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Introduction
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.
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