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Is Pay Hike for JPMorgan CEO Justified?

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A year after the disastrous trading debacle led to a lower pay for JPMorgan Chase & Co.’s (JPM - Free Report) CEO Jamie Dimon, he is getting a 74% hike in pay for 2013. Dimon will receive $20 million (in aggregate), of which $1.5 million is base salary (unchanged from 2012) and the remaining $18.5 million is restricted stock units (RSUs).

The jump in pay is a result of higher RSUs being given to Dimon. For 2013, the rise in RSUs is 85% from the prior year. The RSUs will be vested over the next three years, with 50% in 2015 and the other 50% in 2016.

While determining Dimon’s pay, JPMorgan’s independent board of directors had considered several factors. These included sustainability of the company’s long-term performance, improvement in market share as well as handling and resolution of various regulatory and legal issues.

Notably, 2013 had been a challenging year for JPMorgan. The company announced approximately $23 billion in settlement for investigation related to mortgage securities sale, energy trading, derivative trading and failure to oversee banking services offered to the Ponzi scheme run by Bernard Madoff, among others.

Additionally, under Dimon, JPMorgan even suffered a rare loss in the third quarter of 2013 due to mounting legal expenses. This also adversely impacted the company’s full-year results, with net income decreasing roughly 16% year over year.

However, with the resolution of each legal issue, JPMorgan’s share price rose. Overall, last year, the bank’s share price increased nearly 34% year over year, driven by investors’ confidence of there being lesser uncertainty regarding profits going forward.

Further, the board of directors believes that Dimon is managing the company well. The CEO is taking appropriate measures to step up risk management controls to prevent future lapses. Moreover, several measures are being undertaken to right-size JPMorgan’s operations by moving away from unprofitable and non-core operations.

Considering the resolution of several legal issues, we believe that this pay hike is justified. However, JPMorgan’s run-in with regulators and other investigating agencies will likely continue in the near term. Hence, higher litigation costs are expected to continue weighing on the company’s performance in the future.

Currently, JPMorgan carries a Zacks Rank #3 (Hold). However, some better-ranked major banks include Bank of America Corp. (BAC - Free Report) , BB&T Corp. (BBT - Free Report) and Fifth Third Bancorp (FITB - Free Report) . All these carry a Zacks Rank #2 (Buy).

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