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Former NYSE Chairman Grasso Speaks
Daniel Acker, Bloomberg News / Landov
In part one of an exclusive interview, former NYSE chairman Richard Grasso opens up to Allan Dodds Frank about the AIG bonus debacle, what Eliot Spitzer did right, and why Citibank is too big to fail.
Plus, Part II: Grasso on Madoff and why the SEC looked the other way.
For nearly five years, former New York Stock Exchange Chairman and CEO Richard Grasso suffered as the poster child for the issue of executive compensation.
In the wake of news stories about his own previously undisclosed compensation, Grasso left his job at the Big Board under pressure — tarnishing much of the reputation he had built in more than three decades at the NYSE, including eight years as chairman and CEO.
“AIG has received, or has the ability to receive, close to $170 billion in public money; and meanwhile we’re railing about $160 million, which is one-tenth of 1 percent of that.”
In 2004, then-New York Attorney General Eliot Spitzer sued Grasso to try to recover more than $180 million in overall compensation that to the NYSE chairman that Spitzer claimed was unjustly paid. In the face of public ridicule, Grasso spent four years and millions of dollars fighting Spitzer before winning his case (and the right to keep the money) in a decision by the New York Court of Appeals last year. That decision by the state’s highest court prompted Spitzer’s successor, New York Attorney General Andrew Cuomo – the same man pursuing bonuses granted to AIG executives — to drop the Grasso case.
In a wide-ranging interview this weekend with The Daily Beast’s Allan Dodds Frank, Grasso said that while he deserved bonus money, the AIG employees in the company’s financial-products unit — and many other Wall Street figures who lost billions of dollars for investors — do not. Plus, clawing back those bonuses from the people who got them, his former nememis Spitzer's attack on AIG, and why the company would have been better off if Hank Greenberg had stayed in charge.
Let’s start with bonuses at AIG and executive compensation in general. What’s your take on what’s happening now and what should be done?
It’s got to come back to a basic premise: If the American people believe that you’ve done a good job, then the rewards should be bountiful. But if you don’t do a good job—and when an entity has done a bad job—then to reward failure just doesn’t rub the American mind-set right. And it’s understandable, the outrage. There might have been a middle ground in terms of renegotiating those contracts. If you now listen to the dialogue between AIG and its lenders, where the lenders are being asked to take discounts on the debt that’s outstanding, the question becomes: shouldn’t the managers of the [financial-products] division have taken a discount on their stay bonuses? And the much broader question: Shouldn’t the counterparties in those [credit-default swaps] have taken a discount on their contracts?
Just to be clear: You think these bonuses may be uncalled for, but one difference between your situation and theirs is that you weren’t losing money. You were being paid for performance delivered.
I think that’s the differentiating factor. The American people, people on the assembly line or someone who’s driving a bus, they look at somebody like me, who’s from the streets of Queens, and started after the Army at $81 a week. That’s what America’s about: You can start at the bottom and lift yourself to the top and you can reap the rewards if the entity that you have is successful. When I ran the stock exchange, it was the most successful it’s been in its 200-plus-year history. And I was rewarded for success; I would not have been rewarded if we failed. We were profitable—we had $1 billion in cash, we had no debt. The board basically said, “This is the result of good leadership and leadership is to be compensated.” What the American people don’t understand is how Merrill Lynch or AIG or Lehman Brothers can reward people, and the entity fails. Not only do the shareholders lose, but the entities lose.
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Paul Schrodt is a writer living in New York City. He has contributed to New York magazine, Radar, and Esquire.com.
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The Daily Beast is dedicated to news and commentary, culture, and entertainment. We carefully curate the web’s most essential stories and bring you original must-reads from our talented contributors.
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Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime. He also is President of the Overseas Press Club of America, one of the many journalism organizations that protests the arrests of journalists abroad and repression of freedom of speech.
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Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime. He also is President of the Overseas Press Club of America, one of the many journalism organizations that protests the arrests of journalists abroad and repression of freedom of speech.
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Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime. He also is President of the Overseas Press Club of America, one of the many journalism organizations that protests the arrests of journalists abroad and repression of freedom of speech.
Twisted
There is a big difference between "fair" and excessive compensation, that is the point that Elliot Spitzer pursued with Mr Grasso's compensation. Mr Grasso is correct that the AIG bonuses are adrop in the bucket especially compared to AIG's instant payout of more than half of the US taxpayer funded bailout to foreign trading partners to help bail them out for buying the same worthless paper purchased by AIG. If their governments wanted to bail them out that should have been their choice not the responsibility of US taxpayers. The EU has waged economic war on the US for at least the last 8 years, and as Paul Krugman stated in his today's NY Times editorial piece Those Governments have to bear their share of the recovery burden.
aiki14
Great to see Mr. Grasso speaking again. Those who know, realize he is a hero in the NYSE, and a man of honor. Mr. Spitzer, Mr. Paulson and the others who's disgraceful actions brought Mr. Grasso down have been shown to be of much lesser character than he.
Give em hell sir, and thanks for all you did for the NYSE.
citivas
The problem with Grasso and his logic about "performance pay" is it leaves out any justification of the scale of the pay. If you look at the facts, performance pay for CEO's and the very top management has been consistently growing (vastly) disproportionately to company net profit performance over the years. So while the company may be profitable, does that automatically justify ANY level of pay, and only for top management? Why, year-after-year, is their performance worth proportionately more for their predecessors?
His logic is also typical of other well-comp'ed CEO's in that in self-justifies the entire performance of the company as their personal doing without addressing other people's contributions or comp. Sure, the CEO is ultimately responsible for the company, but they don't do it alone. And yet CEO and top exec comp has risen at a multiple of the rate of other employees comp - a multiple! If they believed that performance comp in general, their workers would share proportionate in their increases, but the facts show they don't. So what that appears to be saying is the CEO's believe that they and their handful of peers are solely responsible within their organizations for the increase profits of their companies. Where are the facts to support this self-serving premise?
Here's what is typical at public companies these day (banks excluded - different system). For each level up the management org, a boss is likely making 20-40% more than his/her direct reports. UNTIL you get to the level that has direct contact with the Board of Directors - the CEO and his/her direct reports. Then the delta changes to 10x (as in 1,000%!) the total comp of their direct reports. And let's be clear, it's not like these people's direct reports are worker drones. They are usually major department heads with budgetary or sales responsibility and responsibility for operations and personnel - people who are contributing to the strategic decision making but online the top management actually having to execute it. Yet their comp as a whole has risen moderately better or worse than inflation as a group whereas CEO comp has skyrocketed. Now these near-top managers don't complain, primarily because they all aspire to that next rung on the ladder where suddenly they are inducted into the club of excessive comp and perk privilege. But that shouldn't be mistaken for any valid logic that the system is justified. Grasso's package was worth $160M. Assuming an average comp for rank-and-file employees of $160,000 (fully loaded, which is still probably generous versus reality), that means Grasso believes he is personally worth the contribution of 1,000 of the Big Board's other employees - that it would be less disruptive to the performance of the business for it to lay off 1,000 staff members versus him. Does that seem likely to you?
So why the difference? Simple. The comp of the level just below the CEO and their top reports is ultimately handled by that top group which treats it like they presumably do all other aspects of the business - negotiate as aggressively as possible, don't leave any money on the table, and keep an eye on the bottom line - whereas their pay is basically self-managed with token, mostly rubber-stamp sign-offs from their Boards (that are filled with other execs getting the same treatment from their Boards). The great irony of CEO's who make a statement like Grasso (and most do) that this comp issue is blown out of proportion because it really is such a tiny expense versus the total value of the company, is that's exactly how they look at comp for anyone but themselves. Go ahead and give it a try the next time you want a raise from your boss - justify your 100% increase by saying it shouldn't matter to them because it really is only 0.00001% of the value of the company so why are they focusing on it. See how that goes over.
TotalRecall9
Grasso is a piece of crap! He should be in prison for securities fraud. No way can he say he deserved to be paid $140 million in compensation.
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/16/AR200603 1601971.html
debbieqd
Good, informative interview. I'm left with one thought....How much compensation for success is too much? In my younger days, the world's population was 4 billion. Now, it's over 6 billion. Europe was very far away. Now, it's next door. "It's a small world after all."
Yesterday, I read that a CEO took home $163 million dollars for 2008. He must have done a hell of a job! Does someone need that much money to be happy in life? I mean, is $20 million not enough for fun? Because lots of very nice families are trying to put just a little bit of protein on their dinner tables a couple times a week -- they're not having any fun at all. And, they work hard, too, but weren't lucky enough to make the leap from $81 to millions and billions.
I believe success should be rewarded in every instance. But, how much is too much?
Zorkadork
Well stated citivas.
texdem
Drop in the Bucket - Generation
texdem
Drop in the Bucket Generation...that's what these a-holes are. We know it's a tiny amount of the insane amount needed to prop up their financial houses.
But these people all feel entitled to money, and TONS of it - even in the face of failure and the country's collapse. Grasso was the head of the "Drop in the Bucket Generation" so we are listening to him WHY?
They think we are stupid but we know if we don't scour the planet of their attitudes we will all suffer and seethe.
kcbrady
"Is Citibank too big to fail? I think we would all have to say it is."
too big to fail, but too stupid and criminal to survive ... what to do? How about breaking it up and selling it off.
sophia5
"TOO BIG TO FAIL" "TOO BIG TO FAIL"
"TOO BIG TO FAIL"
BLAH! BLAH! BLAH!
Many of us are too small to fail. Where's our bailout?
Many of the mother "F"ers on Wall Street were
advocates of outsourcing the "Small" worker's jobs
overseas, and now they want those same
Americans to kiss and save the greedy asses on Wall Street.
Wouldn't it be a shame if most Wall Street jobs were
shipped to India or China.
Wouldn't that be a kick in your arrogant heads,
and well deserved.
joymars
Most of this blog was all about the obscene compensations that Wall Street has gotten inured to. It was disgusting reading question after question about tens of millions here, hundreds of millions there...
Whatever happened to $1 million being a lot of money?
Anyway, this guy is a creative and as insightful as a lizard. Which he reminds me of.
What a boring man.
carouzer
civitas--You hit the nail on the head--bigtime--and you clearly understand how these robber barons work. The question remains why do the Boards of these firms go along with and, in many cases instigate these excessive payouts for CEOs? The answer is that the CEOs have a heavy hand in appointing members to their Boards. And the term fiduciary responsibility didn't mean much to any of them.
These guys that while it may be true in the executive suite that "he with the most money when he dies wins--but he still dies."
Thank you.
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