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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.
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