A New York judge ruled yesterday that Richard A. Grasso, a former chairman of the New York Stock Exchange, would have to return as much as $100 million he received as part of a fiercely contested $139.5 million payout.Grasso's appealing the ruling, naturally, and what could be a very interesting aspect of this case is yet to be determined by the court. That is, the reasonableness of Grasso's compensation, particularly given the not-for-profit regime in which he worked, the NYSE. There could be some interesting commentary emanating from that part of the case, given the current climate.
The judge, Justice Charles E. Ramos of State Supreme Court in Manhattan, said that Mr. Grasso did not disclose to his fellow directors on the board of the exchange the extent to which his soaring compensation had caused his pension and savings to balloon in size and that he violated his contract by withdrawing $87 million before his retirement. Interest and money from a separate retirement account would raise the total.
There's another interesting point here that's relevant to the ongoing comp scandals and that has to do with the role of boards of directors. The judge seems to have validated the directors' lack of knowledge about Grasso's ballooning pension. It's portrayed here as Grasso's onus to disclose how fast his SERP (Supplemental Executive Retirement Plan) was growing, rather than the directors' duty to know about it. There appear to have been facts here that the judge accepted about Grasso's role as Chairman and his preventing the comp committee from knowing the extent of his actual pay and retirement benefits. If the directors knew there was a SERP in place, however, they had a duty to know what its implications were. Sounds to me like the halo around Grasso post 9/11 and his own questionable actions may have prevented the hard questions from being asked.
Permitting directors to get away with pleading ignorance is unlikely to be an option going forward with the heightened scrutiny on comp committees.