 April 2007 J P M O R G A N C H A S E 2007 Proxy Statement – Compensation-related Shareholder Proposal Discussion Exhibit 99.1 |
 2 Compensation-related Shareholder Proposal Overview Proxy statement includes two important compensation-related shareholder proposals. The Board has recommended a vote against each of these proposals. Proposal #4: performance-based restricted stock Proposal #5: executive compensation approval Board of Directors and Management view corporate governance as an important priority. The Board and Management have listened to and understand shareholder interest in corporate governance. Below are actions taken by the Board since the 2006 annual shareholder meeting: By-laws amended to provide for majority voting for election of directors (director tenders resignation for Board consideration; replaced previous policy) Established an independent presiding director position, which will rotate every six months between the chairs of the Compensation and the Corporate Governance Committees By-laws amended to allow special shareholder meetings to be called by shareholders with at least one-third of shares outstanding Adopted a policy on political contributions and legislative lobbying. Posted a report on the Firm’s website regarding political contributions made by the Firm’s PACs Formalized a policy on bonus recoupment if financial results are restated Management has engaged key shareholders in dialogue to better understand positions and action steps desired regarding compensation practices and policies |
 3 Shareholder Proposal #4 Proposal #4 specifies that a significant portion of restricted stock awards to senior executives requires achievement of performance goals as a prerequisite to vesting Board believes that current compensation policies and practices align Management and shareholder interests and performance-based compensation is already in place Management performance is measured on both quantitative and qualitative criteria, which may include: Multiple layers of rigor around setting compensation: Performance of the Firm, relevant LOB and individual employee Performance versus peers Relative versus absolute performance: recognize that market conditions need to be differentiated versus underlying business growth Return on capital Contribution across business lines Improving operational efficiency Expense management Executing other major projects Revenue growth Improving client satisfaction Credit and risk management Investing for growth – business expansion and technology Operating earnings Quantitative criteria Supporting and strengthening the communities we serve worldwide Supporting the Firm’s values Executing acquisition integration tasks Protecting the integrity and reputation of the Firm Attracting, developing and retaining highly effective and diverse leaders Maintaining compliance and controls Achieving and maintaining market leadership positions in key businesses Thinking beyond your own business Establishing, refining and executing long-term strategic plans Building an inclusive culture Quality of earnings Qualitative criteria |
 4 Shareholder Proposal #4 (cont.) Incentive compensation is variable (as it should be) from year-to-year; for Operating Committee as a group, 2006 incentive compensation averaged 95% of total annual compensation Portion of incentive compensation must be equity-based¹: 35% for highly-compensated individuals and 50% for Operating Committee Equity awards (restricted stock units) typically vest over a three year timeframe (0% in year 1; 50% in years 2 and 3) Periodic equity awards in form of stock appreciation rights (commonly referred to as options) have been awarded to a limited population of senior officers to further align them with long-term shareholder interests; vest over a five year period (0% in years 1 and 2; one-third in years 3-5) Operating Committee and Executive Committee must retain 75% of all net shares received from equity-based awards Board and Management believe that a high bar has been set for determining incentive compensation and that by delivering compensation with a portion as equity-based which vests over time there is an at-risk component Because equity awards are based on prior achieved performance, it is not market practice within the financial services industry to impose further performance conditions Risk of competitive disadvantage or alternatively higher compensation expense ¹Restricted stock units as a percentage of annual incentive compensation began at 10% for incentive awards of $20,000 and increased on a graduated scale |
 5 Shareholder Proposal #4 (cont.) The Board and Management believe we already have in place appropriate quantitative and qualitative performance thresholds. Additional thresholds could lead to reliance on a simplistic formulaic approach to compensation. Potential unintended consequences: Reduce needed investments (expense) to meet short-term financial targets Lever the balance sheet to attain revenue and earnings targets Focus less on relationship management and business building and more on immediate gain/growth Could drive individuals to take less risk rather than build or repair businesses Corporate governance practices will continue to evolve, the Board and Management are committed to the continuing review of peer company practices and dialogue with key shareholders to insure that the Firm’s compensation policies and practices evolve appropriately over time |
 6 Shareholder Proposal #5 Proposal #5 requires a shareholder advisory vote to ratify the compensation of named executive officers The Board and Management believe that the compensation policies and practices currently in place provide a thoughtful, disciplined and transparent approach to setting executive compensation Appropriate checks and balances already in place: Compensation Committee reviews and approves the goals and objectives relevant to compensation for the CEO, all compensation for Operating Committee members and aggregate incentive awards and equity grants under the LTIP CD&A disclosure provides improved transparency into compensation practices and actions Could impact ability to attract and retain talent Need to allow Board to fulfill its role on behalf of shareholders Shareholders have multiple other mechanisms for effective input, such as votes on equity plans, election of directors, and communication with the Board and Management around the compensation process Board and Management are open to shareholder discussion on compensation and welcome shareholder input Existing lines of communication are better than an advisory vote which will be hard to interpret May lead to formulaic approach to compensation review |