The remuneration of high level executives has been news for this entire bear market. In truth, it was news during the bull market as well, but for different reasons. We all want to know what the famous people make, whether in Hollywood or Wall Street or Washington. If times are good, we are envious and in awe. If times are bad, we are envious and angry. But why does it matter? Surely, we all want to make as much as we can. That drive, some argue, is why capitalism works.
Reaction to Grassoâ€™s compensation has been mostly negative. Outsiders and insiders have voiced their grave opinions all over the media. Heads of many of the member firms were less than thrilled. A chain reaction of shock and criticism speedily encircled Grasso, the dubious compensation committee, and worst of all, The NYSE.
The NYSE, although not a monopoly, is the most prestigious stock exchange in the world. Being listed on the NYSE is typically a good move for a public company. The NYSE brand is passed onto itâ€™s members so freely that one presumes a NYSE listed company is of a higher standard solely due to that listing.
Theoretically then, they can charge their members large premiums for membership compared to NASDAQ â€” citing increased perceived value â€” and they do. Theoretically, the head of the NYSE can use his power and influence to receive larger fees, make more money for his business, and in the end push for a larger compensation package.
But couldnâ€™t members move to another exchange if they found the NYSE too expensive? Not very likely. Moving off the NYSE would probably adversely hurt the stock price and a class action lawsuit could follow. Despite this considerable obstacle it is important to note that they do have a choice. Furthermore, if this disclosure (Grassoâ€™s package) hurts the NYSE brand, it is doing just that ... weakening the brand.
But why is this news? Why has it come to our attention? Why have numerous media outlets chosen to cover this â€œevent?â€ The main consensus and rationale is that it was just too much money. That amount of money, in this climate, was going to attract attention.
So, what is too much money anyway? If $139.5 million is too much, then where is the cut off? Keep in mind, this is for 35 years of service, broken up as retirement benefits of $51.6 million and $47.9 million, and $40 million from an executive savings plan. Maybe, the number would have to drop below $100 million ... maybe below $20 million ... perhaps no money at all. No, that would be poor retirement planning. You donâ€™t want people to think that the NYSE doesnâ€™t provide for their long-term employees.
The truth is, the real question is not about the amount of money, but where it came from. Doesnâ€™t the NYSE consider itself a self-regulating entity that makes sure itâ€™s members are on the up and up, and that investors can be comfortable trading shares on the exchange? And, isnâ€™t Grassoâ€™s â€œperceivedâ€ role to be that of top monitor of the exchange? That is one side of the coin. However, the NYSE is a business, while the SEC is the federal enforcing entity of that business and industry.
Everyone knows the NYSE is the most reputable exchange in the world. It is a liquid marketplace, and it lists some of the most successful companies in existence. At the same time, it is a business. A business with paying customers, and the customer is always right. In this case the customers were in the dark about what they were paying for. However, that should not factor into the question of â€œwhat is too much?â€ â€œToo muchâ€ isnâ€™t suppossed to exist within this system. Isnâ€™t the more apt saying â€œwhat the market will bear?â€ Anyone who invests in stocks should know that all prices are correct at that moment. A stock is worth what someone will pay for it ... as is a house ... and a service. And in the end, overpriced items tend to correct themselves. Do sports figures deserve the money they get? Who knows. Are they worth it? Absolutely. The value comes from the purchaser. As it applies to Grasso, there has been a lot of growth at the BIG BOARD during his time. Maybe the money was well spent.
There is definitely one thing you can accuse Grasso of ... poor timing. Maybe his reasoning for taking all the money at once is his prerogative. And maybe, at 57, he wants to start preparing for retirement. But the number really rubs people the wrong way when times are bad. If he had taken his money in late 1999 or early 2000 it would have made news, but it would have been buried beneath an avalanche of all the dot comers making mind-boggling fortunes. More than likely it would have been attributed to the excess of the times. Unfortunately for Grasso he just might be the last scandal to the ball (not a good position to be in).
Frugality is the culture of todayâ€™s Wall Street and corporate America (by all outward appearances). Surely, Grasso knew this was going to raise eyebrows, and maybe he should have waited for better times. But why does it matter? It matters because it may further affect investor confidence. Ironically, the compensation was disclosed to continue reform efforts of the NYSEâ€™s corporate governance policies.
It is clear that in the coming weeks, perhaps months, we will learn a lot about the NYSE. The SEC chairman, William Donaldson, must rightfully show the investing public that there is no wrongdoing, and if there is, he will lead the SEC in prosecuting those that have done wrong. Donaldson will surely be thorough and unbiased. During his tenure as CEO of the NYSE (1990-1995) he learned the ins and outs of the organization, although paid far less.