August 17, 2005
Potential Grasso Settlement??
Newsweek reported today that former NYSE Ex-CEO Dick Grasso has been offered a settlement deal of $25 million to resolve the legal dispute over his $140 million pay package. If this offer is accepted by Grasso, John Thain, the current NYSE CEO, will have made a huge concession on the part of the NYSE, which originally wanted a large part of Grasso's compensation package returned. Last year, NY Attorney General Eliot Spitzer filed a case against Grasso seeking at least $100 million in damages for potential violations of New York State not-for-profit law, which requires compensation of executives of not-for-profits to be "reasonable."
Grasso has also sued the NYSE to recover an additional $50 million that he claims to be owed under the terms of the contract, which if he wins the NYSE will need to pay triple-damages. Grasso has stated that he wants the NYSE to donate the amount of money that he is owed or will be owed to charities which support sons and daughters of police, firemen, and construction workers.
The Delaware Chancery Court has recently affirmed Michael Ovitz's $140 million pay package but only after putting the board of Diseney through a very embarrassing trial (which I discussed here). With the current New York Governor's run by Eliot Spitzer and the efforts by the NYSE to go public by consolidating with ArcaEx (requiring SEC approval), there are heavy incentives on the NYSE and Spitzer to settle in an effort to avoid the embarrassment of displaying the NYSE's shoddy executive pay approval practices. There will be board members saying that they did not understand the pay package and others saying that they had the information and did not apparently understand it or are now just misrepresenting their approvals. It would be very messy.
The Wall Street Journal editorial page has long argued that Grasso's pay was just a "private matter" between the NYSE and Grasso. If the exchange wanted to pay him that much it could. The argument, of course, overlooks two points. First, whether the NYSE board approved the pay (the subject of the litigation) and, second, if so how is it that the NYSE can pay this much. The latter questions is a reflection on the NYSE's strangle-hold on traded listed stocks. The excessive pay package is passed on to traders through member fees and the members and their clients have no choice but to pay it. In other words, the size of Grasso's pay package is evidence of the supra-competitive position of the NYSE in the country's trading markets, a position the the SEC has allowed and indeed fostered.
August 17, 2005 | Permalink
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