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How Much Should Have Been Enough for Dick Grasso?

Compensation experts set some pay levels for the Big Board chair's job.

If $139.5 million is too much pay for RichardGrasso to accumulate as chairman and CEO of the

NewYork Stock Exchange

, just how much should he have beenearning?

Almost everyone seems to agree the answer is less.In addition to the deferred compensation, Grassoreportedly earned $12 million in 2002 and $25.6million in 2001, plus a $5 million bonus for gettingthe exchange running after Sept. 11. But pinning downa more appropriate salary for his position can be alittle dicey because the world's largest exchange isa unique creature.

Nonetheless, Chuck Pappalardo, managing directorof Trilogy Venture Search, a retained executiverecruiting firm in Silicon Valley, puts the range ofan appropriate salary at $1.5 million to $2.5 million,plus bonuses for things such as implementing technologyinitiatives.

"This guy was the most successful chairman of amonopoly in the history of the planet," quippedPappalardo. "He has no competition. Beyond staying upwith technology and making sure trading andmethodology and costs are in-line ... the only thingthat they're selling is integrity. If I want to buy a share of


, I've got to buy itthrough the New York Stock Exchange," he adds.

Pappalardo considers Grasso's former post aregulator's job. "He's not running a business really,"he said. "He's not on the hook for making revenuenumbers."

As a result, Pappalardo said he would take his cuefrom the National Association of Securities Dealers.NASD Chairman and CEO Robert Glauber made about $2million in 2002, according to a report in

The WallStreet Journal


While Pappalardo argues the NYSE is a monopoly,Grasso did receive bonuses based on his ability tolure companies away from the


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, considered bysome to be the Big Board's competition. Pappalardocriticized such incentives. "That's all part of thejob," he said. "A lot of people got up and went towork on 9/12. Those people didn't get bonuses."

Pappalardo's suggested salary range for Grasso'sposition also falls roughly in line with what theheads of other exchanges around the world are making.

The Wall Street Journal

found that the $12 million madeby Grasso last year totaled the combined pay of nineother exchange heads; their average pay was $1.3million.

The problem with such a comparison, however, isthat the NYSE is much larger than others around theworld and U.S. salaries are out of whack with the restof the world.

The board that decided Grasso's pay has said itsfindings were based on comparisons to pay packages inthe financial community. That could make sense fromone perspective, suggested Jannice Koors, managingdirector at the pay consulting firm Pearl Meyer &Partners.

"Clearly you need someone in that role who's got avery good understanding of the markets, and so if thatsomehow implies you're trying to recruit somebody fromthe world of finance, how much of a pay cut can youexpect them to take and still get the caliber ofperson that you want to head the organization?" sheasked.

But to compare salaries for different financialinstitutions, the typical method is to look at thesize of a firm's assets, Koors said. By that measure,the New York Stock Exchange is far smaller than thefinancial institutions used to compare salaries.

For instance, J.P. Morgan Chase's $25.3 billion inassets on its balance sheet dwarfs the $1.8 billionreported at the end of 2002 by the NYSE. Yet, Grasso'ssalary is not out of line with J.P. Morgan Chase CEOWilliam B. Harrison Jr.'s package. Harrison received$11.4 million in 2002, including stock awards and a $5million merger bonus, and more than $16 million in2001, according to

Securities and Exchange Commission

filings. In addition, Harrisonreceived hundreds of thousands of options, unlikeGrasso.

Jim Clary, president and CEO of Mullin Consulting,said he has seen deferred compensation packages reachthe heights of Grasso's among investment bankers whogenerated a multiple of that amount for their firm bycompleting a huge deal.

"In this case, it seems the Exchange was not ofthat magnitude, and he was taking a significant amountof their income," said Clary, whose firm specializesin designing benefit plans.

Indeed, had Grasso taken a smaller salary in 2002,the NYSE's net income might not have dropped to $28.1million from $31.8 million in 2001.

There is one other reason why the investmentbanking world may not serve as the best source forsalary comparisons. Says Pappalardo: "My guess isthere is a good question whether the CEOs ofthose companies deserve the kind of money they'remaking."