JPMorgan should consider whale of a bonus.

Agenda-Setting Financial Insight.
June 11 2012 4:24 PM

JPMorgan Should Consider Whale of a Bonus

JPMorgan should consider offering whale bonuses in 2012.
JPMorgan should consider offering whale bonuses in 2012.

Photo by Justin Sullivan/Getty Images

JPMorgan should consider a whale of a bonus. Not a Shamu-size payout, but rather one referencing the London trader with the marine mammal moniker who is at the center of at least $2 billion of trading losses from the bank’s chief investment office. 

Many details are still unknown about the disastrous hedges disclosed last month, so it’s not obvious how such a scheme might work. It also doesn’t necessarily follow that linking bonuses to a wide swath of the bank’s employees makes sense. But the performance of the trade should probably be a part of 2012 incentive pay for employees in the CIO and senior management, including Chief Executive Jamie Dimon. 

One way to make JPMorgan executives eat their own cooking would be as follows. Once the size of the group’s 2012 bonus pool is determined, the bank could create a synthetic bond whose notional size mirrors the performance of the so-called Whale trade. The bonus pool essentially would buy the long side of that derivative and the resulting bonds would be delivered to employees in the form of bonuses. 

This long-term compensation would be linked to the fate of the bad hedges. The bonds would mature when the trade does. Any losses in the securities doled out to bankers ultimately would benefit JPMorgan and its shareholders. Any gains would flow to the employees involved. 

Such an arrangement has worked before. Credit Suisse pioneered the idea of paying banker bonuses with toxic securities. They didn’t love the idea in 2008. But those employees aren’t doing badly. Though it has several more years to maturity, Credit Suisse’s Partner Asset Facility is up by about 80 percent. The Swiss mega-bank rolled out a similar follow-up scheme last year. 

A JPMorgan whale bonus wouldn’t make shareholders whole. But it could potentially remove some of the sting from the foul-up. It would also make holding the bad trades to maturity a little less painful for the bank and signal to the market it isn’t a distressed seller. Most importantly, it would support a precedent for bankers being more directly responsible for their mistakes. Getting that idea to catch on could turn JPMorgan’s trader into a real killer whale. 

Read more at Reuters Breakingviews.

Advertisement

Daniel Indiviglio is a Reuters Breakingviews columnist, based in Washington, where he covers the intersection of politics and business. He joined from The Atlantic, where he provided analysis on topics such as financial regulation, housing finance policy, the Treasury, and the Fed.

TODAY IN SLATE

Politics

Meet the New Bosses

How the Republicans would run the Senate.

Even by Russian Standards, Moscow’s Anti-War March Was Surprisingly Grim

I Wrote a Novel Envisioning a Nigerian Space Program. Then I Learned Nigeria Actually Has One.

The Best Thing About the People’s Climate March in NYC

Friends Was the Last Purely Pleasurable Sitcom

The Eye

This Whimsical Driverless Car Imagines Transportation in 2059

Medical Examiner

Did America Get Fat by Drinking Diet Soda?  

A high-profile study points the finger at artificial sweeteners.

The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers

John Oliver Debunks the Miss America Pageant’s Claim That It Gives Out $45 Million in Scholarships

Trending News Channel
Sept. 20 2014 11:13 AM Watch Flashes of Lightning Created in a Lab  
  News & Politics
The World
Sept. 22 2014 12:30 PM Turkey Just Got Forty-Six Hostages Back From ISIS. How Did That Happen?
  Business
Moneybox
Sept. 22 2014 12:44 PM The U.S. Is So, So Far Behind Europe on Clean Energy
  Life
Lexicon Valley
Sept. 22 2014 1:22 PM Is Arabic Really Just One Language? 
  Double X
The XX Factor
Sept. 22 2014 12:29 PM Escaping the Extreme Christian Fundamentalism of "Quiverfull"
  Slate Plus
Science
Sept. 22 2014 8:08 AM Slate Voice: “Why Is So Much Honey Clover Honey?” Mike Vuolo shares the story of your honey.
  Arts
Behold
Sept. 22 2014 1:10 PM One Photographer’s Beautiful and Devastating Response to Climate Change
  Technology
Future Tense
Sept. 22 2014 12:14 PM Family Court Rules That You Can Serve Someone With Legal Papers Over Facebook
  Health & Science
Science
Sept. 22 2014 12:15 PM The Changing Face of Climate Change Will the leaders of the People’s Climate March now lead the movement?
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.