NYSE's Grasso to Get $140 Mln Payout, Extends Pact
Crims always win in real life
(Update7)
Aug. 27 (Bloomberg) -- The New York Stock Exchange paid Chairman Richard Grasso $140 million from his retirement accounts, disclosing for the first time part of the wealth he has amassed during 36 years with the world's biggest stock exchange.
The disclosure follows criticism that Grasso, whose role includes policing listed companies and stock traders, is overpaid. Securities and Exchange Commission Chairman William Donaldson, the exchange's chief regulator, makes about $142,500 a year. Nasdaq Stock Market Inc.'s CEO Robert Greifeld, who got a $4.7 million signing bonus in May, will earn at least $2.5 million this year.
Grasso's compensation ``is completely inappropriate,'' said Nell Minow, editor of the Corporate Library, which grades companies on how well they serve investors.
Grasso, 57, also agreed to a two-year contract extension at an annual salary of $1.4 million and a bonus of at least $1 million through 2007. The bulk of his pay has come from his bonus, which helped bring his total compensation to $12 million in 2002 and $15 million in 2001, according to people familiar with his pay.
NYSE spokesman Robert Zito said Grasso was traveling and couldn't be reached for comment.
SEC Inquires
The SEC is seeking details of the payout to Grasso, said a spokesman for the agency, John Nester. ``We have seen the announcement and we are looking in to the details,'' he said, declining to be more specific.
When the NYSE's board began talking with Grasso last year about renewing his contract, there was speculation that he was being considered for posts in Washington, including Treasury Secretary, said H. Carl McCall, chairman of the exchange's compensation committee. Former CSX Corp. CEO John Snow was appointed to the position in December.
``You have to do what you can to retain good people,'' said McCall, New York State comptroller from 1993 to 2002, now vice chairman of HealthPoint, a private equity firm.
McCall said the compensation committee hasn't yet developed a formula for determining Grasso's bonuses in the future. He said the NYSE would disclose Grasso's past pay in its annual report next year.
``The argument that you couldn't find someone of Grasso's caliber to do the job for a lot less than $1 million a year, I find ludicrous,'' said Paul Lapides, director of the corporate governance center at Kennesaw State University, near Atlanta.
The payout of Grasso's deferred compensation while he is still employed is ``very unusual,'' said Daniel Ryterband, managing director at Frederick W. Cook & Co., executive pay consultants. ``These types of benefits are rare even for a Fortune 50 company. I've never seen accumulation of this magnitude in an organization like the NYSE.''
Pay Disclosure
The exchange agreed two months ago to disclose the pay of its top executives, responding to criticism from regulators that it failed to meet the standards it demands from listed companies. Donaldson in March ordered the NYSE and nine other U.S. exchanges to tell him how they are ensuring their governance provides ethical models for their members.
Grasso also is paid more than the chief executives of other exchanges. Clara Furse, chief executive officer of London Stock Exchange Plc, Europe's third-largest exchange by market value, earned 1.1 million pounds ($1.7 million) in fiscal 2003.
Euronext NV, Europe's second-largest stock exchange by market value, paid Chief Executive Officer Jean-Francois Theodore 750,000 euros ($815,400) in 2202 while Deutsche Boerse AG, Europe's largest exchange by the same measure, paid top executive Werner Seifert 1.6 million euros last year.
Barbara Stymiest, chief executive of TSX Group Inc., was paid the equivalent of $721,041 in 2002, according to public documents filed May 8. About $299,000 of the total was salary. TSX Group manages the Toronto Stock Exchange.
Dual Role
Much of the criticism of Grasso has focused on his dual role as market regulator and marketplace operator.
The Council of Institutional Investors said in a report earlier this month that the exchange and its board are dominated by securities industry members who give short shrift to investors' concerns and questioned the independence of the nominating committee that proposes board candidates and is supposed to be free of board influence.
New York University President John Sexton is on the nominating panel, while Grasso, BlackRock Inc. Chairman Laurence Fink and Home Depot co-founder Kenneth Langone are Sexton's bosses as NYU trustees, Teslik noted.
Grasso sits on Home Depot's board, and he and Langone used to be on each other's compensation committees.
Shareholder activists such as Minow and some government officials, including New York Attorney General Eliot Spitzer, have criticized the Big Board for not adequately representing individual investors.
Scrutiny
The scrutiny of Grasso follows a series of embarrassments on the NYSE's board. Citigroup Inc. Chairman Sanford Weill's nomination as one of 12 exchange directors representing the public generated such outrage in March that he withdrew. Citigroup owns Salomon Smith Barney and agreed to pay $400 million -- more than any other Wall Street firm -- to settle charges that its analysts produced biased research to win investment-banking assignments.
Last year three NYSE directors -- Martha Stewart, the CEO and chairwoman of Martha Stewart Living Omnimedia Inc., former Vivendi Universal SA CEO Jean-Marie Messier, and former Salomon Smith Barney Chairman and CEO Michael Carpenter -- resigned because of scandals at their companies.
The board committee reviewing its governance practices, chaired by former Clinton White House chief of staff Leon Panetta and McCall, has yet to complete its work.
His new contract should have waited until they wrapped up, said George Morris, a 73-year-old retired arbitrager in Easton, Maryland, who has owned an NYSE seat since 1985.
Currently, 15 of the 27 board seats are reserved for executives from the securities industry and NYSE. ``Grasso extended this before the old directors are gone,'' said Morris, who leases out his seat to a floor broker for $206,000 a year. ``It's a midnight coup.''
`Estate Planning'
The one-time payment ``is compensation that's been deferred and accumulated and matured over 36 years at the exchange and 20 years as a member of management,'' Zito said. ``The reason in the press release, personal estate planning, is completely the reason for doing this now.'' Grasso is traveling this week and wasn't available to comment, Zito said.
``I thought it advisable in order to facilitate personal financial and estate planning to withdraw my accumulated deferred compensation, savings and retirement benefits, which are subject to full income taxes, and pay the taxes at this time,'' Grasso said in the statement.
The $140 million distribution includes Grasso's $40 million savings account balance, $51.6 million in previously accrued retirement benefit and $47.9 million from prior incentive awards.
Grasso would have had to invest $1.8 million a year for 20 years in the Standard & Poor's 500 index, re-investing dividends in the index, to accumulate $140 million, according to Bloomberg calculations.
The Queens native has spent his entire professional career at the exchange, starting as a staff member in 1968. He was named chairman and CEO in 1995. The NYSE yesterday said its second- quarter profit doubled as it moved to cut costs. Net income rose to $11.6 million from $5.6 million.
Grasso serves on the board of Home Depot Inc., a post he will vacate before the NYSE's next annual meeting. Grasso and the exchange were criticized for serving on the boards of companies listed on the Big Board because the exchange is one of the regulators for listed companies.
CEO Pay
The median salary for U.S. CEOs in 2002 was $1.85 million, according to Sarah Anderson, author of a study on CEO pay and director of the Washington, D.C.-based Institute of Policy Studies Global Economy Project.
``It's outrageous that he's making more than the average CEO,'' Anderson said. ``He should be a model.''
Forty-two Nasdaq Stock Market companies defected to the NYSE in 2002 alone, according to the exchange. Not one transferred to the Nasdaq from the NYSE. During Grasso's tenure, the exchange has added 1,549 of the exchange's 2,800 listed companies, said McCall. The value of a seat on the exchange has nearly tripled under Grasso, McCall said. Earlier this month, an NYSE seat sold for $2 million, unchanged from a month prior and up $500,000 from a sale in March.
``He knows the business and he brings in a lot of business and listings to the exchange,'' said Laurence Tisch, co-chairman of Loews Corp. and an NYSE director from 1986 to 1992. ``He's a great salesman.''
Last Updated: August 27, 2003 16:45 EDT
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