by Phil Cannella
For once in the history of Wall Street firms, a CEO is being taken to task for creating huge losses that cost investors billions. In his years as a Senior Advocate, Phil Cannella has seen investment firm CEOs tank their own companies, and get huge bonuses for doing it. Now, Jamie Dimon, CEO of JPMorgan will be taking a pay cut for failing to keep tabs on a trader who created $6 billion in losses.
The rogue trader, known only as “the London Whale,” was responsible for the trades which lost the company $6 billion in 2012 and tarnished the reputation of a firm which prided itself in safely managing risk. Jamie Dimon also prided himself in running a tight ship, which is why, with compensation of $23 million in 2011, he was the highest-paid CEO of any of Wall Street’s mega banks.
As it turned out, Dimon wasn’t watching his employees as closely as he should have been. Although he drew praise for his handling of the situation (he immediately shut down the trading division responsible for the loss), the fact remains that he fostered a corporate culture that allowed risky trades to take place.
So JPMorgan’s board of directors decided to hold him responsible and cut his pay from its lofty heights. Now, Dimon will have to scrape by on an meager $11.5 million salary for 2012. While Phil Cannella may not be happy that CEOs like Dimon still make outrageous sums even when they are being punished, he believes such actions are a start.
Especially when you consider that JPMorgan’s 4th quarter earnings were up 55%. Phil Cannella is hoping that other firms will take notice and cut their executive pay as well. As long as investment firm CEOs are sitting in the lap of luxury, they will encourage their employees to take unnecessary risks to maintain the profits that sustain that lifestyle. And as long as CEOs don’t have to worry about getting fired, they will do anything they want with impunity. Perhaps chipping away at their cushy compensation packages will light a fire under them and encourage them to be a bit more responsible with their investors’ money.
But knowing as we do that Wall Street firms are irresponsible with investors’ cash, Phil Cannella can’t help but wonder why we line up to give them our money? With so many safer options available to the American investor, why do we choose to take on so much risk? Investors, especially those in or near retirement, should absolutely consider taking their money away from Wall Street fat cats like Jamie Dimon.
Phil Cannella is the founder and CEO of Retirement Media, Inc.