TheAgitator.com
Grasso
Thursday, September 18th, 2003So I’m not sure I understand this Grasso fiasco.
The facts as I see them:
– Loyal employee of NYSE for 36 years. Started there working $86 per month.
– No one questions that he’s done an outstanding job as chairman.
– He pretty much single-handedly brought NYSE back after 9/11.
– No questions that he works his ass off.
So he’s now been asked to resign in spite of the items above because someone else decided to pay him too much?
Methinks the corporate governance backlash has gone too far.
I agree! If he was a baseball player we would be talking MVP. The press would be falling over each other trying to interview him. Can you say class warfare?
A lot of people must have had a beef with him (for some reason) and this was an excuse to get him? I dunno.
Grasso made about $7 million in 98. Then about $10 million in 99. Then $30 million in 2001. And now they were going to give him bonuses totalling $140 million. That’s three times the annual profits of the NYSE.
And the guys on the compensation committee who set his pay were appointed, in part, by Grasso himself.
Just like with taxes, that money comes out of our pockets.
I think I understand your argument about market value and being rewarded for doing a good job and being worth what people are willing to pay, but $140 million? 20 times what you were paid 5 years ago?
Here’s what Frank Easterbrook has to say about it. It’s a little overstated, but interesting nonetheless…
“After previously telling the world it had told the truth about the windfalls of CEO Richard Grasso, New York Stock Exchange yesterday essentially admitted that it had previously been lying when it announced it was telling the truth. Turns out there was yet more money for Grasso in the pipeline. And in declaring that it is finally telling the truth about its previous lies, the NYSE boasted that it is “only” giving Richard Grasso, its CEO, $140 million in bonuses; they bargained him down from $180 million! They are hard-headed negotiators at the NYSE.
The grotesque Grasso overpayment is especially offensive given that the NYSE is a quasi-public institution, supervised by the SEC (whose chief makes $142,000) and operating under a government charter that essentially exempts its management from market risk. Grasso wasn’t an “innovative risk-taker,” blah, blah, as CEOs like to say in justifying their hauls; he was isolated from many market forces by a government-built barrier. Behind the barrier, he was stuffing his pockets.
Bear in mind that like all grotesque CEO overpayments, Grasso’s money is not popping out of the air–it is popping out of your pocket. Corporations pay a fee to have their stocks listed on the NYSE. That fee reduces the amount they could otherwise issue as dividends to stockholders or declare as profits that would raise stock prices; this in turn reduces your mutual-fund and retirement income so that Dick Grasso can wallow. A check for $140 million handed to a man for sitting in a government-protected leather chair, who will now cackle as he counts his gold and millions of Americans–one in eight live in poverty–go to bed crying in anxiety over small sums.
The NYSE board’s claim yesterday that Grasso deserves $140 million because he helped the NYSE recover from 9/11 falls somewhere on the nuanced spectrum between deranged and demented, and not just because the NYSE is draping the flag of 9/11 over its own internal management failings. Getting the NYSE restarted was Grasso’s job. He should be lavished with extra tens of millions of dollars merely for reporting to work and performing his duties? This rationalization is either drivel or, alternatively, tells us that most of the time Grasso and others like him do little but sign paperwork, play golf, and attend expensive lunches. When, after 9/11, Grasso actually had to work, he found this such as a dire burden as to require extravagant additional pay–and the “others like him” on the NYSE compensation committee want to push the notion that executives should receive extravagant sums for the slightest actual exertion.
Grasso has presided over the worst corporate scandals in American history, mostly having to do with stock manipulation which, mysteriously, the NYSE never noticed. During Grasso’s tenure the big Wall Street trading houses have paid record fines to the Securities and Exchange Commission for engaging in various frauds which, mysteriously, the NYSE never noticed. Under Grasso’s watch the whole notion of corporate stock has become synonymous in the public mind with three-card monte. Great job, Dick!
Grasso Absurdity Watch #1. Last week The New York Times contained this deadpan quote: “‘I believe that Dick’s pay is fair and reasonable,’” said Kenneth G. Langone, a former head of the N.Y.S.E. compensation committee and a friend of Mr. Grasso’s for over 25 years.” The committee that set Grasso’s pay was headed by his friend! Oh, they’re tough as nails at the NYSE.”
Going forward, I hope they get exactly what they pay for. They don’t deserve Richard Grasso.
How is it that 140 million in retirement is fine for Grasso, but a million or two retirement for Cheney isn’t?
Radley, methinks you don’t know what your saying. As someone who routinely deals with the NYSE ripoff, excuse me, specialist system, I’m glad to see Grasso get tossed on his ass. He’s done more to extend the period in which investors are held to the mercy’s of the specialist system. Throw in the known fact that he told the brokerage houses that he would go easy on them if they directed their trades through the nyse rather than electronic networks. Throw in the fact that their is NO need for the specialist system other than to pad the pockets of the nyse, and throw in the fact the umpteen times that a specialist has literally STOLEN from me when I’ve placed a market order, and yeah, the NYSE is in need of drastic change. Incidentally, the people who are forcing Grasso out are those who don’t want govt. attention paid to the specialist system in the fear that it will be replaced by an electronic network and their profits will dissolve.
Here’s a piece from yesterday’s Street Insight by Doug Kass
Maybe life on the New York Stock Exchange is imitating art.
From my perch on The Edge, I exhibit a transparency that is unusual on Wall Street. By showing some of my market transactions, you uncover my warts, my bruises, and (infrequently, these days) my successes. I’d like to turn that same transparency to another issue, one not related to the purchase or sale of a position of mine.
The Grasso compensation issue, in its substance and in the method in which it was stipulated by “certain” board members of the NYSE, raises a concern that hasn’t been discussed anywhere. In Chinatown, water baron Noah Cross (John Huston) warns Jake Gittes (Jack Nicholson), “You may think you know what you’re dealing with, but believe me, you don’t.” This gets me to the specialist system on the NYSE, arguably the oldest “club” extant. Why is the labor-intensive, specialist system still in place in this world of technology and innovation? Why aren’t all trades executed electronically? Why is there a middle man — the specialist?
You know the answer to these questions: The specialist system is enormously lucrative to its constituent members. It is, quite simply, “a license to steal.” (Excuse my rhetoric, as even its members live up to the characterization.) Anyone who has put in a market order on the NYSE at one time or another has gotten lousy execution. Sometimes (who knows how frequently?) the specialist is at the other end of the trade â attempting to capitalize on a higher-than-expected price in the case of a buy or a lower-than-expected price in the case of a sale. And most recall the alarming damage to the individual investor perpetrated by the Nasdaq market-making community, which resulted in billions of dollars in fines. Et tu, NYSE specialists?
Of the 23 members of the NYSE board of directors who have as their responsibility the determination of Grasso’s compensation, four are specialists and eight are multi-line brokerage firms that have specialists in their business repertoire. Tyco’s Dennis Kozlowski taught us that loyalty can be purchased, although the price can be frightfully high. I make the argument that Dick Grasso, like the elected officials in Chinatown, is a purchased pawn of corrupt power brokers whose appetites know no check or balance, of the specialist network that he has attempted to perpetuate. That system now might be subject to more disclosure (and far less profit).
In the movie Chinatown, Jake realizes how impotent he is against the wealthy, depraved Cross. “Forget it, Jake,” his old partner tells him. “It’s Chinatown.”
Or the New York Stock Exchange.
“He pretty much single-handedly brought NYSE back after 9/11.”
Yeah, I’m sure he was on his knees pulling cables.
Right. Single-handed my ass.
And don’t forget how much of a government subsidy whore the NYSE is, pulling the sports team ploy and saying they’ll move if they don’t get billions in subsidies from state and local government.
Some of Grasso’s loot was paid for by taxpayers.
Eric –
Hmm. I’ll have to look a little into what you’ve written. I’ll plead a bit of ignorance here, as SEC ins and outs bore me to death. But if it’s true that NYSE is essentially protected by the federal government from risk, then I’d concede you have a point.
Much of the rest of your post is a little histrionic. One in eight Americans lives in poverty? Please. Our poor are upper middle class most anywhere else in the world. And Grasso is “cackling in his leather chair as he coints his gold?” Come on.
Also not buying that we pay for Grasso’s salary out of our own pockets. You don’t have to invest in stock, do you? And you don’t have to invest in NYSE-traded stocks, either. There are other exchanges.
As for “presiding over corporate fraud,” can you really blame Grasso for Ken Lay? Is he supposed to know the internal goings-on of every firm in the country? Let’s be clear — the corporate scandals involved a handful of firms, out of tens of thousands. It’s silly to think that the man who merely presides over the place where those firms’ stocks are traded should have headed off corruption in every firm in the country.
And yes, I do think bringing the NYSE back online two days after 9/11 was a pretty remarkable accomplishment.
Bob –
Cheney could be getting $1 billion per year from Halliburton, for all I care. The problem arrises when Halliburton regularly does business with the federal government, where Cheney is currently #2 in command (or #1, depending on who you believe), and happens to be getting more than $2 billion in non-competitive contracts to rebuild a country we bombed, under questionable circumstances, at Cheney’s urging.
“So he’s now been asked to resign in spite of the items above because someone else decided to pay him too much?”
Supposedly, the pay deal was obfuscated among a bunch of lengthy documents (or something like that).
If true, the board didn’t see the $140 million+ figure and sign off on it; instead, the scope of the entire compensation would have been concealed through complexity.
I suppose this was to get the pay package past the directors who weren’t sycophants who would have signed off had the total been stated up front.
Radley: “Also not buying that we pay for Grasso’s salary out of our own pockets. You don’t have to invest in stock, do you? And you don’t have to invest in NYSE-traded stocks, either. There are other exchanges.”
Tell that to your retirement plan’s mutual fund manager. A lot of people don’t have that kind of control; many retirement plans limit you to choosing among a growth fund, a bond funds, etc.
Jon H –
Grasso’s pay is not the same thing as a tax. (I’m assuming, as Radley mentions above, that the NYSE is not protected from risk by the gub’mint — if it is, that’s a whole different story).
If you don’t pay taxes, you’re not paying the government. The govnerment has guns and jails. You simply can’t opt out of taxes without losing your freedom.
On the other hand, you CAN opt out of using the NYSE. Use NASDAQ or AMEX…nobody’ll send you to jail for doing so. This distinction is not just semantics. The difference is critical…capitalism is voluntary by it’s nature.
Your example of retirement plans can also be explained away. You don’t have to save for retirement using your employer’s 401(k) plan…set up an IRA or even a taxable account, using nothing but NASDAQ securities, CD’s or commercial paper, for example. Hell, just stuff you cash in the matress. Just because it would be PRUDENT to invest in NYSE securities via your funds in your qualified plan doesn’t mean the embedded cost of doing so (i.e., Grasso’s salary) is a “tax”.
Based on your logic, I’m taxed on Post’s CEO salary every time I buy a box of Raisin Bran. Yes, I bear the embedded cost when I make the purchase…but I don’t have to make the purchase.
Radley -
The bit in my post about 1 in 8 living in poverty and “cackling in his leather chair as he coints his gold” is not from me but from Gregg Easterbrook (who I mistakenly called Frank - his brother and a 7th Circuit judge, sorry about that). I prefaced it by warning that it is overstated, but I think he makes some good points.
And even if your mutual fund doesn’t invest in the stock market, theoretically the corporations pass on their stock listing fees in the form of higher prices that we all pay.
I recognize that the passed-on costs argument is somewhat absurd, in that the costs would be almost invisibly small, but isn’t it true on its face?
I wonder when Grasso will announce his bid for presidential nomination?
Grasso is an asshole. This one was a long time coming.
As to the specialist rant above… there are ways around it. When my dad was a partner in a small firm back in the 80s, they used to route their trades electronically through the Cincinnati Stock Exchange. Nowadays, you would probably prefer to use an ECN like Instinet to do the same thing. The idea is that just because the NYSE lists a stock, that doesn’t mean you have to buy it through them.
The specialists are what makes the NYSE what it is, they are what makes it an exchange. They are a tradition and a valuable asset for many. However, you aren’t forced to use them.
Michael M.
“Grasso’s pay is not the same thing as a tax.”
The NYSE has, I believe, received a billion or more in subsidies from NYC, possibly from the state of New York as well. Those would be taxpayer dollars. It’s not unreasonable to assume that those taxpayer dollars essentially underwrote Grasso’s pay package, and may have provided some kind of justification or incentive for the vast pay increase: “Hey, we got a billion dollars free from the mayor. How about I get $140 million of it?”
I do not doubt that Grasso was a great and loyal emlpoyee and chairman, however, 140 large seems a tad excessive.
I love hearing “You can always invest your retirement in CDs.” Yeah, if you plan to work until the day you die, in which case your “retirement fund” will buy you a pretty phat funeral. Bonds are little better.
Given that corporate America has shirked what was once considered its responsibility, the only realistic hope the average American has of retirement lies in the stock market.
re: Cheney–so if a excutive retires from his position to serve in office either he forfiets his pension or that company can’t do business with the government?
Jon H –
If what you say about city and state government subsidies to the NYSE is true (assuming you and I have the same definition of “subsidy”), then your point is well taken.
Scared Stiff –
You miss my point. Of course it wouldn’t be smart to save for retirement using nothing but CD’s, particularly if you’re young. But choosing the better alternative of investing in the stock market does not mean that because it’s the financially smarter choice, the costs a stock exchange charges you for use of their facility somehow becomes a “tax”. It’s still a choice. Stock exchanges don’t have guns and jails. There are no choices with taxes.
A little excessive, but we get what we demand. If his $140 billion bonus was causing American’s to lose substantial dollars, the NYSE would eventually go out of business. That’s the nature of any business.
Taxes are a involuntary game, the NYSE is not. If we didn’t buy a million jersey’s, a trillion tickets, and a gajillion hot dogs, Giambi wouldn’t make $20 million a year(I don’t know, I just made that up). This is not a monopolistic industry, this isn’t a utility company.
For instance, if another postal company came out and said “we’ll give you $10,000 when you are 65 and the current will only give you $5,000 if you buy 10 stamps a week for the rest of your life”-what are you gonna do?
You can easily get into just NASDAQ or AMEX or any of the other smaller exchanges, just talk to your broker or mutual fund manager and he’ll get you into a fund. People don’t do that because the NYSE makes you money, and that’s what we’re all in it for. If Casso’s salary caused the NYSE to lose market value, his loyalty would shine through. And until that happens, he should not be fired.
“Also not buying that we pay for Grasso’s salary out of our own pockets. You don’t have to invest in stock, do you? And you don’t have to invest in NYSE-traded stocks, either. There are other exchanges.” - Radley.
Yes, there are other exchanges but how easy is it for a company listed on the NYSE to move their stock to another exchanged? The NYSE has built up an entire onerous mountain of regulations and barriers, which is one reason why very few companies actually move. This isn’t capitalism, at least, not in my book.
If I had my way, I would fire the entire Board. They overpaid Grasso in the first place. Many of the Directors didn’t even know what they were signing off on (or so they say). And finally, to save their fixed, inefficient system of “specialists” from the harsh glare of publicity, they’ve offered Grasso as a sacrifical lamb?
Gimme a break
Radley,
After reading all of the comments above, I have to conclude that none of them change the substance of your original post.
Once again, you win, as you should!
Check out Bogle’s Op-Ed in the WSJ today. Further bolsters my point about the rigged nature of the NYSE
Larry,
You’re a suck-ass. I can’t stand a brown-noser. I hope that you lose all of your money in the stock market and have to eat discarded McDonald’s waste while sitting on the curb on Wall Street with Grasso next to you.
Chris,
I simply concurred with Radley’s original post, after reading all of the comments. I find your reaction to that a bit extreme.
If you don’t agree, the appropriate course is to present a counter-argument to Radley’s, which you have yet to do.
TO ALL:
does anyone here know dick grasso? do you know the amount of hours he worked? his job is far from easy and if you were in the same situation you wouldn’t be declining money you’d be asking for more so no one person here has a right to critize because you have not been in the same situation for doing an incredible job for so many years
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