JPMorgan 2006
RESOLVED, that shareholders of JPMorgan Chase & Co. (“JPMorgan Chase”) ask the Compensation and Management Development Committee of the Board of Directors to adopt a policy that a significant portion of restricted stock granted to senior executives require the achievement of performance goals as a prerequisite to vesting. The policy should be implemented in a way that does not violate any existing employment agreement or the terms of any equity compensation plan currently in effect.
SUPPORTING STATEMENT
JPMorgan Chase uses a substantial amount of restricted stock and SARs to compensate its senior executives. From 2002 through 2004, William Harrison received restricted stock awards with a total value of $8,010,000, while James Dimon received restricted stock awards valued at $4,500,000 during the same time frame. As of December 31, 2004, Mr. Harrison held 698,523 units of restricted stock worth $27,249,382, and Mr. Dimon held 203,025 units worth $7,920,005. The vesting of these awards does not depend on the achievement of any performance goals; rather, they simply vest over time.
We believe that compensation policies should align the interests of senior executives with those of shareholders. However, to provide appropriate incentives, we believe that restricted stock should have real downside risk. Restricted stock without performance-based vesting measures are often described as “pay for pulse,” because shares vest after an executive puts in a certain amount of time at the company, not as a result of achieving performance goals.
There has been significant criticism of the incentive value of restricted stock grants without performance hurdles. An August 11, 2003 editorial in Forbes characterized restricted stock grants without performance targets as “weak incentives for improving performance.” WorldCom/MCI corporate monitor and former SEC chairman Richard Breeden opined in his August 2003 governance recommendations for MCI that “there is not a strong reason for granting restricted stock rather than simply paying cash unless there are performance hurdles to vesting.” Matt Ward, CEO of San Francisco-based Westward Pay Strategies, says restricted stock grants without performance targets create “the lay-low effect: just lay low and don’t get fired.”
Leading companies have been requiring senior executives to satisfy performance requirements before restricted stock can vest. In its widely publicized 2003 shift from stock options to restricted stock, Microsoft imposed performance vesting targets on its 600 most senior managers. The performance share units granted to GE CEO Jeffrey Immelt in 2003 similarly require the achievement of goals relating to cash flow from operations and total shareholder return. JPMorgan Chase should follow the lead of these companies.
The need for performance targets for the vesting of restricted stock is especially acute in light of JPMorgan Chase’s stock price performance. According to the most recent proxy statement, $100 invested in JPMorgan Chase stock on December 31, 1999 would have been worth $83.61 on December 31, 2004, while $100 invested in an index of peer companies would have been worth $143.26 on that date.
We urge shareholders to vote for this proposal.
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Sheila Hill
Local 1319, Maryland
"I've worked hard for my pension, and my union works hard to protect it. We want to ensure that our pension investments keep companies and CEOs honest and our retirement secure."
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