NEW YORK, Feb. 2 -- Concern among New York Stock Exchange directors about the size of then-chairman Richard Grasso's compensation package began as early as 1998, according to a newly disclosed investigative report conducted for the exchange.
The report, prepared in 2003 at the exchange's request by former federal prosecutor Daniel K. Webb, describes a "surprisingly heated" meeting of the NYSE compensation committee in February of 1998, where Grasso's pay for 1997 was discussed.
Former New York Stock Exchange Chairman Richard Grasso walks between trading floors of the NYSE near the close of trading, July 19, 2002.
(Richard Drew - AP File Photo)
Blame for Scandals Entering the Boardroom (The Washington Post, Jan 7, 2005)
Former NYSE Director Asks Judge to Dismiss Suit (The Washington Post, Jul 23, 2004)
Grasso Sues NYSE, Reed for $50 Million (The Washington Post, Jul 21, 2004)
Grasso, Spitzer Take It Personal (The Washington Post, May 26, 2004)
Grasso Refuses To Pay Back $139.5 Million (The Washington Post, Feb 27, 2004)
According to the report, Jeff Hyman, an outside compensation consultant for the NYSE, wrote in a memo to the file in 1998 that there was substantial debate among compensation committee members about what to pay Grasso.
Hyman's memo stated "Several other members felt a $5 million number [for that year] would be more than adequate, and there was a fair amount of debate around the issue . . . most of the concern centered on the sheer magnitude of the award given the chairman's role (not a public company), its relative worth in relation to 1997 pay, and a concern about 'raising the bar' on Grasso's pay in general."
Grasso resigned from the Exchange in September of 2003 after the NYSE disclosed it had awarded him a lump sum $139.5 million payment for compensation and deferred benefits, most of it accumulated during his eight years as chairman.
Institutional investors and other shareholder groups denounced the pay package, calling it excessive for the head of a not-for-profit entity that is charged with regulating its members, mainly brokerage houses and trading firms.
After Grasso's resignation, the NYSE overhauled its governance practices and installed former Citigroup co-chief executive John S. Reed as chairman. Reed hired Webb to conduct a probe of the events leading to the $139.5 million payout.
Webb submitted his findings to the Exchange in December of 2003 but Reed declined to publicly release the report. The NYSE then turned the Webb report over to the Securities and Exchange Commission, which oversees the exchange, and New York Attorney General L. Eliot Spitzer, who regulates New York State's not-for-profit organizations.
Spitzer filed suit against Grasso last May, saying his pay violated New York's not-for-profit law. He also sued Kenneth G. Langone, the former chairman of the exchange compensation committee. Grasso has since filed a counter-suit against Reed and the NYSE, accusing them of defamation of character and demanding $50 million more he says he is owed. Spitzer in his suit demanded that Grasso return most of the $139.5 million to the exchange.
Both Grasso and Langone have been demanding that the NYSE give them copies of the Webb report. Last week, New York State Supreme Court Judge Charles E. Ramos, who is overseeing the Grasso matter, ordered that the NYSE give the report to Langone and Grasso.
At a news conference this morning, an exchange attorney distributed the report to the media, saying the NYSE had decided not to appeal Ramos's ruling or get into an extended debate about whether portions of the report should be kept confidential.
Grasso's side denounced the nature of the release of the Webb report, saying the NYSE was trying to manipulate reaction to the report by giving it to the media at the same time it was provided to Grasso's attorneys.
"Mr. Grasso's attorneys received a copy of the Webb report only moments before it was released to the media," Grasso spokesman Erik Starkman said. "The NYSE is clearly trying to spin the Webb report's contents before Mr. Grasso's attorneys have had an opportunity to review it."
The 130-page Webb report in many ways tracks Spitzer's complaint, although it offers no legal conclusions or analysis. The report generally concludes that Grasso's pay was unreasonable and that Grasso had undue influence over his own compensation, chiefly by controlling appointments to the board and the compensation committee.
The report also concludes that Grasso's pay was incorrectly based on compensation for chief executives at much larger, publicly traded companies. And it says the composition of the board and the compensation committee changed too often for directors to attain full understanding of the nature of Grasso's complex pay arrangements.
The Webb report also says Grasso's executive assistant was paid $240,000 per year for the last three years of Grasso's tenure and that Grasso used the services of two drivers on the NYSE payroll, each of whom earned about $130,000 per year.