JPMorgan Chase & Co (JPM.N) plans to keep overall compensation roughly flat this year from last year, in a sign that employees will feel at least some pain from the bank's recent legal settlements, according to two sources familiar with the matter.
Pay increases have been muted across much of the banking sector in the aftermath of the financial crisis, but JPMorgan's decision would put the bank on the lower end of expectations for the rest of the industry.
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.
Options Group estimated that average pay will rise 4 percent.
At JPMorgan, bonuses were largely locked down 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.
About 156,000 of JPMorgan's 255,000 employees work in retail, mortgage and credit card businesses, where pay is generally lower than in its investment bank.
In the third quarter, JPMorgan lost $380 million after it set aside more than $7 billion, after taxes, to cover litigation expenses. It was the bank's first quarterly loss since 2004.
JPMorgan, the biggest U.S. bank by assets, could have taken more dramatic steps to cut costs after recent settlements, like cutting pay across the board or reducing staff. But the bank's 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.
Chief Executive Jamie Dimon said this week that it would not be fair to penalize current employees for actions that occurred years ago, largely at banks that JPMorgan acquired in the heat of the crisis.
"We have never blamed employees broadly for mistakes that were made away from them," Dimon said on Tuesday in response to a question from a stock analyst about compensation expense.
OUTLOOK FOR DIMON'S PAY UNCLEAR
Even if pay on average will be more or less unchanged, an individual's pay may rise or fall, depending on the performance of the employee's unit, and his or her own work, the sources said.
In mortgage lending, for example, overall pay is expected to be down because of the dramatic decline in loan refinancing volume. Asset management employees will generally see pay go up following gains in that division that have come with the higher stock market. Within JPMorgan's investment bank, where the year has been good for some units and bad for others, pay generally will be up a little, one of the sources said.
The settlement JPMorgan signed this week covers its mortgage lending, sales and securitization practices from more than five years ago. Mortgage deals done by Bear Stearns and Washington Mutual before JPMorgan acquired them accounted for about three-fourths of the liabilities involved in recent mortgage settlements.
It is unclear how Dimon's bonus will be affected by the settlements. For 2012, the board cut Dimon's total pay in half to $11.5 million, citing the $6.2 billion of "London Whale" trading losses that happened under his watch.
Even after the substantial checks JPMorgan has written, its legal and regulatory issues are not over. The bank faces at least nine other government probes, covering everything from its hiring practices in China to whether it manipulated the Libor benchmark interest rate. It may still also face criminal charges linked to mortgage matters.
The bank said last month it has some $23 billion set aside to cover remaining litigation expenses. The $13 billion settlement it agreed to this week is covered by that figure.
(Reporting by Nadia Damouni and David Henry; Editing by Lauren Tara LaCapra, Leslie Adler and Tim Dobbyn)