D. Jeanne Patterson

“The stakes are large”
(source:Bebchuk and Grinstein, relating to executive compensation).


This is a story about Richard Grasso’s compensation at the NYSE and his resignation as CEO in 2003, both of which resulted in legal action. We detail his compensation and how it was calculated. We also detail the complaints by the New York State Attorney General against Grasso. In addition, we describe the job of the specialist on the floor of the NYSE and we discuss how specialists made their fortunes while Grasso was CEO and Chairman of the Board. Additionally, we discuss regulation of the New York Stock Exchange, because it was an SRO (self-regulated organization) and responsibility for regulation was in the hands of their board. From the start, our discussion assumes that the NYSE is a not-for-profit firm, as it was in 2003 when Grasso resigned. Later, in 2006, it became a for-profit firm. We have to acknowledge that change. It resulted in changes in the specialists system and in the regulatory function – but that began after Grasso had left the NYSE. They were all related.

When The Washington Post reported on February 28, 1992, that United Way President William Aramony’s annual compensation package totaled $463,000, there was an outcry that the amount was excessive for the president of a tax exempt organization. . . .

While the possibility that that [Internal Revenue] Service will deny or revoke excessive compensation is certainly real, as shown in numerous cases discussed in this article, this possibility is often more properly used as a tool to persuade exempt organizations’ boards of directors to tighten their oversight and control of compensation.

Source: Jean Wright and Jay H. Rotz, “Reasonable Compensation,” 1993 EO CPE , Text, p. 1.

In this case study, we provide the background for the fascinating story of Richard Grasso’s outrageous compensation as CEO of the New York Stock Exchange. (It was more than the amount that Aramony received in 1992.) You will know already that he was almost fired (he quit) in 2003. And you will also know that the New York Attorney General, Eliot Spitzer (who had plans to run for governor and who, seriously, has the legal authority and perhaps responsibility to sue) sued Grasso because of “unreasonable” compensation as the CEO of a state nonprofit organization.

Who is going to win this debate? This is not a small matter.

Bebchuk, Lucian and Yahiv Grinstein, “The Growth of Executive Pay,” Harvard Law School, April 2005. See the Bibliography for several other articles by Lucian Bebchuk.