UPDATE 2-JPMorgan lifts salary freeze

* Also adding over 300 staff for small business loans

* Boosts small business lending by $4 billion

* Unclear if CEO Dimon will get bonus; did not last year

* To pay $500 award to employees earning under $60,000

* Reinstates 401(k) match for 2009 (Adds background on regulation, Dimon's pay, lending efforts)

By Elinor Comlay

NEW YORK, Nov 9 (Reuters) - JPMorgan Chase & Co (JPM.N) is lifting a salary freeze it put in place last year, according to an internal memo, a sign of its growing confidence in the economic recovery after it reported several quarters of improving investment-banking profits.

Separately, the bank said it is adding more than 300 staff to its branches to support a $4 billion increase in small business lending. The initiative, like its mortgage modification program for homeowners, is an effort to show it is extending lending and helping to revive the U.S. economy.

As year-end bonus season approaches, bankers' compensation looms as a hot-button issue again. When the financial crisis was deepening, the industry came under fire from lawmakers for paying large bonuses to its executives even as it was being propped up with taxpayer money and cutting loans to a trickle.

The decision by JPMorgan to lift the salary freeze is part of its year-end performance and compensation review process, according to the memo from human resources director John Donnelly.

The memo was confirmed by a spokesman for the firm, which has returned $25 billion it got from the government -- unlike peers Citigroup Inc (C.N) and Bank of America Corp (BAC.N).

JPMorgan believes its pay practices for top executives follow best principles, Donnelly wrote in the memo, noting that the bank's senior executives receive most of their compensation in stock that vests over multiple years and it eliminated so-called golden parachutes for executives in 2005.

Chief Executive Jamie Dimon did not receive a bonus last year and it is not yet clear whether he will get one this year. For 2008, he received about $19.7 million in total compensation, including a $1 million salary and stock and options awarded in previous years, according to regulatory filings.

The second-largest U.S. bank will also return to matching eligible U.S. employees' 401(k) pension plan contributions, after suspending those payments earlier this year, according to the memo.

REGULATION

The Federal Reserve last month issued bank pay guidelines aimed at curbing incentives for risk-taking that officials say contributed to the financial crisis.