Reference no: EM131452785
Read the case and answer each one.
Case - Fined Billions, but Still Admired and Handsomely Rewarded
Jamie Dimon is the CEO and chairman of JPMorgan Chase. He has held both roles since 2005-that is, before, during, and after the financial crisis. Few executives on Wall Street are as respected and recognized, or as well compensated. For instance, in 2013 his compensation was approximately $11.5 million, in 2014 it was $20 million, and in 2015 $27 million.
In one sense, this is typical of total executive compensation in the finance industry. Dimon's straight salary is often $1.5 million and the rest (more than 90 percent) is tied to some measure of firm performance, such as stock price and profitability.
However, JPMorgan and others have come under considerable pressure for what the compensation package doesn't consider directly-ethics. During this same period JPMorgan has settled legal claims in excess of $25 billion! A few notable examples include $920 million for allowing traders to fraudulently over-value investments and conceal losses: $1 billion related to securities fraud and concealment of losses in the "London Whale" trading fiasco (JPMorgan lost $6.2 billion apart from the fines); $13 billion in settlement of risky mortgages; and another $2 billion for not identifying the Medoff Ponzi scheme and the losses it caused its own investors.
To be fair, Dimon's $11.5 million year was intended to reflect his role related to the London Whale debacle, but this bonus reduction took place only due to pressure from Congress (Dimon earned $23 million the year before). Defenders of Dimon, and the JPMorgan board of directors who granted the pay, say he deserves such rewards for negotiating smaller fines and for producing industry-leading profitability. JPMorgan had record profits in 2015.
This scenario nevertheless raises an obvious question: Is JPMorgan's pay for performance really pay for profits without consideration of other activities that are costing it billions of dollars in penalties and fines? Dimon was CEO before, during, and since all of these billions in penalties were paid. He did not inherit the problems of a previous executive. And a corporate ethics monitoring group reported that since the financial crisis of 2008 "there appears to be no change in the frequency of the ethical issues facing the company, which suggests different types of intervention are needed."' The combination of these details lead some to argue that Dimon should be fired.
What Would You Do?
As you may know, the board of directors is ultimately responsible for the performance of the firm, its CEO, and all executive compensation. With this in mind, assume JPMorgan replaced its entire board. You are now the chair, and Jamie Dimon is only the CEO. What would you recommend?
1) Would you fire Dimon outright? Defend your choice.
2) Your answer to No. 1 aside, what recommendations do you have for the CEO's compensation from here on? Explain.
3) Details of the case aside, describe how you could be sure pay for performance for the CEO also includes performance related to ethical conduct.
Case - A Strategic Organizational Behavior Moment - The Motivation of a Rhodes Scholar
Frances Mead, compensation director for Puma Corporation, was pleased because she had just hired what she considered to be a highly qualified person to fill the position of benefits administrator. Dan Cog-gin was an extremely bright fellow. He had graduated summa cum laude with a B.S. degree in finance from the University of Chicago. He had then traveled to England for a year of study as a Rhodes Scholar. After returning from England, he had worked for a large bank in the investments area for a year. He had then accepted the position of benefits administrator in the corporate personnel department at Puma, headquartered in Salt Lake City, Utah.
Dan felt good about his new job. He would be well paid and have a position of some status. Most importantly, the job was located in Utah. Dan had always enjoyed the outdoors, and he liked to back-pack, camp, and do some mountain climbing. Salt Lake City was the perfect location for him.
He arrived on the job happy and ready to tackle his new responsibilities. Dan's financial background aided him greatly in his new job, where he was responsible for the development and administration of the pension plan, life and health insurance packages, employee stock purchase plan, and other employee benefit programs. Within a month, Dan had learned all of the program provisions and had things working smoothly. Frances was satisfied with her selection for benefits administrator. In fact, she expected Dan to move up in the department ranks rapidly. Dan was enjoying himself, particularly his opportunities to get into the mountains. His only concern was that he did not seem to have enough time to enjoy his outdoor activities. After six months, he had his job mastered. He was quite talented, and the job did not present a strong challenge to him.
Frances recognized Dan's talents and wanted him to evaluate Puma's complete benefits package for the purpose of making needed changes. Frances believed that Puma's benefit package was outdated and needed to be revised. With Dan's abilities, Frances thought new programs could be designed without the help of costly outside consultants.
She held several discussions with Dan, encouraging him to evaluate the total benefits package. However, at the end of a year on the job, Dan had accomplished little in the way of evaluation. He seemed to be constantly thinking of and discussing his outdoor activities. Frances became concerned about his seeming lack of commitment to the job.
In the ensuing months, Dan's performance began to slack off. He had had the current programs running smoothly shortly after his arrival, but complaints from employees regarding errors and time40elays in insurance claims and stock purchases began to increase. Also, he was making no progress in the evaluation of the benefit package and thus no progress in the design of new benefit programs. In addition, he began to call in sick occasionally. Interestingly, he seemed to be sick on Friday or Monday, allowing for a three-day weekend.
It was obvious that Dan had the ability to perform the job and even more challenging tasks. However, Frances was becoming concerned and thought that she would have to take some action.
Discussion Questions -
1) Using the hierarchy of needs theory, explain the reasons for the situation described in the case.
2) Using expectancy theory, explain the reasons for the situation.
3) Using one of the motivation theories discussed in this chapter, describe what actions Frances should and should not take.