NEW YORK, April 4 -- For nearly two years after former New York Stock Exchange chief Dick Grasso was pushed out because of an uproar about his $139.5 million compensation, a key question has been why directors at the NYSE chose to pay him so much.
On Monday, papers filed by Grasso's defense team, including selected excerpts from interviews former directors gave to lawyers conducting an internal inquiry for the exchange into Grasso's pay, suggested some of the rationale.
Dick Grasso got a $139.5 million compensation package from the exchange.
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In the excerpts, the directors variously describe Grasso as an "A-plus" chief executive doing a "fabulous job," the "best CEO the Exchange ever had." They explain that part of the reason they paid him so much in cash was they feared he would leave for an organization that could offer him an even sweeter stock-options package.
Goldman Sachs Group Inc. chief executive Henry M. Paulson Jr., one of Grasso's leading critics at the time of his ouster, said Grasso was "off the charts good at his job," according to the excerpts. Paulson also said many directors thought "they made a lot of money, that Grasso had no stock options and that there was nothing wrong with Grasso's compensation package."
Grasso's attorneys included the excerpts in a legal brief arguing that the interviews should not be kept confidential as the NYSE had requested.
Portions of the interviews were included in a report, made public this year, produced for the exchange by former federal prosecutor Dan K. Webb. Grasso's attorneys had argued that the document, widely known as the "Webb Report," was misleading and failed to include material favorable to Grasso.
New York Supreme Court Judge Charles E. Ramos, who is overseeing New York Attorney General Eliot L. Spitzer's lawsuit against Grasso, ruled Monday that the interviews could not be kept confidential.
In his lawsuit, Spitzer argues that Grasso's pay was unreasonable under New York law for the head of a not-for-profit organization. He also contends that directors were kept in the dark about the full extent of Grasso's compensation and that Grasso manipulated his own pay through intimidation. Spitzer is demanding that Grasso repay the exchange at least $100 million.
Grasso filed a countersuit arguing that the exchange owes him about $50 million more. The case is not expected to go before a jury until late this year at the earliest.
The excerpts released Monday include comments from some of Wall Street's top chief executives who served on the NYSE board under Grasso.
Spitzer spokesman Darren Dopp dismissed the significance of the quotes. "Many of these same directors said that they were unaware of the details of Grasso's compensation, that they thought he wasn't worth the money and there were other irregularities," he said.
Dopp added, "Taking a few words about Grasso's competence out of context from 1,050 pages of interview notes merely obscures the real issues in this case, which are that the board was kept in the dark and actively misled about Grasso's compensation, which was inconsistent with New York's Not-for-Profit Corporation Law.
In the excerpts, Lehman Brothers Inc. chief executive Richard S. Fuld Jr. said he thought Grasso was "an A-plus executive."
Former Merrill Lynch & Co. chief executive David H. Komansky said Grasso "was the best CEO the Exchange ever had." Komansky acknowledged there was no "clear and present danger" that Grasso would leave the exchange but said he nonetheless "wanted to make damn sure that it didn't happen."
J.P. Morgan Chase & Co. chief executive William B. Harrison Jr. said that he had "zero" evidence that Grasso's personal relationship with board members influenced pay decisions and that no board members felt threatened by Grasso, who as head of the exchange wielded significant regulatory authority over Wall Street brokerage and trading firms.
Bear Stearns Cos. chief executive James E. Cayne told NYSE investigators that he opposed ousting Grasso as NYSE chairman "because [he] had a legitimate contract and hadn't done anything wrong or illegal." On Sept. 17, 2003, the NYSE board voted 13 to 7 that Grasso should go.
Former NYSE director Carol A. Bartz, the chief executive and chairman of software company AutoDesk Inc., said of Grasso's ouster: "It offended my sensibility that the board gave him this salary, then fired him for taking the money. I thought that the board should be fired and that we should keep Dick Grasso as the head. I thought that he did a hell of a job for the exchange. Instead of getting a gold watch, he got castrated. I suggested the board resign and leave him in there."
