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With nearly $500 million in assets under management, our charitable foundations, trusts and endowments look to us to apply well-developed financial principles to real world portfolios.
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  • Pay in the Financial Industry

    Some facts:  (1) Jamie Dimon is CEO of JPMorgan, (2) JPMorgan was fined $21.2 billion in 2013, and (3) Jamie Dimon received a 74% raise in pay to $20.0 million annually. I am going to leave it to you to come up with why that ought to be.JPMorgan Chase & Co CEO Jamie Dimon testifies before the House Financial Services hearing in Washington

    Pay in the Financial Industry is generally very good.  Here’s one fact that might help to explain that: they are playing with other peoples’ money.  When that’s the case it is helpful to those providing the money to (1) identify how value is created and (2) exert control.

    Banks simply take in deposits and make loans.  In today’s behemoth banks, this simple function has become overwhelmingly complex.  The money today’s bankers play with comes not only from depositors, but also bondholders and shareholders.  Generally, it’s the shareholders that should care about the link between pay and value – depositors and bondholders ought not to worry too much.  It’s the job of a bank’s Board of Directors to represent shareholders.  The JP Morgan Board is responsible for Jamie Dimon’s pay.

    4-Leaf CloverManaging other peoples’ money takes talent.  You have to pay for talent.  While it is fairly straightforward to recognize talent in the entertainment industry, in athletics and even in Silicon Valley, it is not as clear in the financial industry.  It is awfully hard to distinguish investment skill from luck.  Past performance, even extraordinary performance, is rarely useful in this regard.  Consequently, both the talented and the lucky become highly paid.

    Managing other peoples’ money is oftentimes a “heads I win, tails you lose” kind of game.  In this game, there is a great incentive Quartersto assume whatever risk it takes to flip a “head” because the “flippers” rarely suffer the consequence of a “tail.”

    People are always going to behave in their own best interest.  When they are playing with other people’s money being able to distinguish the talented from the lucky and exerting control becomes important.  The difficulty in doing this might help explain pay levels in the Financial Industry.

    Next:  Corporations as People . . .

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