More Hefty Payments For NYSE Bigs

(CBS MarketWatch)  The New York Stock Exchange's top two executives have earned $22 million in retirement benefits each, according to payroll data released Friday by the exchange.

The benefits, which some compensation experts called excessive, came as the exchange continues to grapple with reforms amid new complaints about its specialist system.

Robert Britz, 54 and Catherine Kinney, 50, co-chief operating officers and presidents of the NYSE, would be due $22.6 million and $22 million, respectively, if they were awarded a lump-sum payment such as the one ousted chairman Dick Grasso took in August.

The disclosure came in response to a request made last week by seat holders at the exchange, many of whom were furious over the $187 million package awarded to Grasso. Complaints about the package lead to his resignation Sept. 17.

John Reed, the exchange's interim chairman, said the pay packages were recommended by Grasso to the NYSE compensation committee and then approved by the full board. He said fewer than 12 executives were making more than $1 million in annual compensation.

"We will clearly modify some features of our plans as well as their administration," Reed said in a letter to NYSE members. "These changes will be fully disclosed but should be made carefully keeping in mind that we are a successful enterprise with a singular franchise facing important challenges and must keep and have the very best management."

The top six executives of the exchange were compensated through salary, a bonus, a long-term incentive plan, a capital accumulation plan and other programs.

In 2001, for instance Britz earned $4.1 million -- $600,000 in salary, a $2.3 million bonus, $1.15 million in the capital accumulation plan, $65,099 from other plans and nothing from the long-term incentive plan, which was discontinued that year. Kinney earned a similar salary the same year.

"It's a healthy pay package and pretty high for a not-for-profit," said Tom Wamburg, chief executive of Clark Consulting.

That may be because the retirement benefits are based on total compensation rather than base salary, Wamburg said. A Clark survey found that 74 percent of Fortune 100 companies use retirement plans similar to that of the NYSE, but only 14 percent base retirement benefits on a total pay package.

Reed and the NYSE are also dealing with more fallout from the Grasso era.

Hank Greenberg, chairman of American International Group complained about the NYSE's specialist system on Friday."If the specialist cannot effectively perform his role then we need to look for alternatives including the electronic matching of buyers and sellers, with no human intervention," Greenberg said in an opinion piece published in The Financial Times.

Greenberg has historically been critical of the specialist system. The NYSE is the last major exchange that trades with an open-outcry system rather than using an electronic trading platform.

Greenberg complained to Grasso in late 2002 about the Spear Leeds & Kellogg specialist handling the company's stock.

Greenberg wrote that the specialist was not buying enough of the stock and therefore not buffering its sinking share price. Grasso then approached the specialist and requested that he buy more stock. Specialists, when not enough buyers can be found, are supposed to "make a market" and buy the shares to keep the price from falling too fast.

The story was confirmed by a person at Goldman Sachs familiar with the situation. Goldman is the investment bank that owns Spear Leeds.

The exchange gets more than 500 written complaints a year from companies about how their stocks are traded. Most of these complaints are made known to the specialist either by the NYSE's regulatory team or other exchange officials.

Michael Goldstein, an associate professor at Babson College and former economist at the NYSE, said CEOs' complaints about specialists who handle their company's stock are not uncommon. But, he said, the suggestion is that Grasso did not check the specialist's record.

"The part that's wrong is that Grasso didn't check to see whether or not the specialist was doing the good job," Goldstein said. "It could be the specialist wasn't doing a good job. But just telling someone to buy the stock artificially changes the process...and investors, especially mutual-fund investors, don't get a fair price."

But Goldstein also says the incident reflects the problem of having dual roles at the exchange. Grasso, the businessman, was simply trying to assuage a big client. AIG has a market capitalization of $150 billion.Conversely, Grasso, as regulator, doesn't appear to have taken the appropriate step by notifying the enforcement division.

A person at the NYSE said it wouldn't be inappropriate if Grasso spoke to the specialist. He also said Greenberg's complaint was forwarded to the market surveillance unit.


David Weidner covers Wall Street for CBS MarketWatch.com.


By David Weidner