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Outcry Over Grasso's Pay Intensifies

California's treasurer joins the growing chorus calling for the chairman of the NYSE to quit.

September 17, 2003|Kathy M. Kristof | Times Staff Writer

California's state treasurer and officials of major public pension funds added their voices Tuesday to the growing chorus calling for the resignation of New York Stock Exchange Chairman Richard Grasso.

"We believe it is fundamentally important that Grasso resign so that the New York Stock Exchange can be a credible force for corporate reform," State Treasurer Phil Angelides said at a Sacramento news conference.

In New York, state Comptroller Alan Hevesi, sole trustee for the roughly $105-billion state pension fund, said in a statement that Grasso had "lost the ability to implement needed reforms at the NYSE and to regulate and monitor its members and listed companies."

The controversy ignited late last month, when the NYSE, a quasi-regulatory body that sets listing standards for more than 2,700 publicly traded companies, revealed it would pay Grasso $139.5 million in deferred compensation this year. That would be on top of a 2003 salary and bonus totaling at least $2.4 million.

The revelation was in line with a new disclosure policy thrust on the NYSE by the Securities and Exchange Commission, which has been pressing the stock exchange to live up to the basic governance standards that it requires of its listed members. But the full size of Grasso's compensation wasn't disclosed until last week when the NYSE responded to a request from SEC Chairman William Donaldson for more information.

The NYSE told Donaldson that Grasso had never earned less than $2.1 million annually during the eight years he had led the exchange and -- in an admission that riled many in the investment community -- that he had been paid $59.3 million during the last three years. During that period, investors and many brokerages were suffering through a series of corporate scandals and the worst bear market in decades.

As the furor grew last week, Grasso announced that he would forgo $48 million worth of pay he was guaranteed between now and 2007.

The efforts of regulators and the securities industry to restore public confidence in the financial markets are undermined by excessive salaries, particularly when paid to a regulator, said Jack Ehnes, chief executive of the California State Teachers' Retirement System.

Ehnes joined Angelides and officials of the California Public Employees' Retirement System in calling for Grasso to quit. The two funds, which together manage some $240 billion, have been active in efforts to restrict what they view as excessive corporate salaries.

"Our efforts are wasted if the head of the nation's leading financial marketplace can't set the example we expect from corporate America," Ehnes said. "Mr. Grasso's pay package is in the stratosphere and is flat-out wrong."

Iowa Treasurer Michael Fitzgerald, who supervises state pension funds with a value of $15 billion, and Treasurer Richard Moore of North Carolina, whose pension funds have $56 billion in assets, also called for Grasso to step down.

Chief executives of some publicly owned companies receive sky-high salaries, but many experts say it is inappropriate for someone in Grasso's position to be so highly compensated.

"Grasso has straddled the line between regulator and rainmaker," said Carol Bowie, director of corporate governance at the Investor Responsibility Research Center in Washington. "He obviously wants to be paid like a rainmaker. But his main role is regulatory and his pay calls into question how he is using his office."

Indeed, corporate governance experts have complained that Grasso's pay -- and the secrecy that shrouded it until recently -- demands a fundamental review of how the exchange operates.

"There needs to be real reassessment about whether the stock exchange can continue to serve in a regulatory role," said Ann Yerger, deputy director of the Council of Institutional Investors in Washington. "The NASD created a separate regulatory arm. That's a possible model here."

Members of Congress are looking at the issue and plan to question SEC Chairman Donaldson about it when he testifies in front of the House Financial Services Committee and the Senate Banking Committee this month.

Grasso's pay won't be the primary focus of the hearings, which also will look into hedge fund abuses, after-hours trading and mutual fund scandals. But members already have expressed interest in hearing about Grasso as calls for his resignation have grown louder, congressional aides said.

U.S. authorities are reviewing more than 1,200 pages of documents -- meeting minutes, contracts and analyses -- provided by the NYSE to establish how Grasso's pay was set. No official action is expected until that review is complete, but a number of NYSE members and traders have begun to press Grasso to resign in the interim.

NYSE spokesman Ray Pelecchia declined to comment on the latest calls for Grasso's ouster but noted that the chairman previously had vowed to remain in his job. "Nothing has changed," he said.

Bloomberg News was used in compiling this report.

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