Statement by SEC Chairman:
Letter to NYSE Regarding NYSE Executive Compensation
Chairman William H. Donaldson
U.S. Securities and Exchange Commission
September 2, 2003
The Honorable H. Carl McCall
Chairman, Human Resources and Compensation
Chairman, Special Committee on Governance of
New York Stock Exchange, Inc.
11 Wall Street
New York, NY 10005
Dear Mr. McCall:
On August 27, 2003, the Exchange announced that its Board of Directors unanimously approved a new contract for Mr. Richard Grasso, its Chairman and Chief Executive Officer, which will extend through May 2007. The Exchange also announced that, as part of the new contract, the Exchange restructured the deferred compensation and savings and retirement plan benefits previously earned by Mr. Grasso and that it distributed to Mr. Grasso benefits from three plans totaling $139.5 million.
As you know, I believe that self-regulatory organizations must be models of good governance. In my March 26th letter to Mr. Grasso, I urged that the New York Stock Exchange demand of itself the same high standards of governance that the Exchange has proposed for its own listed companies. Further, I asked that the NYSE review its governance structure and report the results to the Commission by May 15, 2003. In response to my letter, the Exchange issued an Initial Report of the Special Committee on Governance of the NYSE that outlined a number of first steps the Exchange planned to take to better serve its investor community, including changes to how compensation of executives is determined. The Exchange indicated that the Committee would take additional time to further review all aspects of the Exchange's governance and make recommendations to its Board. The Committee's final report is still pending.
In my view, the approval of Mr. Grasso's pay package raises serious questions regarding the effectiveness of the NYSE's current governance structure. I am especially concerned that the pay package was awarded before the Exchange completed its governance review, which has been pending since March. To better assess the steps that the NYSE has taken to date with respect to its governance processes, we need full and complete information about the procedures and considerations that governed the award of Mr. Grasso's pay package. I am enclosing a list of questions regarding the terms of the pay package and related items and the process of their approval. I ask that you submit a response by September 9, 2003.
If you have any questions about this request, please contact my office, (202) 942-0100, or Annette Nazareth, Director, Division of Market Regulation, at (202) 942-0090.
William H. Donaldson
cc: Mr. Richard Grasso
Questions Regarding the Pay Package for NYSE Chairman and CEO
Questions Regarding the Pay Package
for NYSE Chairman and CEO
Submitted to NYSE Human Resources and Compensation Committee
- To further understand the governance procedures relating to the compensation arrangements, we request a copy of the meeting minutes of the Human Resources and Compensation Committee (the "Compensation Committee") and for the full Board of Directors or other Exchange committee for meetings that discussed or approved the new contract and the benefits payout for Mr. Grasso, as well as for the meetings that discussed or approved prior employment contracts or benefits for Mr. Grasso since he assumed his current position as Chairman and Chief Executive Officer. Additionally, we would like to have a copy of any consultant reports or similar documents and other materials that related to or were considered in reaching those decisions.
- What is the role of the Compensation Committee, the Board or other Exchange committees in determining benefits provided under NYSE plans? Please identify all members who have served on the Compensation Committee or other relevant committees since Mr. Grasso assumed his current position. Also, please provide us with a complete description of the process by which such members were chosen. Please include the names of the person or persons who recommended each member as a candidate and a description of any business or financial relationships with Mr. Grasso or the Exchange, or other potential conflicts of interest (for example, NYSE contributions to organizations with which directors are affiliated), that any such member may have had at the time of selection or during service on the Compensation Committee or other relevant committee.
- From the press release, we understand that there are three plans involved in the distribution to Mr. Grasso: deferred compensation, savings plan, and retirement plan. We would like to gain a greater understanding of the NYSE's deferred compensation and savings and retirement plan benefits, as well as any similar benefits, that are available to NYSE executives and employees. Are these plans available to NYSE executives only or to other employees as well? If these plans are only available to certain employees, or if different terms are only available to certain employees, we would like to receive information on the types of employees that are entitled to receive these benefits or terms. Also, please forward the minutes of any meeting of the Board, the Compensation Committee or other committee where such plans were discussed or approved.
- Please provide us with information regarding the accrual and payout on a yearly basis of the pay package and distribution received by Mr. Grasso since he assumed his current position.
- We understand that one of the terms of the employment contract with Mr. Grasso is that there is an 8% guaranteed, risk-free return on his deferred compensation. Please provide us with a complete description of the terms of the 8% guarantee, the amounts accrued for Mr. Grasso's benefit under this guarantee and any other relevant information. Please also provide us with a description of the terms of any other investment options or alternative terms available. Do similar arrangements exist for other executives or employees? If so, please provide us with complete details.
- Please provide us with information regarding the impact of the pay package and payout on the NYSE's operating revenues and net earnings. What revenue sources did the NYSE use to fund the payout to Mr. Grasso? Will the amount of the benefits paid to Mr. Grasso impact in any way the funding or operation of the NYSE's regulatory program or other programs?
- What are the terms of the new contract with Mr. Grasso? Has he received a full distribution of all benefits accumulated to date? What is the amount of the benefits that he will be able to accrue under the new contract after the recent distribution of $139.5 million? Please provide copies of this contract.
- To the extent not provided in response to the preceding questions, please provide us with copies of all agreements, employee benefit plans or other written materials in the possession of the Exchange, the Board, the Compensation Committee or any other committee relating to Mr. Grasso's compensation or benefits since he assumed his current position, including any retirement, severance, consulting or other compensation or benefits that are payable or accrue after he no longer holds his current position.
- Please provide us with an update of the status of the Special Governance Committee's deliberations.