N.Y. Stock Chief On Hot Seat

WSJ: Some Big Board Members Want Dick Grasso Out In Pay Flap

(CBS)  New York Stock Exchange chairman Dick Grasso is reportedly under pressure to get out.

The Wall Street Journal reports that several floor traders who own Big Board membership seats have taken the unusual step of calling for new management at the exchange.

The Journal said the traders, angered over the $140 million pay-and-benefit package awarded to Grasso, are putting together a petition calling for the change.

The petition organizers said their aim is to collect 100 signatures from the more than 1,300 exchange seat owners. The Journal said that threshold would allow them to hold a special meeting to talk about replacing Grasso and some of his handpicked directors

David Weidner of CBS.MarketWatch.com reports that the NYSE realized at least a year ago that Grasso's escalating pay package would be a problem, according to documents released Wednesday.

With Grasso taking home a $30 million compensation package -- twice what other Wall Street CEOs made -- the exchange's board members realized that his pay would cut into the NYSE's profits and wrestled over ways to bring it under control

The details of that struggle were outlined in more than 1,100 pages of NYSE documents sent to the Securities and Exchange Commission. The exchange showed those documents to reporters Wednesday, but only for a short time.

The reams of meeting records, NYSE pay documents and outside reports gives a glimpse of a growing controversy in the Big Board's boardroom.
Board members who lavished multimillion-dollar raises and bonuses on Grasso for years decided in recent months that they had to limit his compensation without reneging on what had been promised to him, according to minutes of board meetings.

On Tuesday, Grasso said he would forgo $48 million in money that was to be paid to him during the next four years but would keep the $140 million lump sum payment -- which board members were told would save the exchange $3.6 million in future costs -- that represents the deferred compensation, bonuses and retirement money he has accrued.

That announcement, and the delivery of the documents, came in response to SEC chief William Donaldson, a former NYSE chairman himself, who expressed shock at the size of Grasso's payout and requested records and explanations as to how the 35-year veteran of the exchange had earned the money.

The final solution to the problem appears to have been a matter of some debate. Though compensation committee members approved the lump-sum payment as late as Monday, they also discussed the possibility of renegotiating Grasso's compensation.

The NYSE compensation committee, made up of about six members of the board of directors, appears to have decided last year that Grasso's pay should parallel that of the CEOs at the world's biggest financial services companies, not other exchange leaders or regulators.

A 2002 report by the Vedder Price consulting firm listed Grasso's peers as chiefs of companies such as Citigroup, Aetna, Freddie Mac and Wells Fargo.

But Vedder Price, which was hired to tackle the problem of Grasso's escalating pay, found that Grasso was earning far more than those executives.

Vedder, which worked alongside NYSE actuary William Mercer and its existing compensation consultant, Hewitt Associates, was called in for reasons outlined in a Sept. 23, 2002 compensation committee meeting.

"In order to reduce the earnings impact…(and) avoid a balloon payment" Grasso needed to have his contract restructured, the minutes of the meeting say. Without a new contract, the board was told, the exchange would have to pay additional $1.4 million annually to continue the existing contract.

That contract would have expired in 2005 with renewals made on an annual basis, a document said.

Vedder said in a presentation dated Oct. 23 that in 2001 Grasso earned $26.3 million -- excluding a $5 million special award. That compares to a median among Wall Street CEOs of $13.4 million.

Donaldson, who served as chairman from 1991 to 1995, drew $1.5 million in salary in 1991, $1.65 million in 1992 and received a $200,000 bonus in 1994, according to partial records included in what was sent to the SEC.

Vedder said that a lump sum payment of Grasso's pension at age 60 would be $122 million, compared to a median among his peers of $21 million. Grasso's pension and equity fund total stood at $172 million compared to the median of $71 million, the presentation said.

Records of the NYSE's compensation committee and board of directors also hint at how the decision to pay Grasso was made during the bull market years of 2000 and 2001.

Those years were the biggest of Grasso's career at the exchange. He was awarded $26.8 million in 2000, including a $5 million bonus he will decline as part of the $48 million he will not take, and $31.6 million in 2001.

During that time, Invamed chief executive Kenneth Langone headed the compensation committee. He chaired the committee between 1999 and 2003.

At a February 2001 board meeting, Grasso recommended an award for the exchange's bonus plan that amounted to 155 percent of the target amount set in the executive's pay packages. That proposal, accepted by the board, translated into a $12.5 million bonus for himself.

Grasso then left the room, and at the recommendation of the committee, Langone suggested paying Grasso an additional $5 million award for a job well done. The board approved the idea.

The next year was the same process: Grasso recommended a 155 percent bonus -- which translated into $16 million for him. The board then approved another $5 million for Grasso on top of that.

The board's grappling with the pay issue came to a head in the last few months, but it didn't end with the Aug. 27 announcement that Grasso's contract would be extended through 2007 and he would be paid $140 million in retirement and deferred compensation.

With Langone off the compensation committee and former New York State Comptroller H. Carl McCall taking the helm, committee members considered Grasso's extension and payout. A disclosure earlier in the year that Grasso earned $10 million in 2002 had already triggered criticism of the chairman's pay.

DaimlerChrysler chairman Juergen Schrempp "stated that rumors regarding the dimensions of the payments to Mr. Grasso had provoked negative speculation and criticism."

"McCall reported that some directors were concerned with the timing of the new agreement," minutes of the Aug. 7 meeting say. "Mr. Grasso did not think it was wise to proceed."

Board members attending the Aug. 7 meeting included McCall, Schrempp, BlackRock chief executive Laurence Fink, former AOL Time Warner chief Gerald Levin, TIAA-CREF chairman Herb Allison and Viacom chief Mel Karmazin. [CBS is owned by Viacom. Viacom is also a significant investor in MarketWatch.com, the publisher of CBS.MarketWatch.com.]

When the package was announced on Aug. 27, it created a maelstrom of controversy with everyone from investors to Ralph Nader saying Grasso was overpaid.

But it was Donaldson's complaint and request for information that seems to have prompted the most discussion. The committee met Sept. 8, the day before the SEC deadline for the NYSE's response.
At that meeting, "Some directors reported that they had not focused on Mr. Grasso's compensation going forward," a record of the meeting said.

And there was "extended discussion of what should be made public."
Ultimately, however, the board said it would provide full disclosure and at a full NYSE board meeting the next day, Grasso offered to forgo the $48 million in deferred compensation the board had agreed to pay him.

"I've been very well compensated," Grasso told reporters gathered later that day. "I am blessed to be in the position I am today."