Grasso May Have Influenced
Details of NYSE Pay Package

NEW YORK -- New York Stock Exchange Chairman Dick Grasso has long insisted he was not involved in setting his compensation, which has been widely criticized as excessive. But documents and board minutes released Wednesday indicate Mr. Grasso's role was not so clear cut.

Mr. Grasso often set the tone for bonus discussions by the board's human resources and compensation committee, suggesting bonus parameters for many exchange employees, the documents show. Mr. Grasso would then leave the room and the committee would set those bonuses and Mr. Grasso's as well. In addition, a presentation to the compensation committee in October 2002 detailed what were described in the documents as "proposals" by Mr. Grasso for changes to his contract, many of which later appeared in his new employment agreement.

The NYSE stressed Wednesday that Mr. Grasso had no input in determining the level of his compensation.

These disclosures and other details of Mr. Grasso's generous pay package came Wednesday as the Big Board gave the media limited access to hundreds of pages of documents that it had submitted to the Securities and Exchange Commission (see article¹). The SEC had demanded more information about how Mr. Grasso was paid $139.5 million in combined retirement benefits for his 36-year tenure at the exchange, the last eight years as chairman. On Tuesday, the Big Board revealed that the 57-year-old Mr. Grasso was entitled to another $48 million in future compensation that he had decided to forgo.

PAY AND PERKS • View Dick Grasso's complete compensation package2.   • Read the minutes from the NYSE board's Aug. 7, 20033, and Sept. 8, 20034 meetings.   • See excerpts from an Oct. 3, 2002 Vedder, Price, Kaufman & Kammholz report detailing Grasso's proposed changes to his contract5 and a comparison of CEO compensations6 for 2001.   • See the full text7 of SEC Chairman Donaldson's letter to Carl McCall sent Sept. 2, and the questions he asked for more information.   • See the NYSE's response8 to the SEC's request.   Adobe Acrobat9 is required for these documents.

The documents released Wednesday provide new details about Mr. Grasso's lavish pay and perks, which continued even as the bull market of the 1990s turned into a grinding bear. The exchange pays for Mr. Grasso and his wife to fly on private jets for NYSE business in the name of safety and foots the bill for everything from personal security to club memberships and newspaper and magazine subscriptions. The documents say Mr. Grasso was entitled to $1.4 million on his birthday in July, though he gave up that cash and three additional payments tied to subsequent birthdays totaling $12.1 million -- as part of the $48 million he relinquished.

The existence of the huge package was first reported by The Wall Street Journal in May (see article¹⁰). Mr. Grasso's compensation peaked at $25.6 million in 2001, not including a $5 million special payment.

The furor over Mr. Grasso's pay comes as the Big Board, which still follows an old-fashioned auction trading system requiring traders to personally match trades, struggles to compete against a host of new automated electronic competitors. In recent years, the exchange's 1,366 seat-holders have generally seen their income shrink, as the exchange has increasingly automated the trading process. Some smaller trading firms have shut down, while many brokers say their income was slashed more than 40%. Some seats, which allow brokerage firms to trade on the NYSE, are owned by giant firms such as Merrill Lynch and Goldman Sachs, while others are owned by small-time traders who try to make a living on the trading floor.

The exchange in recent years began charging members new "technology fees." The Big Board spent heavily on technology, yet some floor traders complained that the exchange rejected numerous requests to build new systems that some traders said they needed to adequately match buyers and sellers of nearly 2,800 stocks listed on the world's biggest stock market.

Meantime, some NYSE members asserted Wednesday that Big Board directors and members aren't likely to put pressure on Mr. Grasso themselves, even though Mr. Grasso's compensation -- he received 2001 pay exceeding $30 million, excluding benefits -- outstripped that of some Wall Street chiefs.

Many members are fearful of speaking out, says Patrick J. Collins III, a floor trader. On Friday, Mr. Collins made an unusual appearance before a special meeting of the NYSE's special committee on governance. According to a transcript of his remarks, he told directors that many brokers on the floor were "shocked" when they heard about Mr. Grasso's pay and retirement package. "One board member thought it was a typo," Mr. Collins told them.

"This meeting with you could jeopardize my seat on the exchange," Mr. Collins told the board. "Mr. Grasso can be very vindictive and members are fearful of him," he added. Mr. Collins also said: "I think the trust of the membership has been damaged. I think the public trust has been shattered. You men held very important jobs. Did you ever make this amount of money?"

The exchange, in a statement, said, "Every member of course is entitled to express his or her viewpoint, and the special committee on governance invited members and a variety of other constituents to offer their views" during the testimony process.

Minutes from recent board meetings also suggest there was concern among Big Board directors about the release of Mr. Grasso's new employment contract last month. On Aug. 7, members of the human resources and compensation committee, on which H. Carl McCall serves as chairman, met to discuss elements of Mr. Grasso's new employment agreement. "Mr. McCall reported that some directors were concerned with the timing of the new agreement and asked questions regarding disclosure," the minutes read.

CNBC DOW JONES BUSINESS VIDEO NYSE Chairman Richard Grasso, in a Sept. 9 press conference, says he has never played a role in determining his own compensation. Windows Media Player Required: HIGH bandwidth11 (DSL, Cable) LOW bandwidth12 (Dial-up)

The minutes indicate Mr. Grasso didn't think "it was wise" to proceed with the agreement at the time. According to the minutes Mr. McCall told the board that, based on a conversation he had with Mr. Grasso, "there should be no concern that Mr. Grasso was considering leaving the exchange at this time."

Laurence Fink, CEO of the investment firm BlackRock and a member of the NYSE's compensation committee, was among the most vocal proponents of providing Mr. Grasso with a new employment agreement and releasing it to the public, the minutes show. Mr. Fink, according to the minutes, said that "he felt the timing would be no better if the decision were deferred" and "that the issue should be dealt with immediately and that entering into a new agreement would save money." Mr. Fink couldn't be reached for comment late Wednesday.

As part of his job, Mr. Grasso wears two hats, regulatory official and CEO of the exchange. In setting his annual compensation, the Big Board's human resources and compensation committee put him on par with the CEOs of some of Wall Street's biggest financial firms, including Merrill Lynch & Co. and American Express Co., according to documents. And even based on those comparisons, Mr. Grasso's compensation topped the median average pay for most corporate CEOs.

A report prepared for the NYSE in October 2002 shows that Mr. Grasso's 2001 base salary of $1.4 million was roughly $370,000 higher than the median average of others in his peer group. His $16.1 million bonus in 2001 was $13.8 million higher than the $2.3 million awarded to the group deemed to be his peers.

Many senior Wall Street executives have expressed surprise at Mr. Grasso's pay level, saying privately the retirement package was too big, considering that the NYSE, as a regulator and marketplace, doesn't assume the same sort of financial risks that many investment firms do.

SEC Chairman William Donaldson sent a sternly worded letter to Mr. McCall on Sept. 2, demanding that the NYSE provide a detailed accounting of its decision to approve Mr. Grasso's compensation package. He said the package "raises serious questions regarding the effectiveness of the NYSE's current governance structure."

Write to Susanne Craig at susanne.craig@wsj.com¹⁸, Theo Francis at theo.francis@wsj.com¹⁹ and Ianthe Jeanne Dugan at ianthe.dugan@wsj.com²⁰

Updated September 11, 2003 12:17 p.m.