When President George W. Bush nominated veteran Wall Street financier William Donaldson to succeed Harvey Pitt as chairman of the Securities and Exchange Commission, I counted myself among the skeptics who toil in the Fourth Estate.
More than a few columnists, this one included, surmised that if approved, Donaldson would be Harvey II, a well-connected and accomplished professional with a resume the length of a register tape at Costco but sans the agenda of a true reformer.
Then to my surprise, and I’m sure others’ as well, the chairman of the financial regulator began to, well, regulate.
In March, Donaldson ordered the U.S. stock exchanges, including the New York Stock Exchange, to review their corporate governance policies, urging them to be an “example of business ethics.”
But more on that later.
And, along the way, he pushed through measures designed to help the perpetually understaffed and underfunded agency, such as speeding up the hiring of accountants and lawyers.
Apparently, many people were more than a little surprised to learn of NYSE chairman Dick Grasso’s exorbitant compensation package, which probably led some to believe they had mistakenly read the sports section and Shaquille O’Neal’s latest contract negotiations.
Last week, the NYSE said it extended Grasso's contract for an additional two years and paid out almost $140 million in accrued savings, benefits and incentives.
Grasso's contract, which runs to 2007, guarantees him a $1.4 million base salary and a bonus of at least $1 million.
Donaldson, who ironically was Grasso’s predecessor at the NYSE, dashed off a letter requesting complete details on exactly how the compensation committee down at 11 Wall Street determined the pay package for its current chair.
In his letter, Donaldson asked the exchange for a copy of Grasso's contract (probably wondering, among other things, why he never landed a deal like that when he was there) and of the minutes of any board meetings where Grasso’s contract was discussed. The SEC also wants any information regarding the impact of Grasso's pay on the NYSE's operating revenue and earnings.
Donaldson’s feeling was that approval of Grasso’s stratospheric pay package raised questions on just how effective the NYSE’s corporate governance structure was.
H. Carl McCall, a NYSE board member who heads the exchange’s compensation committee, said one of the reasons behind Grasso's compensation was that the board didn’t want him to leave for another job.
McCall, the former New York State Comptroller, was quoted as saying, “You have to do what you can to retain good people.“
Sounds like a strategy I need to present to my superiors come salary review time.
In any event, it’s probably a refreshing sight for investors to see the SEC beginning to grow a new set of regulatory teeth, instead of the shopworn dentures it sported post-Arthur Levitt.
But I guess I’ll know I’ve made it when my company receives a letter from Chairman Donaldson questioning my exorbitant pay package.
Hey, it could happen.
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