Grasso Departure, Once Unthinkable, Is Talk of NYSE (Update2)
Sept. 12 (Bloomberg) -- The prospect of Richard Grasso's departure as chairman of the New York Stock Exchange, unthinkable as recently as two weeks ago, is being discussed by everyone from traders to directors to the executives of listed companies.
NYSE floor traders, including Michael LaBranche, James Rutledge, Bernard Herold, and James Maguire Sr. say Grasso's $140 million payout this month is excessive and a distraction. Three members of the NYSE's 27-person board today scheduled a meeting for Sept. 18 to ``judge the sentiment of the floor,'' said Robert Fagenson, a board member who represents brokers.
``He was the hero of Wall Street but the rest of the world doesn't live on Wall Street,'' said Phillip Phan, professor of entrepreneurship at Rensselaer Polytechnic Institute and a consultant to the World Bank. ``It's really hard to explain something like that to the average Joe.''
Some traders who asked not to be named are threatening to convene a special members' meeting to call for Grasso's ouster unless the board acts. They said they have oral support from about 200 of the NYSE's 1,366 members to sign a petition that would force a special meeting. NYSE rules require 100 signatures for a non- scheduled meeting of members. Maguire, who has worked on the exchange floor since 1954, called on Grasso to resign immediately.
Grasso, who has been chairman since 1995, said at a press conference three days ago that he had no plans to resign and intends to serve out his contract until mid-2007. He also said he'd give up $48 million due him through the end of his contract.
``You will all have the opportunity to bid me a farewell on the last day of May 2007,'' he said. His spokesman Ray Pellecchia said today the exchange stands by that statement.
Members' Meeting
Fagenson, a vice chairman of Van Der Moolen Specialists USA, who will host Thursday's meeting with fellow NYSE directors James Duryea and Christopher Quick, said he hopes it will help clear the air.
``There is such a high level of debate on the floor right now that this gives us a way to get in touch with the people who actually earn a living on the exchange,'' said Fagenson.
Retired broker William Higgins is circulating a second petition, which would require 175 signatures, to force changes to the composition of the board.
``Grasso should go because he's overpaid,'' said Herold, 82, who has been an NYSE member for about 40 years. ``He represents greed. He's putting a sign on the exchange that we are as greedy as Enron and all the other guys who robbed the public.''
Grasso Benchmark
For some traders, an appropriate benchmark for Grasso's pay is the NYSE itself -- 326 of about 2,700 listed companies have a market value of less than $140 million, according to a search of Bloomberg data.
Securities and Exchange Commission Chairman William Donaldson last week demanded an explanation of Grasso's compensation and New York Attorney General Eliot Spitzer in April criticized the ability of the Big Board to regulate its members in the securities industry.
``The recent facts coming to light about compensation policies put us in a position where we can't support pay levels at the exchange,'' said LaBranche, chief executive officer of LaBranche & Co., the NYSE's biggest market maker. LaBranche's family has traded stocks at the NYSE since 1903.
LaBranche's company was fined $150,000 last week for failing to provide e-mails to the NYSE's enforcement division as part of an investigation of whether specialists violated trading rules. LaBranche has appealed.
`Immediate Resignation'
LaBranche Managing Director James Maguire, who has owned an exchange seat since 1973 and coordinates trading in shares of Warren Buffett's Berkshire Hathaway Inc., today called for Grasso's ``immediate resignation.'' He said the controversy over his pay has become a hindrance to the conduct of the exchange's business.
``Without taking a position on the rightness or wrongness of the situation, Mr. Grasso has become an issue that makes it no longer tenable for the New York Stock Exchange to conduct its business,'' Maguire said. ``We must resolve this issue summarily and move forward.''
Grasso, who has worked at the exchange for 36 years, still has plenty of supporters.
``My belief is that Dick has the full support of the board, and he has mine,'' said board member Fagenson.
H. Carl McCall, the head of the NYSE's compensation committee, when asked to comment on Grasso outside his New York office this morning said ``not today.''
On Tuesday, McCall said the NYSE board had not discussed Grasso's resignation that day.
Senate Hearing
Donaldson may be asked about Grasso's pay at a Senate Banking Committee hearing scheduled for Sept. 30. The committee, chaired by Alabama Republican Richard Shelby, plans to examine the hedge-fund industry, mutual funds and self-regulatory organizations such as the New York Stock Exchange. ``We would expect the issue of compensation to arise,'' committee spokesman Andrew Gray said in a telephone interview.
The controversy over Grasso's pay also has sparked reactions from politicians and corporate executives.
``It's a very bad reflection on the governance of the New York Stock Exchange and Mr. Grasso,'' said Raymond Plank, 81, the chairman of Houston-based Apache Corp. ``A stock exchange in which all of us are listed has a special responsibility to be as clean as Caesar's wife.''
``That doesn't sound like a pay package,'' said Senator Byron Dorgan, a Democrat from North Dakota. ``That sounds like he's owning part of the vault.''
Some investors who use the exchange also said Grasso probably will leave.
``It's a huge percentage of the total net income of the exchange,'' said Brett Gallagher, head of U.S. equities for Julius Baer Investment Management in New York, which manages $5.5 billion. ``It seems to be the last vestige of the greed of the '90s. Will he go? I have a feeling that ultimately he'll go. That'll be the path of least resistance. He'll go off and enjoy his $140 million.''
`Changes' Sought
Members Rutledge and George Morris both wrote to Donaldson asking him to intervene, and calling for Grasso to step down. Morris accused Grasso and his management team of ``besmirching the good name of the New York Stock Exchange.''
``I want to see changes,'' said Rutledge, whose family has owned a seat since 1995 and wants new representation on the board. In a letter to Donaldson that Rutledge sent to exchange members Monday, he said the board and executives ``embarked on a series of decisions which displayed blatant disregard for investors.''
Exchange members, corporate governance experts and executives have said the NYSE's board failed to apply the same standards of management oversight that it requires of listed companies.
In testimony before the NYSE's special committee on corporate governance, Higgins said the board must change to represent the 970 members who lease their seats.
``Whatever you decide to do in reorganizing the stock exchange, in the end you will have to come back to people like me to vote on it,'' Higgins wrote in a Sept. 2 letter to members. ``We own the bricks, the mortar, the trade name and the vote. No one else has that.''
In addition to new fees imposed by the exchange, traders also have been hurt by declines in trading over the past three years, and a switch to trading in decimals instead of fractions, which cuts into their profit on each trade.
``This is the first time in 23 years I've felt like this,'' said Randolph Post, an independent broker. ``When the fees went up in the winter and early spring, it was weird timing because business was so bad and there were so many cutbacks. I don't like to think that the fees just went to pay the people upstairs.''
Pay Details
The exchange released details of Grasso's pay for the first time earlier this week. His paycheck got the biggest boosts in 2000 and 2001, when the New York Stock Exchange Composite Index rose 1 percent and fell 10 percent, respectively.
His total compensation was $21.8 million in 2000. In 2001, he made $25.5 million, his highest pay ever, in a year when the Standard & Poor's 500 Index fell 13 percent and Wall Street securities firms fired 24,000 people. The $140 million represented deferred compensation and retirement funds.
The majority of the money in both years came from several incentive bonuses and a guaranteed return on his deferred pay. In each of those two years, Grasso's annual bonuses were increased by a $5 million ``special payment'' to retain him as chairman. The NYSE also added $6.8 million and $8 million to one of his bonus plans in 2000 and 2001, respectively.
Last Updated: September 12, 2003 18:25 EDT |
