Job Cuts and Legal Settlements . . . Two Ways to Profit

The major US banks have rebounded since the Great Recession. Many posted record profits in 2013 and 2014. For instance, the industry reported over $40 billion in profits in just one quarter in 2013!74 Looking only at profits might lead you to believe that times are good for big banks and all their employees. Certainly the big bank CEOs have done well. Jamie Dimon, CEO of JP Morgan Chase (JPM), was awarded $20 million, and Brian Moynihan of Bank of America (BofA) received $14 million, but both trailed industry CEO compensation leader Lloyd Blankfein of Goldman Sachs (GS), whose board agreed to $23 million in compensation for 2013.75 In response to the financial crisis, changing markets, and new regulations, the big banks changed their strategies and significantly restructured their companies. Many of these changes focused on reducing their involvement in the mortgage business that was at the center of the crisis. On the one hand, some argue that the rich rewards are just and appropriate given the enormous changes overseen and led by these CEOs. However, another point of view argues that these profits are in large part the result of massive layoffs, cuts that continue even in the face of record profits and generous CEO compensation. JPM cut more than 15,000 employees, BofA 30,000, and Citigroup nearly 25 percent of its workforce. Eliminating such large numbers of employees reduces expenses and helps boost profits even when revenues are not growing.76 Moreover, many of these same CEOs were at the helm when their companies plunged into the crisis. Their associated misconduct has resulted in billions of dollars of legal expenses (fees and settlements). For instance, JPM’s Dimon was prominent in negotiating nearly $20 billion in 2013 alone to cover legal expenses related to settlements involving the “London Whale” scandal and misconduct related to Bernie Madoff and mortgage investments. , for its part, has paid out nearly $50 billion since the crisis to cover its own legal obligations related to the mortgage meltdown.77

What is your position on rewarding CEOs (and other executives) for profits in the wake of employee job cuts and legal expenses? What Is Your Position?

1. CEOs should continue to be rewarded for profits, even if they occur as the result of massive job cuts and despite legal expenses for misconduct during their time on the job. Explain this position.

2. From an organizational change perspective, what are the advantages and disadvantages of this position?

3. CEOs are the ultimate leaders of their organizations and the buck should stop with them. Their compensation should not increase if large numbers of jobs are cut and/or significant legal liabilities are incurred.

4. From an organizational change perspective, what are the advantages and disadvantages of this position?

5. If you were a member of the board of directors at a big bank, what would you recommend for compensating the CEO in light of job cuts and legal settlements? Explain.