JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon had his pay cut in half after a review of losses at the bank’s chief investment office found he bears responsibility for the blunders.

The CEO’s compensation for 2012 is $11.5 million, the New York-based bank said today on its Web site, compared with $23 million a year earlier. The 2012 sum includes a $1.5 million salary and $10 million of incentive compensation.

“Mr. Dimon bears ultimate responsibility for the failures that led to the losses in CIO and has accepted responsibility,” the company said after spending about eight months reviewing what Dimon, 56, has called “egregious mistakes” at the CIO.

JPMorgan is working to rebuild investors’ trust after losing more than $6.2 billion in last year’s first nine months on derivatives bets by U.K. trader Bruno Iksil, nicknamed the London Whale because his positions were so big. The debacle fueled legal claims against the company and its executives, prompted probes in the U.S. and abroad and this week led to the first regulatory sanctions, as banking watchdogs found internal-control “deficiencies.”

The CIO was supposed to manage excess cash while minimizing risk. The office used credit derivatives as part of a hedging strategy, and the trades became so large the bank couldn’t easily unwind them.

Board’s View

JPMorgan today released three documents tied to the bets, a report that outlined Dimon’s compensation, a 129-page review from a management task force and a statement from a review committee of the board of directors.

The dangers in the credit portfolio weren’t elevated to the board’s risk committee “as they should have been,” according to the panel’s report. As a result, “the board and the risk policy committee were not provided the opportunity to directly address them.”

Bank executives failed to ensure that the CIO’s risk controls kept pace with the increased complexity of the unit’s activities, the task force said. The leaders didn’t verify that the unit was well managed or had the same level of risk controls as elsewhere at the firm, according to the report.

“As a result, significant risk-management weaknesses developed within CIO that allowed the traders to pursue their flawed and risky trading strategies,” the bank said. “Senior firm management’s view of CIO had not evolved to reflect the increasingly complex and risky strategies CIO was pursuing in the synthetic credit portfolio; instead, they continued to view CIO as the manager of a stable, high-quality, fixed-income portfolio.”

‘Dead Wrong’

Dimon took responsibility for the bank’s blunders in June, when he told a U.S. Senate committee he was “dead wrong” in April when he dismissed media reports about trading losses as a “tempest in a teapot.”

The bank said its review of Dimon took into account his decisions to replace senior managers, efforts to claw back their pay and the formation of a team to examine what went wrong.

“Once Mr. Dimon became aware of the seriousness of the issues presented by CIO, he responded forcefully by directing a thorough review and an extensive program of remediation,” according to the report.

The bank said separately today that fourth-quarter profit rose 53 percent to $5.69 billion as mortgage revenue climbed. Dimon, who is also chairman, was not included in board deliberations on his pay, he told reporters on a conference call after earnings were announced.

“The board had to look at the positives, which I think are large, and the negatives,” Dimon said. “This is one huge embarrassing mistake and I respect their decision.”

Macris, Drew

Dimon ousted three London traders involved in the loss, shuffled senior managers and accepted resignations from executives including former Chief Investment Officer Ina Drew. Matt Zames, the former co-head of fixed-income trading, was promoted twice last year and, after helping overhaul the CIO, is now co-chief operating officer with Frank Bisignano.

Drew retired four days after the loss was disclosed on May 10. Iksil, his supervisor Javier Martin-Artajo and the former CIO head in Europe, Achilles Macris, also left.

Barry Zubrow, who had overseen JPMorgan’s risk-management function while Iksil expanded his book, retired at the end of last year. Former Chief Financial Officer Doug Braunstein, 52, stepped down to become a vice chairman in the investment bank.

Jes Staley, former CEO of the investment bank who was stripped of day-to-day management duties in July, announced his departure Jan. 8. Staley, 56 and a one-time contender for Dimon’s job, is joining BlueMountain Capital Management LLC, the $12 billion hedge fund that profited from the bank’s faulty derivatives bet.

The report named Drew, Zubrow and Braunstein as bearing responsibility for management breakdowns.

‘Flawed Trading’

Drew failed to “ensure that CIO management properly understood and vetted the flawed trading strategy,” according to the management report. She also didn’t grasp changes to the synthetic credit portfolio in the first quarter of 2012 as its size, risk and complexity ballooned, the firm said.

The report also highlighted blunders tied to measuring risk. Dimon had previously said switching models understated the chance of losses.

Drew’s office evaluated risk by copying and pasting data into spreadsheets in Microsoft Corp.’s Excel software, making the process prone to errors, according to the management report.

“Spreadsheet-based calculations were conducted with insufficient controls and frequent formula and code changes were made,” according to the report.

‘Muting Volatility’

The risk model was developed by a London-based quantitative expert who had not previously created or implemented such a model and wasn’t given sufficient support, JPMorgan said. The firm’s review of the model wasn’t “as rigorous as it should have been,” JPMorgan said.

In a review of the model, JPMorgan found that the spreadsheet used the sum of two numbers, rather than their average, as part of a risk calculation.

“This error likely had the effect of muting volatility by a factor of two,” according to the report.

The Federal Reserve and Office of the Comptroller of the Currency on Jan. 14 took the first regulatory actions stemming from the trade, ordering the bank to strengthen risk and auditing controls. The board of directors also was told to consider control weaknesses and “adverse risk outcomes” while awarding compensation for Dimon and other top managers.

JPMorgan avoided fines and maintained Dimon’s dual role of chairman of the board and CEO.

“I don’t know why the Fed and OCC didn’t at least require JPMorgan to study whether or not an independent chairman would better supervise management’s oversight of the company’s risk,” said Josh Rosner, an analyst at New York-based Graham Fisher & Co., before the bank’s reports were released.