Judge Rules Against Grasso
07/11/2006
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A state supreme court judge has ordered former New York Stock Exchange (NYSE) chief Richard Grasso to pay back some of the compensation package that the state’s attorney general Eliot Spitzer has labeled excessive.

The lower court judge, who issued a partial summary judgment against Grasso, will decide separately how much he should repay from the $187.5 million compensation package and dismissed his claim for another $48 million from the exchange.

Spitzer has been trying to recover some of the $187.5 million pay package Grasso received in 2003. An internal NYSE review known as the Webb report claimed up to $156.7 million of the pay package was excessive compared to most U.S. corporations.

Grasso has argued the exchange’s officers were aware of the package when it was approved.

The 72-page decision by state Supreme Court Justice Charles Ramos said Grasso didn’t fully disclose his growing compensation from his Supplemental Executive Retirement Plan. A SERP is an extra retirement fund most US companies maintain for their executives.

“There is no dispute that Mr. Grasso had a fiduciary duty,” Ramos stated. “Rather, the question is whether his duty included disclosure of the magnitude of his SERP benefits. It did.”

The decision states Grasso’s SERP of $36 million in 1999 grew to more than $100 million in less than three years.

“Mr. Grasso’s failure to disclose the amount of the SERP thwarted the (NYSE) Compensation Committee from performing its duty of care and obedience,” Ramos stated. “Year after year, it made decisions to pay him without knowing his true compensation.”

Ramos continued: “Many members of the (NYSE) board testified that they did not know about the SERP and if they did, they did not know what the balance was.

“This court also finds this affirmative defense of neglect to be shocking,” Ramos wrote. “That a fiduciary of any institution, profit or not-for-profit, could honestly admit that he was unaware of a liability of over $100 million, or even over $36 million, is a clear violation of the duty of care. The fact that it was a liability to an insider (chairman and CEO) is even more shocking.”

There are still legal challenges to hear against Grasso and the NYSE.  The exchange was subject to nonprofit organisation laws that allow only reasonable compensation. A trial had been expected to begin later this year.  As the NY laws are similar to Australia’s “reasonable remuneration” requirement under s211 of the Corporations Act, we will be watching the outcome with interest.

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