Grasso earned that big number on his pay stub
By Steven Martinovich
Posted on Sun, Sep. 21, 2003
Regardless of how well you did investing in the stock market during the past year, Richard Grasso did far better running one of them - at least he did until Wednesday, when he resigned as chairman and CEO of the New York Stock Exchange.
Grasso has been the subject of much editorializing in recent weeks, thanks to a massive compensation package that was recently approved by the exchange's directors.
The normally calm Diane Francis of the Financial Post wrote last week that the former NYSE chairman and its directors were "the ugly faces of capitalism" and that the compensation package itself was "the size of a small African country's economy," while floor traders at the exchange were reportedly angered, though none would go on record for obvious reasons. Even several Wall Street chief executives, themselves no strangers to huge paydays, quietly murmured their discontent.
On the face of it, a $139 million package - which Grasso gets to keep despite the resignation - is extraordinarily generous, even in an industry where the people at the top receive magnificent salaries topped off by generous bonuses.
Yet the question that few have bothered to ask is whether it's even anyone's business whether Grasso deserved the money. The simple fact that the package was so large seems to motivate people into believing that there was no way that Grasso could have deserved it.
Examining the package itself reveals that the $139 million wasn't just a lump sum payment. It was made up of $51.6 million in accrued retirement benefits, $47.9 million from prior incentive awards, and $40 million from an executive savings plan.
Nor is it a unique example. Former General Electric CEO Jack Welch's retirement package was worth more, and it was entirely deserved, given that Welch increased GE stockholder value by $400 billion in the two decades he ran the company.
That's the second major criticism people bring up: that the NYSE itself isn't a terribly profitable institution, making such compensation seem unhealthy. While Grasso earned $12 million last year (a number benchmarked to the salaries of Wall Street CEOs), the exchange itself made only $28.1 million on revenues of $1 billion. If Welch actually deserved his compensation package for running GE, a hugely profitable company, and then gave up his compensation package after a misplaced public outcry, by what standard did Grasso deserve his?
Actually, you can make a good argument that he earned every penny.
Grasso didn't represent a corporation but he did head the world's largest equities market whose nearly 2,800 members represent $14.9 trillion in global market capitalization. The exchange brings together 85 million investors who daily trade $37.6 billion in shares. It is a self-regulating body that, apart from a statistically insignificant number of companies like Enron, has a justifiably good reputation for doing its job well.
Compared to many of his predecessors, Grasso was a reformer, although he, too, admittedly has made some mistakes, including, as Francis pointed out, sitting on the boards of member companies.
Granted, the exchange has a way to go before it equals the 11,722.98 the Dow Jones Industrial Average posted on Jan. 14, 2000. But under Grasso's leadership (and he had spent his entire professional career, remember, at the exchange), it has weathered the downturn reasonably well. It is still one of the world's best engines of wealth creation, and the exchange's figures show that under Grasso, those participating in the market generally have done exceedingly well.
There was also a moral dimension to Grasso's retirement package and the debate over it. The exchange is a private company, a fact that seems to escape most people, and the money came from a private fund. It was an arrangement between a firm and an employee. Grasso wasn't the CEO of a discredited company that engaged in fraud; he earned his money through hard work (no one on Wall Street would argue otherwise) and voluntary trade, the essence of capitalism.
As payment to a tireless promoter of the premiere engine of economic growth and trade in the United States and arguably the world, an engine that benefits us all, Grasso's compensation package wasn't obscene. It was just.
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