Paul Hodgson: the JPMorgan Chase pay vote, ‘irresponsible’ investors and proxy advisors

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One of my father’s favourite phrases, delivered with impeccable timing and a withering tone, was: “I’ll treat that remark with the contempt it deserves.” The comments of JPMorgan Chase CEO Jamie Dimon in reaction to almost a third of investors voting against his pay package met with much the same reaction. Few shareholders deigned to comment, others offered a raised eyebrow.
At an investor conference in New York earlier this week, Dimon was quoted saying: “God knows how any of you can place your vote based on ISS or Glass Lewis. If you do that, you are just irresponsible, I’m sorry. And you probably aren’t a very good investor, either.”
It is doubtful that the apology did much to temper the insults.
Both the main proxy vote advisory services – Institutional Shareholder Services and Glass Lewis – had recommended investors vote against the Say on Pay resolution, prompting Dimon’s comments that shareholders blindly following such recommendations are just irresponsible. Criticism from both advisers centred on the lack of any preset performance metrics or targets to determine cash and equity incentives.
Here is what the company’s recent proxy statement said about why it doesn’t use a formula to measure performance: “Given the diverse nature of our firm, our evaluation of the firm does not lend itself to a simple formulation to determine a single ‘score’ or outcome that is indicative of overall performance. The CMDC [remuneration committee] therefore utilizes a balanced and disciplined approach so that its performance assessment reflects firm, line of business and individual performance over a multi-year period.”
The proxy also claimed that the bank had looked at the benefits of using a formulaic approach but had determined that it could lead to misalignment, giving as an example 2012, when the bank achieved record financial performance despite the CIO [Chief Investment Office] trading losses.

Frankly, shareholders voting against the pay policy would not appreciate a simplistic approach to pay any more than the completely discretionary approach currently used by the bank.Further criticism was directed at Dimon’s first cash bonus in three years. Dutch pension fund, PGGM, which voted against the pay package, was specific in its criticism of this move, citing the lack of a “compelling rationale”. It was also critical of the low proportion (just over half) represented by equity in the total package.
While Glass Lewis’ Chief Policy Officer Robert McCormick declined to comment on Dimon’s remarks about his clients, he referred to the firm’s conclusion that there was a sustained disconnect between Dimon’s pay and the bank’s performance. In fact, Glass Lewis’ report gives the pay-performance link an F grade, based on the poor alignment between three-year weighted pay and performance.
The myth that pension and mutual funds blindly vote with Glass Lewis and ISS is not borne out by any actual evidence. Both firms recommend ‘no’ votes on pay far more often than investors, as a group, actually vote ‘no’.
This is because most leading funds not only listen to their proxy advisers but conduct internal reviews of pay policies against their own criteria, which sometimes align with those of their advisers and sometimes don’t.
For example, PGGM voted against Dimon’s re-election as well as against the re-election of the remuneration committee chairman Lee Raymond – neither of which was a Glass Lewis recommendation.
In addition, Glass Lewis recommended its clients approve amendments to the company’s equity pay plan, but PGGM voted against them, as well as “for” a handful of shareholder resolutions that Glass Lewis didn’t support.
Catherine Jackson, Senior Adviser, Responsible Investment at PGGM, said: “PGGM has voted against JPMorgan’s advisory vote on pay every year since 2011. We have communicated, to the board, as to the reasons why we haven’t supported their compensation decisions so the vote outcome at the 2015 AGM should not have come as a surprise.
“More importantly, in my view, Mr. Dimon’s comments demonstrate why a CEO should not also be chairman. As chairman, he should be responsive to shareholder concerns.

Instead, Mr. Dimon reacted poorly to the outcome of a democratic process, saying, in effect, that JPMorgan shareholders are poor investors. These comments do not demonstrate the independent board leadership that shareholders need in the boardroom.”

PGGM was not the only fund to vote against pay at the bank, clearly. The funds controlled by the New York City Comptroller also voted against the resolution, at the same time receiving strong support for its own resolution to require the bank to disclose more information about its policy surrounding clawbacks of compensation. A spokesman for the funds said that Dimon’s comments had been noted but declined to respond to them.Meanwhile, the Council of Institutional Investors (CII), the industry body which represents more than 125 pension and other benefit funds with $3trn in combined assets, issued the following statement to RI:

“Investors who review proxy adviser recommendations and decide to vote accordingly should not be scorned. Doing due diligence and deciding that advisor guidelines are appropriate is not a sign of laziness or poor investing acumen.

“The influence of the proxy advisory firms has declined significantly in recent years, as asset managers, pension funds and others have taken greater interest in proxy voting and have developed in-house expertise to address proxy-related issues. Most large public pension systems and institutional asset managers have their own proxy voting guidelines; while they may use advisers’ research, they do not vote based on advisers’ recommendations.”

With reporting by Jan Wagner.