Jamie Dimon proposed today that he won’t hire top performers away from Citigroup and Bank of America.
This is a giant mistake.
- Moral Hazard: The risk of losing valuable employees to competitors is a serious cost to managers, shareholdeers and creditors that provides a huge disincentive to rely on a bailout. By declaring that this isn’t a risk, Dimon is telling the banking industry that its OK to risk failure. He’s unilaterally creating moral hazard.
- Undermining Government Policy. Although it’s not often said in politie company, pay restrictions on the firms that took TARP are meant to cause a flight of talent to punish the worst managed companies and discourage reliance on bailouts. We’re not sure Ken Feinberg understands this but we know that Larry Summers and Ben Bernanke do. Dimon’s anti-poaching policy is undermining this.
- Malinvestment of Human Capital. Trapping top producers in crippled firms is just as bad as trapping any other form of capital there. It’s a recipe for zombie banks staffed by zombie bankers.
- It’s Anticompetitive. Although Dimon’s unilateral declaration might not amount to an outright violation of anti-trust rules prohibiting employers from agreeing not to compete for employees, it certainly violates the spirit of those rules. And if announcing it at a professional conference is read as seeking a tacit agreement among other market participants, Dimon could be in trouble.
Here’s the AP’s full write-up:
JPMorgan CEO Jamie Dimon said Tuesday his bank won’t try to hire top performers at Citigroup and Bank of America, days after the government’s “pay czar” slashed pay for the biggest earners at JPMorgan’s troubled rivals.
“I morally have an issue with people going against these companies that are hamstrung and making it worse,” Dimon told a conference of financial professionals in New York.
Pay czar Kenneth Feinberg last week said he had ordered seven companies that have received billions of dollars in taxpayer money to slash the base salaries of their top executives by an average of 90 per cent and cut total compensation — cash, stock and perks — in half.
That applies to the five top executives and the next 20 highest-paid employees at Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.
Bank of America, which has received $45 billion in federal bailout money, said the pay caps will hurt its ability to offer competitive salaries and that rivals unencumbered by the restrictions already were wooing away its employees.
Dimon said that’s not the case at JPMorgan & Chase Co., which repaid its $25 billion in bailout funds earlier this year and has emerged from the financial crisis as one of the nation’s strongest banks.
“It would be wrong for us to say, ‘Let’s go hire their best people.’ I think that would be a terrible thing to do, so we’re not going to do that,” he said.
Feinberg’s pay restrictions followed public outrage over outsized Wall Street compensation packages at large firms that helped cause last year’s meltdown and were later bailed out by taxpayers.
Dimon said he agreed with Feinberg’s decision in principle, but argued that excess Wall Street leverage and lax regulation — not compensation — were the main causes of the financial crisis. He cautioned against actions that would severely weaken the seven firms under Feinberg’s authority, where another 525 employees still face new curbs on pay.
“I’d be very careful that they don’t hamstring those companies as they try to grow,” Dimon said. “All of us need Citibank, Bank of America and all those other companies to be healthy, vibrant and growing.”
Addressing proposed reforms to the financial system, Dimon said he supported giving the government so-called “resolution authority,” or the power to take over and wind down large financial institutions whose collapse could endanger the economy.
But the government’s plan to create a financial consumer protection agency would complicate the regulatory process, he said. Instead, existing regulators should be strengthened.
“A new agency creates another whole round of issues,” Dimon said. “I think you want to deal with a regulator who knows you, who’s tough and gets things done.”