Figure #1:
Webb Report

A Bainbridge Comment


Compensation at the NYSE, Richard Grasso

By 2003, observers of executive compensation were considering whether the amount of $188 MILLION compensation was excessive for Richard A. Grasso, CEO of the New York Stock Exchange, at the time a not- for-profit organization. (We will see the makeup of the $188 million total later.)

When the public first became aware of the size of Richard Grasso’s compensation, the NYSE decided to underwrite a study of its own executive compensation system.* The study is called the Webb Report, after its chairman, Dan K. Webb, Winston & Strawn, LLP. The report included significant recommendations in the public interest but was written as a self-study. We understand that Grasso did not want to release the report but it has been made public. We first got a copy from an Internet source provided by the Wall Street Journal and now it is commonly available on LawFind.

The recommendations and conclusions are summarized here (Figure #1) just as they are shown in the extensive table of contents of the Webb Report (these are only the section or paragraph headings; see the entire report). Ultimately, Grasso allowed the report to be made public, avoiding considerable discussion and possible litigation.

The conclusions are a good snapshot of the problems within the NYSE and its executive compensation system and are consistent with the more vivid conclusions of Robert A.G. Monks (at the end of this paper under “A Final Note ”).

Still another analysis appeared soon. On May 24, 2004, the Attorney General of the State of New York, Eliot Spitzer, sued Richard Grasso and the Exchange, citing violations of New York’s Not-for-Profit Corporate Law (NPF-L) in the form of award of an “excessive compensation package" for Grasso. Spitzer’s office claimed to have determined that Directors of the NYSE were misled about various aspects of the $187.5 million compensation package awarded to Mr. Grasso in 2003. The suit asked a state court judge to rescind the pay package and to determine a ‘reasonable’ level of compensation for Mr. Grasso. After that, Grasso resigned in 2003 because the “market” consistently considered his compensation “outrageous”

In September 2006: a judge for the case determined that he, the judge, would split the suit into several parts and that he, the judge, would work first on the question of “reasonable.” Grasso sued to disallow that but lost the suit.

AG Spitzer was a candidate for New York Governor and won the nomination in November 2006. Before that time, he had considerable securities litigation, including against security analysts and mutual funds.

But the Grasso story is not about excess compensation, even obscene excessively “unreasonable” executive compensation (although that will be discussed thoroughly). It is about obscene power. Grasso -- and possibly ONLY Grasso -- was capable of entrenching the specialist system.

* The first discussion was probably initiated by the Council of Institutional Investors in a 2003 study titled "Private Equity with a Public Purpose (Governance at the New York Stock Exchange." However, major public discussion began when a new compensation contract was being contemplated in 2003.