[ by Howard Haykin ]

It seems that some banks have gotten into a rut, paying their executives very generous compensation year-in and year-out.-  in good times and bad.  But all that may be changing - and that would be good.  It seems that over this past year, the incidence of record fines and sanctions based on executive miscues is on the rise.

JPMorgan Chase and Citigroup ... perhaps have been on the wrong end of too many record settlements related to rule violations that, in large part, appear to have been due to management errors and miscalculations.  Sooner or later, bank directors will be placed on the "hot seat" and be asked to asked to explain why they have not done more to curb the errant ways of the bank’s executives. 

Preliminary Considerations at JPMorgan. At the biggest U.S. bank by assets, directors are considering lower 2012 bonuses for CEP James Dimon and other top executives in the wake of a multibillion-dollar trading disaster, said people close to the discussions.  But they also are grappling with the question of how to do that without drastically reducing the executives' take-home pay, the people said.  More than 93% of Mr. Dimon's $23 million in compensation last year came from either stock- or cash-based bonuses.

Preliminary Considerations at Citigroup. This board, meanwhile, is expected to decide this fall how to fine-tune next year's compensation plan to win broader support among investors, people familiar with the situation said. The 3rd-biggest U.S. banking company by assets suffered a rare rebuke from shareholders in April when they rejected management's pay structure in a nonbinding vote.  It's quite revealing to note that while Citigroup was not the only bank to receive negative votes on their compensation plans, Citigroup may have been the most roundly booed by shareholders.  Yet, the bank and the bank board of directors have all but ignored their shareholders.  [C-I Note:  If nothing else, we found Citi's behavior to be nothing short of insulting to its shareholders and actually bordered on disrespect.]

However, the Citi Board is deserving of some credit.  Following the annual meeting, its board since has hired a new compensation consultant - Daniel Ryterband, president of Frederic W. Cook & Co.  Many other big U.S. banks are wrestling with executive pay amid soft financial-industry performance, weak economic growth and widespread cost-cutting. Revenue was down from a year earlier at many institutions in the first half of 2012, including at J.P. Morgan and Citigroup, and many banks are setting aside less for salaries, bonuses and benefits.it

Yet, To Do This Review The Right Way ...  JPMorgan Chase and Citi Directors should consider seeking sine answers from those executives who played a significant role in the fine.  Some questions that come to mind are:

• When and why did such new 'errant' management practices begin? 
• Which managers and executives regularly practic such 'errant' practices? 
• If they know that such practices violate either federal rules and regulations, or house policies and procedures, why do they continue doing the wrong thing? 
• To what extent have these and other 'errant' practices been introduced to lower-ranked firm personnel?

It's critical to determine whether the problem is contained within a limited number of executives, or if such practices are known and accepted by employees throughout a firm.  These answers may indicate how difficult it would be to retrain all firm personnel and thus reestalish a strong culture of ompiance osnne as to best way to control lemployees

And, one final word about the key to a firm introducing a new compensation plan.  First, it should regarding setting up a new payroll.  It should satisfy disgruntled shareholders, while maintaining the dignity and respect for the current senior management and their offices.

For further details, go to:  [WSJournal, 9/9/12].