Big Board, Big Payday

By Jyoti Thottam Sunday, Aug. 31, 2003
    • Job-hopping Wall Streeters have never put a premium on loyalty. So Dick Grasso is a rarity — a man who has had exactly one employer, the New York Stock Exchange, in his entire 36-year career. The Big Board chairman gave a hint last week to what's been keeping him there. Mindful of the exchange's push for more openness among its members, Grasso disclosed that he earns a minimum $2.4 million annually. Very nice, that. But he also announced that he would cash out close to $140 million in deferred pay and retirement benefits this year.

    Who says it doesn't pay to stay put? That breathtaking sum stunned some of the Street's own stunningly paid honchos. And it comes at a time when thousands of investment bankers and brokers have lost their jobs. The N.Y.S.E. was quick to point out that Grasso's lump-sum payment built up over his 20 years as a senior executive. Still, even accounting for decades of compounded interest and (at least for a while) a booming stock market, $140 million is "very generous," says Doug Jensen, an executive-compensation consultant at Hay Group in Norwalk, Conn. Consider: it's equal to the entire second-quarter pension expense for Northrop Grumman, a company with 120,000 employees.


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    Grasso's pay has been a subject of intense curiosity since May, when the Wall Street Journal reported that his compensation totaled $12 million last year. In the wake of recent corporate-accounting scandals, Grasso pushed hard for strict new N.Y.S.E. governance requirements, with a focus on transparency. So pressure has built for the Big Board to follow the same standards as its members. "It was Dick who said earlier this year, 'Look, times have changed,'" says N.Y.S.E. spokesman Robert Zito. By disclosing Grasso's pay while extending his contract through 2007, the N.Y.S.E. board ate its own cooking without appearing to criticize the man who has led the exchange through boom, bust, national disaster and scandal. "We wanted to announce to the world a vote of confidence for Dick," said Laurence Fink, CEO of the investment firm BlackRock and a member of the N.Y.S.E.'s compensation committee.

    What does the N.Y.S.E. boss do? Grasso, 57, who has been chairman since 1995, won wide praise for his leadership after Sept. 11, 2001, but his main role in the 211-year-old exchange is essentially that of corporate hall monitor. Public companies can list their stocks anywhere, but 2,800 of them choose to do so with the N.Y.S.E., which maintains an old-fashioned trading floor for the purpose. (Trading is electronic at the NASDAQ.) The broker-dealers who make trades are members of the exchange, and Grasso enforces the rules they must follow to keep their spots. Recent complaints from investors have prompted a wide investigation into profiteering by floor traders. Similarly, the public companies whose stocks they trade have to meet certain standards, in market value and governance practices, to be listed. Grasso has been a persuasive recruiter too — during his tenure, 1,549 companies have joined the Big Board.

    Corporate-governance watchdogs applaud the new disclosure, but they are still amazed by the numbers. "That's a phenomenal sum for a regulator," says Charles Elson of the University of Delaware's Center for Corporate Governance. The N.Y.S.E.'s compensation committee, however, doesn't compare Grasso's paycheck to those of regulators. Fink says it looks instead to financial conglomerates and investment banks. Elson says those comparisons don't make sense; unlike a public company, the N.Y.S.E. has no stock to rise or fall with Grasso's performance.

    The bulk of Grasso's payout--$91.6 million — comes from deferred retirement benefits and savings, and he enjoyed an 8% guaranteed return on one-tenth of his total compensation. "That's a little unusual," Jensen says, because most executive retirement plans peg their returns to vary with interest rates. Fink says the board will be reviewing all aspects of senior executive benefits in October.

    That bodes well for the N.Y.S.E., says Sarah Teslik, executive director of the Council of Institutional Investors, a frequent critic of the exchange's board. Teslik notes that until this year the N.Y.S.E.'s compensation committee was populated only by Wall Street insiders. "It's a good sign that the board is alive and well," she says.

    Last week's bombshell may not be the last. Next spring the N.Y.S.E. will disclose more details about top executives' compensation, including Grasso's bonus for this year and perks. As Teslik points out, "It's reflected in the cost of every trade." Open books inspire confidence among investors, but the N.Y.S.E.'s open wallet may only remind them of the Street's greedy past.