New York Attorney General Eliot Spitzer Monday sued to annul the egregious $187.5 million pay deal awarded to former New York Stock Exchange Chairman and CEO Richard Grasso that ignited a scandal which ultimately led to his ouster last year.
Spitzer has the authority to bring legal action against Grasso and the former NYSE board under the New York State Not-for-Profit Corporation Law. In a related move, Spitzer announced a settlement with Grassos deputy Frank Ashen, who admitted to providing "inaccurate and misleading" information to the board of directors when it was determining Grassos compensation.
Under the terms of the settlement, Ashen will be forced to return $1.3 million to the Big Board. Mercer Human Resource Consulting, a consultant to the board, also settled with Spitzers office for withholding information. Mercer will relinquish the fees it charged the NYSE in 2003.
The suit names Grasso, the exchange and Kenneth Langone, the former head of the NYSE compensation committee, in a conspiracy to inflate Grassos pay by tying it to the compensation levels of CEOs of much larger companies. It also alleges the defendant provided selective information to the board and allowed Grasso to set low performance benchmarks that could be easily attained.
"This case demonstrates everything that can go wrong in setting executive compensation," Spitzer told reporters a press conference. "The lack of proper information, the stifling of internal debate, the failure of board members to conduct proper inquiry and the unabashed pursuit of personal gain resulted in a wholly inappropriate and illegal compensation package."
One of the smoking guns in the complaint was the testimony of a compensation committee member who expressed concern about a component of Grassos proposed pay deal for the year 2000 and whom was later confronted by Grasso. The director testified that Grasso "was taken aback that my hesitancy was reported immediately [to Grasso [himself]."
The committee member, who ultimately approved Grasso's compensation package, said, "Thank God I escaped that one. This man was also our regulator, and I'm a member of the New York Stock Exchange, and when he's your supervisor or your regulator, you have to be careful."