Conclusion

Executive compensation was one of the outstanding public policy issues in the late 1990s and is still salient in the 21st century. It becomes even more interesting when the executive is high profile from a high-profile non-profit firm and is sued by a high-profile politician (who plans to run for governor of New York).

A July 2006 update about the Grasso story helps to summarize the results of Grasso’s compensation story. “. . . it was [still] shocking for many to discover just how much he was making – more than $30 million in 2001, most of which was deferred into his retirement account. Grasso was attempting to collect much of this account as he negotiated a new contract. Within a few months . . . Grasso’s career unraveled.”

As Gasparino describes Grasso’s career, he was a “zhlubby underachiever in thick glasses and a cheap suit” who started as a clerk at the NYSE in 1968. Then, within a few months of a leak out of the Compensation Committee, Grasso resigned on September 17, 2003. He was a victim of a number of circumstances.

Spitzer filed soon after. After lengthy delays, the suit was expected to come to trial in October, 2006, but was still on the docket in 2007. “At great risk to both his already damaged reputation and possibly his own financial security, Grasso has chosen to fight.” He says that the trial is about his good name.

Why did he resign? There are hints at this question sprinkled among the various depositions and interviews which have appeared since his resignation. “In these documents, Grasso’s big concern appeared to be the possibility that a future board of the stock exchange might be swayed by the growing public disgust over excessive executive pay and think twice about letting him walk away with such a huge retirement package.”

In any case, during contract negotiations (which he apparently initiated, as they were not due), Grasso asked that he be allowed to withdraw some of his retirement assets. The retirement assets were at about $140 million at the time, but most people on the board at NYSE were not aware of their size.

“To this day, Grasso’s decision to take the money is viewed as a grave miscalculation.” says Gasparino. Hank Paulsen (then at Goldman, Sachs, but more recently Secretary of the U.S. Treasury), says that he virtually begged Grasso not to do it. “In his deposition, he added that while Grasso gets in A-plus for his work as CEO, he gets a C or D as chairman because he didn’t understand how taking the money would hurt the exchange.” Likewise, William Summers (then at McDonald Investments) told him the same thing. But he was determined to withdraw some of the money represented in retirement benefits, which were intended for withdrawal after retirement. Grasso argued that the funds were his and that he wanted some control over their use. He argued publicly that he planned a series of targeted charitable contributions.

Richard Grasso is no longer the CEO of the NYSE and there is no longer dispute about his last $48 million. Attorney General Spitzer has not yet dropped his complaint about Grasso’s compensation, although there has always been speculation that he may do so.

According to Business Week, assuming the case goes to trial, about the only way Grasso's attorneys can defend his pay package is by arguing that he deserves as much money as the Wall Street tycoons he regulated. But that position is a stretch. Compared with, say, Goldman Sachs, Merrill Lynch, or Citigroup, the NYSE doesn't have equal "revenues, income, or employees. And its mission does not include a search for profits," says Daniel L. Kurtz, a New York nonprofit legal specialist who used to lead the state AG's charities bureau. Nor did Grasso face any personal business risk.

(Gasparino, Charles, 2006. "Would You Buy Stock in this Man?" New York Times, July 27, 2006, p. 36.)