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Stock Market Chief Resigns in Pay Furor

NYSE directors ask Richard Grasso to step down in an attempt to quell a growing outcry over his $140-million compensation package.

September 18, 2003|Thomas S. Mulligan | Times Staff Writer

New York Stock Exchange Chairman Richard Grasso resigned Wednesday, unable to withstand the uproar over a $140-million pay package that critics said made him look more like a symbol of Wall Street greed than one of the world's most important financial regulators.

In an emergency board meeting convened 15 minutes after the stock market closed for the day, NYSE directors requested, received and accepted Grasso's resignation, climaxing an increasingly bitter, three-week flap that market professionals said was tarnishing the Big Board's reputation and becoming a major distraction from its business.

No successor was named. NYSE director H. Carl McCall issued a statement late Wednesday night saying the board had "reaffirmed its confidence" in Grasso's top lieutenants, Robert G. Britz and Catherine R. Kinney, and that they would "continue to manage the exchange on a day-to-day basis, reporting to the board." The two are executive vice chairmen and co-chief operating officers of the NYSE.

Some critics said the 27-member board, which includes the heads of Wall Street's largest securities firms and several top corporate chieftains, was at least as much to blame for the controversy as Grasso. The directors, after all, approved Grasso's employment contracts and should have known what was in them, the critics said.

"This is just one step. We have a ways to go," said Francis P. Maglio, a recently retired 30-year veteran of the NYSE trading floor who still owns two membership seats. He said at least some directors should step down.

Maglio said it was hypocritical of the directors to handle Grasso's pay "without the transparency and accountability that they demand" of companies whose shares trade on the NYSE, the world's largest stock exchange.

His comments echoed the criticism that has hounded Grasso since his outsized pay package was detailed in late August. One of the NYSE's roles is to draw up rules of corporate behavior for its member companies -- and Grasso's compensation and the secrecy with which it was determined appeared to fly in the face of those rules.

Detractors have also attacked the process as rife with potential conflicts of interest. For example, until procedures were changed this year, Grasso made nominations to the board's pay-setting compensation committee.

When the NYSE disclosed details of Grasso's pay on Aug. 27, the numbers shocked even some of Grasso's supporters. The exchange said it would pay Grasso a $139.5-million lump sum this year, representing deferred salary and retirement benefits from previous years. The exchange also said his 2003 salary and bonus would total at least $2.4 million.

The revelations surprised Securities and Exchange Commission Chairman William Donaldson, who demanded further details. The NYSE replied a week later with new disclosures that Grasso's pay over the last three years had amounted to $59.3 million and that he was owed an additional $48 million under a revised employment contract set to run through 2007. Grasso, in an attempt to stem the mounting outrage, said he would forgo the $48 million.

Grasso, 57, with a working-class Queens, N.Y., upbringing and no college degree, became the first Big Board chief who rose through the ranks rather than get plucked from an executive slot in government or a big brokerage firm. He joined the NYSE as a clerk in 1968 and never worked anywhere else.

"Throughout my career and on behalf of all exchange constituents, I have worked with great partners to build and enhance the value and brand of the NYSE," Grasso said in a statement after the meeting. "I look forward to supporting the board and the exchange in bringing about a smooth transition to a successor. I believe this course is in the best interests of both the exchange and myself."

The tipping point in Grasso's downfall apparently came Tuesday, when a growing Wall Street chorus calling for his resignation was joined by California State Treasurer Phil Angelides, the heads of California's two largest public pension funds and New York State Comptroller Alan G. Hevesi, trustee of New York's public pension fund.

Together, the four influence the investment of $345 billion in state employees' retirement funds and thus are among the NYSE's largest customers.

Angelides on Wednesday called on Grasso to give back some of his past wages so that his total compensation package would look "rational."

"Our free enterprise system is built on the notion of entrepreneurs taking risk and earning wealth," Angelides said. "But in recent years, we've seen an elite class that felt it had an entitlement to riches, without taking risk."

As the pressure mounted, Grasso at midday Wednesday called on his board to hold a special meeting on Sept. 24 to discuss new corporate-governance recommendations that it was preparing to submit to the SEC.

But the board decided it couldn't wait a week and scheduled the emergency session for 4:15 p.m. New York time.

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