Grasso's Odyssey

Earlier this month, sources told The Washington Post that New York Attorney General Eliot L. Spitzer was preparing a lawsuit against former New York Stock Exchange chairman Dick Grasso seeking repayment of some of the $139.5 million in deferred salary and retirement benefits paid to Grasso by the exchange last year. A source close to Grasso said that despite published reports, no significant settlement talks have taken place and that the former chairman continues to firmly believe he earned every penny and that no viable legal case can be made against him.

Less than three weeks passed between the first revelation of the $140 million payment made to Grasso and his resignation on Sept. 17, 2003:

August 27: The New York Stock Exchange reveals that it had paid chairman and chief executive Richard Grasso a lump sum of almost $140 million, an amount it said was intended to cover two decades of deferred compensation, retirement benefits and previously earned incentive awards. The exchange also says it extended Grasso's contract to 2007 and would pay him $1.4 million annually plus an annual bonus of at least $1 million.

September 2: Securities and Exchange Commission Chairman William Donaldson publicly criticizes the $140 million payment to Grasso. He said the payment raised questions about the NYSE's corporate governance.

September 9: Grasso announces that he will forgo $48 million he was to be paid in addition to the $140 million revealed on Aug. 27.

September 10: The NYSE releases documents detailing the decision-making process that determined Grasso's $140 million payment. The documents were released in response to an SEC inquiry and raised questions about how many members of the exchange's board were fully briefed on Grasso's compensation.

September 12: The Washington Post reports that Grasso hand-picked the members of the NYSE board's compensation committee, undermining Grasso's contention that he had no say in determining his pay package.

September 16: The California Public Employees' Retirement System, publicly calls on Grasso to resign. the nation's largest public pension fund, said in a letter to Grasso released today. The fund was joined in its request by California's treasurer and the California State Teachers' Retirement System.

September 17: Grasso is forced to step down in the face of mounting criticism of how much he was paid.

The Issues

Conflict-of-interest: Historically, the NYSE chairman has had almost sole authority to name members of the board and members of the compensation committee. That changed somewhat under governance changes made by the exchange in June, but Grasso was still allowed to recommend members of the compensation committee. Many board members were upset that only six members of the board's compensation committee were fully briefed on the entirety of Grasso's compensation package. Outside critics questioned whether it was appropriate for executives from companies regulated by the NYSE to have a say in Grasso's compensation.

Compromised Role as Regulator: The Securities and Exchange is heading an inquiry to find out if the exchange compromised its regulatory function and ability to enforce corporate governance standards on listed companies. The SEC plans to look into whether Grasso's pay package affected the exchange's ability to fund its regulatory operations. It is undisputed that under Grasso's watch listings have doubled, prices of seats have risen significantly and market share is soaring. See "NYSE's Role as Regulator Questioned," The Washington Post, Sept. 14.

Size of the Pay Package: Some argue Grasso's pay should be comparable to that of a top government regulator and others say it should match that of a financial services industry executive. Securities and Exchange Commission Chairman William H. Donaldson, the top securities regulator, for example, earns $142,500 a year. Citigroup Inc. chairman and chief executive Sanford I. Weill received $1 million base salary and options valued at $14.5 million. In 2001, Weill received about $30 million in compensation, including a $17 million bonus.

Loss of Investor Confidence: Investor confidence is at stake if the investing public perceives Grasso's compensation to be a hindrance to his ability to regulate and enforce governance standards of its listed members. See "Trust Is Trading in Short Supply" by Washington Post columnist Jerry Knight, Sept. 15.