Launched a global investment initiative to enhance cash management and global treasury liquidity capabilities, expand global footprint and reinvest in technology solutions to make it easier for clients to move, concentrate, invest, and manage their cash worldwide.
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- | | Increased average liability balances by 22% to $280 billion, reflecting increased client deposit activity resulting from market conditions.
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- | | Grew revenue by 15% outside the U.S. and further strengthened our international presence with expanded services offered in over 20 countries around the world.
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Asset Management
Net income declined 31% from 2007, driven by lower total net revenue offset partially by lower noninterest expense. 2008 highlights and accomplishments include:
- | | Asset Management liquidity balances grew more than 50% in 2008, retaining the Firm’s position as the largest manager of AAA-rated global liquidity funds. Global Institutional market share grew to 17%, almost twice that of the next competitor.
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- | | Private Banking benefited from a record year of net new clients and net new assets, and achieved 7% revenue growth year-on-year.
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- | | J.P. Morgan Asset Management retained its position as one of the largest managers of hedge funds, with $32.9 billion in assets under management.
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- | | Increased average loan balances by 29% to over $38 billion and average deposit balances by 19% to over $70 billion.
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17
Shareholder-alignment –We believe that an ownership stake in the Firm best aligns our employees’ interests with those of our shareholders.
Our compensation programs are designed to annually deliver a meaningful portion of total compensation in equity to employees who can have the greatest impact on the bottom line and to increase for our most senior employees the equity portion of their compensation to strengthen their alignment with shareholders. JPMorgan Chase pays a larger portion of our executive compensation in equity-based long-term incentives when compared to many companies in our comparison group. Employees whose incentive compensation is $20,000 receive 10% in the form of RSUs. The percentage awarded as RSUs increases as compensation increases. That enhanced alignment to shareholder interests is deliberate and focuses executive activities and decisions on those areas that increase shareholder value. We further believe that competitive, annual equity awards subject to multi-year vesting and termination/forfeiture provisions effectively emphasize the long-term view of our business and bolster the retention of our top talent.
Our policies require share ownership for directors and executive officers and encourage continued ownership for others. Directors pledge to retain all shares of JPMorgan Chase while they serve as a director. Senior executives are expected to establish and maintain a significant level of direct ownership. Mr. Dimon and other members of the Operating Committee are required to retain at least 75% of the shares they receive from equity-based awards, including options, after deduction for option exercise costs and taxes; members of the Executive Committee who are not members of the Operating Committee are required to retain at least 50% of such shares. The retention requirement does not apply to shares received as part of incentive compensation in excess of the percentage that would be received under the firmwide stock-cash table generally applicable to employees at such incentive compensation level. Executives are subject to these retention requirements during their service on such committees; any exceptions are subject to approval by the General Counsel. In 2009, the Firm reduced the applicable retention requirement for members of Executive Committee who are not members of the Operating Committee from 75% to 50% of the shares they receive during their service on such committee to balance an increase in the percentage of equity awarded as part of incentive compensation.
Relevant market placeNo hedging –We use comparison groups,Directors and members of the Operating Committee and the Executive Committee are not permitted to sell short or benchmarking, to understand market practices and trends, to evaluatehedge the competitivenesseconomic risk of their ownership of our programs and to assess the efficiency of these programs. Each of our lines of business operates under our overall compensation framework, but uses compensation programs appropriate to its competitive environment. Given the diversity of our businesses, our global operations and the complexity of the products and services we provide, our comparison group is also diverse, global and complex.shares.
As a result, the Compensation Committee generally reviews actual compensation levels, generally from public data, for companies that either directly compete with us for business and/or talent or are global organizations with similar scope, size or other characteristics to JPMorgan Chase. Because we view ourShareholdings of directors and executive officers as highly talented executives capable of rotating amongare shown in the leadership positions of our businesses and key functions, we also place importance on the internal pay relationships among members of our Operating Committee.
The Compensation Committee did not engage the services of a compensation consultant in 2008.
Below the level of our most senior officers, our businesses generally benchmark against direct business competitors, while functional areas benchmark against a blend of financial services and large, globally integrated businesses. We view benchmarking as important for an understanding of the market, but we use market factors to inform, not override, our focus on pay for performance.
The core comparison companies we generally consider are:table at page 11.
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Company• Risk management and compensation recovery should be robust to deter excessive risk taking and improper risk management
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JPMorgan Chase seeks effective controls for designing, implementing, and monitoring incentive compensation.
Incentive compensation is generally discretionary, based on individual, LOB and Firm performance.
Our approach to financial measurement, risk and compensation management enables us to align employees’ incentive compensation with their contributions to sustained, risk-adjusted financial performance.
| - | | CEO,
CFOIncentive accruals are determined in the context of the Firm’s capital and
Functional
Staff liquidity considerations. |
| - | | Investment
BankIncentives are based on risk-adjusted P&L and are calibrated to the underlying risk of the business activity. |
Beginning in 2008, the Compensation Committee reviewed with the Chief Risk Officer the risks that the Firm faces and elements of our organizational structure, management practices and compensation programs that would discourage unnecessary or excessive risk-taking, and will continue to do so going forward. In 2009, this review included the self-assessment of all incentive arrangements for the Firm. Beginning in 2009 the Compensation Committee determined to meet at least annually with one or more members of the Risk Policy Committee and in December 2009 met with the full committee.
There is appropriate separation between risk and control functions and the businesses they oversee, which is necessary to avoid potential conflicts of interest.
Internal Audit conducts regular, independent audits of the Firm’s compliance with its established policies and controls regarding incentive compensation management and reports findings to appropriate levels of management. Additionally, all adversely-rated audits are reported to the Audit Committee of the Board of Directors.
JPMorgan Chase believes its incentive compensation arrangements are fair and balanced.
The Compensation Committee exercises its business judgment in determining the compensation of members of the Operating Committee, and members of the Operating Committee and other senior managers similarly exercise business judgment in determining the compensation of employees who report to them.
Incentive compensation decisions are based on employees’ contributions to sustained financial performance adjusted for risk-taking and capital usage.
We do not rely on formulaic approaches tied to narrow measures. Performance evaluations consider multiple criteria –individual performance, business unit performance, Firm performance, controls, partnership and culture.
Performance measures included in incentive plans are assessed for the potential to encourage or discourage employees to take excessive risks and assist in mitigating those risks.
Incentive compensation arrangements distinguish employees whose activities may expose the organization to material risks.
We use mechanisms, such as risk-adjusted metrics, deferrals, clawbacks and three- and five-year vesting on long term incentives to seek to ensure that compensation considers the relationship of near-term rewards to longer-term risks.
| - | | Asset
ManagementThe use of risk-adjusted financial results in compensation arrangements ensures that longer-term risks are first quantified and then applied in current-year incentives. Therefore, a person’s incentive compensation in the current year would be affected by the capital charges, valuation adjustments, reserving, and other factors resulting from the consideration of long-term risks. |
| - | | Retail
Financial
ServicesThe majority of compensation plans at JPMorgan Chase address potential timing conflicts by including payment deferral features. Awards that are deferred into equity have multi-year vesting. By staggering the vesting of equity awards over time, the interests of employees to build long-term, sustainable performance (i.e., quality earnings) are better aligned with the long-term interests of both customers and shareholders. |
| - | | Card
ServicesIncentives are split between cash and deferred equity, with the percentage being deferred and awarded in equity increasing as an employee’s incentive compensation increases. |
| - | | Commercial
Banking | | Treasury &
Securities
Services |
American ExpressClawback/recovery provisions are in place for incentive awards (cash incentive compensation and equity awards).
| | ü | | | | | | | | ü | | | | |
Bank of America
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Citi
| | ü | | ü | | ü | | ü | | ü | | ü | | ü |
Goldman Sachs
| | ü | | ü | | ü | | | | | | | | |
Morgan Stanley
| | ü | | ü | | ü | | | | | | | | |
Wells Fargo
| | ü | | | | | | ü | | ü | | ü | | |
Additional comparison companies may be used
The Firm rarely offers guarantees or enters into employment contracts, and no Operating Committee member has a contract.
There are no golden parachutes for particular linesexecutives and we do not use supplemental executive retirement plans.
Compensation of businessrisk and in considering compensationcontrol professionals is not predominantly based on the performance of the CEO, CFO and functional staff.business they oversee.
Long-term orientation –We strive for a long-term orientation both in the way we assess performance and in the way we structure compensation.The aim of our compensation programs and policies is to motivate all employees to attain strong and sustained performance, both on an absolute and relative basis. We achieve this through processes and tools that are clear, transparent and effective at driving behaviors that expand the depth and breadth of our positive impact on clients. Our goal is to significantly differentiate executive compensation through the annual compensation process and through periodic equity awards to appropriately recognize outstanding performance.
Certain features of our compensation programs are targeted to help us achieve individual objectives, and other elements help us achieve multiple objectives simultaneously. Our vesting periods for stock awards generally provide that one-half vests after two years and the balance vests after three years. As a result of these awards, employees share the same interest in the Firm’s long-term success as other shareholders, and we believe that such ownership is a positive factor in retaining key employees. We also use these features to focus executives across all lines of business on longer-term strategy and the overall results of the Firm, particularly at more senior levels where executives can have a greater influence on our long-term success.
Compensation governanceJPMorgan Chase has policies that would permit recovery of incentive compensation awards in appropriate circumstances.
In addition
Stock-based awards vest over multiple years, and such awards granted in 2010 are subject to the above,Firm’s right to cancel an unvested or unexercised award, and to require repayment of the value of certain shares distributed under awards already vested if:
| - | | the employee is terminated for cause or the Firm determines after termination that the employee could have been terminated for cause, |
| - | | the employee engages in conduct that causes material financial or reputational harm to the Firm or its business activities, |
| - | | the Firm determines that the award was based on materially inaccurate performance metrics, whether or not the employee was responsible for the inaccuracy, |
| - | | the award was based on a material misrepresentation by the employee, |
| - | | and for members of the Operating Committee – the Firm’s 16 most senior executives – and certain other employees, there is a failure to properly identify, raise, or assess, in a timely manner and as reasonably expected, risks and/or concerns with respect to risks material to the Firm or its business activities. |
Under our recoupment policy adopted in 2006, the Firm may seek repayment of incentive compensation (cash and Compensation Committee also rely on other governance practices summarized belowequity) in seeking appropriate decisionsthe event of a material restatement of the Firm’s financial results for the relevant period.
Additional conditions apply to RSUs and shareholder aligned outcomes.
18
Authorities and responsibilities –In additionSARs granted to approving compensation for Operating Committee members the Compensation Committee approves the formula, pool calculationin 2009 and performance goals for the shareholder approved Key Executive Performance Plan (KEPP) as required by Section 162(m)(1) of the Internal Revenue Code, reviews line of business total incentive accruals versus performance throughout the year, approves final aggregate incentive funding, and approves total equity grants under the Firm’s long-term incentive plan and the terms and conditions for each type of award. The Compensation Committee has delegated authority to the Director Human Resources to administer and amend the compensation and benefits programs. The limitations on deductibility for executive compensation specified in Section 162(m)(1) of the Internal Revenue Code are superseded by limitations under the Capital Purchase Program during applicable periods. See the discussion of TARP and the Capital Purchase Program at page 10.2010.
Compensation review processes –Compensation of Operating Committee
For members depends not only on how they as individuals perform, but also on how the Firm as a whole performs. We assess their specific performance based on short-, medium- and longer-term objectives tailored to specific lines of business and functional areas.
Our disciplined compensation processes involve a series of reviews and assessments by successive levels of management within lines of business, the Operating Committee, the CEO, the Compensation Committee and the Board of Directors. The CEO presents his assessment of individual performance and a recommended set of compensation actions for the other Operating Committee members to the Compensation Committee for their consideration. The CEO does not make a recommendation regarding his own compensation, but did share with the Compensation Committee his sense of the negative impact that an award of a bonus to him might have on the Firm and its employees in light of the Firm’s 2008 performance and the current environment in which the Firm operates. The Compensation Committee discusses the CEO’s compensation entirely in its independent executive session and seeks full Board ratification of its determinations. No member of the Operating Committee, other than the CEO has a role in making a recommendation to the Compensation Committee as to the compensation of any member of the Operating Committee.
Bonus recoupment policies –In 2006, we formalized a bonus recoupment policy to recover previous incentives paid to employees in the event those incentives were the result of conduct that leads to a material restatement of financial information. This policy can be found on our Web site at www.jpmorganchase.com under Governance. Commencing withequity awards granted in January 2009 our equityand January 2010 contain new conditions. Although it is intended and expected that the RSU and SAR awards to all employees now providewould vest and/or become exercisable as scheduled, the terms and conditions of the awards allow for reduction, forfeiture or deferral in scheduled vesting or exercisability in the event of a determination of the performance of the executive and the Firm (which may include more than one performance year) by the CEO, as part of the Firm’s annual performance assessment process, that an executive has not achieved satisfactory progress toward the priorities that have been established for the executive or that the Firm may cancel or require repaymenthas not achieved satisfactory progress toward the Firm’s priorities for which the executive shares responsibility as a member of all or any portionthe Operating Committee. Such determination is subject to ratification by the Compensation Committee. In the case of an award ifto the CEO, such determination would be made by the Compensation Committee subject to ratification by the Board of Directors.
RSU grants vest 50% after two years and 50% after three years and SARs become exercisable 20% per year over five years, and the above condition applies throughout the vesting period of the grants.
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• Attracting, retaining and developing talent is critical to sustaining success |
Our compensation programs are intended to attract and retain employees with the skills and talent we determineneed to create sustained value for the Firm and its shareholders.We believe our approach is simple, consistent, effective and understandable. As such, we rely on commonly recognized elements of compensation and we use various design mechanisms to seek to ensure our incentive compensation arrangements are sensitive to risk-taking. In determining our compensation elements and their design, we also review the competitive landscape.
Structure and design –The major elements we use in the core structure and design of our programs are summarized in Appendix E. Our salary programs, compensation levels, cash/stock mix, deferral rates, terms and conditions for equity awards, and the design of business-specific incentives are among the elements we frequently review.
Talent management, development and succession planning –As part of our resolve to focus on long-term sustained value, we look to ensure that it waswe are developing leaders for the future. We have introduced a disciplined process of talent reviews focused on thorough assessments, enhanced executive development programs and rotations of top executives to prepare them for greater responsibility. We are committed to having a strong pipeline to deal with succession for our Operating Committee, including the CEO position.
At least annually the non-management directors make an evaluation of the Chairman and Chief Executive Officer, normally in connection with a review of executive officer annual compensation. Succession planning is also considered at least annually by the non-management directors with the Chief Executive Officer. Generally the Compensation & Management Development Committee considers management development in preparation for discussion by the full Board.
Relevant market place –We use comparison groups, or benchmarking, to understand market practices and trends, to evaluate the competitiveness of our programs and to assess the efficiency of these programs. Each of our lines of business operates under our overall compensation framework, but uses compensation programs appropriate to its competitive environment. Given the diversity of our businesses, our global operations and the complexity of the products and services we provide, our comparison group is also diverse, global and complex.
As a result, the Compensation Committee generally reviews actual compensation levels, typically from public data, for companies that either directly compete with us for business and/or talent or are global organizations with similar scope, size or other characteristics to JPMorgan Chase. Because we view our executive officers as highly talented executives capable of rotating among the leadership positions of our businesses and key functions, we also place importance on the internal pay relationships among members of our Operating Committee.
The Compensation Committee and Board of Directors did not engage the services of a compensation consultant in 2009. The Firm utilized external sources to provide certain compensation data.
Below the level of our most senior officers, our businesses generally benchmark against direct business competitors, while functional areas benchmark against a blend of financial services and large, globally integrated businesses. We view benchmarking as important for an understanding of the market, but we use market factors to inform, not override, our focus on pay for performance and internal equity.
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• Strict limits or prohibition on executive perquisites and special benefits |
There are no golden parachutes or special severance plans.
No golden parachutes for any executives.
No employment contracts other than occasional exceptions upon hire. No change in control agreements.
No special severance programs for Operating Committee or Executive Committee members; the Firm’s policy limits severance effective April 2009 to a maximum of 52 weeks salary based on materially inaccurate performance metrics oryears of service.
Equity award terms provide that awards continue to vest on any misrepresentation by the employee. Whileoriginal schedule, without acceleration and subject to additional restrictions, for employees who have resigned and meet the Firm is a participant in the Capital Purchase Program, it also will require seniorFirm’s full career eligibility requirements.
There are no special executive officers and the next 20 most highly compensated employees to reimburse the Firmbenefits.
No pension credits for bonuses.
No 401(k) Savings Plan matching contributions for any bonus, retention award,senior executive.
No special medical, dental, insurance or incentivedisability benefits for executives. The higher an executive’s compensation, paid that was based on statementsthe higher the premiums they pay.
No private club dues, car allowances, financial planning, tax gross-ups for benefits, etc.
Voluntary deferred compensation program is limited to a maximum contribution of earnings, revenues, gains or other criteria that are later found to be materially inaccurate.$1 million annually, $10 million lifetime cap for cash deferrals made after 2005.
Administrative provisions
Deductibility of executive compensation –To maintain flexibility in compensating executive officers, the Compensation Committee does not require all compensation to be awarded in a tax-deductible manner, but it is their intent to do so to the fullest extent possible and consistent with overall corporate goals. To that end, shareholders re-approved KEPP in May 2008, which covers all executive officers, including the Named Executive Officers, and their annual cash incentive awards and RSUs are delivered under the plan. As a participant in the Capital Purchase Program, the Firm is subject to additional limitations on deductible compensation for federal tax purposes under Section 162(m)(5) of the Internal Revenue Code, including a reduction of the annual limit from $1,000,000 to $500,000 for the deduction of such expenses for certain senior executive officers and the elimination of the performance based exception.
Equity grant practices –Equity grants are awarded as part of the annual compensation process, as periodic long-term awards and as part of employment offers for new hires. In each case, the grant price is not less than the average of the high and the low prices of JPMorgan Chase common stock on the grant date. Grants made as part of the annual compensation process are generally awarded in January after earnings are released and generally in the form of RSUs. RSUs carry no voting rights; however, dividend equivalents are paid on units at the time actual dividends are paid on shares of JPMorgan Chase common stock. Stock options granted by Bank One in 2002 and earlier included a feature that provided for the issuance of restorative options that will remain in effect until expiration of the original option. The Firm no longer grantsdoes not grant options with restoration rights. The Firmrights and prohibits repricing of stock options and SARs.
Continued equity ownership –Compensation & Management Development Committee reportOur policies require share ownership for directors
The Compensation & Management Development Committee has reviewed the Compensation Discussion and executive officersAnalysis and encourage continued ownership for others. Senior executives are expected to establishdiscussed that analysis with management.
Based on such review and maintain a significant level of direct ownership. Mr. Dimon and other members ofdiscussion with management, the Operating Committee and the Executive Committee are required to retain at least 75% of the shares they receive from equity-based awards, including options, after deduction for option exercise costs and taxes. In January 2008 and in January 2009, certain executives received more than 50% of their incentive compensation in the form of RSUs. The retention requirement will not applyrecommended to the excess over 50% when such RSUs vest. Executives are subject to these retention requirements during their service withBoard of Directors that the Firm; any exceptions are subject to approvalCompensation Discussion and Analysis be included in this proxy statement and our Annual Report on Form 10-K for the year ending December 31, 2009. This report is provided as of March 16, 2010, by the General Counsel. Members offollowing independent directors, who comprise the Operating Committee and the Executive Committee are not permitted to sell short or to hedge the economic risk of their ownership of our shares.Compensation & Management Development Committee:
Shareholdings of directors and executive officers are shown in the table at page 8.Lee R. Raymond (Chairman)
Stephen B. Burke
19David C. Novak
William C. Weldon
Executive compensation tables
The following tables and related narratives present the compensation for our Named Executive Officers in the format specified by the SEC.For Mr. Dimon and for each of the other Named Executive Officers, all amounts listed under Stock awards and Option awards for 2008 The below table does not reflect expense recognized in accordance with SFAS 123R forequity awards made in January 20082010 for 2009 performance. The table of Annual and earlier (for performance years prior to 2008). Such amounts do not reflect awards made in January 2009.periodic compensation at page 14 shows how the Compensation Committee viewed compensation actions.
I. Summary compensation table (SCT)
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Name and principal position | | Year | | Salary ($) | | Bonus ($)(1) | | Stock awards ($)(2) | | Option awards ($)(2)(3) | | | Change in pension value and nonqualified deferred compensation earnings ($) (4) | | All other compensation ($) | | | Total ($) |
James Dimon | | 2008 | | $ | 1,000,000 | | $ | 0 | | $ | 16,841,799 | | $ | 1,413,200 | (5) | | $ | 48,456 | | $ | 348,101 | (6) | | $ | 19,651,556 |
Chairman and CEO | | 2007 | | | 1,000,000 | | | 14,500,000 | | | 17,200,598 | | | 1,243,055 | | | | 31,202 | | | 356,330 | | | | 34,331,185 |
| | 2006 | | | 1,000,000 | | | 13,000,000 | | | 7,165,705 | | | 17,366,099 | | | | 46,445 | | | 487,858 | | | | 39,066,107 |
Michael J. Cavanagh | | 2008 | | | 500,000 | | | 2,000,000 | | | 3,104,197 | | | 3,319,486 | | | | 22,204 | | | — | | | | 8,945,887 |
Chief Financial Officer | | 2007 | | | 500,000 | | | 3,750,000 | | | 2,183,370 | | | 1,846,952 | | | | 6,017 | | | — | | | | 8,286,339 |
| | 2006 | | | 500,000 | | | 3,000,000 | | | 1,409,616 | | | 2,231,957 | | | | 23,380 | | | — | | | | 7,164,953 |
Frank J. Bisignano (8) | | 2008 | | | 500,000 | | | 2,000,000 | | | 4,128,159 | | | 3,551,655 | | | | 13,132 | | | — | | | | 10,192,946 |
Chief Administrative Officer | | | | | | | | | | | | | | | | | | | | | | | | | |
Charles W. Scharf (8) | | 2008 | | | 500,000 | | | 2,000,000 | | | 4,587,526 | | | 5,921,190 | | | | 23,128 | | | — | | | | 13,031,844 |
CEO Retail Financial Services | | | | | | | | | | | | | | | | | | | | | | | | | |
Gordon A. Smith(8) | | 2008 | | | 500,000 | | | 2,000,000 | | | 4,947,746 | | | 4,085,663 | | | | 6,207 | | | 692,867 | (7) | | | 12,232,483 |
CEO Card Services | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Name and principal position | | Year | | Salary ($) | | Bonus ($)(1) | | Stock awards ($)(2) | | Option awards ($)(2) | | | Change in pension value and nonqualified deferred compensation earnings ($) (3) | | All other compensation ($) | | | Total ($) |
James Dimon | | 2009 | | $ | 1,000,000 | | $ | 0 | | $ | 0 | | $ | 0 | | | $ | 56,386 | | $ | 265,708 | (5) | | $ | 1,322,094 |
Chairman and CEO | | 2008 | | | 1,000,000 | | | 0 | | | 14,500,000 | | | 19,868,000 | (4) | | | 48,456 | | | 348,101 | | | | 35,764,557 |
| | 2007 | | | 1,000,000 | | | 14,500,000 | | | 13,000,000 | | | 0 | | | | 31,202 | | | 356,330 | | | | 28,887,532 |
Michael J. Cavanagh | | 2009 | | | 500,000 | | | 2,032,000 | | | 2,000,000 | | | 1,553,200 | | | | 42,280 | | | — | | | | 6,127,480 |
Chief Financial Officer | | 2008 | | | 500,000 | | | 2,000,000 | | | 3,750,000 | | | 3,432,600 | (6) | | | 22,204 | | | — | | | | 9,704,804 |
| | 2007 | | | 500,000 | | | 3,750,000 | | | 3,000,000 | | | 0 | | | | 6,017 | | | — | | | | 7,256,017 |
Steven D. Black | | 2009 | | | 500,000 | | | 2,000,000 | | | 0 | | | 5,436,200 | | | | 25,635 | | | — | | | | 7,961,835 |
Vice Chairman | | 2008 | | | 491,667 | | | 0 | | | 14,700,000 | | | 3,973,600 | | | | 23,723 | | | — | | | | 19,188,990 |
| | 2007 | | | 400,000 | | | 4,900,000 | | | 10,300,000 | | | 0 | | | | 14,435 | | | — | | | | 15,614,435 |
Mary Callahan Erdoes (7) | | 2009 | | | 300,000 | | | 3,035,000 | | | 3,200,000 | | | 3,883,000 | | | | 35,621 | | | — | | | | 10,453,621 |
CEO Asset Management | | | | | | | | | | | | | | | | | | | | | | | | | |
James E. Staley | | 2009 | | | 500,000 | | | 2,000,000 | | | 2,250,000 | | | 3,883,000 | | | | 327,492 | | | — | | | | 8,960,492 |
CEO Investment Bank | | 2008 | | | 491,667 | | | 2,250,000 | | | 8,800,000 | | | 3,973,600 | | | | 197,489 | | | — | | | | 15,712,756 |
| | 2007 | | | 400,000 | | | 8,800,000 | | | 5,300,000 | | | 0 | | | | 99,852 | | | — | | | | 14,599,852 |
William T. Winters (8) | | 2009 | | | 442,302 | | | 13,759,200 | | | 0 | | | 5,436,200 | | | | 402,372 | | | — | | | | 20,040,074 |
Former Co-CEO | | 2008 | | | 524,767 | | | 0 | | | 14,700,000 | | | 3,973,600 | | | | 315,697 | | | — | | | | 19,514,064 |
Investment Bank | | 2007 | | | 564,379 | | | 4,900,000 | | | 10,300,000 | | | 0 | | | | 190,778 | | | — | | | | 15,955,157 |
1 | Includes amounts awarded, whether paid or deferred. Amounts were awarded in the year following the year shown. |
2 | Includes amounts awarded during the year shown. Amounts are the fair value on the grant date (or, if no grant date was established, on the award date). The Firm’s accounting for employee stock-based incentives (including assumptions used to value employee stock options and SARs) granted during the years ended December 2009, 2008 and 2007, is described in Note 109 to the Firm’s consolidated financial statements in the 20082009 Annual Report including how the Firm recognizes compensation expense pursuant to SFAS 123R for equity awards granted to employees eligible for continued vesting under specific age and service or service-related provisions (full career eligible employees). Generally, such expenses will be recognized over an award’s stated service period for employees who are not so eligible, or from the grant date until the eligibility date for employees who will become so eligible before the end of the stated service period. For full career eligible employees, the Firm accrues during the performance year the estimated cost of stock awards expected to be granted at the next January grant date. For Mr. Dimon, the stock award expense reported for 2007 has been recalculated to reflect that he became full career eligible in March 2008, resulting in a shorter expense amortization period for awards outstanding at such time. Recognition of compensation expense for full career eligible employees does not change the scheduled vesting dates of their awardsand full career eligible employees, including Mr. Dimon, would forfeit their unvested equity awards if they left the Firm to work for a competitor.page 186. |
3 | Includes the following amounts recognized for restorative options issued under options originally granted under Bank One programs in 2002 and earlier: in 2008, Mr. Cavanagh, $452,398 and Mr. Scharf, $3,291,219; in 2006, Mr. Dimon, $13,665,582 and Mr. Cavanagh, $713,045. The issuance of such options did not require Board approval and was not discretionary. The Firm no longer grants options with a restorative feature.
|
4
| Amounts are the aggregate change in the actuarial present value of the accumulated benefits under all defined benefit and actuarial pension plans (including supplemental plans) for the respective years shown. Named Executive Officers did not receive any above-market preferentialAmounts shown also include earnings during 2009, 2008 and 2007 in excess of 120% of the applicable federal rate on deferred compensation forbalances where the years shown.rate of return is not calculated in the same or in a similar manner as earnings on hypothetical investments available under the Firm’s qualified plans: Mr. Winters, $317,747, $266,465 and $180,540, respectively. |
54
| In January 2008, the Firm awarded Mr. Dimon up to two million SARs. The terms of this award are distinct from, and more restrictive than, other equity grants periodically awarded by the Firm. The SARs, which have a ten-year term, will become exercisable no earlier than January 22, 2013, and have an exercise price of $39.83, the price of JPMorgan Chase common stock on the date of the award. The number of SARs that will become exercisable (ranging from none to the full two million) and their exercise date or dates may be determined by the Board of Directors based on an assessment of the performance of both the CEO and JPMorgan Chase. That assessment will be made by the Board in the year prior to the fifth anniversary of the date of the award, relying on such factors that in its sole discretion the Board deems appropriate. Due to the substantial uncertainty surrounding the number of SARs that will ultimately become exercisable and their exercise dates, a grant date has not been established for accounting purposes. However, since the service inception date precedes the grant date, the Firm will recognize expenserecognizes expenses associated with this award ratably over an assumed five-year service period, subject to a requirement to recognize changes in the fair value of the award through the grant date. Amount represents the award date fair value assuming the award vested ratably over five years. The Firm recognized $9.4 million and $1.4 million in compensation expense in 2009 and 2008 respectively, for this award. |
20
65
| The following table describes each component of the All other compensation column for Mr. Dimon: |
All other compensation
| Name | | Personal use of aircraft | | Personal use of cars | | Moving expenses | | Tax associated with moving expenses | | Other | | Total | | Personal use of aircraft | | Personal use of cars | �� | Other | | Total |
James Dimon | | $ | 53,956 | | $ | 89,020 | | $ | 125,227 | | $ | 71,049 | | $ | 8,849 | | $ | 348,101 | | $ | 90,584 | | $ | 78,824 | | $ | 96,300 | | $ | 265,708 |
Incremental costs are determined as follows:
– Aircraft: operating cost per flight hour for the aircraft type used, developed by an independent reference source, including fuel, fuel additives and lubricants; landing and parking fees; crew expenses; small supplies and catering; maintenance labor and parts; engine restoration costs; and a maintenance service plan.
– Cars: annual lease valuation of the assigned car; annual insurance premiums; fuel expense; estimated annual maintenance; and annual driver compensation, including salary, overtime, benefits and bonus. The resulting total is allocated between personal and business use based on mileage.
– In connection with the merger with Bank One Corporation, Mr. Dimon relocated from Chicago to New York. The Dimon family kept Chicago as their home while their children completed high school, moving to New York in 2007. The amounts listed as moving expenses relate to that move, and the amount listed under tax associated with moving expenses relates to the payment of those moving expenses. Both the payment of moving expenses and the tax reimbursement are in accordance with the Firm’s general policy on relocation expenses.
– Other includes $1,098$1,017 for the cost of life insurance premiums paid by the Firm (for basic life insurance coverage equal to one times salary); $7,257 and $95,283 for the cost of residential security paid by the Firm; and $494 for the cost of non-business meals based on the estimated cost of comparable meals in local restaurants.Firm.
6 | Includes $452,398 recognized for restorative options issued under options originally granted under Bank One programs in 2002 and earlier. The issuance of such options did not require Board approval and was not discretionary. The Firm no longer grants options with a restorative feature. |
7 | The amount reported for Mr. Smith includes $687,546 as payment to settle tax obligations related to reimbursement the Firm made to himMs. Erdoes was not an Executive Officer in 2007 for the value of equity awards he was required to repay to his previous employer when he accepted employment with the Firm.2008 or 2007.
|
8 | Messrs. Bisignano, ScharfMr. Winters was located in London and Smith were not Named Executive Officershis annual salary was designated as £282,400 paid monthly. The blended applicable spot rate used to convert Mr. Winters’ salary to U.S. dollars on the twelve monthly payroll dates in 2009, 2008 and 2007 was 1.56623, 1.85824 and 2006.1.999 U.S. dollars per pound sterling respectively.
|
II. 20082009 Grants of plan-based awards(1)
The following table shows grants of plan-based awards made in January 2008 and stock options issued to Messrs. Cavanagh and Scharf in 2008 as a result of restorative options granted to them.2009.
| | | | | | | | | | | | | | | | | |
Name | | Grant date | | | Approval date | | Stock awards | | Option awards | | Grant date fair value ($) | |
| | | Number of shares of stock or units (#)(2) | | Number of securities underlying options (#) | | | Exercise price ($/Sh) | |
James Dimon | | 1/22/2008 | | | 1/15/2008 | | 364,048 | | | | | | | | $ | 14,500,000 | |
| | 1/22/2008 | (3) | | 1/15/2008 | | | | 2,000,000 | (3) | | $ | 39.830 | | | 19,868,000 | (3) |
Michael J. Cavanagh(4) | | 1/22/2008 | | | 1/15/2008 | | 94,151 | | | | | | | | | 3,750,000 | |
| | 1/22/2008 | | | 1/15/2008 | | | | 300,000 | | | | 39.830 | | | 2,980,200 | |
| | 1/30/2008 | | | N/A | | | | 54,271 | | | | 47.835 | | | 360,577 | |
| | 1/30/2008 | | | N/A | | | | 10,625 | | | | 47.835 | | | 91,821 | |
Frank J. Bisignano | | 1/22/2008 | | | 1/15/2008 | | 94,151 | | | | | | | | | 3,750,000 | |
| | 1/22/2008 | | | 1/15/2008 | | | | 300,000 | | | | 39.830 | | | 2,980,200 | |
Charles W. Scharf(4) | | 1/22/2008 | | | 1/15/2008 | | 144,364 | | | | | | | | | 5,750,000 | |
| | 1/22/2008 | | | 1/15/2008 | | | | 400,000 | | | | 39.830 | | | 3,973,600 | |
| | 2/1/2008 | | | N/A | | | | 485,359 | | | | 47.795 | | | 3,291,219 | |
Gordon A. Smith | | 1/22/2008 | | | 1/15/2008 | | 69,044 | | | | | | | | | 2,750,000 | |
| | | | | | | | | | | | | | |
Name | | Grant date | | Approval date | | Stock awards | | Option awards | | Grant date fair value ($) |
| | | Number of shares of stock or units (#)(2) | | Number of securities underlying options (#) (3) | | Exercise price ($/Sh) | |
James Dimon(4) | | N/A | | N/A | | | | | | | | | | |
Michael J. Cavanagh | | 1/20/2009 | | 1/19/2009 | | 102,644 | | | | | | | $ | 2,000 000 |
| | 1/20/2009 | | 1/19/2009 | | | | 200,000 | | $ | 19.49 | | | 1,553,200 |
Steven D. Black | | 1/20/2009 | | 1/19/2009 | | | | 700,000 | | | 19.49 | | | 5,436,200 |
Mary Callahan Erdoes | | 1/20/2009 | | 1/19/2009 | | 164,229 | | | | | | | | 3,200,000 |
| | 1/20/2009 | | 1/19/2009 | | | | 500,000 | | | 19.49 | | | 3,883,000 |
James E. Staley | | 1/20/2009 | | 1/19/2009 | | 115,474 | | | | | | | | 2,250,000 |
| | 1/20/2009 | | 1/19/2009 | | | | 500,000 | | | 19.49 | | | 3,883,000 |
William T. Winters | | 1/20/2009 | | 1/19/2009 | | | | 700,000 | | | 19.49 | | | 5,436,200 |
1 | Effective January 20, 2009,February 3, 2010, the Compensation Committee granted RSU awards as part of the 20082009 annual incentive compensation and stock-settled SARs as part of a special grant of periodic equity awards. Because these awards were granted in 2009,2010, they do not appear in this table, which is required to include only awards actually granted during 2008. These2009. The awards granted in February 2010 are reflected in the “Annual and periodic compensation” table onat page 12.14. |
2 | The RSUs vest in two equal installments on January 20, 201025, 2011 and 2011.2012. Each RSU represents the right to receive one share of common stock on the vesting date and non-preferential dividend equivalents, payable in cash, equal to any dividends paid during the vesting period. RSUs have no voting rights. |
3 | In January 2008,These SARs will become exercisable 20% per year over the Firm awarded Mr. Dimon up to two million SARs. The termsfive-year period from the date of this award are distinct from, and more restrictive than, other equity grants regularly awarded by the Firm. See note 5 to Summary compensation table at page 20. If a grant date had been established for accounting purposes, and assuming the award vested ratably over 5 years, it would have had a grant date fair value as shown above.
|
4
| The stock options issued to Mr. Cavanagh on January 30, 2008, and to Mr. Scharf on February 1, 2008, were as a result of their exercise of restorative options granted to them under a heritage Bank One program. See note 3 to Summary compensation table at page 20.grant.
|
21
4 | Mr. Dimon received no RSU awards and no SARs in 2009. |
III. Outstanding equity awards at fiscal year-end 20082009
The following table shows the number of shares of the Firm’s common stock underlying (i) exercisable and unexercisable stock options and SARs and (ii) RSUs that have not yet vested held by the Firm’s Named Executive Officers on December 31, 2008.2009.
| Name | | Option awards | | Stock awards | | | Option awards | | Stock awards | |
| Number of securities underlying unexercised options: # exercisable(1) | | Number of securities underlying unexercised options: # unexercisable (1) | | Option exercise price ($) | | Option expiration date | | Option grant date(2) | | Number of shares or units of stock that have not vested (#) | | Market value of shares or units of stock that have not vested ($)(1) | | Stock award grant date(2) | | | Number of securities underlying unexercised options: # exercisable(1) | | Number of securities underlying unexercised options: # unexercisable (1) | | Option exercise price ($) | | Option expiration date | | Option grant date (2) | | Number of shares or units of stock that have not vested (#) | | Market value of shares or units of stock that have not vested ($)(1) | | Stock award grant date (2) | |
James Dimon | | | 641,156 | | | — | | $ | 28.8636 | | 3/27/2010 | | 4/23/2001 | (a) | | — | | | | | | | 641,156 | | | — | | $ | 28.8636 | | 3/27/2010 | | 4/23/2001 | (b) | | — | | | | |
| | | 462,000 | | | — | | | 31.2197 | | 4/16/2012 | | 4/16/2002 | (b) | | — | | | | | |
| | | 1,223,330 | | | — | | | 30.0606 | | 3/27/2010 | | 7/21/2003 | (a) | | — | | | | | | | 462,000 | | | — | | | 31.2197 | | 4/16/2012 | | 4/16/2002 | (c) | | — | | | | |
| | | 660,000 | | | — | | | 29.9621 | | 8/15/2009 | | 8/15/2003 | (c) | | — | | | | | | | 1,223,330 | | | — | | | 30.0606 | | 3/27/2010 | | 7/21/2003 | (b) | | — | | | | |
| | | 600,481 | | | — | | | 37.4700 | | 1/20/2015 | | 1/20/2005 | (d) | | — | | | | | | | 600,481 | | | — | | | 37.4700 | | 1/20/2015 | | 1/20/2005 | (d) | | — | | | | |
| | | 862,835 | | | — | | | 42.6200 | | 3/27/2010 | | 4/20/2006 | (a) | | 160,982 | | | | 1/19/2006 | (d) | | | 862,835 | | | — | | | 42.6200 | | 3/27/2010 | | 4/20/2006 | (b) | | — | | | | |
| | | 231,725 | | | — | | | 42.6200 | | 2/9/2011 | | 4/20/2006 | (a) | | 269,431 | | | | 1/18/2007 | (d) | | | 231,725 | | | — | | | 42.6200 | | 2/9/2011 | | 4/20/2006 | (b) | | 134,716 | | | | 1/18/2007 | (d) |
| | | — | | | 2,000,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (e) | | 364,048 | | | | 1/22/2008 | (d) | | | — | | | 2,000,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (j) | | 364,048 | | | | 1/22/2008 | (d) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total awards (#) | | | 4,681,527 | | | 2,000,000 | | | | | | | | 794,461 | | $ | 25,049,355 | | | | | 4,021,527 | | | 2,000,000 | | | | | | | | 498,764 | | $ | 20,783,496 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Market value of in-the-money options ($) | | $ | 4,685,312 | | $ | 0 | | | | | | | | | | | | | | $ | 29,763,086 | | $ | 3,680,000 | | | | | | | | | | | | |
| Michael J. Cavanagh | | | 99,000 | | | — | | $ | 29.9621 | | 8/15/2009 | | 8/15/2003 | (c) | | — | | | | | | | 133,333 | | | 66,667 | | $ | 37.4700 | | 1/20/2015 | | 1/20/2005 | (e) | | — | | | | |
| | | 66,666 | | | 133,334 | | | 37.4700 | | 1/20/2015 | | 1/20/2005 | (f) | | — | | | | | | | 166,666 | | | 83,334 | | | 34.7800 | | 10/20/2015 | | 10/20/2005 | (e) | | — | | | | |
| | | 83,333 | | | 166,667 | | | 34.7800 | | 10/20/2015 | | 10/20/2005 | (f) | | — | | | | | | | 10,006 | | | — | | | 45.3800 | | 5/1/2010 | | 5/1/2006 | (b) | | — | | | | |
| | | 10,006 | | | — | | | 45.3800 | | 5/1/2010 | | 5/1/2006 | (a) | | — | | | | | | | 43,542 | | | — | | | 45.3800 | | 4/16/2012 | | 5/1/2006 | (b) | | — | | | | |
| | | 43,542 | | | — | | | 45.3800 | | 4/16/2012 | | 5/1/2006 | (a) | | — | | | | | | | 66,666 | | | 133,334 | | | 46.7900 | | 10/19/2016 | | 10/19/2006 | (e) | | — | | | | |
| | | — | | | 200,000 | | | 46.7900 | | 10/19/2016 | | 10/19/2006 | (f) | | — | | | | | | | 60,000 | | | 240,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (c) | | — | | | | |
| | | — | | | 300,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (b) | | 22,359 | | | | 1/19/2006 | (d) | | | 54,271 | | | — | | | 47.8350 | | 5/1/2010 | | 1/30/2008 | (b) | | 31,089 | | | | 1/18/2007 | (d) |
| | | 54,271 | | | — | | | 47.8350 | | 5/1/2010 | | 1/30/2008 | (a) | | 62,177 | | | | 1/18/2007 | (d) | | | 10,625 | | | — | | | 47.8350 | | 4/16/2012 | | 1/30/2008 | (b) | | 94,151 | | | | 1/22/2008 | (d) |
| | | 10,625 | | | — | | | 47.8350 | | 4/16/2012 | | 1/30/2008 | (a) | | 94,151 | | | | 1/22/2008 | (d) | | | — | | | 200,000 | | | 19.4900 | | 1/20/2019 | | 1/20/2009 | (c) | | 102,644 | | | | 1/20/2009 | (d) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total awards (#) | | | 367,443 | | | 800,001 | | | | | | | | 178,687 | | $ | 5,634,001 | | | | | 545,109 | | | 723,335 | | | | | | | | 227,884 | | $ | 9,495,926 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Market value of in-the-money options ($) | | $ | 155,222 | | $ | 0 | | | | | | | | | | | | | |
| Frank J. Bisignano | | | 200,000 | | | 400,000 | | $ | 38.9750 | | 12/9/2015 | | 12/9/2005 | (f) | | 26,831 | | | | 1/19/2006 | (d) | |
| | | — | | | 150,000 | | | 46.7900 | | 10/19/2016 | | 10/19/2006 | (f) | | 67,358 | | | | 1/18/2007 | (d) | |
| | | — | | | 300,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (b) | | 94,151 | | | | 1/22/2008 | (d) | |
| | | | | | | | | | | | | | | | | |
Total awards (#) | | | 200,000 | | | 850,000 | | | | | | | | 188,340 | | $ | 5,938,360 | | | |
| | | | | | | | | | | | | | | | | | | | | |
Market value of in-the-money options ($) | | $ | 0 | | $ | 0 | | | | | | | | | | | | | | $ | 1,818,728 | | $ | 5,731,772 | | | | | | | | | | | | |
| Charles W. Scharf | | | 100,000 | | | — | | $ | 24.9545 | | 6/12/2010 | | 6/12/2000 | (g) | | — | | | | | |
Steven D. Black | | | | 120,958 | | | — | | $ | 49.6042 | | 4/27/2010 | | 4/27/2000 | (f) | | — | | | | |
| | | | 29,286 | | | — | | | 51.2200 | | 1/18/2011 | | 1/18/2001 | (f) | | — | | | | |
| | | | 292,855 | | | — | | | 51.2200 | | 1/18/2011 | | 1/18/2001 | (i) | | — | | | | |
| | | 51,000 | | | — | | | 31.2197 | | 4/16/2012 | | 4/16/2002 | (b) | | — | | | | | | | 142,877 | | | — | | | 36.8500 | | 1/17/2012 | | 1/17/2002 | (h) | | — | | | | |
| | | 396,000 | | | — | | | 29.9621 | | 8/15/2009 | | 8/15/2003 | (c) | | — | | | | | | | 162,823 | | | — | | | 36.8500 | | 1/17/2012 | | 1/17/2002 | (f) | | — | | | | |
| | | 116,666 | | | 233,334 | | | 34.7800 | | 10/20/2015 | | 10/20/2005 | (f) | | — | | | | | | | 304,527 | | | — | | | 21.8700 | | 2/12/2013 | | 2/12/2003 | (d) | | — | | | | |
| | | 140,730 | | | — | | | 42.2200 | | 2/9/2011 | | 4/26/2006 | (a) | | — | | | | | | | 228,979 | | | — | | | 39.9600 | | 2/11/2014 | | 2/11/2004 | (d) | | — | | | | |
| | | 125,476 | | | — | | | 42.2200 | | 4/16/2012 | | 4/26/2006 | (a) | | 40,246 | | | | 1/19/2006 | (d) | | | 233,333 | | | 116,667 | | | 34.7800 | | 10/20/2015 | | 10/20/2005 | (e) | | — | | | | |
| | | — | | | 400,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (b) | | 82,902 | | | | 1/18/2007 | (d) | | | 80,000 | | | 320,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (c) | | 106,736 | | | | 1/18/2007 | (d) |
| | | 485,359 | | | — | | | 47.7950 | | 6/12/2010 | | 2/1/2008 | (a) | | 144,364 | | | | 1/22/2008 | (d) | | | — | | | 700,000 | | | 19.4900 | | 1/20/2019 | | 1/20/2009 | (c) | | 369,069 | | | | 1/22/2008 | (d) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total awards (#) | | | 1,415,231 | | | 633,334 | | | | | | | | 267,512 | | $ | 8,434,653 | | | | | 1,595,638 | | | 1,136,667 | | | | | | | | 475,805 | | $ | 19,826,794 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Market value of in-the-money options ($) | | $ | 1,294,264 | | $ | 0 | | | | | | | | | | | | | | $ | 9,649,527 | | $ | 16,918,636 | | | | | | | | | | | | |
Mary Callahan Erdoes | | | | 18,347 | | | — | | $ | 51.2200 | | 1/18/2011 | | 1/18/2001 | (a) | | — | | | | |
| | | | | | | | 32,214 | | | — | | | 51.2200 | | 1/18/2011 | | 1/18/2001 | (i) | | — | | | | |
Gordon A. Smith | | | 200,000 | | | 800,000 | | $ | 50.5900 | | 6/18/2017 | | 6/18/2007 | (b) | | 149,232 | | | | 6/18/2007 | (h) | |
| | | | 25,645 | | | — | | | 36.8500 | | 1/17/2012 | | 1/17/2002 | (f) | | — | | | | |
| | | | 66,666 | | | 33,334 | | | 34.7800 | | 10/20/2015 | | 10/20/2005 | (e) | | — | | | | |
| | | | 66,666 | | | 133,334 | | | 46.7900 | | 10/19/2016 | | 10/19/2006 | (e) | | 21,762 | | | | 1/18/2007 | (d) |
| | | | 80,000 | | | 120,000 | | | 45.7900 | | 10/18/2017 | | 10/18/2007 | (c) | | 91,389 | | | | 1/22/2008 | (d) |
| | | — | | | — | | | | | | | | 69,044 | | | | 1/22/2008 | (d) | | | — | | | 500,000 | | | 19.4900 | | 1/20/2019 | | 1/20/2009 | (c) | | 164,229 | | | | 1/20/2009 | (d) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total awards (#) | | | 200,000 | | | 800,000 | | | | | | | | 218,276 | | $ | 6,882,242 | | | | | 289,538 | | | 786,668 | | | | | | | | 277,380 | | $ | 11,558,425 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Market value of in-the-money options ($) | | $ | 0 | | $ | 0 | | | | | | | | | | | | | | $ | 582,938 | | $ | 11,319,671 | | | | | | | | | | | | |
| James E. Staley | | | | 106,743 | | | — | | $ | 51.2200 | | 1/18/2011 | | 1/18/2001 | (a) | | — | | | | |
| | | | 175,713 | | | — | | | 51.2200 | | 1/18/2011 | | 1/18/2001 | (i) | | — | | | | |
| | | | 76,324 | | | — | | | 36.8500 | | 1/17/2012 | | 1/17/2002 | (f) | | — | | | | |
| | | | 152,264 | | | — | | | 21.8700 | | 2/12/2013 | | 2/12/2003 | (d) | | — | | | | |
| | | | 131,382 | | | — | | | 39.9600 | | 2/11/2014 | | 2/11/2004 | (d) | | — | | | | |
| | | | 166,666 | | | 83,334 | | | 34.7800 | | 10/20/0215 | | 10/20/2005 | (e) | | 54,923 | | | | 1/18/2007 | (d) |
| | | | 80,000 | | | 320,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (c) | | 220,939 | | | | 1/22/2008 | (d) |
| | | | — | | | 500,000 | | | 19.4900 | | 1/20/2019 | | 1/20/2009 | (c) | | 115,474 | | | | 1/20/2009 | (d) |
| | | | | | | | | | | | | | | | | |
Total awards (#) | | | | 889,092 | | | 903,334 | | | | | | | | 391,336 | | $ | 16,306,971 | | |
| | | | | | | | | | | | | | | | | |
| Market value of in-the-money options ($) | | | $ | 4,902,901 | | $ | 12,252,971 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Name | | Option awards | | | Stock awards | |
| Number of securities underlying unexercised options: # exercisable(1) | | Number of securities underlying unexercised options: # unexercisable (1) | | Option exercise price ($) | | Option expiration date | | Option grant date (2) | | | Number of shares or units of stock that have not vested (#) | | Market value of shares or units of stock that have not vested ($)(1) | | Stock award grant date (2) | |
William T. Winters | | | 320,228 | | | — | | $ | 51.2200 | | 1/18/2011 | | 1/18/2001 | (a) | | — | | | | | | |
| | | 109,615 | | | — | | | 51.2200 | | 1/18/2011 | | 1/18/2001 | (d) | | — | | | | | | |
| | | 292,855 | | | — | | | 51.2200 | | 1/18/2011 | | 1/18/2001 | (g) | | — | | | | | | |
| | | 666,741 | | | — | | | 44.9950 | | 7/2/2011 | | 7/2/2001 | (a) | | — | | | | | | |
| | | 187,289 | | | — | | | 36.8500 | | 1/17/2012 | | 1/17/2002 | (h) | | — | | | | | | |
| | | 367,868 | | | — | | | 39.9600 | | 2/11/2014 | | 2/11/2004 | (d) | | — | | | | | | |
| | | 233,333 | | | 116,667 | | | 34.7800 | | 10/20/2015 | | 10/20/2005 | (e) | | — | | | | | | |
| | | 80,000 | | | 320,000 | | | 39.8300 | | 1/22/2018 | | 1/22/2008 | (c) | | 106,736 | | | | | 1/18/2007 | (d) |
| | | — | | | 700,000 | | | 19.4900 | | 1/20/2019 | | 1/20/2009 | (c) | | 369,069 | | | | | 1/22/2008 | (d) |
| | | | | | | | | | | | | | | | | | | | | | |
Total awards (#) | | | 2,257,929 | | | 1,136,667 | | | | | | | | | | 475,805 | | $ | 19,826,794 | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Market value of in-the-money options ($) | | $ | 3,286,651 | | $ | 16,918,636 | | | | | | | | | | | | | | | | |
1 | Value based on $31.53,$41.67, the closing price per share of our common stock on December 31, 2008.2009. |
2 | The awards set forth in the table have the following vesting schedule: |
| (a) | 3 equal installments in years 1, 2 and 3 |
| (b) | Restorative options (but not the original grant to which they relate) vest 100% after 6six months |
| (b)(c) | 5 equal installments in years 1, 2, 3, 4 and 5 |
| (c)(d) | 32 equal installments in years 1, 2 and 3 |
| (d)(e) | 2 equal installments in years 2 and 3 |
| (e) | See note 5 to Summary compensation table at page 20. |
| (f) | 3 equal installments in years 3, 4 and 5 |
| (g)(f) | 2 equal installments in years 1 and 2 |
| (h) | 4 equal installments in years 1, 2, 3 and 4 |
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| (i) | 100% after 6 years; were subject to accelerated vesting based on performance criteria |
| (j) | See note 3 to Summary compensation table at page 22. |
IV. 20082009 Option exercises and stock vested table
The following table shows the number of shares acquired and the value realized during 20082009 upon the exercise of stock options and the vesting of RSUs previously granted to each of the Named Executive Officers.
With respect to option awards, the The option exercises by Messrs. Cavanagh and Scharffor each of the Named Executive Officers, except for Mr. Winters, were of options with restoration features and resultedscheduled to expire in the issuance of the options shown in Table II, 2008 Grants of plan-based awards. With respect to stock awards, vestings relate to grants made in prior years that vested as a result of continued service.2009.
| | | Option awards | | Stock awards | | Option awards | | Stock awards |
Name | | Number of shares acquired on exercise (#) | | Value realized on exercise ($)(1) | | Number of shares acquired on vesting (#) | | Value realized on vesting ($)(2) | | Number of shares acquired on exercise (#) | | Value realized on exercise ($) (1) | | Number of shares acquired on vesting (#) | | Value realized on vesting ($)(2) |
James Dimon | | — | | | — | | 160,981 | | $ | 7,167,679 | | 660,000 | | $ | 4,440,414 | | 295,697 | | $ | 6,858,692 |
Michael J. Cavanagh | | 101,354 | | $ | 1,840,185 | | 38,706 | | | 1,723,385 | | 99,000 | | | 753,182 | | 53,447 | | | 1,239,703 |
Frank J. Bisignano | | — | | | — | | 110,330 | | | 4,210,626 | |
Charles W. Scharf | | 929,600 | | | 21,232,529 | | 75,274 | | | 3,351,575 | |
Gordon A. Smith | | — | | | — | | 49,744 | | | 1,962,898 | |
Steven D. Black | | | — | | | — | | 172,023 | | | 3,990,073 |
Mary Callahan Erdoes | | | 8,377 | | | 999 | | 40,544 | | | 940,418 |
James E. Staley | | | 222,000 | | | 702,463 | | 91,143 | | | 2,114,062 |
William T. Winters | | | 347,737 | | | 6,919,201 | | 172,023 | | | 3,990,073 |
1 | Values were determined by multiplying the number of shares of our common stock to which the exercise of the options related by the difference between the per-share fair market value of our common stock on the date of exercise and the exercise price of the options. |
2 | Values were determined by multiplying the number of shares or units, as applicable, that vested by the per-share fair market value of our common stock on the vesting date. |
V. 20082009 Pension benefits
The table below quantifies the retirement benefits expected to be paid to our Named Executive Officers under the Firm’s current retirement plans and plans closed to new participants. The terms of the plans are described below the table. No payments were made under these plans during 2008.2009.
| Name | | Plan name | | Number of years of credited service (#) | | Present value of accumulated benefit ($) | | Plan name | | Number of years of credited service (#) | | Present value of accu- mulated benefit ($) |
James Dimon | | Retirement Plan | | 8 | | $ | 59,275 | | Retirement Plan | | 9 | | $ | 76,410 |
| | Excess Retirement Plan | | 8 | | | 218,906 | | Excess Retirement Plan | | 9 | | | 258,157 |
Michael J. Cavanagh | | Retirement Plan | | 8 | | | 50,981 | | Retirement Plan | | 9 | | | 69,965 |
| | Excess Retirement Plan | | 8 | | | 98,529 | | Excess Retirement Plan | | 9 | | | 121,825 |
Frank J. Bisignano | | Retirement Plan | | 3 | | | 11,527 | |
Steven D. Black | | | Retirement Plan | | 9 | | | 85,668 |
| | Excess Retirement Plan | | 3 | | | 13,997 | | Excess Retirement Plan | | 9 | | | 58,004 |
Charles W. Scharf | | Retirement Plan | | 8 | | | 52,006 | |
Mary Callahan Erdoes | | | Retirement Plan | | 13 | | | 131,842 |
| | Excess Retirement Plan | | 8 | | | 111,590 | | Excess Retirement Plan | | 13 | | | 14,551 |
Gordon A. Smith | | Retirement Plan | | 1 | | | 2,835 | |
James E. Staley | | | Retirement Plan | | 30 | | | 414,950 |
| | Excess Retirement Plan | | 1 | | | 3,372 | | Excess Retirement Plan | | 30 | | | 110,567 |
| | | Executive Retirement Plan | | 7 | | | 860,241 |
William T. Winters | | | Retirement Plan | | 26 | | | 290,869 |
| | | Excess Retirement Plan | | 26 | | | 126,074 |
Retirement Plan –This is a qualified noncontributory U.S. defined benefit pension plan that provides benefits to substantially all U.S. employees. The plan employs a cash balance formula, in the form of pay and interest credits, to determine the benefits to be provided at retirement, based upon eligible salary and years of service. The valuation method and all material assumptions used to calculate the amounts above are consistent with those reflected in Note 98 to the Firm’s financial statements in the 20082009 Annual Report. Employees begin to accrue plan benefits after completing one year of service, and benefits generally vest after three years of service. Pay credits are equal to a percentage of base salary up to the legal limit ($230,000 in 2008), based on years of service (currently(ranging from 3% to 9%, with certain formulas preserved from heritage company plans).plans of up to 14%) of base salary up to the legal limit ($245,000 in 2009), based on years of service. Effective February 1, 2010, the plan was amended to provide pay credits equal to a percentage (ranging from 3% to 5%) of base salary up to $100,000, based on years of service. Interest credits generally equal the yield on one-year treasuryU.S. Treasury bills plus one percent (subject to a minimum of 4.5%). Account balances include the value of benefits earned under prior heritage company plans, if any. Benefits are payable as an actuarially equivalent lifetime annuity with survivorship rights (if married) or optionally under a variety of other payment forms, including a single-sum distribution. As of December 31, 2008,2009, the Named Executive Officers were earning the following pay credit percentages: Mr. Dimon, 4%; Mr. Cavanagh, 4%; Mr. Bisignano,Black, 4%; Ms. Erdoes, 5%; Mr. Staley, 10%; and Mr. Winters, 9%. Effective February 1, 2010, the pay credit percentages are: Mr. Dimon, 3%; Mr. Scharf,Cavanagh, 3%; Mr. Black, 3%; Ms. Erdoes, 4%; Mr. Staley, 5%; and Mr. Smith, 3%Winters, 5%.
Excess Retirement Plan –The purpose of this non-qualified plan is to offer benefits to participants in the Retirement Plan. Benefits are determined and payable under the same terms and conditions as the Retirement Plan, but reflecting base salary in excess of IRS limits up to $1 million and benefit amounts in excess of IRS limits. Benefits are generally payable in a lump sum in the year following termination. Pay credits under this plan were discontinued as of May 1, 2009.
Executive Retirement Plan –This plan is closed to new participants. Benefits are equal to a fixed dollar amount credited for each year of participation based on salary grade. Benefits are payable as a lifetime annuity with survivorship rights (if married). Participation was contingent upon the employee entering into an agreement to obtain life insurance, with the Firm as beneficiary following retirement. Benefits are paid unreduced at age 60 to participants who terminate on or after age 55 with at least five years of service or on or after age 50 with at least 20 years of service.
23
Present value of accumulated benefits –Present values in the 20082009 Pension benefits table are based on certain assumptions, some of which are disclosed in Note 98 to the 20082009 Annual Report. Key assumptions include a 6.65%6.00% discount rate, RP 2000 combined white-collar mortality projected to 2016,2017, 5.25% cash balance interest crediting rate, and lump sums calculated using a 5.95%5.30% interest rate and UP94 mortality projected to 2002, with 50%/50% male/female weighting. We assumed benefits would commence at normal retirement date or unreduced retirement date, if earlier. Benefits paid from the Retirement Plan prior to age 62 were assumed to be paid as single-sum distributions; benefits paid on or after age 62 were assumed to be paid either as single-sum distributions (with probability of 66.7%) or life annuities (with probability of 33.3%). Benefits from the Excess Retirement Plan are paid as single-sum distributions. Benefits from the Executive Retirement Plan were assumed to be paid as life annuities. No death or other separation from service was assumed prior to retirement date.
VI. 20082009 Non-qualified deferred compensation
The Deferred Compensation Plan allows eligible participants to defer their annual cash incentive compensation awards on a before-tax basis up to a maximum of $1 million. A lifetime $10 million cap applies to deferrals of cash made after December 31, 2005. No deferral elections have been permitted relative to equity awards since March 15, 2006; elections prior to that date continuecontinued through 2009.
| Name | | Executive contributions in last fiscal year ($) | | Firm contributions in last fiscal year ($) | | Aggregate earnings (loss) in last fiscal year ($)(1) | | Aggregate withdrawals/ distributions ($) | | Aggregate balance at last fiscal year end ($) | | Executive contributions in last fiscal year ($) | | Firm contributions in last fiscal year ($) | | Aggregate earnings (loss) in last fiscal year ($)(1) | | Aggregate withdrawals/ distributions ($) | | Aggregate balance at last fiscal year end ($) |
James Dimon | | $ | — | | $ | — | | $ | 4,296 | | | $ | — | | $ | 135,236 | | $ | — | | $ | — | | $ | 2,189 | | | $ | — | | $ | 137,425 |
Michael J. Cavanagh | | | — | | | — | | | (24,246 | ) | | | — | | | 31,912 | | | — | | | — | | | 11,349 | | | | — | | | 43,261 |
Frank J. Bisignano | | | — | | | — | | | — | | | | — | | | — | |
Charles W. Scharf | | | — | | | — | | | 2,816 | | | | — | | | 88,655 | |
Gordon A. Smith | | | — | | | — | | | — | | | | — | | | — | |
Steven D. Black | | | | — | | | — | | | 2,071,456 | | | | — | | | 8,087,353 |
Mary Callahan Erdoes | | | | — | | | — | | | — | | | | — | | | — |
James E. Staley | | | | — | | | — | | | 14,000 | | | | — | | | 385,809 |
William T. Winters | | | | — | | | — | | | 6,997,075 | (2) | | | — | | | 41,255,021 |
1 | The Supplemental SavingsDeferred Compensation Plan allows participants to direct their deferrals among several investment choices, including JPMorgan Chase common stock; an interest income fund and Investment Plan (SSIP) is athe JPMorgan Chase general account of Prudential Insurance Company of America; and Hartford funds indexed to fixed income, bond, balanced, S&P 500, Russell 2000 and international portfolios. In addition, there are balances in deemed investment choices from heritage plan applicable to former Bank One employees which is closedcompany plans that are no longer open to new participants and does not permit new deferrals. It functions similarly to thedeferrals including: Deferred Compensation Plan. Investment returns in 2008 for SSIP investment choices were: Short-Term FixedSupplemental Income 3.28%Benefit/Deferred Income Benefit Award (DSIB/DIBA); Mid Cap Growth, (43.55)%; Small Cap Blend, (38.12)%Inflation Protection Annuity (IPA); and International Small Cap, (47.84)%a private equity alternative. |
Investment returns in 2009 for the following investment choices were: Short-Term Fixed Income, 3.65%; Interest Income, 4.01%; Barclays Aggregate Bond Index, 5.15%; Balanced Portfolio, 15.93%; S&P 500 Index, 26.50%; Russell 2000 Index, 27.20%; International, 42.57%; and JPMorgan Chase stock, including dividend equivalents, 34.36%.
Investment returns for the following investment choices, which are closed to new participants and do not permit new deferrals, are dependent upon the years in which a participant directed deferrals into such investment choices. Of the Named Executive Officers only Mr. Winters had balances in these investment choices and his rates of return were: DSIB/DIBA 8.22%; Private Equity, 17.89%; and IPA, 6.52%.
The Supplemental Savings and Investment Plan (SSIP) is a heritage plan applicable to former Bank One employees which is closed to new participants and does not permit new deferrals. It functions similarly to the Deferred Compensation Plan. Investment returns in 2009 for SSIP investment choices were: Short-Term Fixed Income, 1.62%; Mid Cap Growth, 42.68%; Small Cap Blend, 33.80%; and International Small Cap, 29.27%.
Beginning with deferrals credited January 2005, participants were required to elect to receive distribution of the deferral balance beginning either following retirement or termination or in a specific year but no earlier than the second anniversary of the date the deferral would otherwise have been paid. If retirement or termination were elected, payments will commence during the calendar year following retirement or termination. Participants may elect the distribution to be lump sum or annual installments for a maximum of 15 years. With respect to deferrals made after December 31, 2005, account balances are automatically paid as a lump sum in the year following termination if employment terminates prior to the participant attaining 15 years of service.
2 | Includes Mr. Winters’ interest in DSIB/DIBA. Had Mr. Winters commenced payment of his DSIB/DIBA benefit at year end 2009, he would have been entitled to an annual annuity of $744,042 for fifteen years. |
VII. 20082009 Potential payments upon termination or change-in-controlchange in control
All of the Named Executive Officers are “at will” employees of the Firm. They do not have employment contractsagreements or change ofin control agreements and do not have benefits or equity awards that are triggered or accelerated upon a change ofin control.
All of the Named Executive Officers are covered under the Firm’s broad-based U.S. Severance Pay Plan. Benefits under the Severance Pay Plan are based on an employee’s base salary and service on termination of employment, and the plan provides for continued eligibility under certain of the Firm’s employee welfare plans (such as medical, dental and life insurance) at employee rates during the severance pay period. In addition, in the event of termination by the Firm for reasons other than cause, Named Executive Officersexecutives may be considered, at the discretion of the Firm, for a cash payment in lieu of an annual incentive compensation award, taking into consideration all circumstances the Firm deems relevant, including the circumstances of the executive’s leaving and the executive’s contributions to the Firm over his or her career. Severance benefits and any such discretionary payment are subject to execution of a release in favor of the Firm and certain post-termination employment and other restrictions that remain in effect for at least one year after termination. See page 10 for limitations on severance benefits under the Capital Purchase Program.
The following table describes and quantifies the benefits and compensation to which the Named Executive Officers would have been entitled under existing plans and arrangements if their employment had terminated on December 31, 2008,2009, based on their compensation and service on that date. The amounts shown in the table do not include other payments and benefits available generally to salaried employees upon termination of employment, such as accrued vacation pay, distributions from the 401(k), pension and deferred compensation plans, or any death, disability or post-retirement welfare benefits available under broad-based employee plans. For information on the pension and deferred compensation plans, see Table V, 20082009 Pension benefits and Table VI, 20082009 Non-qualified deferred compensation. The following table shows the value of unvested RSUs and stock options and SARs that would vest on the executive’s termination of employment or continue to vest following
termination, based on the closing price of our common stock on December 31, 2008.2009. (On a per share basis, for RSUs this is the value of the underlying share on that date, regardless of the remaining vesting period, and for stock options and SARs it is the stock price minus the grant price.)
Pursuant to the offer letterA separation agreement was entered into with Mr. Winters effective March 11, 2010 (the Winters Agreement) that provided that Mr. Smith received in June 2007, if he is terminated by the Firm for any reason other than cause prior to his fourth anniversary of employment, he will continue to vest in any outstanding RSUs awarded as replacements for forfeited equity awards from his previous employer and RSUs awarded as partWinters would receive an amount of incentive compensation in respect of 2009 intended to be equivalent to that which Mr. Black received. See Annual and periodic compensation at page 14 and the Summary compensation table at page 22. In addition, pursuant to the Winters Agreement it was agreed that 40% of the SAR award granted to Mr. Winters in January 2009 that would have been cancelled upon his resignation became immediately exercisable and were exercised and sold on the effective date of the Winters Agreement; the remaining unvested balance of such award was cancelled. Mr. Winters will (i) receive a lump sum severance benefit equal to one year of his current base salary; (ii) be eligible for payment of or reimbursement for legal, accounting, tax advisory and other professional fees in connection with his termination up to a maximum of $1 million; and (iii) provision of administrative services and costs of office space through a date not later than September 30, 2010. Mr. Winters and his qualified dependents will be eligible for unsubsidized retiree medical benefits under the 2007 performance year,terms of the JPMorgan Chase Medical Plan on the same terms as if he had met the age and service requirements for such coverage on his termination date. The table below reflects the foregoing arrangements as though they had been in effect as of December 31, 2009. Mr. Winters is subject to executiona non-hire, non-solicitation agreement with respect to employees of the Firm through January 31, 2011, and to a general releasenon-solicitation agreement with respect to employees of the Firm through January 31, 2012; the approximate after-tax proceeds of $11,759,200 of the cash award to Mr. Winters and the approximate after-tax proceeds of the exercise and sale of the 40% of the 2009 SARs award will be held in lieuescrow subject to Mr. Winters’ compliance with the terms of any other severance.the Winters Agreement.
| | | | | | | | | | | | |
Name | | Termination reason | | Severance and other(1)($) | | | Acceleration/Continuation of equity awards(2) |
| | | Option awards ($) | | Stock awards ($) (3) |
James Dimon | | Involuntary without cause | | $ | 423,077 | | | $ | — | | $ | 20,783,496 |
| | Disability | | | — | | | | — | | | 20,783,496 |
| | Death | | | — | | | | — | | | 20,783,496 |
| | Resignation | | | — | | | | — | | | 20,783,496 |
Michael J. Cavanagh | | Involuntary without cause | | | 211,538 | | | | 280,001 | | | 9,495,926 |
| | Disability | | | — | | | | 509,673 | | | 9,495,926 |
| | Death | | | — | | | | 509,673 | | | 9,495,926 |
| | Resignation | | | — | | | | — | | | — |
Steven D. Black | | Involuntary without cause | | | 211,538 | | | | — | | | 19,826,794 |
| | Disability | | | — | | | | 321,536 | | | 19,826,794 |
| | Death | | | — | | | | 321,536 | | | 19,826,794 |
| | Resignation | | | — | | | | — | | | 19,826,794 |
Mary Callahan Erdoes | | Involuntary without cause | | | 196,154 | | | | — | | | 11,558,425 |
| | Disability | | | — | | | | 91,871 | | | 11,558,425 |
| | Death | | | — | | | | 91,871 | | | 11,558,425 |
| | Resignation | | | — | | | | — | | | — |
James E. Staley | | Involuntary without cause | | | 500,000 | | | | — | | | 16,306,971 |
| | Disability | | | — | | | | 229,671 | | | 16,306,971 |
| | Death | | | — | | | | 229,671 | | | 16,306,971 |
| | Resignation | | | — | | | | — | | | 16,306,971 |
William T. Winters | | Involuntary without cause | | | 500,000 | (4) | | | 6,210,400 | | | 19,826,794 |
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1 | Amounts shown represent severance under the Firm’s broad-based U.S. Severance Pay Plan. |
2 | Awards shown continue to vest following termination, except for the option award shown for Mr. Winters that accelerated and vested upon his termination. |
3 | The awards shown as continuing to vest upon resignation represent RSUs that would continue to vest because Messrs. Dimon, Black and Staley are full-career eligible. Mr. Cavanagh and Ms. Erdoes are not full-career eligible. |
4 | In addition to severance, as described above, Mr. Winters is entitled to payment of or reimbursement for professional fees up to a maximum of $1 million and provision of administrative services and costs of office space, with an estimated value of up to $130,000, if continued through September 30, 2010. |
| | | | | | | | | | | |
Name | | Termination reason | | Severance ($) | | Acceleration/Continuation of equity awards |
| | | Option awards ($) | | Stock awards ($) |
James Dimon | | Involuntary without cause | | $ | 519,231 | | $ | — | | $ | 25,049,355 |
| | Disability | | | — | | | — | | | 25,049,355 |
| | Death | | | — | | | — | | | 25,049,355 |
| | Resignation | | | — | | | — | | | 25,049,355 |
Michael J. Cavanagh | | Involuntary without cause | | | 259,615 | | | — | | | 5,634,001 |
| | Disability | | | — | | | — | | | 5,634,001 |
| | Death | | | — | | | — | | | 5,634,001 |
| | Resignation | | | — | | | — | | | — |
Frank J. Bisignano | | Involuntary without cause | | | 153,846 | | | — | | | 5,938,360 |
| | Disability | | | — | | | — | | | 5,938,360 |
| | Death | | | — | | | — | | | 5,938,360 |
| | Resignation | | | — | | | — | | | — |
Charles W. Scharf | | Involuntary without cause | | | 259,615 | | | — | | | 8,434,653 |
| | Disability | | | — | | | — | | | 8,434,653 |
| | Death | | | — | | | — | | | 8,434,653 |
| | Resignation | | | — | | | — | | | — |
Gordon A. Smith | | Involuntary without cause | | | — | | | — | | | 6,882,242 |
| | Disability | | | — | | | — | | | 6,882,242 |
| | Death | | | — | | | — | | | 6,882,242 |
| | Resignation | | | — | | | — | | | — |
Additional information about our directors and executive officers
Section 16(a) beneficial ownership reporting compliance
Our directors and executive officers filed reports with the SEC indicating the number of shares of any class of our equity securities they owned when they became a director or executive officer and, after that, any changes in their ownership of our equity securities. They must also provide us with copies of these reports. These reports are required by Section 16(a) of the Securities Exchange Act of 1934. We have reviewed the copies of the reports that we have received and written representations from the individuals required to file the reports. Based on this review, we believe that during 20082009 each of our directors and executive officers has complied with applicable reporting requirements for transactions in our equity securities.securities, except for late filings due to administrative errors to report the purchase of stock by Mr. Novak in May and June 2009 and to report annual stock grants in January 2010 to directors Ms. Bowles, Mr. Burke, Mr. Cote, Mr. Crown, Ms. Futter, Mr. Gray, Mr. Jackson, Mr. Novak, Mr. Raymond and Mr. Weldon.
Policies and procedures for approval of related persons transactions
The Firm has adopted a written Transactions with Related Persons Policy (Policy) which sets forth the Firm’s policies and procedures for reviewing and approving transactions with related persons – basically its directors, executive officers, 5% shareholders, and their immediate family members. The transactions covered by the Policy include any financial transaction, arrangement or relationship in which the Firm is a participant, the related person has or will have a direct or indirect material interest, and the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year.
After becoming aware of any transaction which may be subject to the Policy, the related person is required to report all relevant facts with respect to the transaction to the General Counsel of the Firm. Upon determination by the General Counsel that a transaction requires review under the Policy, the material facts respecting the transaction and the related person’s interest in the transaction are provided, in the case of directors, to the Governance Committee and, in the case of executive officers and 5% shareholders, to the Audit Committee.
The transaction is then reviewed by the disinterested members of the applicable committee, which then determines whether approval or ratification of the transaction shall be granted. In reviewing a transaction, the applicable committee considers facts and circumstances which it considers relevant to its determination. Material facts may include management’s assessment of the commercial reasonableness of the transaction, the materiality of the related person’s direct or indirect interest in the transaction, whether the transaction may involve an actual or the appearance of a conflict of interest, and, if the transaction involves a director, the impact of the transaction on the director’s independence.
Certain types of transactions are pre-approved in accordance with the terms of the Policy. These include transactions in the ordinary course of business involving financial products and services provided by, or to, the Firm, including loans, provided such transactions are in compliance with the Sarbanes-Oxley Act, Federal Reserve Board Regulation O and other applicable laws and regulations.
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Transactions with directors and executive officers and 5% shareholders
Our directors and executive officers and their immediate family members and BlackRock, beneficial owner of more than 5% of our outstanding common stock, were customers of, or had transactions with, JPMorgan Chase or our banking or other subsidiaries in the ordinary course of business during 2008.2009. Additional transactions may be expected to take place in the future. Any outstanding loans to directors, executive officers and their immediate family members, and to BlackRock and any transactions involving other financial products and services provided by the Firm such as banking, brokerage, investment and financial advisory products and services to such persons were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral (where applicable), as those prevailing at the time for comparable transactions with persons not related to the Firm, and did not involve more than normal risk of collectibility or present other unfavorable features.
The fiduciary committees for the JPMorgan Chase Retirement Plan and the JPMorgan Chase 401(k) Savings Plan have entered into Investment Management and Custody Agreements with BlackRock and Barclays Global Investors, NA (Barclays), a wholly owned subsidiary of BlackRock, giving them discretionary authority to manage certain assets on behalf of each Plan. Pursuant to these agreements, fees of $3.7 million were paid to BlackRock and Barclays for 2009.
In December2002, certain senior executives of Bank One Corporation were given an opportunity to invest on an unleveraged, after-tax basis in a limited liability company that invested in the private equity investments made by One Equity Partners (OEP), a subsidiary of Bank One. Similarly, in 2005 and again in November 2007, approximately 3,000 JPMorgan Chase employees were given an opportunity to invest on an unleveraged, after-tax basis in limited partnerships that invest in the private equity investments made by One Equity Partners (OEP),OEP, a subsidiary of the Firm. The Firm’s executive officers, except for
Mr. Dimon and Ms. Miller were not permitted to participate in the 2002 Bank One offering. Messrs. Dimon and Cavanagh were providednot permitted to participate in the 2005 offering, and Messrs. Dimon, Cavanagh and Cutler were not permitted to participate in the 2007 offering. All of the Firm’s other senior executives were given this investment opportunity.
All investments made by such partnerships are made over a multi-year period on a pro rata basis with all private equity investments made by OEP, in the same class of securities and on substantially the same terms and conditions. Accordingly, such partnerships exercise no discretion over whether or not to participate in or dispose of any particular investment. With respect to the 2007 offering, in February 2009, OEP granted all co-investors a one-time opportunity to reduce their unfunded commitment to the partnership. Distributions, consisting of return of capital and realized gain, to the Firm’s executive officerssenior executives who invested in such partnerships that exceeded $120,000 in 20082009 were: Frank J. Bisignano, $180,565; Steven D. Black, $300,941; Jay Mandelbaum, $321,515; Heidi Miller, $150,471; Charles W. Scharf, $1,080,927; and William T. Winters, $150,471.
In 2002 and earlier, the Firm offered eligible employees the opportunity to co-invest in investments made by JPMorgan Partners. Employee-investors purchased common equity interests on an after-tax basis in annually-formed limited partnerships (JPMP Partnerships), each of which invested in the general pool of private equity investments made by JPMorgan Partners during the year the limited partnership was formed. Each year the Firm made a preferred capital contribution alongside the employee-investors equal to three times the amount of capital invested in the JPMP Partnership by the employee-investors, in consideration for which the Firm receives a specified fixed rate of return. Executive officers of the Firm for which the sum exceeded in the aggregate $120,000 of (i) the outstanding balances as of December 31, 2008, of the aggregate preferred equity contributions made by the Firm in JPMP Partnerships and (ii) distributions, consisting of return of capital and realized gain, made in 2008 by JPMP Partnerships were: Steven D. Black, distributions of $205,490; Ina R. Drew, distributions of $612,678; and Samuel Todd Maclin, distributions of $159,242.$177,933.
Mr. Winters has an outstanding loansloan entered into in 2000 from a J.P. Morgan & Co. Incorporated co-investment partnership (JPM Co. Partnership). Mr. Winters’ outstanding balance at December 31, 2008,2009, was $224,811,$230,043, all of which is a non-recourse loan payable in June 2015. The interest rate on this loan is LIBOR plus 150 basis points, reset quarterly. Distributions, consistingIn 2009, Mr. Winters received a distribution (consisting of return of capital and realized gain, to gain) of $2,503.
Mr. Winters from the JPM Co. Partnership in 2008 was $13,759.
An adult son of director David M. Cote hadDimon’s father has been employed by the Firm as an analyst in the Investment Bank from June 2005 until December 2008.a broker at J.P. Morgan Securities Inc. since November 2009. He diddoes not share a household with Mr. CoteDimon and wasis not an executive officer. In 2008, the son received compensation of $175,000. The Firm providedprovides compensation and benefits to the sonMr. Dimon’s father in accordance with the Firm’s employment and compensation practices applicable to employees holding comparable positions.
Chase Bank USA, N.A. (Chase USA), the Firm’s credit card subsidiary, engaged Brinsights LLC to provide marketing assistance for credit card products. A sister of Heidi Miller, an executive officer of the Firm, owns Brinsights LLC and serves as its President. Chase USA paid Brinsights LLC fees of approximately $215,682 for 2008.
Mr. Scharf sits on the board of VISA Inc. For his service as a director, Mr. Scharf receives an annual grant of VISA common stock with a grant date value of $162,000; his annual retainer and committee fees paid in cash are remitted to JPMorgan Chase.
Compensation & Management Development Committee interlocks and insider participation
The members of the Compensation Committee are listed onat page 6.9. No member of the Compensation Committee is or ever was a JPMorgan Chase officer or employee. No JPMorgan Chase executive officer is, or was during 2008,2009, a member of the board of directors or compensation committee (or other committee serving an equivalent function) of another company that has, or had during 2008,2009, an executive officer serving as a member of our Board or Compensation Committee. All of the members of the Compensation Committee, or their immediate family members, were or may have been customers of or had transactions with JPMorgan Chase or our banking or other subsidiaries in the ordinary course of business during 2008.2009. Additional transactions may be expected to take place in the future. Any outstanding loans to the directors and their immediate family members, and any transactions involving other financial products and services provided by the Firm such as banking, brokerage, investment and financial advisory products and services to such person were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral (where applicable), as those prevailing at the time for comparable transactions with persons not related to the Firm, and did not involve more than the normal risk of collectibility or present other unfavorable features.
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Compensation & Management Development Committee report
The Compensation & Management Development Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2008.
In connection with the participation of JPMorgan Chase & Co. in the Department of Treasury’s Capital Purchase Program, the Committee certifies that it has reviewed with the Chief Risk Officer of the Firm the senior executive officers’ compensation arrangements and has made reasonable efforts to ensure that such arrangements do not encourage senior executive officers to take unnecessary and excessive risks that threaten the value of the Firm.
Dated as of March 17, 2009
Compensation & Management Development Committee
Lee R. Raymond (Chairman)
Stephen B. Burke
David C. Novak
William C. Weldon
Audit Committee report
Three non-management directors comprise the Audit Committee of the Board of Directors of JPMorgan Chase. The Committee operates under a written charter adopted by the Board. The Board has determined that each member of our Committee has no material relationship with the Firm under the Board’s director independence standards and that each is independent under the listing standards of the New York Stock Exchange, where the Firm’s securities are listed, and under the U.S. Securities and Exchange Commission’s (SEC) standards relating to the independence of audit committees.
Management is responsible for the Firm’s internal controls and the financial reporting process. PricewaterhouseCoopers LLP (PwC), the Firm’s independent registered public accounting firm, is responsible for performing an independent audit of JPMorgan Chase’s consolidated financial statements and of the effectiveness of internal control over financial reporting in accordance with auditing standards promulgated by the Public Company Accounting Oversight Board.Board (PCAOB). The Firm’s internal auditors are responsible for preparing an annual audit plan and conducting internal audits under the control of the General Auditor, who is accountable to the Audit Committee. The Audit Committee’s responsibility is to monitor and oversee these processes.
In this context, we met and held discussions with the Firm’s management and internal auditors and with PwC. Management represented to us that JPMorgan Chase’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.America (“U.S. GAAP”). We reviewed and discussed the consolidated financial statements with management and PwC. We also discussed with PwC the matters required to be discussed by Statement on Auditing Standards No. 61PCAOB AU Section 380 (Communication with Audit Committees), as amended..
PwC provided us the written disclosures and the letter required by the Public Company Accounting Oversight BoardPCAOB Rule 3526 (Communications with Audit Committees Concerning Independence), and we discussed with PwC their independence. We have determined that PwC’s provision of non-audit services is compatible with their independence.
Based on our discussions with the Firm’s management, internal auditors and PwC, as well as our review of the representations of management and PwC’s report to us, we recommended to the Board, and the Board has approved, including the audited consolidated financial statements in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2008,2009, for filing with the Securities and Exchange Commission.SEC. Subject to shareholder ratification, we also approved the appointment of PwC as JPMorgan Chase’s independent registered public accounting firm for 2009.2010.
We annually review our written charter and our practices. We have determined that our charter and practices are consistent with the listing standards of the New York Stock Exchange and the provisions of the Sarbanes-Oxley Act of 2002.
Dated as of February 24, 2009March 16, 2010
Audit Committee
Laban P. Jackson, Jr. (Chairman)
Crandall C. Bowles
William H. Gray, III
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Proposal 2 – Appointment of independent registered public accounting firm
The Audit Committee has appointed PricewaterhouseCoopers LLP (PwC), 300 Madison Avenue, New York, New York 10017, as the Firm’s independent registered public accounting firm to audit the financial statements of JPMorgan Chase and its subsidiaries for the year ending December 31, 2009.2010. A resolution will be presented at the meeting to ratify their appointment. If the shareholders do not ratify the appointment of PwC, the selection of the independent registered public accounting firm will be reconsidered by the Audit Committee.
A member of PwC will be present at the annual meeting, and will have the opportunity to make a statement and be available to respond to appropriate questions by shareholders.
The Board of Directors recommends that shareholders vote FOR ratification of the appointment of PricewaterhouseCoopers LLPPwC as the Firm’s independent registered public accounting firm.
Fees paid to PricewaterhouseCoopers LLP
Aggregate fees for professional services rendered for JPMorgan Chase by PwC for the years ended December 31, 20082009 and 2007,2008, were:
| ($ in millions) | | 2008 | | 2007 | | 2009 | | 2008 |
Audit | | $ | 58.7 | | $ | 39.8 | | $ | 46.6 | | $ | 58.7 |
Audit-related | | | 18.9 | | | 15.2 | | | 18.0 | | | 18.9 |
Tax | | | 5.7 | | | 4.7 | | | 5.5 | | | 5.7 |
All other | | | 0.9 | | | 0.0 | | | 2.3 | | | 0.9 |
| | | | | | | | |
Total | | $ | 84.2 | | $ | 59.7 | | $ | 72.4 | | $ | 84.2 |
| | | | | |
Excluded from 20082009 and 20072008 amounts are Audit, Audit-related, and Tax fees aggregating $17.7$23.4 million and $15.9$23.5 million, respectively, paid to PwC by private equity funds, commingled trust funds and special purpose vehicles that are managed or advised by subsidiaries of JPMorgan Chase but are not consolidated with the Firm. Amounts for 2008 have been revised.
Audit fees –Audit fees for the years ended December 31, 2009 and 2008, and 2007, were $41.8$33.7 million and $32.3$41.8 million, respectively, for the annual audit and quarterly reviews of the consolidated financial statements and $16.9$12.9 million and $7.5$16.9 million, respectively, for services related to statutory/subsidiary audits, attestation reports required by statute or regulation, and comfort letters and consents in respect of Securities and Exchange CommissionSEC filings. The increase in 2008 Audit fees is mainly attributable tofor 2008 included non-recurring audit work in connection2008 related to the merger with the acquisitions of The Bear Stearns Companies Inc. (Bear Stearns) and the acquisition of the banking operations of Washington Mutual Bank.
Audit-related fees –Audit-related fees are comprised of assurance and related services that are traditionally performed by the independent registered public accounting firm. These services include attest and agreed-upon procedures not required by statute or regulation, which address accounting, reporting and control matters. These services are normally provided by PwC in connection with the recurring audit engagement.
Tax fees –Tax fees for 2009 and 2008 and 2007 were $3.3$3.8 million and $3.2$3.3 million, respectively, for tax return compliance, including Bear Stearns expatriate employee tax services specifically approved by JPMorgan Chase’s Audit Committee, and $2.4$1.7 million and $1.5$2.4 million, respectively, for other tax services. Other tax services includes tax advice regarding routine business transactions primarily related to private equity operations.activities.
All other fees –All other fees for 2009 and 2008 and 2007 were $.891$2.3 million and $0,$891,000, respectively. JPMorgan Chase’s policy restricts the use of PwC to performing Audit, Audit-related and Tax services only; however, as a result of the Bear Stearns acquisition in March of 2008,merger, the JPMorgan Chase Audit Committee approved an exception in March of 2008, limited to specified pre-existing advisory services related to an acquisition executed by Bear Stearns in 2008, prior to its merger with JPMorgan Chase. These pre-existing advisory services are expected to be completed during 2011.
Audit Committee pre-approval policies and procedures
It is JPMorgan Chase’s policy on thenot to use of PwC’s services is not to engage its independent registered public accounting firm for services other than for Audit, Audit-related and Tax services. As mentioned above, an exception for certain specified services related to pre-existing advisory services provided to Bear Stearns, in 2008, prior to its acquisition bymerger with JPMorgan Chase, was granted.granted in March of 2008 by the Audit Committee.
All services performed by PwC in 2009 and 2008 were pre-approved by the Audit Committee. The Audit Committee has adopted pre-approval procedures for services provided by the independent registered public accounting firmPwC that are reviewed and ratified annually. These procedures require that the terms and fees for the annual Audit service engagement be pre-approved by the Audit Committee. In addition, for Audit, Audit-related and Tax services, the Audit Committee has pre-approved a list of these services and a budget for fees related to such services, which are documented in the pre-approval policy.services. All requests or applications for PwC Audit, Audit-related and Tax services must be submitted to the Firm’s Corporate Controller to determine if such services are included within the list of services that have received Audit Committee pre-approval. All requests for Audit, Audit-related and Tax services not included in the pre-approval policy and all fee amounts in excess of pre-approved budgeted fee amounts must be specifically approved by the Audit Committee.
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In addition, all requests for Audit, Audit-related and Tax services, irrespective of whether they are on the pre-approved list, in excess of $250,000 require specific approval by the Chairman of the Audit Committee. JPMorgan Chase’s pre-approval policy does not provide for a de minimis exception pursuant to which the requirement for pre-approval may be waived.
Proposal 3 – Advisory vote on executive compensation
As described at page 10, the Emergency Economic Stabilization Act of 2008, requires that participants in the Capital Purchase Program permit shareholders to have a separate advisory vote to approve the compensation of executives, as disclosed pursuant to the rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and related material.
The Compensation Discussion and Analysis begins onat page 9.12. As we discussed there, the Board of Directors believes that JPMorgan Chase’s long-term success as a premier financial services firm depends in large measure on the talents of the Firm’s employees. The Firm’s compensation system plays a significant role in the Firm’s ability to attract, retain and motivate the highest quality workforce. The principal underpinnings of the Firm’s compensation system are an acute focus on performance, shareholder alignment, sensitivity to the relevant market place, and a long-term orientation.
This proposal provides shareholders with the opportunity to endorse or not endorse the Firm’s executive compensation program through the following resolution:
“Resolved, that shareholders approve the Firm’s compensation practices and principles and their implementation for 2009 for the compensation of executives namedthe Firm’s Named Executive Officers as discussed and disclosed in the Summary compensation table, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the compensation tables, and any related material contained in this proxy statement).statement.”
Because this is an advisory vote, it will not be binding upon the Board of Directors. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
The Board recommends that shareholders vote FOR approval of this resolution.
Proposals 4-11:4-10: Shareholder proposals
Proposal 4 – Governmental service reportPolitical non-partisanship
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W., Suite 215, Washington DC 20037, the holder of record of 1,044 shares of common stock, has advised us that she plans to introduce the following resolution:
RESOLVED: “That“That the stockholders of J.P. Morgan assembled in Annual Meeting in person and by proxy, hereby recommend that the Corporation affirm its political non-partisanship. To this end the following practices are to be avoided:
“(a) The handing of contribution cards of a single political party to an employee by a supervisor.
“(b) Requesting an employee to send a political contribution to an individual in the Corporation for a subsequent delivery as part of a group of contributions to a political party or fund raising committee.
“(c) Requesting an employee to issue personal checks blank as to payee for subsequent forwarding to a political party, committee or candidate.
“(d) Using supervisory meetings to announce that contribution cards of one party are available and that anyone desiring cards of a different party will be supplied one on request to his supervisor.
“(e) Placing a preponderance of contribution cards of one party at mail stations locations.
REASONS:“The Corporation must deal with a great number of governmental units, commissions and agencies. It should maintain scrupulous political neutrality to avoid embarrassing entanglements detrimental to its business. Above all, it must avoid the Boardappearance of Directorscoercion in encouraging its employees to havemake political contributions against their personal inclination. The Troy (Ohio) News has condemned partisan solicitation for political purposes by managers in a local company (not JP Morgan).” “And if the Company furnish the stockholders each year with a list of people employed by the Corporation with the rank of Vice President or above, or as a consultant, or as a lobbyist, or as legal counsel or investment banker or director, who, in the previous five years have serveddid not engage in any governmental capacity, whether Federal, City or State, or as a staff member of any CONGRESSIONAL COMMITTEE or regulatory agency, andthe above practices, to disclose this to the stockholders whether such person was engagedALL shareholders in any matter which had a bearing on the business of the Corporation and/or its subsidiaries, provided that information directly affecting the competitive position of the Corporation may be omitted.each quarterly report.”
REASONS: “Full disclosure on these matters is essential at J.P. Morgan because of its many dealing with Federal and State agencies, and because of pending issues forthcoming in Congress and/or State and Regulatory Agencies.”
“Last year the owners of 98,629,106 shares, representing approximately 3.9% of shares voting, voted FOR this proposal.”
“If you AGREE, please mark your proxy FOR this resolution.”
Board response to proposal 4:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
JPMorgan Chase selects and engages its employees and consultants on the basis of their qualifications, experience and integrity.When a former government employee is hired, that employee and the Firm are subject to laws that regulate the activities of former government officials. Further, SEC rules already require that the Firm report the business experience during the past five years of all directors and executive officers; this reporting would include reporting of any government positions held during that period.
Gathering the information and preparing the report requested by the proposal would require financial and other resources, and the Board believes that these resources could be better utilized.In our opinion, the additional information made available by such a report would not provide shareholders with an appreciable benefit, and therefore theThe Board believes that the costs involved do not justify the proposed undertaking.
Accordingly, the Board recommends a vote against this proposal.
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Proposal 5 – Cumulative voting
Mr. John Chevedden, as agent for Mr. Kenneth Steiner, 14 Stoner Avenue, Great Neck, NY 11021, the holder of 1,050 shares of common stock, has advised us that he intends to introduce the following resolution:
RESOLVED: Cumulative Voting. Shareholders recommend that our Board take the steps necessary to adopt cumulative voting. Cumulative voting means that each shareholder may cast as many votes as equal to number of shares held, multipliedissues raised by the number of directors to be elected. A shareholder may cast all such cumulated votes for a single candidate or split votes between multiple candidates. Under cumulative voting shareholders can withhold votes from certain poor-performing nominees in order to cast multiple votes for others.
Statement of Kenneth Steiner
Cumulative voting won 54%-support at Aetnaproposal are already adequately addressed and greater than 51%-support at Alaska Air in 2005 and in 2008. It also received greater than 53%-support at General Motors (GM) in 2006 and in 2008. The Council of Institutional Investors www.cii.org recommendedthat the adoption of thisthe proposal topic. CalPERS also recommend a yes-vote for proposals on this topic. Cumulative voting allows a significant group of shareholderswould not yield material additional benefits to elect a director of its choice - safeguarding minority shareholder interests and bringing independent perspectives to Board decisions.
Cumulative voting also encourages management to maximize shareholder value by making it easier for a would-be acquirer to gain board representation. It is not necessarily intended that a would-be acquirer materialize, however that very possibility represents a powerful incentive for improved management of our company.
The merits of this Cumulative Voting proposal should also be considered in the context of the need for improvements in our company’s corporate governance and in individual director performance. For instance in 2008 the following governance and performance issues were identified:
The Corporate Library (TCL), www.thecorporatelibrary.com, an independent investment research firm rated our company: “High Concern” in executive pay - $27 million for James Dimon; “D” in Overall Board Effectiveness; “High Governance Risk Assessment.”
We did not have an Independent Chairman or even a Lead Director - Independent oversight concern.
Eight directors were designated as “Accelerated Vesting” directors by The Corporate Library due to their involvement in speeding up stock option vesting in order to avoid recognizing the related cost: Stephen Burke, James Crown, James Dimon, Ellen Futter, William Gray, Laban Jackson, David Novak, Lee Raymond.
We had 4 directors with 15 to 21 years tenure each - Independence concerns: James Crown, William Gray, Laban Jackson, Lee Raymond.
Six of our directors served on boards rated “D” by The Corporate Library: David Cote, Honeywell (HON); James Crown, General Dynamics (GD); William Gray, Pfizer (PFE); Crandall Close Bowles, Deere (DE); David Novak, Yum! Brands (YUM); William Weldon, Johnson & Johnson (JNJ).
Of the 11 seats on our key audit, executive pay and nomination committees: Seven seats were held by “Accelerated Vesting” directors; Four seats were held by directors with more than 15-years tenure; Six seats were held by directors serving on D-rated boards.
The above concerns shows there is need for improvement. Please encourage our board to respond positively to this proposal:
Cumulative Voting
Yes on 5
Board response to proposal 5:shareholders.
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
The Firm has strong corporate governance standards –does not affiliate itself with any one political party and does not engage in the practices that the proposal urges that we should avoid. JPMorgan Chase has strong corporate governance standards, including:
- | | Majority voting standard for the election of directors in uncontested elections, with plurality voting in contested elections and a director resignation policy;
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- | | Annual election of all directors;
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- | | More than two-thirds of the Board composed of independent directors, and Governance, Compensation and Audit Committees composed entirely of independent directors;
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- | | Right of shareholders to call special meetings; and
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- | | Stated range for the size of the Board.
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Our strong foundationBecause of corporate governance principles alreadythe potential impact public policy can have on our businesses, our employees, and the communities we serve, the Firm proactively engages in place,the political process in a variety of ways, to advance and apart fromprotect the specific objections to cumulative voting discussed below, obviate the need for cumulative voting.
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One share, one vote best serves shareholder interests –The Firm, like most other major corporations, provides that each share of common stock is entitled to one vote for each nominee for director. The Board of Directors believes that this voting method for electing directors best serves thelong-term interests of the Firm and our shareholders.its constituencies. For example:
the Firm sponsors political action committees, or PACs, which are supported solely by voluntary contributions from employees. The PACs are not affiliated with any political party committee or candidate. All PAC activities are conducted in accordance with applicable legal requirements.
the Firm regularly communicates its views and concerns to public officials, as permitted by law. Our activities include monitoring current legislative activities, analyzing trends, and supporting and promoting advancement of public policies to benefit the Firm and its constituents over the long term.
Cumulative voting can increaseThe Firm’s internal controls on its political activities are already appropriately robust.All political activities conducted by or on behalf of the riskFirm are managed by the Firm’s Government Relations and Public Policy Department (Government Relations). Government Relations is responsible, upon advice of special intereststhe Firm’s legal counsel and partisanship –Cumulative voting could impairCompliance Department, for the effective functioningFirm’s policies, activities, and legal compliance in this area. The Firm’s political activities are subject to oversight by the Public Responsibility Committee of the Board by electing a director obligated to represent the special interests of a small group of shareholders, rather than all of the Firm’s shareholders. Cumulative voting also introduces the possibility of partisanship among directors, which could weaken their ability to work effectively together, a requirement essentialDirectors. Government Relations regularly reports on its activities to the successful functioning of any board of directors. Allowing each share of common stock to have one vote for each director nominee encourages accountability of each director to all of our shareholders.Public Responsibility Committee.
Cumulative voting is inconsistent with majority voting for directors –The concept of majority voting has received substantial support from a wide range of commentators and public companies and has received high shareholder support when presented in the form of shareholder proposals. Many advocates of majority voting do not, however, support cumulative voting in combination with majority voting because of the risk that the combination could be destabilizing and imprudent.
Because each director oversees the management of the Firm for the benefit of all shareholders, the Board believes that changing the current votingFirm’s activities in this area are responsible, and that its existing policies and procedures, would not be intogether with federal and state regulations, already adequately address the best interests of shareholders.issues raised by the proposal.
Accordingly, the Board recommends a vote against this proposal.
Proposal 65 – Special shareowner meetings
Mr. John Chevedden, as agent for Mr. Ray T. Chevedden, on behalf of the Ray T. Chevedden and Veronica G. Chevedden Family Trust, 5965 S. Citrus Ave., Los Angeles, CA 90043, the holder of 100200 shares of our common stock, has advised us that he intends to introduce the following resolution:
RESOLVED,Shareowners ask our Boardboard to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that a large number of small shareowners can combine their holdings to equal the above 10% of holders. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners but not to management and/or the board.
Statement of Ray T. Chevedden
Special meetings allow shareowners to vote on important matters, such as electing new directors, that can arise between annual meetings. If shareowners cannot call special meetings, management may become insulated and investor returns may suffer.
This proposal topic won impressive support at the following companies (based on 2008 yes and no votes):
| | | | |
Occidental Petroleum (OXY)
| | 66% | | Emil Rossi (Sponsor)
|
| | |
FirstEnergy Corp. (FE)
| | 67% | | Chris Rossi
|
| | |
Marathan Oil (MRO)
| | 69% | | Nick Rossi
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Shareowners should have the ability to call a special meeting when a matter is sufficiently important to meritmerits prompt consideration. Fidelity and Vanguard have supported a shareholder rightattention. This proposal does not impact our board’s current power to call a special meeting.
We gave 48%-support to the 2009 shareholder proposal on this same topic and proposals often obtain higher votes on subsequent submissions. This proposal topic also won more than 60% support at the following companies in 2009: CVS Caremark (CVS), Spring Nextel(S), Safeway (SWY), Motorola (MOT) and R.R. Donnelley (RRD). William Steiner and Nick Rossi sponsored these proposals.
The proxy voting guidelinesmerit of many public employee pension fundsthe Special Shareowner Meetings proposal should also favor this right. Governance ratings services, such as be considered in the context of the need for improvements in our company’s 2009 reported corporate governance status:
The Corporate Library, www.thecorporatelibrary.com, an independent investment research firm rated our company “D” with “High Governance Risk” and Governance Metrics International, have taken special“High Concern” in executive pay – $10 million to $19 million each for Frank Bisigano, Gordon Smith, Charles Scharf and James Dimon. While pay levels are likely to be reduced under TARP, executive pay of $10 to $19 million negatively reflects the quality of our board’s decision making – especially considering that we had 5 directors with 12 to 22 years tenure: Ellen Futter, Laban Jackson, William Gray, James Crown and Lee Raymond. Plus directors with 17 to 22 years tenure were assigned to five of the 11 seats (including two chairmanships) on our most important board committees. It becomes increasingly challenging to act independently with such extensive service according to The Corporate Library.
In addition, three directors (in addition to CEO James Dimon) were active-CEOs of publicly-traded companies, which may mean they were overcommitted and had inadequate time to devote to our company. The 2009 annual meeting rights into consideration when assigning company ratings.proxy was potentially misleading due to certain information arranged in reverse order. We had no shareholder right to act by written consent, cumulative voting, independent chairman or a lead director.
The above concerns show there is need for improvement. Please encourage our board to respond positively to this proposal:
Special Shareowner Meetings -
– Yes on 65.
Board response to proposal 6:5:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
Our shareholders are already permitted to call special meetings –with 20% of shares outstanding.In 2006,January 2010, the Board amended the Firm’s By-laws to permit shareholders holding at least one-third20% of the outstanding common shares to call a special meetings. The By-laws establish proceduresmeeting. This action reduced the ownership threshold from 33 1/3% of outstanding common shares, and was taken in response to a similar proposal at the 2009 Annual Meeting of Shareholders calling for (1) a written request describing10% threshold. That proposal did not pass but received a substantial vote. Management sought input on the specificappropriate ownership threshold for this purpose during regular, periodic discussions with shareholders prior to amending the By-laws.
In connection with this action, the special meeting by-law provisions were also amended in order to enhance the disclosures by those seeking a special meeting and to exclude shares that have been hedged or otherwise disposed of prior to the meeting andfrom counting toward the 20% ownership threshold. The Board believes these provisions are important in order to assure that shareholders requesting the meeting, (2) the timing of the request and the meeting, and (3) any business to be transacted at the meeting. To avoid duplication, the Firm would not be requiredseeking to call a special meeting ifhave a shareholder meeting including the same purpose has been called by the Firm or held within the past twelve months.true economic interest in JPMorgan Chase. A copy of our By-laws is available on our Web site at www.jpmorganchase.com by clicking on Governance under Governance.About Us.
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The Firm’s current By-law provision for calling special meetings balances the interests of all shareholders as a whole –
whole.For a company with as many shareholders as JPMorgan Chase, a special meeting is a veryan expensive and time-consuming affair because of the legal costs in preparing required disclosure documents, printing and mailing costs, and the time commitment required of the Board and members of senior management to prepare for and conduct the meeting. Limits on the ability to call such meetings are intended to strike a balance between shareholders’ ability to call such a meeting in appropriate circumstances, while avoiding the risk that a relatively small group would seek to impose the burden of a meeting on other shareholders. The Firm’s current By-law provision is an appropriate corporate governance provision for a public company of our size, and reflects the Board’s judgment in determining procedures that best serve the interests of all shareholders.
Management welcomes shareholder input on governance –governance.The Firm has strong corporate governance standards and practices that demonstrate the Board’s accountability to, alignment with, and responsiveness to its shareholders. For example:
- | | All directors are elected annually; the Firm does not have a classified Board.
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All directors are elected annually; the Firm does not have a classified Board.
- | | In 2007, the Board amended the Firm’s By-laws to provide a majority voting standard for election of directors in uncontested elections, and resignation by any incumbent director who is not re-elected.
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In 2007, the Board amended the Firm’s By-laws to provide a majority voting standard for election of directors in uncontested elections, and resignation by any incumbent director who is not re-elected.
- | | In December 2006, the Board established the position of Presiding Director, which is held by an independent director at all times. The Presiding Director presides at executive sessions of non-management directors and at Board meetings at which the Chairman is not present, is authorized to call meetings of non-management directors, and facilitates communication between the Chairman and CEO and the non-management directors.
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In December 2006, the Board established the position of Presiding Director, which is held by an independent director at all times.
- | | Approximately two-thirds of the Board’s compensation is comprised of stock-based compensation, and directors pledge that, for as long as they serve, they will retain all shares of the Firm’s common stock purchased on the open market or received pursuant to their service as a Board member.
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Shareholders may communicate with our Board of Directors, individually or as a group by contacting the Firm’s Corporate Secretary.
- | | Shareholders may communicate with our Board of Directors, individually or as a group by contacting the Firm’s corporate secretary.
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In addition, our senior executives engage our shareholders periodically to invite comments on governance matters, executive compensation and shareholder proposals. We meet throughout the year with shareholders and organizations interested in our practices.
Accordingly, the Board recommends a vote against this proposal.
Proposal 76 – Credit card lending practicesCollateral in over the counter derivatives trading
MMA Praxis Core Stock Fund and MMA Praxis Value Index, 1110 North Main Street, Goshen, IN 46527,The Sisters of Charity of Saint Elizabeth, P.O. Box 476, Convent Station, NJ 07961-0476, the holder of our200 shares of common stock, with a market value in excess of $2,000, has advised us that it intendsthey intend to introduce the following resolution, which is co-sponsored by Thethe Maryknoll Sisters of St. Dominic, Inc., Sisters of St. Francis of Philadelphia, Friends Fiduciary Corporation, and The Sisters of the Holy SpiritSt. Dominic of Caldwell New Jersey, Maryknoll Fathers and Brothers, School Sisters of Notre Dame Cooperative Investment Fund and Missionary Oblates of Mary Immaculate, each of which areis the beneficial ownersowner of ourat least 100 shares of common stock with a market valuestock:
Whereas the recent financial crisis has resulted in excessthe destruction of $2,000:trillions of dollars of wealth and untold suffering and hardship across the world;
Whereas:
With the acquisition of Washington Mutual, our company is now the largest credit card issuerWhereas taxpayers in the United States with tenshave been forced to extend hundreds of billions of dollars in outstanding credit card loansassistance and guarantees to consumers.financial institutions and corporations over the past 18 months;
AmidWhereas leading up to the economic uncertainty sparkedfinancial crisis, assets of the largest financial institutions were leveraged at the rate of over 30 to 1;
Whereas very high degrees of leverage in derivatives transactions contributed to the timing and severity of the financial crisis;
Whereas concerns have arisen about the practice of rehypothecation: the ability of derivatives dealers to redeploy cash collateral that gets posted by one of its trading partners. “In the Lehman Brothers bankruptcy, one of the big unresolved issues is tracking down collateral Lehman took in as guarantees on derivatives trades and then used as collateral for its own transactions.” (Matthew Goldstein, Reuter’s blog, August 27, 2009)
Whereas the financial system was brought to the brink of collapse by the sub-prime mortgage crisis, some banks are turningabsence of a system and structure to their high-margin credit card divisions to help offset their losses elsewhere.monitor coun-terparty risk;
In the wake of declining home valuesWhereas numerous experts and the inabilityU.S. Treasury Department have called for the appropriate capitalization and collateralization of derivative transactions;
Whereas Nobel economist Robert Engel wrote that “inadequately capitalized positions might still build up in derivatives such as collateralized debt obligations and collateralized loan obligations that continue to tap intotrade in opaque OTC markets. And this source of funds, many Americans are turning to credit cards as a last source of capital to get them through difficult times.
Accordingmeans continued systemic risk to the Federal Reserve Statistical Release, revolving debt aseconomy.” (Wall St. Journal, May 19, 2009)
Whereas multilateral trading at derivatives exchanges or comparable trading facilities allows a percentagewider variety of total debt in US households is dramatically increasingusers, including non-financial businesses, to enter into trades at better prices and credit card loans are at their highest delinquency rates since 1993.reduced costs
The sub-prime borrowing class is the most profitable market segment for credit card issuers, and most vulnerable to predatory practices.
Sub-prime consumers, specifically those with FICO credit scores less than 660, are often targeted with “fee harvesting” cards. These cards, which typically carry a limit of no more than $500, can cost borrowers up to half or more of their credit limit simply in activation and maintenance fees, while positioning the cardholder to unknowingly incur late, over-the-limit and other fees.
Based on an October 2008 report by Innovest, 48% of the credit card accounts acquired by our company from Washington Mutual were classified as sub-prime, as were 19% of our company’s accounts before the acquisition.
Aggressive and questionable marketing to teenagers and college students - often using poor lending criteria - has contributed to a rise in undergraduate credit card debt from an average of $2,169 in 2004 to $8,612 in 2006.
Provisions such as universal default, sometimes known as risk-based pricing, unfairly penalize borrowers with higher rates on accounts where they have never missed a payment. Typical credit card practices such as bait and switch marketing, changes of mailing address, delayed billing, hidden fees and unintelligible cardholder agreements hurt consumers.
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Resolved:Be it resolvedThat the shareholders requestthat the Board of Directors to complete a report to shareholders prepared at(at reasonable cost and omitting proprietary information, evaluating with respectinformation) by December 1, 2010, the firm’s policy concerning the use of initial and variance margin (collateral) on all over the counter derivatives trades and its procedures to practices commonly deemed to be predatory, our company’s credit card marketing, lendingensure that the collateral is maintained in segregated accounts and collection practices and the impact these practices have on borrowers.is not rehypothecated;
Supporting Statement:Statement
Trapping consumers in debt under predatory terms that make successful repayment virtually impossible weakensFor many years, the proponents have been concerned about the long-term consequences of irresponsible risk in investment products and have expressed these concerns to the company. We applaud the steps that have been implemented to establish a clearinghouse for over the counter derivatives. We believe that the report requested in this proposal will offer information needed to adequately assess our company’s sustainability and overall risk, in order to avoid future financial prospectscrises.
Board response to proposal 6:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
The Firm supports proposed reforms that would require greater transparency regarding derivatives transactions.We believe that many of the reforms currently under consideration – including greater use of clearinghouses to reduce the systemic risk associated with derivatives, mandatory reporting of derivatives transaction details to trade repositories, and registration of derivatives dealers – would strengthen the financial markets, and we have spoken in favor of those reforms on many occasions. The Firm also provides extensive disclosure regarding derivatives contracts, including collateral, in Management’s discussion and analysis in our Annual Report commencing at page [102].
However, we believe that restricting the use of derivatives collateral as the proposal suggests –requiring collateral to be held in segregated accounts (which often is accomplished by holding collateral through third party custodians) and prohibiting rehypothecation –would not enhance the safety or stability of those markets and would negatively impact the Firm and otherswho engage in derivative transactions for legitimate and sound business reasons.
The ability to hold collateral directly, not through a third party custodian, is important to the Firm’s ability to protect its rights as a creditor in collateralthat counterparties pledge to secure their obligations to us. Involvement of a third party custodian when the Firm needs to liquidate collateral quickly upon a default exposes the Firm to price volatility and risk of loss due to changes in collateral value.
It is also important to the Firm’s business that it has the ability to re-pledge (rehypothecate) collateral posted to it to third parties, which reduces demand on the Firm’s liquidity.This practice allows the Firm to use collateral pledged to it to satisfy its collateral delivery obligations to other counterparties. If the Firm did not do this because it held all the collateral it receives in segregated accounts (whether on its own books or with a third party), it would have to obtain collateral to pledge out to its counterparties in the repo market, which would force it to incur substantial costs and pose a drain on its liquidity.
Parties to derivatives transactions are protected in the event their collateral is rehypothecated because standard legal agreements give both parties set-off rights,meaning that if one party cannot return a counterparty’s rehypothecated collateral, the party’s obligations to the counterparty under the derivatives contract are reduced by the amount of the collateral that is not returned. For these reasons, the Firm’s policy, which is consistent with general industry practice, has been to permit rehypothecation of collateral posted to it and by it in connection with OTC derivatives transactions.
The Board believes that the requested report would provide shareholders with no appreciable benefitand therefore that the costs involved do not justify the proposed undertaking. The Board further believes that the proposed policies regarding collateral would be detrimental to the Firm and the financial markets generally.
Accordingly, the Board recommends a vote against this proposal.
Proposal 7 – Shareholder action by written consent
Mr. John Chevedden, as agent for Mr. Kenneth Steiner, 14 Stoner Avenue, Great Neck, NY 11021, the holder of 1,050 shares of common stock, has advised us that he intends to introduce the following resolution:
RESOLVED,Shareholders hereby request that our board of directors undertake such steps as may be necessary to permit shareholders to act by the written consent of a majority of our shares outstanding to the extent permitted by law.
Taking action by written consent in lieu of a meeting is a mechanism shareholders can use to raise important matters outside the normal annual meeting cycle.
Limitations on shareholders’ rights to act by written consent are considered takeover defenses because they may impede the ability of a bidder to succeed in completing a profitable transaction for us or in obtaining control of the board that could result in a higher price for our stock. Although it is not necessarily anticipated that a bidder will materialize, that very possibility presents a powerful incentive for improved management of our company.
A study by Harvard professor Paul Gompers supports the concept that shareholder disempowering governance features, including restrictions on shareholders’ ability to act by written consent, are significantly correlated to a reduction in shareholder value.
The merit of this Shareholder Action by Written Consent proposal should also be considered in the context of the need for improvement in our company’s 2009 reported corporate governance status:
The Corporate Library, www.thecorporatelibrary.com, an independent investment research firm rated our company and the national economy as a whole. Credit card policies and practices designed to strengthen (rather than abuse) consumers’ financial health“High Concern” in executive pay.
Regarding executive pay, our company “believes that it is consistent with effective risk management that variable compensation awards are discretionary, not formulaic.” This belief was not in the best interestinterests of shareholders according to The Corporate Library due to the resulting lack of transparency about how and whether executives were being paid based on their performance. Because awards were discretionary, shareholders did not know the basis for the amounts of pay given to the named executive officers (NEOs). Four NEO’s received an aggregate bonus of $8 million as well as $8 million in restricted stock units (RSUs) in January 2009. This level of pay for short-term performance after a disappointing year was not in shareholders’ best interest.
Moreover, the disadvantage of restricted stock is that it provides rewards whether the stock price rises or falls and it is often not tax deductible under IRC Section 162(m). In January 2008, our CEO James Dimon received $14.5 million in RSUs. At the same time, he was given nearly $20 million in stock appreciation rights (SARs). The large size of this SARs award raised concerns over the link between executive pay and company and its clients.performance since small increases in our company’s share price can result in large increases in value of the awards.
No NEO pay was based on specific performance measures or tied to our company’s performance for longer than one year. This raised concerns that executive pay practices may not be well aligned with shareholder interests.
The above concerns shows there is need for improvement. Please encourage our board to respond positively to this proposal to enable shareholder action by written consent – Yes on 7.
Board response to proposal 7:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
Our vision isMatters that are sufficiently important to create lifelong, engaged relationships with our customersbe subject to a shareholder vote should be communicated to all shareholders of the corporation.Action by being a trusted provider of financial services.
We dowritten consent does not engage in the practices cited by the proponents as “predatory.”
We have eliminated practices such as universal default, credit bureau-triggered re-pricing,require communication to all shareholders and double cycle billing.
Wethereby disenfranchises those who do not have the opportunity to participate. Unless otherwise provided in a corporation’s certificate of incorporation, Delaware law permits any “fee-harvester” card products where we impose activationaction required or maintenance fees.
We do not engage in “bait and switch” marketing or other practices we deempermitted to be deceptive.
We comply withtaken by shareholders at a meeting to be taken without prior notice, without a meeting, and without a shareholder vote if a written consent setting forth the action to be taken is signed by the holders of shares of outstanding stock having the requisite number of votes that would be necessary to authorize the action at a shareholder meeting at which all regulations relatedshares entitled to billing practices,vote were present and voted. Because the Firm’s certificate of incorporation includes a provision that prohibits shareholder action by written consent, shareholders must be provided advance notice and an opportunity to participate in determining any action subject to a shareholder vote.
Shareholders should be provided sufficient information and time to make payments,consider matters proposed for action.Action by shareholders should be taken at an annual or special meeting at which a proposal is submitted in accordance with advance notice and fee disclosures.
Chase does not seekdisclosure requirements. Provisions of the Firm’s By-Laws require minimum advance notice and disclosures regarding the matters to originate sub-prime credit card relationships.
Chase credit card customers are largely inbe presented and actions to be voted upon, as well about the “prime” and “super-prime” categories —interests of the most responsible and knowledgeable usersproponents of credit in the country.
Wesuch actions. This process ensures that shareholders will align the Washington Mutual credit card relationships to fit the Chase model.
“Chase Clear and Simple” offers customers assistance in the responsible management of their financial health.
The Firm shares the proponents’ concern for consumers’ financial health and for the responsible granting and use of credit.
For that reason, nearly two years ago we began an ongoing initiative called Chase Clear & Simple — www.chaseclearandsimple.com — a broad collection of tools,have sufficient information and business practices that can help customers easily and effectively manage their accounts, avoid unnecessary fees, and increase their financial literacy.
We help young adults carefully entertime to weigh the world of credit.arguments presented by all sides.
Chase’s student card portfolio is very small, representing less than one percent of our total portfolio. We do not conduct student-focused credit card marketing on or near campuses and do not use student mailing lists from colleges to target studentsOur shareholders already have a mechanism for offers.
The Firm’s average credit line for new student card holders is $700-$1,000, so that students can gain experience using credit and build a credit history withoutraising important matters outside the ability to get deeply in debt. Credit lines for student accounts can only be increased with demonstrated responsible behavior.
The Firm’s student credit card product (Chase +1) rewards students for completing online credit education and for paying on time, unlike traditional rewards cards that offer rewards based on the amount spent.
The Firm provides student cardholders with valuable credit education and budgeting tools available through www.chaseclearandsimple.com. We also send credit education materials to all student cardholders throughout the year.
Because the Firm does not engage in the practices cited by the proponents as “predatory,”annual meeting cycle.As more fully described at page 6, the Board believes thatamended the requested report would provideFirm’s By-laws in January 2010, to permit shareholders with no appreciable benefit, and thereforeholding at least 20% of the Board believes thatoutstanding common shares to call a special meeting. This action reduced the costs involved do not justify the proposed undertaking.ownership threshold from 33 1/3% of outstanding common shares.
Accordingly, the Board recommends a vote against this proposal.
Proposal 8 – Changes to KEPPIndependent chairman
AFSCME Employees Pension Plan, 1625 LTrowel Trades S&P 500 Index Fund, 620 F Street, N. W., Washington DC 20036-5687, the holder of 48,065120,398 shares of our common stock, has advised us that it intends to introduce the following resolution: RESOLVED that
RESOLVED:The shareholders of JPMorgan Chase & Co. (“JPM”Company”) urge the Compensation & Management Development Committee (the “Committee”Board of Directors to amend the Company’s by laws, effective upon the expiration of current employment contracts, to require that an independent director – as defined by the rules of the New York Stock Exchange (“NYSE”) – be its Chairman of the Board of Directors. The amended by laws should specify (a) how to makeselect a new independent chairman if a current chairman ceases to be independent during the following changestime between annual meetings of shareholders, and (b) that compliance is excused if no independent director is available and willing to the Key Executive Performance Plan (“KEPP”)serve as applied to senior executives, in order to promote a longer-term perspective:
1. | An award to a senior executive under the KEPP (a “Bonus”) that is based on one or more financial measurements (each, a “Financial Metric”) whose performance measurement period (“PMP”) is one year or shorter shall not be paid in full for a period of three years (the “Deferral Period”) following the end of the PMP; |
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2. | The Committee shall develop a methodology for (a) determining what proportion of a Bonus should be paid immediately, (b) adjusting the remainder of the Bonus over the Deferral Period to reflect performance on the Financial Metric(s) during the Deferral Period and (c) paying out the remainder of the Bonus, adjusted if required, during and at the end of the Deferral Period; and |
3. | The adjustment described in 2(b) should not require achievement of new performance goals but should focus on the quality and sustainability of performance on the Financial Metric(s) during the Deferral Period. |
The policy should be implemented in a way that does not violate any existing contractual obligation of JPM or the terms of any compensation or benefit plan currently in effect.chairman.
SUPPORTING STATEMENT
As long-term shareholders, we support compensation policiesThe wave of corporate scandals at such companies as Enron, WorldCom and Tyco resulted in renewed emphasis on the importance of independent directors. For example, both the NYSE and the NASDAQ have adopted new rules that promotewould require corporations that wish to be traded on them to have a majority of independent directors.
All of these corporations also had a Chairman of the creationBoard who was also an insider, usually the Chief Executive Officer (“CEO”), or a former CEO, or some other officer. We believe that no matter how many independent directors there are on a board, that board is less likely to protect shareholder interests by providing independent oversight of sustainable value. We are concernedthe officers if the Chairman of that short-term incentive plans, if not designed with effective safeguards, can encourage senior executivesboard is also the CEO, former CEO or some other officer or insider of the company.
Andrew Grove, former chairman and CEO of Intel Corporation, recognized this, and relinquished the CEO’s position. “The separation of the two jobs goes to managethe heart of the conception of a corporation. Is a company a sandbox for the short termCEO, or is the CEO an employee? If he’s an employee, he needs a boss, and take on excessive risk.that boss is the board. The current financial crisis provides a stark example of whatchairman runs the board. How can happen when executives are rewarded for short-term financial performance without any effort to ensure that the performance is sustainable.CEO be his own boss?” (Business Week, November 11, 2002).
The 2007 bonus awards for the named executive officers as a multiple of base salary ranged from 7.5 to 14.5 times salary. According to the 2008 proxy, bonus awards are made under the KEPP, which gives the Committee substantial discretion in making awards.
Accordingly, this proposal urges that the KEPP be changed to encourage a longer-term orientation on the part of senior executives. Specifically, the proposal asks that the Committee develop a system for holding back some portion of each bonus based on short-term financial metrics for a period of three years and adjusting the unpaid portion to account for performance during that period. The proposal gives the Committee discretion to set the terms and mechanics of this process.
In November 2008, UBS AG announcedWe also believe that it would adopt a variable compensation system similar tois worth noting that many of the one suggested in this proposal. In explaining why it made the change, UBS statedother companies that the new program “should bring about a cultural shiftwere embroiled in the company. Those who are rewarded will be those who deliver good results over several years without assuming unnecessarily high risk.” (Press release dated Nov. 17, 2008)financial turmoil stemming from the recent crisis in the financial services industry – Bank of America, Citigroup, Merrill Lynch, Morgan Stanley, Wachovia and Washington Mutual did not have an independent Chairman of the Board of Directors.
We respectfully urge shareholdersthe board of our Company to vote FOR this proposal.change its corporate governance structure by having an independent director serve as its Chairman.
Board response to proposal 8:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
JPMorgan Chase believes compensationThe Board has no set policy on whether or not to have a non-executive chairman, but has determined that the most effective leadership model for our Firm currently is that Mr. Dimon serves as both Chairman and CEO.The fundamental question raised by this proposal is whether a board of directors should be determinedpermitted to structure itself in a manner that reflects the needs of the corporation and the capabilities of its directors or whether a structure should be imposed upon it. The Board of Directors believes that the decision as to who should serve as Chairman and Chief Executive Officer, and whether the offices should be combined, should be the responsibility of the Board, reflecting all factors deemed relevant by weighing multiple criteriathe Board, including the views of shareholders.
The Board provides independent oversight of management.Independent directors comprise more than 90% of the Board and 100% of the Audit, Governance and Compensation Committees. Board and Committee agendas are prepared by the Chairman based on business judgment,discussions with all directors. The Committee Chairs, all of whom are independent, review and approve the agendas and materials for their committee meetings. At each regularly scheduled Board meeting, the non-management directors generally meet in executive session with no members of management present and may discuss any matter they deem appropriate, including evaluation of the CEO and other senior officers.
The Board has had a Presiding Director since 2006.The Presiding Director presides at executive sessions of non-management directors and at all Board meetings at which the Chairman is not by formulas.present, and has the authority to call meetings of non-management directors. The Firm’s compensation policies are discussed in detail inPresiding Director facilitates communication between the Chairman and CEO and the non-management directors, as appropriate, and performs such other functions as the Board directs. The role of Presiding Director alternates each six months between the Chair of the Compensation DiscussionCommittee, Mr. Raymond (January through June) and Analysis, starting at page 9. In brief:
Compensation determinations consider sustained performance over time and involve a weighing of multiple criteria, including risk-adjusted returns rather than revenues, client satisfaction, contributions across business lines, managing expenses and risk, and supporting the Firm’s values.
We do not use a formulaic approach because we believe such an approach may potentially provide incentive for excessive risk taking in order to maximize payout under a chosen formula, and would not capture the full scopeChair of the objectives we require senior officers to pursue, including qualitative ones.
Performance is based on a multi-year perspectiveGovernance Committee, Mr. Novak (July through December). The Presiding Director’s role and considersinteractions with the performance of the individual, the line of businessChairman, Committee Chairs and the Firm as a whole.
JPMorgan Chase already has in place policies that would permit adjustment of incentive compensation awards in response to subsequent changes in the information on which the award decision was based.
Stock-based awards vest over multiple years and are subject to the Firm’s right to cancel the award prior to full vesting, and to require repayment of the value of any distributions received under awards already vested, to the extent the Firm determines that the award was based on materially inaccurate performance metrics or on any misrepresentation by the employee.
In 2006 the Firm adopted a bonus recoupment policy under which the Firm may seek repayment of incentive compensation in the event of a material restatement of the Firm’s financial results for the relevant period.
In addition, the Firm will comply with all applicable TARP-related requirements, including those related to clawbacks of compensation.
New conditions added to RSUs and SARs granted in January 2009, provide safeguards similar to those proposed.
Forother members of the Operating Committee –Board are outlined in Appendix A. This framework well serves the Firm by having an independent director serve as Presiding Director at all times, rotating the additional duties between two well-qualified directors, and providing continuity in the role from year to year.
The Firm has a strong corporate governance structure.The existing mechanisms outlined in the Firm’s mostCorporate Governance Principles and Board committee charters provide multiple layers of independent discussion and evaluation of, and communication with, senior executives – equity awards granted in January 2009 contain new conditionsmanagement. The Board believes that we believe provide safeguards similar to those proposed. As described above at page 11, for membersthe candor and objectivity of the Firm’s Operating Committee, although itBoard’s deliberations are not affected by whether its Chairman is intended and expectedindependent or a member of management. The strength of our corporate governance structure is such that the RSU and SAR awards will vest and/or become exercisable as scheduled, the terms and conditionscombination of the awards allow for reduction, forfeiture or deferral
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| of scheduled vesting or of exercisability in the event of a determination by the CEO, as part of the Firm’s annual performance assessment process, based on the CEO’s assessment of the performance of the executive and the Firm (which may include more than one performance year), that an executive has not achieved satisfactory progress toward the executive’s priorities or that the Firm has not achieved satisfactory progress toward the Firm’s priorities for which the executive shares responsibility as a member of the Operating Committee. Such determination is subject to ratification by the Compensation Committee.
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RSU grants vest 50% after 2 yearsroles of Chairman and 50% after 3 years and SARs become exercisable 20% per year over 5 years, andCEO does not in any way limit the above condition applies throughout the vesting periodBoard’s oversight of the grants.
Individual awards made under the Firm’s KEPP are not based on financial measurements.The KEPP establishes a cap on the aggregate incentive compensation and the individual awards of the covered executives based on the Firm’s earnings for the relevant period, but the awards to individual executives are not determined based on formulas tied to earnings, shareholder return, or other measures.CEO.
Based on the award practices we follow and safeguards we already have, the Board believes the proposed amendment is unnecessary and not in the interests of shareholders.
Accordingly, the Board recommends a vote against this proposal.
Proposal 9 – Pay disparity
Helena Halperin, 11 Gray Street, Arlington, MA 02476-6430, the holder of 540 shares of common stock, has advised us that she intends to introduce the following resolution:
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 polices 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.
Board response to proposal 9:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
Our long-term success as a premier financial services firm depends in large measure on the talents of all of our employees. JPMorgan Chase strives to be the employer of choice for all of its employees. We have designed our compensation programs to attract, retain and motivate the highest quality workforce. At our various locations around the world, we seek to be competitive with other top companies in the market, in salary and benefit packages, for workers at all compensation levels. This emphasis on competitive pay is essential to attracting and retaining qualified and enthusiastic personnel, which in turn is essential to the success of all our business endeavors and to maximizing shareholder value.
We are proud of our record of fairness and concern for the welfare of all who work at the Firm.In addition to competitive wages, the Firm makes a wide array of benefits generally available to employees – a choice of health and dental insurance plans, life, accident, disability, long-term care, and other insurance programs, and retirement savings plans. The cost of these plans is partially funded by the Firm. In short, JPMorgan Chase prides itself on being a great place to work, for employees at all levels, both in terms of competitive wages and salaries, and in terms of other benefits.
JPMorgan Chase provides appropriate compensation to all of its employees that is commensurate with their levels of responsibility, recognizes their contributions to the Firm’s performance, and encourages future successes.Compensation of our most senior executives reflects their experience and scope of responsibility for leading lines of business or key functions, and also the actual and potential impact of the person and his or her position on the Firm’s results. In assessing their performance, we consider:
Performance of the individual officer, the relevant line of business and the Firm as a whole;
Performance that is based on measurable and sustained financial results through the business cycle; and
Quantitative and qualitative factors focused on financial performance, management effectiveness, growth, people development and risk/control management.
The Firm describes its compensation philosophy and approach, policies and practices, and elements of executive compensation in the Compensation Discussion and Analysis section of this proxy statement, which the Board believes is more meaningful to shareholders than the requested report.
Accordingly, the Board recommends a vote against this proposal.
Proposal 10 – Share retention
AFL-CIO Reserve Fund, 815 Sixteenth Street, N.W., Washington DC 20006, the holder of 2,5152,974 shares of common stock, has advised us that it intends to introduce the following resolution:
Resolved, theResolved:The shareholders of JPMorgan Chase & Co. (the “Company”) urge the Board of Directors (the “Board”) to adopt a policy requiring the Named Executive Officers (“NEOs”)all senior executives to retain 75% of the shares acquired through the Company’sall equity-based compensation, plans, excluding tax-deferred retirement plans,including restricted stock units, for at least two years following their departure from the termination of their employment (throughCompany, through retirement or otherwise), and to report to shareholders regarding the adoption of this policy before the Company’s 2010 annual meeting.otherwise. The policy also should prohibit hedging techniquestransactions that are not sales but offset the risk of lossesloss to executives.the executive. This proposal shallpolicy will not apply to awards under future stock option plansexisting contracts but should cover new contracts and extensions or compensation agreements with NEOs.replacements of existing contracts.
SUPPORTING STATEMENTSupporting Statement
Equity-based compensation is an important component of the senior executive compensation program at our Company. According toOur Company is among the Company’s 2008 proxy statement, equity-based awards, including stock and stock option awards, accounted for between 43% and 75%financial institutions that received financial assistance under the U.S. Treasury Department’s Troubled Asset Relief Program (“TARP”), although it has since repaid the funds.
We recognize that our Company requires members of the total compensation for the NEOs during fiscal 2007. Of the $94.9 million in compensation earned by the five NEOs, $54.5 million, or 57%, came from stockExecutive Committee to hold 75 percent of their equity awards and stock options.
Requiringuntilretirement. However, we believe that requiring senior executives to hold a significant portion of the shares acquiredreceived through the Company’s compensation plans for at least two years after their termination of employment would tie their economic interests to the long-term success ofthey depart from the Company and motivateforces them to focus on the Company’s long-term business objectivessuccess and better align their interests with that of shareholders. The absence of such a requirement may enable thesecan allow senior executives to unduly focus their decisions andwalk away without facing the consequences of actions towardsaimed at generating short-term financial results atresults.
We believe that the expense of the Company’s long-term success. The current financial crisis has made it imperative for companies to reconsider and reshape executive compensation policies and practices to discourage excessive risk-taking and promote long-term, sustainable value creation.
Several well-regarded business organizations support “hold past retirement” policies. The Aspen Principles, endorsed by the largest business groups including The Business Roundtable and the U.S. Chamber of Commerce, Business Roundtable andas well as the Council of Institutional Investors recommendand the AFL-CIO, urge that “senior executives hold a significant portion of their equity-based compensation for a period beyond their tenure.”
Further, aA 2002 report by a commission of The Conference Board endorsed athe idea of equity holding requirement,requirements for executives, stating that the long-term focus promoted thereby “may help prevent companies from artificially propping up stock prices over the short-term to cash out options and making other potentially negative short-term decisions.”
Our Company requires senior executives to hold at least 75% of the equity awarded to them during their employment. We believe that the NEOssenior executives should be required to hold equity awards for at least two years after terminationtheir departure to ensure they share in both the upside and downside risk of their actions while at the Company. This policy will apply in addition to any other equity holding requirements that our Board has established for senior executives.
We urge shareholders to vote forFOR this proposal.
Board response to proposal 9:10:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
The Firm already has a 75% share retention policy covering more than 50 of our most senior executives –officers.MembersThe 59 members of the Executive Committee, comprising 55 of the Firm’s most senior executives, includingwhose members include the Named Executive Officers, and the other members ofexecutive officers comprising the Operating Committee, and approximately 40 additional officers, are required to maintain a significant level of direct ownership and are subject to our share retention policy.
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These executives are required to retain at least 75% of thepolicy for shares they receive from equity-based awards, including options, after deduction for option exercise costs and taxes.options.
For members of the Operating Committee, the retention policy also applies to shares they held at the time of their appointment to that committee.
– | Members of the Operating Committee – the Firm’s 16 executive officers – are required to retain at least 75% of such shares. This policy applies to such shares they held at the time of their appointment to the Operating Committee and to all shares received thereafter. |
This policy continues to apply for the duration of their employment with the Firm.
– | Members of the Executive Committee who are not also members of the Operating Committee are required to retain at least 50% of such shares received since the time of their appointment to the Executive Committee plus a portion of the shares held at the later of January 1, 2010 or their appointment to this committee. |
We have always paid a significant percentage of our incentive compensation in stock – 50% or more for our most senior management group. If the percentage paid as stock exceeds 50%, the retention requirement does not apply to the excess.
– | We have always paid a significant percentage of our incentive compensation in stock – 50% or more for our most senior management group. |
The General Counsel may approve exceptions to the retention policy in cases of unforeseen or unusual personal circumstances.
– | The General Counsel may approve exceptions to the retention policy in cases of unforeseen or unusual personal circumstances. |
Our senior executives cannot hedge their holdings of JPMorgan Chase stock –stock.Executive Committee members are not permitted to sell short, enter into derivative contracts on, or otherwise hedge the economic risk of their ownership of JPMorgan Chase shares.
Executives have a continuing interest past retirement through our award vesting schedule –schedule.
RSU awards generally vest 50% after 2 years and 50% after 3 years. Stock appreciation rights awarded periodically become exercisable 20% per year over 5 years.
– | RSU awards generally vest 50% after two years and 50% after three years. Stock appreciation rights awarded periodically become exercisable 20% per year over five years. Shares acquired upon exercise generally must be held for at least five years from the grant date. |
Upon retirement or termination of employment without cause, the RSUs continue to vest according to the same schedules.
– | Upon retirement or termination of employment without cause, the RSUs continue to vest according to the same schedules. |
These vesting provisions render a significant portion of the equity compensation at risk for up to three years after retirement.
– | These vesting and hold provisions render a significant portion of the equity compensation at risk for a period of years after retirement. |
Our compensation practices encourage a focus on long-term performance –performance.The Firm’s compensation practices and policies, which include equity-based compensation as a significant component of total compensation, vesting periods over multiple years, and policies requiring 75%share retention requirements for shares acquired and prohibition of hedging, align the interests of senior executives with those of shareholders and encourage a focus on long-term performance of the Firm.
Accordingly, the Board recommends a vote against this proposal.
Proposal 10 – Executive compensation
Indiana Laborers’ Pension Fund, PO Box 1587, Terre Haute, Indiana 47808-1587, the holder of 40,952 shares of our common stock, has advised us that it intends to introduce the following resolution:
Resolved:Given that JP Morgan Chase & Company (“Company”) is a participant in the Capital Purchase Program established under the Troubled Asset Relief Program (“TARP”) of the Economic Emergency Stabilization Act of 2008 (“Stabilization Act”) and has received an infusion of capital from the U.S. Treasury, Company shareholders urge the Board of Directors and its compensation committee to implement the following set of executive compensation reforms that impose important limitations on senior executive compensation:
A limit on senior executive target annual incentive compensation (bonus) to an amount no greater than one times the executive’s annual salary;
A requirement that a majority of long-term compensation be awarded in the form of performance-vested equity instruments, such as performance shares or performance-vested restricted shares;
A freeze on new stock option awards to senior executives, unless the options are indexed to peer group performance so that relative, not absolute, future stock price improvements are rewarded;
A strong equity retention requirement mandating that senior executives hold for the full term of their employment at least 75% of the shares of stock obtained through equity awards;
A prohibition on accelerated vesting for all unvested equity awards held by senior executives;
A limit on all senior executive severance payments to an amount no greater than one times the executive’s annual salary; and
A freeze on senior executives’ accrual of retirement benefits under any supplemental executive retirement plan (SERP) maintained by the Company for the benefit of senior executives.
Supporting Statement:Many Company shareholders are experiencing serious financial losses related to the problems afflicting our nation’s credit markets and economy. The Company’s financial and stock price performance has been challenged by these credit market events and their impact on the nation’s economy. The Company’s participation in the Stabilization Act’s TARP is the result of these broad capital market problems and decisions made by Company senior executives.
Generous executive compensation plans that produce ever-escalating levels of executive compensation unjustified by corporate performance levels are major factors undermining investor confidence in the markets and corporate leadership. Establishing renewed investor confidence in the markets and corporate leadership is a critical challenge. Congress enacted executive compensation requirements for those companies participating in the Stabilization Act’s TARP. Unfortunately, we believe those executive compensation restrictions fail to adequately address the serious shortcomings of many executive compensation
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plans. This proposal calls for a set of more rigorous executive compensation reforms that we believe will significantly improve the pay-for-performance features of the Company’s plan and help restore investor confidence. Should existing employment agreements with Company senior executives limit the Board’s ability to implement any of these reforms, the Board and its compensation committee is urged to implement the proposed reforms to the greatest extent possible. At this critically important time for the Company and our nation’s economy, the benefits afforded the Company from participation in the TARP justify these more demanding executive compensation reforms.
Board response to proposal 10:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
JPMorgan Chase follows responsible executive compensation practices consistent with effective risk management. Our executive compensation practices are described above starting at page 13.They include:
Compensation for our most senior executives reflects their experience and scope of responsibility for lines of business or key functions.
In determining compensation, we follow a disciplined but not formulaic process that weighs multiple financial and non-financial criteria to assess the performance of the individual, the line of business and the Firm as a whole. In our view, formulas are not a substitute for good judgment and have the potential to create undue risk from actions designed to maximize payouts under whatever formula may be chosen.
Performance is based on a multi-year perspective.
Executive compensation is tied to long-term performance of the Firm.
| - | | We pay a significant percentage of incentive compensation in stock – 50% or more for our most senior executives.
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| - | | The most senior executives generally must retain at least 75% of all equity awards granted to them.
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There are no change-of-control provisions or accelerated vesting of equity awards upon retirement.
There are no special executive severance plans or executive benefits.
| - | | The Firm’s policy limits severance to a maximum of 52 weeks salary.
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| - | | Our Firm-wide excess pension plan is based on base salary up to a cap of $1 million.
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The American Recovery and Reinvestment Act of 2009 (ARRA) imposed significant limitations on executive compensation that overlap this proposal.ARRA became law February 17, 2009, and amended the executive compensation provisions of the Emergency Economic Stabilization Act of 2008, the law to which the proponents refer. Under the amended legislation, the Secretary of the Treasury must require participants in the Capital Purchase Program, including JPMorgan Chase, to meet appropriate standards for executive compensation and corporate governance, specifically including:
Limits on compensation that exclude incentives for senior executive officers to take unnecessary and excessive risks that threaten the value of the institution.
The Board’s Compensation Committee is required to meet at least semi-annually to discuss and evaluate employee compensation plans in light of an assessment of any risk posed to the institution from such plans.
A provision for the recovery of any bonus, retention award, or incentive compensation paid to a senior executive officer and any of the next 20 most highly compensated employees based on statements of earnings, revenues, gains or other criteria that are later found to be materially inaccurate.
A prohibition on making any golden parachute payment to a senior executive officer or any of the next 5 most highly compensated employees.
A prohibition on paying or accruing any bonus, retention award or incentive compensation other than long-term restricted stock that does not fully vest while the Treasury’s investment remains outstanding and is limited to one-third of the employee’s total annual compensation. As applicable to JPMorgan Chase, this applies to the senior executive officers and at least the 20 next most highly compensated employees.
The CEO and CFO will be required to certify compliance annually with such standards as may be adopted by the Treasury.
The proposed practices are unnecessary in light of our existing practices and the requirements of ARRA.We believe our practices to be responsible and consistent with effective risk management, and many are similar to those listed in the proposal. We will modify our practices as appropriate to comply with applicable regulations under the Capital Purchase Program and will, as with any of our key practices, continue to review them in light of ongoing discussions with shareholders and regulatory bodies to ensure they remain appropriate for the Firm and its shareholders. Based on our practices and the requirements of ARRA, we believe that the proposal is unnecessary and not in the interests of shareholders.
Accordingly, the Board recommends a vote against this proposal.
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Proposal 11 – Carbon principles report
Free Enterprise Action Fund, 12309 Briarbush Lane, Potomac, MD 20854, the holder of 3,228 shares of common stock, has advised us that it intends to introduce the following resolution:
Resolved: The shareholders request that the Company prepare by October 2009, at reasonable expense and omitting proprietary information, a Carbon Principles Report. The report should describe and discuss how the Company’s implementation of the Carbon Principles has impacted the environment.
Supporting Statement:
Coal is used to provide 50 percent of the U.S. electricity supply. The burning of coal by U.S. electricity utilities is clean and safe for the environment. Air emissions are regulated by states and the federal government. Since burning coal is the least expensive way to produce electricity, consumers and the U.S. economy benefit from comparatively low electricity rates.
In February 2008, the Company adopted the so-called “Carbon Principles,” a policy stigmatizing and discriminating against coal-fired electricity based on the dubious assumption that carbon dioxide emissions from the burning of coal are causing global warming.
But in May 2008, the Oregon Institute of Science and Medicine released a petition signed by more than 31,000 U.S. scientists stating, “There is no convincing scientific evidence that human release of carbon dioxide, methane or other greenhouse gases is causing, or will cause in the future, catastrophic heating of the Earth’s atmosphere and disruption of the Earth’s climate…”
India’s National Action Plan on Climate Change issued in June 2008 states, “No firm link between the documented [climate] changes described below and warming due to anthropogenic climate change has yet been established.”
Researchers belonging to the UN Intergovernmental Panel on Climate Change (IPCC) reported in the science journalNature(May 1, 2008) that, after adjusting their climate model to reflect actual sea surface temperatures of the last 50 years, “global surface temperature may not increase over the next decade,” since natural climate variation will drive global climate.
Climate scientists reported in the December issue of theInternational Journal of Climatology,published by the UK’s Royal Meteorological Society, that observed temperature changes measured over the last 30 years don’t match well with temperatures predicted by the mathematical climate models relied on by the United Nations Intergovernmental Panel on Climate Change (IPCC).
A British judge ruled in October 2007 that Al Gore’s film, “An Inconvenient Truth,” contained so many factual errors that a disclaimer was required to be shown to students before they viewed the film.
Board response to proposal 11:
The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:
The Carbon Principles provide an approach to evaluating and addressing carbon risks in the financing of electric power projects.In February 2008, the Firm announced the adoption of the Carbon Principles, guidelines for lenders and advisors to power companies in the United States, which can be viewed on our Web site at www.jpmorganchase.com, under Corporate Responsibility. The Principles were designed to provide a thoughtful framework for assessing the risks associated with arranging new credit facilities and underwriting debt securities for electric utilities that may be affected by:
various forms of climate change legislation,
the demands from various private and government sources for improved energy efficiency (some of which will inevitably be made the responsibility of utilities),
the potential impact on the utility of the imposition of a carbon price (at various levels of cost), and
the prospects for a utility to invest in renewable energy as an alternative fuel source.
Considering all of these factors allows us to make a better credit assessment of a utility, which is why these measures are referred to as “Enhanced Diligence.” If high carbon dioxide-emitting technologies are selected by power companies, the Principles offer the signatory banks an agreed process for factoring associated risks and potential mitigants into the final financing decision.
Thus the Principles and associated Enhanced Diligence are aimed at providing banks and their power industry clients with a consistent roadmap for reducing the financial risks associated with greenhouse gas emissions. The Principles do not prescribe how power companies should act to meet the power needs of consumers.
The Carbon Principles have received wide acceptance.
The Carbon Principles were developed in partnership with Citi and Morgan Stanley and in consultation with leading power companies American Electric Power, CMS Energy, DTE Energy, NRG Energy, Public Service Enterprise Group, Sempra Energy and Southern Company. Environmental Defense and the Natural Resources Defense Council, environmental non-governmental organizations, also advised on the creation of the Principles.
Signatories now include Bank of America, Credit Suisse, and Wells Fargo.
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The Firm already reports on its environmental activities.While the Carbon Principles are not designed to impact the environment, JPMorgan Chase does engage in other activities that are intended to foster environmental responsibility. The Firm reports on these activities in its Corporate Social Responsibility Report which can be viewed on our Web site at www.jpmorganchase.com, under Corporate Responsibility. The requested report would not add to this discussion.
Because the Carbon Principles were adopted as a risk management tool and were not intended to impact the environment, the Board believes that the requested report would provide shareholders with no appreciable benefit, and therefore the Board believes that the costs involved do not justify the proposed undertaking.
Accordingly, the Board recommends a vote against this proposal.
General information about the meeting
Who can vote
You are entitled to vote your JPMorgan Chase common stock if our records showed that you held your shares as of the record date, March 20, 2009.19, 2010. At the close of business on that date, a total of ___________ shares of common stock were outstanding and entitled to vote. Each share of JPMorgan Chase common stock has one vote. Your vote is confidential and will not be disclosed to persons other than those recording the vote, except as may be required in accordance with appropriate legal process or as authorized by you.
Voting your proxy
If your common stock is held through a broker, bank, or other nominee (held in street name), you will receive instructions from them that you must follow in order to have your shares voted.
If you hold your shares in your own name as a holder of record with our transfer agent, BNY Mellon InvestorShareowner Services, LLC, you may instruct the proxies how to vote by using the toll free telephone number or the Internet voting site listed on the proxy card, or by signing, dating, and mailing the proxy card in the postage paid envelope that we have provided for you. Specific instructions for using the telephone and Internet voting systems are on the proxy card. Of course, you can always come to the meeting and vote your shares in person. Whichever of these methods you select to transmit your instructions, the proxies will vote your shares in accordance with those instructions. If you sign and return a proxy card without giving specific voting instructions, your shares will be voted as recommended by our Board of Directors.
Matters to be presented
We are not now aware of any matters to be presented other than those described in this proxy statement. If any matters not described in the proxy statement are properly presented at the meeting, the proxies will use their own judgment to determine how to vote your shares. If the meeting is adjourned, the proxies can vote your common stock at the adjournment as well, unless you have revoked your proxy instructions.
Revoking your proxy
If your common stock is held in street name, you must follow the instructions of your broker, bank or other nominee to revoke your voting instructions. If you are a holder of record and wish to revoke your proxy instructions, you must advise the Secretary in writing before the proxies vote your common stock at the meeting, deliver later dated proxy instructions, or attend the meeting and vote your shares in person. Unless you decide to attend the meeting and vote your shares in person after you have submitted voting instructions to the proxies, we recommend that you revoke or amend your prior instructions in the same way you initially gave them – that is, by telephone, Internet, or in writing. This will help to ensure that your shares are voted the way you have finally determined you wish them to be voted.
How votes are counted
A quorum is required to transact business at our annual meeting. Stockholders holding of record shares of common stock constituting a majority of the voting power of stock of JPMorgan Chase having general voting power present in person or by proxy shall constitute a quorum. If you have returned valid proxy instructions or attend the meeting in person, your common stock will be counted for the purpose of determining whether there is a quorum, even if you abstain from voting on some or all matters introduced at the meeting. In addition, broker non-votes will be treated as present for purposes of determining whether a quorum is present.
Voting by record holders –If you hold shares in your own name, you may either vote for, withhold your vote from, or abstain from the election of each nominee for the Board of Directors, and you may vote for, against, or abstain on the other proposals. If you just sign and submit your proxy card without voting instructions, your shares will be voted for each director nominee, for ratification of the appointment of the independent registered public accounting firm, for the advisory vote on executive compensation, and against each shareholder proposal.
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Broker authority to vote –If you hold shares through a broker, bank, or other nominee, follow the voting instructions you receive from your broker, bank, or other nominee. If you want to vote in person, you must obtain a legal proxy from your broker, bank, or other nominee and bring it to the meeting. If you do not submit voting instructions to your broker, bank, or other nominee, your broker, bank, or other nominee may still be permitted to vote your shares under the following circumstances:
-– | | Discretionary items.The election of directors, ratification of the appointment of the independent registered public accounting firm and the advisory vote on executive compensation are discretionary items. Generally, brokers, banks and other nominees that do not receive instructions from beneficial owners may vote on these proposals in their discretion. |
-– | | Non-discretionary items.ApprovalThe election of directors and approval of the shareholder proposals are non-discretionary items and may not be voted on by brokers, banks and other nominees who have not received specific voting instructions from beneficial owners. |
Election of directors –At the meeting, each nominee must receive the affirmative vote of a majority of the votes cast in respect of his or her election to be elected. Accordingly, votes “withheld” from a nominee’s election will have the effect of a vote against that director’s election. If an incumbent nominee is not elected by the requisite vote, he or she must tender his or her resignation, and the Board of Directors, through a process managed by the Governance Committee, will decide whether to accept the resignation at its next regular meeting. Broker non-votes and abstentions will have no impact as they are not counted as votes cast.
All other proposals –The affirmative vote of a majority of the shares of common stock present in person or by proxy and entitled to vote on the proposal is required to approve all other proposals. In determining whether each of the other proposals has received the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote against the proposal. Broker non-votes will have no impact since they are not considered shares entitled to vote on the proposal.
Board recommendation
The Board of Directors recommends that you vote for each of the director nominees, for ratification of the appointment of the independent registered public accounting firm, for the advisory vote on executive compensation, and against each shareholder proposal.
Cost of this proxy solicitation
We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, we expect that a number of our employees will solicit shareholders personally and by telephone. None of these employees will receive any additional or special compensation for doing this. We have retained Georgeson Inc. to assist in the solicitation of proxies for a fee of $25,000$22,000 plus reasonable out-of-pocket costs and expenses. We will, on request, reimburse brokers, banks, and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.
Attending the annual meeting
Admission –If you attend the meeting in person you will be asked to present photo identification, such as a driver’s license. If you are a holder of record and plan to attend the annual meeting, please indicate this when you vote. The top half of the proxy card is your admission ticket. Your notice of internet availability of proxy materials (“notice of internet availability”) will also serve as your admission ticket. If you hold your common stock in street name, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you want to vote your common stock held in street name in person, you must get a written proxy in your name from the broker, bank, or other nominee that holds your shares.
Internet access –You may listen to a live audiocast of the annual meeting over the Internet. Please go to our Web site, www.jpmorganchase.com, early to download any necessary audio software.
Important notice regarding delivery of security holder documents
SEC rules and Delaware law permit us to mail the notice(s) of internet availability, or one annual report and proxy statement, or notice of internet availability, as applicable, in one envelope to all shareholders residing at the same address if certain conditions are met. This is called householding and can result in significant savings of paper and mailing costs. JPMorgan Chase households all annual reports, proxy statements and notices of internet availability annual reports and proxy statements mailed to shareholders.
If you choose not to household, you should send a written request (including your name and address) within 60 days after the mailing of this proxy statement to the Secretary at the address below. In addition, if you choose to continue householding but would like to receive an additional copy of the annual report, proxy statement or notice of internet availability annual report or proxy statement for members of your household, you may contact the Secretary at: JPMorgan Chase & Co., Office of the Secretary, 270 Park Avenue, New York, New York 10017 or by calling 212-270-6000. Shareholders residing at the same address who are receiving multiple copies of our annual report, proxy statement or notice of internet availability or the proxy statement and annual report may request householding in the future by contacting the Secretary at the address or phone number set forth above.
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Electronic delivery of proxy materials and annual report
You may access this proxy statement and our annual report to shareholders on our Web site at www.jpmorganchase.com, under the Investor Relations tab. From the Investor Relations tab, you also may access our 20082009 Annual Report on Form 10-K, by selecting “Financial information” and then “SEC filings” and then “10-K”.
If you would like to reduce the Firm’s costs of printing and mailing proxy materials for next year’s annual meeting of shareholders, you can opt to receive all future proxy materials, including the proxy statements, proxy cards and annual reports electronically via e-mail or the Internet rather than in printed form. To sign up for electronic delivery, please visit http://enroll.icsdelivery.com/enroll.icsde-livery.com/jpm and follow the instructions to register. Or alternatively, if you vote your shares using the Internet, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years. Prior to next year’s meeting, you will receive an e-mail notification that the proxy materials and annual report are available on the Internet and instructions for voting by Internet. Electronic delivery will continue in future years until you revoke your election by sending a written request to the Secretary at the address provided above under “Important notice regarding delivery of security holder documents”. If you are a beneficial, or “street name”, shareholder who wishes to register for electronic delivery, you should review the information provided in the proxy materials mailed to you by your broker, bank, or other nominee.
If you have agreed to electronic delivery of proxy materials and annual reports to shareholders, but wish to receive printed copies, please contact the Secretary at the address provided above.
A printed copy of our 2008 Annual Report on Form 10-K will be provided to you without charge upon written request to the Secretary at the address provided above.
Shareholder proposals and nominations for the 20102011 annual meeting
Proxy statement proposals
Under SEC rules, proposals that shareholders seek to have included in the proxy statement for our next annual meeting of shareholders must be received by the Secretary of JPMorgan Chase not later than December [ ], 2009.2010.
Other proposals and nominations
Our By-laws govern the submission of nominations for director or other business proposals that a shareholder wishes to have considered at a meeting of shareholders, but which are not included in JPMorgan Chase’s proxy statement for that meeting. Under our By-laws, nominations for director or other business proposals to be addressed at our next annual meeting may be made by a shareholder entitled to vote who has delivered a notice to the Secretary of JPMorgan Chase no later than the close of business on February [ ], 2010,2011, and not earlier than January [ ], 2010.2011. The notice must contain the information required by the By-laws.
These advance notice provisions are in addition to, and separate from, the requirements that a shareholder must meet in order to have a proposal included in the proxy statement under the rules of the SEC.
A proxy granted by a shareholder will give discretionary authority to the proxies to vote on any matters introduced pursuant to the above advance notice By-law provisions, subject to applicable rules of the SEC.
Copies of our By-laws are available on our Web site, www.jpmorganchase.com, under Governance under the About Us tab, or may be obtained from the Secretary.
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Anthony J. Horan |
Secretary |
41Secretary
Appendix A
Board of Directors – roles and responsibilities
The Board of Directors as a whole is responsible for the oversight of management on behalf of the Firm’s shareholders. The Board accomplishes this function acting directly and through its committees: the Audit Committee, Compensation & Management Development Committee (Compensation Committee), Corporate Governance & Nominating Committee (Governance Committee), Public Responsibility Committee and the Risk Policy Committee.
Chairman of the Board
While the Board has no set policy on whether or not to have a non-executive chairman, it has determined that the most effective leadership model for our Firm currently is that Mr. Dimon serve as both Chairman and Chief Executive Officer.
Independent oversight of management
Independent directors comprise more than 90% of the Board and 100% of the Audit, Governance and Compensation Committees. At each regularly scheduled Board meeting, the non-management directors generally meet in executive session with no members of management present and may discuss any matter they deem appropriate, including evaluation of the CEO and other senior officers and determination of their compensation.
Presiding Director
The Firm’s Presiding Director presides at executive sessions of non-management directors and at all Board meetings at which the Chairman is not present, and has the authority to call meetings of non-management directors. The Presiding Director facilitates communication between the Chairman and CEO and the non-management directors, as appropriate, and performs such other functions as the Board directs. The role of Presiding Director alternates each six months between the Chairs of the Compensation and Governance Committees. With this framework, an independent director serves as Presiding Director at all times, the additional duties rotate between two well-qualified directors, and continuity in the role is maintained from year to year.
Roles and interactions among Board members
| | | | | | |
Criteria/functions | | Chairman | | Presiding Director | | Committee Chairs |
Independence | | CEO serves as Chairman | | Independent | | Independent |
| | | |
Appointment | | Annually elected by Board (more than 90% of Board is independent) | | Rotates every six months: Chairs of Compensation and Governance Committees | | Annually appointed by Board |
| | | |
Preside at meetings | | Board and shareholder meetings | | Executive sessions of non- management directors, generally held as part of each Board meeting, and Board meetings when Chairman is not present | | Respective committee meetings |
| | | |
Authority to call meetings | | Board and shareholder meetings | | Meetings of non-management directors; Board meetings may be called by a majority of Board | | Respective committee meetings |
| | | |
Meetings, schedules, agendas and material | | Prepares based on discussion with all directors and management | | Discusses and determines along with all other directors | | Approve agendas and materials for respective committee meetings |
| | | |
Liaison | | Between directors and senior management | | Between non-management directors and senior management, including CEO, but all directors also have direct access to senior management including CEO | | Between committee members and Board, and between committee members and senior management, including CEO |
Appendix B
Director independence standards
| | |
Relationship | | Requirements for immateriality |
Loans | | Extensions of credit to a director, a director’s spouse, minor children and any other relative of the director who shares the director’s home or who is financially dependent on the director, or any such person’s principal business affiliations must be made in the ordinary course of business and on substantially the samesimilar terms as those prevailing forthat would be offered to comparable transactions with nonaffiliated persons. |
| |
| | counterparties in similar circumstances. Extensions of credit to such persons or entities must comply with applicable law, including the Sarbanes-OxleySarbanes- Oxley Act and Federal Reserve Board Regulation O. |
| |
| | When a director is an officer of a for-profit entity that is a client of the Firm, termination of the extension of credit to such entities in the normal course of business must not reasonably be expected to have a material adverse effect on the financial condition, results of operations or business of the borrower. |
| |
| | The extension of credit may not be on a non-accrual basis. |
| |
Financial services | | Financial services provided to a director, a director’s spouse, minor children and any other relative of the director who shares the director’s home or who is financially dependent on the director, or any such person’s principal business affiliations must be made in the ordinary course of business on substantially the samesimilar terms as those prevailing at the time forthat would be offered to comparable transactions with nonaffiliated persons. |
| |
| | When a director is an officer of a for-profit entity that is a client of the Firm, termination of the financial services providedcounterparties in the normal course of business must not reasonably be expected to have a material adverse effect on the financial condition, results of operations or business of such entities.similar circumstances. |
| |
Business transactions | | Transactions between the Firm and a director’s or a director’s immediate family member’s principal business affiliations for property or services, or other contractual arrangements, must be made in the ordinary course of business on substantially the same terms as those prevailing for comparable transactions with nonaffiliated persons. |
| |
| | TheFor transactions between the Firm and an entity for which a director is an employee, or a director’s immediate family member serves as an executive officer, the aggregate payments made by the other entity to the transaction to the Firm, or received by the other entity from the Firm, must not exceed in any one of its last three fiscal years, the greater of $1 million or 2% of such other entity’s annual consolidated gross revenues. |
| |
Charitable contributions | | The aggregate contributions made by the Firm (directly or through its Foundation) to any non-profit organization, foundation or university of which a director is employed as an officer must not exceed in any one of its last three fiscal years, the greater of $1 million or 2% of such entity’s annual consolidated gross revenues, excluding amounts contributed to match contributions made by employees. |
| |
Legal services | | Where a director is a partner or associate of, or of counsel to, a law firm that provides legal services to the Firm, neither the director nor a director’s immediate family member may provide such legal services to the Firm. |
| |
| | The aggregate payments made by the Firm to the law firm must not exceed the greater of $1 million or 2% of the law firm’s annual consolidated gross revenue in each of the three past fiscal years. |
| |
Director is a retired officer or a non-management director of an entity that does business with the Firm | | The relationship between the Firm and the entity will not be deemed relevant unless the Board determines otherwise. |
An “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who share such person’s home.
A “principal business affiliation” is an entity for which a person serves as an officer, owns more than 5% of, or is a general partner, but does not include an entity of which the person is a retired officer or for which the person serves as a non-management director (unless the Board determines otherwise). For purposes of “Business transactions” above, payments include interest and fees on loans and financial services, but do not include loan proceeds, repayments of principal on loans, payments arising from investments by an entity in the Firm’s securities or the Firm in an entity’s securities, and payments from trading and other similar financial relationships.
42
Appendix BC
Overview of 20082009 performance
The Firm’s business results are discussed in detail in the Annual Report, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section of the Annual Report. The Firm also reviews its business and priorities in an annual Investor Day, most recently held February 25, 2010. The Annual Report and presentation materials for the 2010 Investor Day may be found on our Web site at www.jpmorganchase.com under Investor Relations.
JPMorgan Chase again differentiated itself from other large financial services firms.
The Firm reported 2009 net income of $11.7 billion, an increase of $6.1 billion, or 109%, from the prior year. Though these results showed improvement, they did not achieve the Firm’s full earnings potential. Despite the challenging environment, the Firm was successful in many fundamental areas, including the following:
– | We continued to invest in all of our major businesses. |
– | We maintained a strong balance sheet – with a year-end Tier 1 Capital ratio of 11.1%, and Tier 1 Common capital ratio of 8.8%. |
– | We increased our allowance for credit losses by $8.7 billion to $32.5 billion. |
– | We offered approximately 600,000 new loan modifications in an unprecedented initiative to help struggling homeowners stay in their homes. Additionally, we are committed to opening 51 Chase Homeownership Centers across the country by spring 2010, and we now have more than 14,000 employees dedicated to mortgage loss mitigation. |
– | We supported and served 90 million customers and the communities in which the Firm operates. We extended nearly $250 billion in new credit to consumers during the year, and for corporate and municipal clients, either lent or assisted them in raising over $1 trillion in loans, stocks or bonds. |
– | We completed the Washington Mutual integration. |
– | We grew the franchise in 2009, with new checking accounts in Retail Financial Services, credit card accounts in Card Services, growth in liability balances in Commercial Banking, new international branches in Treasury & Securities Services, solid net inflows in Asset Management and sustained top Investment Bank rankings in virtually all major categories. |
Investment Bank
Net income was $6.9 billion compared with a net loss of $1.2 billion in 2008, reflecting record total net revenue, partially offset by increases in both noninterest expense and the provision for credit losses. Investment banking fees rose to record levels, as did Global Markets revenue, reflecting solid client revenue, particularly in prime services, and strong trading results. 2009 highlights and accomplishments include:
– | As the market leader, arranged and raised over $200 billion in corporate loans for 295 issuer clients globally (according to Dealogic). |
– | Helped raise $178 billion of capital for banks and financial institutions around the world; that amounts to nearly 10% of the capital raised in 2009 to restore the global banking system to health (according to Dealogic). |
– | Advised clients on 322 mergers and acquisitions globally; acted as advisor on 11 of the year’s largest 25 deals (according to Dealogic). |
– | In the U.S., helped raise approximately $102 billion, including $19 billion of extended credit, for state and local governments, health care organizations and educational institutions. |
Retail Financial Services
Net income was $97 million, a decrease of $783 million, or 89%, from the prior year, as an increase in the provision for credit losses more than offset the positive impact of the Washington Mutual transaction. 2009 highlights and accomplishments include:
– | Successfully completed all three phases of Washington Mutual branch conversions and rebranding to Chase, which provided customers full access to 5,154 bank branches in 23 states. |
– | Opened 117 new branches and added more than 800 ATMs. |
– | Added 2,400 personal bankers, business bankers, investment specialists and mortgage officers in bank branches. |
– | Increased the total number of checking accounts 5% to 26 million. |
– | Increased in-branch sales of mortgages by 84%, investments by 23% and credit cards by 3%. |
– | Originated $150.7 billion of mortgage loans to help families to lower their payments by refinancing or to purchase a home; also originated $23.7 billion of auto financing to become the largest U.S. auto lender while maintaining disciplined underwriting. |
Card Services
Net loss was $2.2 billion for the year, compared with net income of $780 million in the prior year. The decline was driven by a significantly higher provision for credit losses, partially offset by higher total net revenue. 2009 highlights and accomplishments include:
– | Successfully completed the conversion of the Washington Mutual credit card portfolio to the Chase platform. |
– | Added 10.2 million new Visa, MasterCard, and private label credit card accounts. |
– | Launched Blueprint, an innovative feature that allows customers to have more control of their spending and borrowing, and Ultimate Rewards, a new rewards platform for Chase’s proprietary credit cards designed to attract new customers and further engage current cardmembers. |
– | Introduced Chase Sapphire, a new rewards product designed for affluent cardholders, and Ink from Chase, a new product suite of cards for small business owners. |
Commercial Banking
Net income was $1.3 billion, a decrease of $168 million, or 12%, from the prior year, as an increase in provision for credit losses and higher noninterest expense were predominantly offset by record total net revenue. Double-digit growth in total net revenue reflected the impact of the Washington Mutual transaction, record levels of lending- and deposit-related fees, and investment banking fees. 2009 highlights and accomplishments include:
– | Maintained Top 3 leadership position nationally in market penetration and lead share (according to Greenwich Associates). |
– | Delivered more than $1 billion in gross investment banking fees and a double-digit increase in average liability balances. |
– | Demonstrated credit and risk management discipline with an allowance coverage ratio of more than 3% of retained loans, a decrease of more than 12% in real estate exposure, and the second lowest nonperforming loan ratio within the peer group. |
– | Added in excess of 1,700 new clients and expanded more than 7,600 existing relationships. |
– | Expanded into five additional states across the U.S. with local middle market bankers delivering complete lending and treasury solutions. |
– | Successfully completed the conversion of Washington Mutual clients’ commercial accounts onto Chase platforms. |
– | Continued to support communities by extending nearly $8 billion in new financing to more than 500 government entities, health care companies, educational institutions and not-for-profit organizations. |
Treasury & Securities Services
Net income was $1.2 billion, a decrease of $541 million, or 31%, from the prior year, driven by lower total net revenue. 2009 highlights and accomplishments include:
– | Continued strong underlying growth in the following key business drivers: international electronic funds transfer volumes grew 13%, assets under custody grew 13% and the number of wholesale cards issued grew 19%. |
– | Remained the #1 clearer of U.S. dollars in the world and have been #1 in Automated Clearing House originations for the past 34 years. |
– | Announced the formation of the Prime-Custody Solutions Group, a team responsible for delivering the Firm’s integrated prime brokerage and custody platform to clients. |
– | Strengthened our international presence, opening branches in China, Norway, Sweden and Finland; launched services in Tokyo, South Korea, Brazil and Mexico; and expanded capabilities in Australia, India, Europe, the Middle East and Africa. |
– | Led depositary receipt initial public offering (IPO) capital raising with a 77% market share and three of the five largest IPOs of the year, including landmark deals from both Brazil and China. |
Asset Management
Net income was $1.4 billion, an increase of $73 million, or 5%, from the prior year, due to higher total net revenue, offset largely by higher noninterest expense and provision for credit losses. 2009 highlights and accomplishments include:
– | Managed more than $500 billion in global liquidity assets on behalf of clients as the #1 money-market fund manager in the world. |
– | Achieved record revenue of $2.6 billion in the Private Bank led by strong brokerage activity. |
– | Ranked third in long-term U.S. mutual fund flows; also ranked as the #4 U.S. Mutual Fund Family based on five-year investment performance. |
– | Completed the acquisition of Highbridge Capital Management. Since the formation of the partnership in 2004, client assets under management have grown threefold. |
Our 20082009 results compared towith our 20072008 and 20062007 results on several metrics were as follows:
As of or for the years ended December 31 (in millions, except per share and ratio data)
| As of or for the years ended December 31 (in millions, except per share and ratio data) | | |
Business | | Performance metric | | 2008 | | 2007 | | 2006 | | | Performance metric | | 2009 | | 2008 | | 2007 | |
Firm-wide | | Net revenue | | $ | 67,252 | | | $ | 71,372 | | | $ | 61,999 | | | Total net revenue | | $ | 100,434 | | | $ | 67,252 | | | $ | 71,372 | |
| | | Income before extraordinary gain | | $ | 11,652 | | | $ | 3,699 | | | $ | 15,365 | |
| | Income from continuing operations | | $ | 3,699 | | | $ | 15,365 | | | $ | 13,649 | | | Net income | | $ | 11,728 | | | $ | 5,605 | | | $ | 15,365 | |
| | Net income | | $ | 5,605 | | | $ | 15,365 | | | $ | 14,444 | | | Diluted earnings per share before extraordinary gain(1) | | $ | 2.24 | | | $ | 0.81 | | | $ | 4.33 | |
| | Diluted earnings per share from continuing operations | | $ | 0.84 | | | $ | 4.38 | | | $ | 3.82 | | | Diluted earnings per share(1)(2) | | $ | 2.26 | | | $ | 1.35 | | | $ | 4.33 | |
| | Diluted earnings per share | | $ | 1.37 | | | $ | 4.38 | | | $ | 4.04 | | | Return on tangible common equity(2) | | | 10 | % | | | 6 | % | | | 22 | % |
| | ROCE - GW(1)(2) | | | 4 | % | | | 21 | % | | | 20 | % | | Tier 1 Capital ratio | | | 11.1 | % | | | 10.9 | % | | | 8.4 | % |
| | Tier 1 capital ratio | | | 10.9 | % | | | 8.4 | % | | | 8.7 | % | | Tier 1 Common capital ratio(3) | | | 8.8 | % | | | 7.0 | % | | | 7.0 | % |
Investment Bank | | Net revenue | | $ | 12,214 | | | $ | 18,170 | | | $ | 18,833 | | | Total net revenue | | $ | 28,109 | | | $ | 12,335 | | | $ | 18,291 | |
| | Net income | | $ | (1,175 | ) | | $ | 3,139 | | | $ | 3,674 | | | Net income | | $ | 6,899 | | | $ | (1,175 | ) | | $ | 3,139 | |
| | ROE | | | (5 | )% | | | 15 | % | | | 18 | % | | Return on common equity (ROE) | | | 21 | % | | | (5 | )% | | | 15 | % |
Retail Financial Services | | Net revenue | | $ | 23,520 | | | $ | 17,305 | | | $ | 14,825 | | | Total net revenue | | $ | 32,692 | | | $ | 23,520 | | | $ | 17,305 | |
| | Net income | | $ | 880 | | | $ | 2,925 | | | $ | 3,213 | | | Net income | | $ | 97 | | | $ | 880 | | | $ | 2,925 | |
| | ROE | | | 5 | % | | | 18 | % | | | 22 | % | | ROE | | | — | % | | | 5 | % | | | 18 | % |
Card Services | | Net revenue | | $ | 16,474 | | | $ | 15,235 | | | $ | 14,745 | | | Total net revenue | | $ | 20,304 | | | $ | 16,474 | | | $ | 15,235 | |
| | Net income | | $ | 780 | | | $ | 2,919 | | | $ | 3,206 | | | Net income | | $ | (2,225 | ) | | $ | 780 | | | $ | 2,919 | |
| | ROE | | | 5 | % | | | 21 | % | | | 23 | % | | ROE | | | (15 | )% | | | 5 | % | | | 21 | % |
Commercial Banking | | Net revenue | | $ | 4,777 | | | $ | 4,103 | | | $ | 3,800 | | | Total net revenue | | $ | 5,720 | | | $ | 4,777 | | | $ | 4,103 | |
| | Net income | | $ | 1,439 | | | $ | 1,134 | | | $ | 1,010 | | | Net income | | $ | 1,271 | | | $ | 1,439 | | | $ | 1,134 | |
| | ROE | | | 20 | % | | | 17 | % | | | 18 | % | | ROE | | | 16 | % | | | 20 | % | | | 17 | % |
Treasury & Securities Services | | Net revenue | | $ | 8,134 | | | $ | 6,945 | | | $ | 6,109 | | | Total net revenue | | $ | 7,344 | | | $ | 8,134 | | | $ | 6,945 | |
| | Net income | | $ | 1,767 | | | $ | 1,397 | | | $ | 1,090 | | | Net income | | $ | 1,226 | | | $ | 1,767 | | | $ | 1,397 | |
| | ROE | | | 47 | % | | | 47 | % | | | 48 | % | | ROE | | | 25 | % | | | 47 | % | | | 47 | % |
| | Pretax margin | | | 33 | % | | | 32 | % | | | 28 | % | | Pretax margin ratio(4) | | | 26 | % | | | 33 | % | | | 32 | % |
Asset Management | | Net revenue | | $ | 7,584 | | | $ | 8,635 | | | $ | 6,787 | | | Total net revenue | | $ | 7,965 | | | $ | 7,584 | | | $ | 8,635 | |
| | Net income | | $ | 1,357 | | | $ | 1,966 | | | $ | 1,409 | | | Net income | | $ | 1,430 | | | $ | 1,357 | | | $ | 1,966 | |
| | ROE | | | 24 | % | | | 51 | % | | | 40 | % | | ROE | | | 20 | % | | | 24 | % | | | 51 | % |
| | Pretax margin | | | 29 | % | | | 36 | % | | | 33 | % | | Pretax margin ratio(4) | | | 29 | % | | | 29 | % | | | 36 | % |
Note: All data presented on a reported basis except for Card Serviceslines of business total net revenue which is presented on a managed basis.
1 | From continuing operations.
|
2
| Return on common equity netEffective January 1, 2009, the Firm implemented new FASB guidance for participating securities. Accordingly, prior-period amounts have been revised as required. For further discussion of goodwill.the guidance, see note 25 at page 224 of our Annual Report.
|
2 | The calculation of 2009 earnings per share and net income applicable to common equity include a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of U.S. Troubled Asset Relief Program (“TARP”) preferred capital in the second quarter of 2009. Excluding this reduction, the adjusted ROTCE was 11% for 2009. For further discussion of ROTCE, a non-GAAP financial measure, see “Explanation and reconciliation of the Firm’s use of non-GAAP financial measures” at pages 50-52 of our Annual Report. |
43
3 | Tier 1 common is calculated as Tier 1 capital less qualifying perpetual preferred stock, qualifying trust preferred securities and qualifying minority interest in subsidiaries. The Firm uses the Tier 1 Common capital ratio, a non-GAAP financial measure, to assess and compare the quality and composition of the Firm’s capital with the capital of other financial services companies. For further discussion, see Regulatory capital at pages 82-84 of our Annual Report. |
4 | Pretax margin represents income before income tax expense divided by total net revenue, which is a measure of pretax performance and another basis by which management evaluates its performance and that of its competitors. |
Appendix D
JPMorgan Chase Compensation practices and principles
We believe that JPMorgan Chase has consistently been at the forefront of sensible compensation practices. We have a rigorous performance and compensation management system that incorporates the following practices and principles:
A focus on multi-year, long-term, risk-adjusted performance and rewarding behavior that generates sustained value for the Firm through business cycles
An emphasis on teamwork and a “shared success” culture
A significant stock component (with deferred vesting) for shareholder alignment and retention of top talent
Recoupment and clawback provisions in addition to disciplined risk management to deter excessive risk taking
A recognition that competitive and reasonable compensation helps attract and retain the best talent necessary to grow and sustain our business
Strict limits or prohibitions on executive perquisites, special executive retirement or severance plans
Independent Board oversight of the Firm’s compensation practices and principles and their implementation
These practices and principles are supported by additional beliefs that guide how we operate.
Compensation should not be overly rigid, formulaic or short-term oriented
Compensation programs should be designed as much as possible to allow for the Firm to exercise discretion and retain flexibility in compensation decisions. Multi-year guarantees should be kept to an absolute minimum. More generally, the assessment of performance should not be overly formulaic and should not overemphasize any single financial measure or single year, as that can result in unhealthy incentives and lead to unintended, undesirable results.
Performance should be considered using a broad-based evaluation of people and their contributions to ensure that the right results are being encouraged. Factors such as integrity, compliance, institutionalizing customer relationships, recruiting and training a diverse, outstanding workforce, building better systems, innovation and other outcomes should be included. Performance feedback should be obtained from multiple sources across the Firm to ensure it is both balanced and comprehensive.
Commission-based incentives generally should be limited to sales or production oriented employees who do not control credit or investment decisions. The different risk profiles such as liquidity risk, time horizons for realized gains or losses, and reputational and operational risk all should be appropriately taken into account.
In a fiduciary business, certain roles are evaluated solely on individual and business unit results. In addition, some of these roles are paid long-term compensation with incentives linked directly to their investment strategies in order to more fully align their interests with those of the clients.
Teamwork and a shared success environment should be encouraged and rewarded
Contributions should be considered across the Firm, within business units, and at an individual level when evaluating an employee’s performance.
Performance should be based on realized profits and risk-adjusted returns that add to the long-term value of the franchise, rather than just revenues. We adjust financial performance for risk and use of the Firm’s capital.
All equity awards for executive officers should be subject to reduction, forfeiture, or additional deferred vesting if there is not satisfactory progress towards priorities.
A meaningful ownership stake in the Firm should be used to reinforce alignment with shareholders
A significant percentage of incentive compensation should be in stock that vests over multiple years.
As the decision-making authority, importance and impact of an employee’s role increases, a greater portion of total compensation should be awarded in stock.
A proper balance between annual compensation and longer-term incentives should clearly delineate the importance of sustainable, realizable value. At JPMorgan Chase:
| – | Our Board of Directors is paid a majority of their compensation in stock and our Directors have agreed not to sell any shares of stock (including any open market purchases) for as long as they serve on the Board |
| – | Senior executives receive at least 50% (and in some cases, substantially more) of their incentive compensation in stock |
| – | The officers who make up our Operating Committee are generally required to hold 75% of compensation-related stock awards until retirement, and the non-Operating Committee, Executive Committee officers are generally required to hold 50% |
| – | Executives cannot short or hedge our stock, and even after retirement, executives typically continue to have substantial holdings of our company stock |
Risk management and compensation recovery policies should be robust enough to deter excessive risk taking and improper risk management
Risk disciplines and review processes should generate honest, fair and objective evaluations of where we stand and how we’re doing. Variable compensation funding should be consistent with effective risk management and the timing of compensation payouts should be sensitive to the time horizon of associated risks.
Final determinations of compensation in risk management and control functions should not be made solely in the business areas and should be less focused on outcomes in the area covered by the individual, and more aligned with the Firm’s overall performance. Compensation of those functions should be less variable one year to the next when compared to the compensation of revenue-generating functions.
Recoupment policies should go beyond Sarbanes-Oxley and other minimum requirements and include recovery of compensation paid for earnings that were never ultimately realized or if it’s determined that compensation was based on materially inaccurate performance metrics or a misrepresentation by an employee. We have in place recovery provisions for “cause” terminations, misconduct, detrimental behavior and actions causing financial or reputational harm to the Firm or its business activities. For all senior managers and highly paid employees, the Firm may cancel or require repayment of shares if employees failed to properly identify, raise or assess risks material to the Firm or its business activities.
Attracting, retaining and developing talent is critical to sustaining success
Our long-term success depends in very large measure on the talents of our employees. Our compensation system plays a significant role in our ability to attract, motivate and retain the highest quality management team and diverse workforce.
Compensation should have an acute focus on meritocracy, shareholder alignment, sensitivity to the relevant market place, and disciplined processes to ensure it remains above reproach and can help build lasting value for our clients.
For employees in good standing who have resigned and meet “full career eligibility” or other acceptable criteria, awards generally should continue to vest over time on their original schedule and be subject to continuing post-employment obligations to the Firm during this period.
Strict limits or prohibition on executive perquisites and special benefits
An executive’s compensation should be straightforward and consist primarily of cash and equity.
We do not maintain special supplemental retirement or other special benefits just for executives.
The Firm generally has not had any change in control agreements, golden parachutes, merger bonuses or other special severance benefit arrangements for executives.
Independent Board Oversight
Our Compensation Committee, which includes only independent directors, reviews and approves the Firm’s overall compensation philosophy, principles and practices.
The Compensation Committee reviews the Firm’s compensation practices as they relate to risk and risk management in light of the Firm’s objectives, including its safety and soundness and the avoidance of excessive risk.
The Compensation Committee reviews and approves the terms of our compensation award programs, including recoupment provisions, restrictive covenants and vesting periods.
The Compensation Committee reviews the Firm’s overall incentive compensation pools and those of each of the Firm’s Line of Businesses and Corporate Sector.
The Compensation Committee reviews the performance and approves all compensation awards for the Firm’s Operating Committee on a name-by-name basis.
The full Board’s independent directors review the performance and approve the compensation of our CEO.
Appendix E
Elements of compensation
| | | | |
Compensation element | | Description | | Other features |
Base salary | | Typically the smallest component of total compensation for NEOS, members of the Operating Committee and other members of senior management. Provides a measure of certainty and predictability to meet certain living and other financial commitments. | | Reviewed periodically and subject to increase if, among other reasons, the executive acquires material additional responsibilities, or the market changes substantially. |
| | |
Annual variable compensation | | Performance based incentive which can vary significantly from year to year. The Firm views incentive compensation in the context of total compensation and does not establish target levels of incentive compensation as a percentage of the relevant employees’ annual base compensation. | | JPMorgan Chase’s principal discretionary incentive arrangement, which covers the majority of employees across virtually all of our LOBs, incorporates several broad design features that seek to ensure incentive awards are appropriately risk-adjusted and relate to actual results achieved. Other business-specific incentive arrangements generally are also discretionary, and even where we budget or accrue incentive compensation off formulas or payout grids for these employees, we reserve the right to modify or curtail those incentives at any time. |
| | |
– Short-term incentives | | The cash portion is paid and the equity portion is awarded shortly following the performance year, generally in January. | | |
| | |
– Long-term incentives | | The equity portion is awarded in the form of RSUs determined by a mandatory deferral percentage representing a portion of the entire incentive award. For 2009, Operating Committee members received on average 75% of their total incentive award in the form of equity, including periodic equity awards described below. | | 50% of the RSU portion of the award vests on the second anniversary of the grant date and 50% vests on the third anniversary of the grant date. Shares received upon vesting are subject to the retention policy applicable to senior management described at page 18. Equity-related compensation for Operating Committee members is subject to further restriction as described at page 19. |
| | |
Periodic equity awards | | Periodically the Firm grants equity awards as special leadership options to select senior officers to reward and encourage leadership, including awards made in the form of SARs settled in shares only. | | The awards become exercisable ratably on each of the first five anniversaries of the grant date and shares received upon exercise must be held for at least five years after the grant date. Shares received upon exercise are subject to the retention policy applicable to senior management described at page 18. |
| | |
Deferred compensation | | Eligible employees can voluntarily defer up to the lesser of 90% of their annual cash incentive or $1,000,000. | | Beginning in 2005 a lifetime $10,000,000 cap on future cash deferrals was instituted. Deferred amounts are credited to various unfunded hypothetical investment options, generally index funds, at the executive’s election. |
| | |
Pension and retirement | | Firm-wide qualified cash balance pension plan based on first $245,000 of base salary only. Non-qualified excess pension plan based on base salary in excess of $245,000 up to $1,000,000. Pay credits under this plan were discontinued as of May 1, 2009. Voluntary 401(k) Savings Plan. | | Incentive awards not eligible for pension credits. Officers with a base salary and cash incentives equal to or greater than $250,000, including all Operating Committee members, receive no Firm matching contribution in the 401(k) Savings Plan. Paid in lump sum or annuity following retirement. |
| | |
Health and welfare benefits | | Firm-wide benefits such as life insurance, medical and dental coverage, and disability insurance. | | No special programs for senior executives. In medical and dental plans, the higher the employee’s compensation, the higher the employee’s portion of the premium. |
| | |
Severance plan | | Firm-wide severance pay plan providing up to 52 weeks of base salary, based on years of service. Benefits paid in a lump sum payment following termination of employment, contingent on release of claims and restrictive covenants. | | Continued eligibility for certain health and welfare plan benefits during severance pay period. |
| | |
©20092010 JPMorgan Chase & Co. All rights reserved. Printed in U.S.A. on recycled paper with soy ink. | | |
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Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by JPMorgan Chase & Co. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.
VOTE BY TELEPHONE—PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to JPMorgan Chase & Co., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
Your voting instructions are confidential. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: JPMRG1 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | |
| | | | KEEP THIS PORTION FOR YOUR RECORDS |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | | DETACH AND RETURN THIS PORTION ONLY |
JPMORGAN CHASE & CO. The Board of Directors recommends a vote FOR proposals 1, 2 and 3. For Against Abstain 1. Election of Directors 1a. Crandall C. Bowles 0 0 0 1b. Stephen B. Burke 0 0 0 1c. David M. Cote 0 0 0 1d. James S. Crown 0 0 0 1e. James Dimon 0 0 0 1f. Ellen V. Futter 0 0 0 1g. William H. Gray, III 0 0 0 1h. Laban P. Jackson, Jr. 0 0 0 1i. David C. Novak 0 0 0 1j. Lee R. Raymond 0 0 0 1k. William C. Weldon 0 0 0 The Board of Directors recommends a vote AGAINST shareholder proposals 4 through 11. For Against Abstain 4. Governmental service report 0 0 0 5. Cumulative voting 0 0 0 6. Special shareowner meetings 0 0 0 7. Credit card lending practices 0 0 0 8. Changes to KEPP 0 0 0 9. Share retention 0 0 0 10. Executive compensation 0 0 0 11. Carbon principles report 0 0 0 2. Appointment of independent registered public accounting firm 0 0 0 3. Advisory vote on executive compensation 0 0 0 Please indicate if you plan to attend this meeting. 0 0 Yes No Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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The Board of Directors recommends you vote FOR the | | | | |
following proposals: | | | | |
1. | | Election of Directors | | | | For | | Against | | Abstain | | | | | | | | | | | | | | |
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| | 1a. Crandall C. Bowles | | | | ¨ | | ¨ | | ¨ | | | | | | | | | | | | | | |
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| | 1b. Stephen B. Burke | | | | ¨ | | ¨ | | ¨ | | | | The Board of Directors recommends you vote AGAINST the following shareholder proposals: | | For | | Against | | Abstain |
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| | 1c. David M. Cote | | | | ¨ | | ¨ | | ¨ | | | | 4. | | Political non-partisanship | | | | ¨ | | ¨ | | ¨ |
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| | 1d. James S. Crown | | | | ¨ | | ¨ | | ¨ | | | | 5. | | Special shareowner meetings | | | | ¨ | | ¨ | | ¨ |
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| | 1e. James Dimon | | | | ¨ | | ¨ | | ¨ | | | | 6. | | Collateral in over the counter derivatives trading | | ¨ | | ¨ | | ¨ |
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| | 1f. Ellen V. Futter | | | | ¨ | | ¨ | | ¨ | | | | 7. | | Shareholder action by written consent | | ¨ | | ¨ | | ¨ |
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| | 1g. William H. Gray, III | | | | ¨ | | ¨ | | ¨ | | | | 8. | | Independent chairman | | | | ¨ | | ¨ | | ¨ |
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| | 1h. Laban P. Jackson, Jr. | | | | ¨ | | ¨ | | ¨ | | | | 9. | | Pay disparity | | | | ¨ | | ¨ | | ¨ |
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| | 1i. David C. Novak | | | | ¨ | | ¨ | | ¨ | | | | 10. | | Share retention | | | | ¨ | | ¨ | | ¨ |
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| | 1j. Lee R. Raymond | | | | ¨ | | ¨ | | ¨ | | | | | | | | | | | | |
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| | 1k. William C. Weldon | | | | ¨ | | ¨ | | ¨ | | | | | | | | | | | | |
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2. | | Appointment of independent registered public accounting firm | | ¨ | | ¨ | | ¨ | | | | | | | | | | | | | | |
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3. | | Advisory vote on executive compensation | | ¨ | | ¨ | | ¨ | | | | | | | | | | | | | | |
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| | | | Please indicate if you plan to attend this meeting. | | ¨ Yes | | ¨ No | | |
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Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | | | | | | | Signature (Joint Owners) | | Date | | | | | | |
ADMISSION TICKET
JPMorgan Chase & Co. 2009
2010 Annual Meeting
of Shareholders
Tuesday, May 19, 2009 18, 2010
10:00 AM
Auditorium
One Chase Manhattan Plaza (Corner
(Corner of Nassau and Liberty Streets)
New York, New York
Important Notice Regarding the Availability of Proxy Materials for the 2010 Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at
http://investor.shareholder.com/jpmorganchase/annual.cfm
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PLEASE DETACH AND PRESENT THE ABOVE TICKET AND PHOTO ID FOR ADMISSION TO THE ANNUAL MEETING JPMORGAN CHASE & CO. This proxy is solicited from you by the Board of Directors for use at the Annual Meeting of Shareholders of JPMorgan Chase & Co. on May 19, 2009. You, the undersigned shareholder, appoint each of Michael J. Cavanagh and Stephen M. Cutler, your attorney-in-fact and proxy, with full power of substitution, to vote on your behalf shares of JPMorgan Chase common stock that you would be entitled to vote at the 2009 Annual Meeting, and any adjournment of the meeting, with all powers that you would have if you were personally present at the meeting. The shares represented by this proxy will be voted as instructed by you and in the discretion of the proxies on all other matters. If not otherwise specified, shares will be voted in accordance with the recommendations of the Board of Directors. Participants in the 401(k) Savings Plan: If you have an interest in JPMorgan Chase common stock through an investment in the JPMorgan Chase Common Stock Fund within the 401(k) Savings Plan, your vote will provide voting instructions to the trustee of the plan to vote the proportionate interest as of the record date. If no instructions are given, the trustee will vote unvoted shares in the same proportion as voted shares. Voting Methods: If you wish to vote by mail, please sign your name exactly as it appears on this proxy and mark, date and return it in the enclosed envelope. If you wish to vote by Internet or telephone, please follow the instructions on the reverse side.
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| | JPMORGAN CHASE & CO. This proxy is solicited from you by the Board of Directors for use at the Annual Meeting of Shareholders of JPMorgan Chase & Co. on May 18, 2010. You, the undersigned shareholder, appoint each of Michael J. Cavanagh and Stephen M. Cutler, your attorney-in-fact and proxy, with full power of substitution, to vote on your behalf shares of JPMorgan Chase common stock that you would be entitled to vote at the 2010 Annual Meeting, and any adjournment of the meeting, with all powers that you would have if you were personally present at the meeting.The shares represented by this proxy will be voted as instructed by you and in the discretion of the proxies on all other matters. If not otherwise specified, shares will be voted in accordance with the recommendations of the Board of Directors. Participants in the 401(k) Savings Plan: If you have an interest in JPMorgan Chase common stock through an investment in the JPMorgan Chase Common Stock Fund within the 401(k) Savings Plan, your vote will provide voting instructions to the trustee of the plan to vote the proportionate interest as of the record date. If no instructions are given, the trustee will vote unvoted shares in the same proportion as voted shares. Voting Methods: If you wish to vote by mail, please sign your name exactly as it appears on this proxy and mark, date and return it in the enclosed envelope. If you wish to vote by Internet or telephone, please follow the instructions on the reverse side. Continued and to be signed on reverse side | | |