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Grasso’s Comp: Not Illegal, Just Bad Judgment

Posted By Barry Ritholtz On September 12, 2003 @ 1:20 pm In Current Affairs,Finance,Media,Politics | Comments Disabled

Previously in this space [1], I discussed how, in the parlance of traders, the NYSE top ticked Grasso’s pay package.

I suspect that the NYSE watched the yeoman’s job Grasso did keeping big Tech companies from fleeing the technologically lagging NYSE for the Nasdaq and wanted to lock him up. The thought of the NYSE Chair, leaving to CEO some Nasdaq dot.com, must have kept these guys up at night terrified.

Like so many others during that frenzied era, they overpaid. Subsequently, the asset turned out worth much less than the price paid during the bubble. AT&T did the same thing, as did so many other dealmakers. One of the lone exceptions was USAI, now InterActiveCorp. Barry Diller picked up a ton of stuff on the cheap after the crash.

There’s nothing illegal about being wrong. Consider it a bad trade – Bad Judgement yes, illegal no. Unless there was an affirmative disclosure duty which was botched, his comp package would likely withstand legal scrutiny.

I am not, however, in the same camp as those who think that Grasso’s superlative post 9/11 performance merited him this windfall. Quite simply, very few people are worth $188 million dollars – most certainly, not a regulator. Grasso’s hasn’t created the kind of enormous value for his shareholders that Jack Welch did; He didn’t pioneer a new field like Bill Gates did; His company hasn’t innovated like Steve Jobs’ companies have. He didn’t invent a brand new manufacturing methodology, like Michael Dell did.

He was an OK regulator who rose to the occasion in the face of tragedy.

That bad judgment comes into sharper focus when you consider some of the gaffes the NYSE has made over Grasso’s term. The surchage the specialists had to pay for a technology upgrade to the NYSE’s tech mechanism must be especially galling to the NYSE seat owners – that’s bad judgment.

In an era of corporate misdeeds and rampant looting at the expense of shareholders, its certainly not a good public relations move; more bad judgment.

One also cannot say that the NYSE distinguished itself, as so many of its listed companies were found guilty of wrongdoing – be it Tyco or Lucent or Enron or Martha Stewart Omnimedia or Janus (lucky for them Worldcom was a Nasdaq listing).

Grasso could have more aggressively gone after the wrong doers, the ones who failed to respect shareholders or the regulations. Then again, he was sitting on the boards on a few NYSE listed companies. Let me repeat that, so you can notice the absurdity of the situation: The chief NYSE listing regulator sat on the Board of Directos of the companies he was regulating.

That’s worse than bad judgment; That’s just plain stupid.

Having the big brokerage houses sit in the public’s advocacy seat on the NYSE board? What was with that you ask? Just some more bad judgment.

In hindsight, what it all comes down to is simply a gross overcompensation for someone who just doesn’t merit that kind of pay.

Illegal? No. Stupid? Quite. Bad judgment? Absolutely.


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