Exclusive: JPMorgan's legal troubles weigh on employee pay: sources
By Nadia Damouni and David Henry
(Reuters) - JPMorgan Chase & Co (JPM.N: Quote) plans to keep overall compensation per employee roughly flat this year from last year, lagging gains at rivals, as the bank's massive legal settlements weigh on its results, two sources familiar with the matter said.
Bonuses were largely set early this week, though payouts could change in unusual situations or if there is an unexpected change in the company's results during the last six weeks of the year, said the sources, who spoke on the condition of anonymity. It is not yet clear what Chief Executive Jamie Dimon's bonus for 2013 will be.
Pay increases have been muted across much of the banking sector in the aftermath of the financial crisis, but JPMorgan's plans are on the low end of what experts forecast for the industry this year.
Earlier this month, compensation consultant Johnson Associates estimated that commercial and retail bankers overall will get bonuses that are unchanged to 5 percent higher this year. It estimated bonuses across all of Wall Street, including large asset management firms, will be up 5 to 10 percent. Recruiting firm Options Group estimated that average pay will rise 4 percent.
But JPMorgan has higher legal expenses than rivals. On Tuesday, the bank agreed to pay $13 billion to the U.S. government to settle charges it misrepresented the quality of mortgages it sold to investors before the housing crisis. After taxes, that settlement is equal to nearly half of what the bank can earn in a year.
Without legal settlements, JPMorgan's profit would have been about 27 percent higher in the first three quarters than the same period last year, an increase that would have made it easier for the company to boost pay per employee this year.
The bank could have taken more dramatic steps to cut costs after recent settlements, like cutting pay across the board or reducing staff.
But its executives believe the legal costs are a temporary drain on profits, and do not want to force current employees to bear too much of the burden of the settlements. Continued...