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Growing Doubts on Grasso’s Public Statements

Posted By Barry Ritholtz On September 17, 2003 @ 9:31 am In Finance,Politics | Comments Disabled

Graef Crystal is an compensation expert. His column today — “Grasso $48 Mln Giveback Could Have Been $20 Mln [1]” — on Grasso’s compensation package is a must read.

Among other things, growing doubts have been raised over his declaration that: “One decision I have never played a role in is the determination of my own compensation.”

An examination of the written record suggests strongly that the statement, taken literally, is incorrect. For openers, until this August, Grasso not only nominated all the members of the NYSE’s board compensation committee, albeit with board approval, but he also decided who would chair the committee, without anyone else’s approval. That put him in a position to exert some influence over his own pay.

There is also the report made to the compensation committee by Vedder Price, a Chicago law firm. In that report, there is abundant evidence that Grasso was making proposals to the compensation committee about the way he wanted his future compensation package to be shaped. As it turns out, it was his idea to have the NYSE dispense to him $139.5 million of cash he had already earned.

A significant part of that cash consisted of the lump sum equivalent of his vested pension. As Vedder Price noted, to get your pension paid while you are still employed is “rare.”

Additionally, it appears that the report on Grasso giving up an additional $48 million was overstated:

On the other hand, the net effect of Grasso’s recommendations concerning his future pay was to save the NYSE $3.6 million compared to doing nothing at all.

There’s also the matter of Grasso’s agreeing to give up the famous $48 million in future compensation that, it seems, completely eluded H. Carl McCall, the NYSE board’s compensation committee chairman. McCall should certainly have known about all this, given his background as the former comptroller of New York State and his evident familiarity with large sums of money.

Granted the record seems to show that Grasso didn’t give up that $48 million without having his arm twisted. But he could have said “No.” If he had, and if the board responded by showing him the door, he would nonetheless have been $48 million richer.

The bottom line for me is that Grasso did indeed have some influence over his board compensation committee, and he did indeed take an active role in the determination of his future pay. That’s pretty damning, but for the fact that his own proposals for his future pay — including his later decision to give back $48 million of future pay — saved the exchange money

It seems to me that Grasso made two fundamental errors. First, he figured that by getting the $139.5 million payment out of the way, the whole matter would blow over. Instead, it has caught fire and blown up in his face. And second, he clearly overdrew his case when he said that he had had nothing to do with his own pay. He surely did put in his two cents worth — make that many millions worth.

Nonetheless, I can’t draw the unequivocal conclusion that, at the end of the day, he is the richer for having done so.


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URLs in this post:

[1] Grasso $48 Mln Giveback Could Have Been $20 Mln: http://quote.bloomberg.com/apps/news?pid=10000039&sid=aHEXVor1R.Gc&refer=columnist_crystal

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