THE FALL OF THE HOUSE OF GRASSO
Inside Dick Grasso's $140 million payday: a story of greed, deceit, ego, and negligence. In other words, a corporate tale for our times.
(FORTUNE Magazine) – SEPTEMBER 17, 2001, 9:20 A.M. The New York Stock Exchange, which has been closed since the World Trade Center attack on Sept. 11, is about to reopen. The platform is filled with dignitaries: U.S. Treasury Secretary Paul O'Neill, SEC chairman Harvey Pitt, U.S. Senators Hillary Rodham Clinton and Charles Schumer, New York Governor George Pataki, Mayor Rudy Giuliani, and the city's fire and police chiefs, representing the heroes of 9/11.
Standing front and center is another 9/11 hero: Richard A. Grasso, the chairman and CEO of the exchange. Ever since the terrorist attacks, Grasso has been working tirelessly to reopen the markets. He's slept in his office. He's given defiant press conferences. Like Giuliani, he has become a reassuring--and ubiquitous--presence in the aftermath of the devastation. Now, with the moment at hand, Grasso declares victory. "Today," he proclaims, "America goes back to business, and we do it as a signal to those criminals who inflicted this heinous crime on America and all Americans that they have lost." After a moment of silence and the singing of "God Bless America," uniformed rescue workers ring the opening bell. In the post-9/11 tableau, this is an uplifting, unforgettable moment.
Sept. 17, 2003. Two years to the day after his finest hour, a bitter Dick Grasso resigns in disgrace. In the wake of such corporate scandals as Enron and WorldCom --with indignation at corporate excess at an all-time high--Grasso had negotiated a new contract giving him a staggering $140 million payout. The news has turned him from hero to goat: The man who is supposed to be setting the rules for corporate America has become instead a powerful symbol of corporate greed. For three weeks, Grasso has tried to hold on to his job, but as the public outcry over his pay has mushroomed, the exchange's board--which approved his paycheck just 41 days earlier--has turned against him. After submitting his resignation at an emergency board meeting, Grasso slips out of the exchange for the last time.
In the months that have followed, the dispute over Grasso's pay has become one of the ugliest fights in modern corporate history. After privately investigating Grasso, the exchange turned the matter over to New York State attorney general Eliot Spitzer, who has sued Grasso, demanding the return of more than $100 million. Spitzer has also accused Grasso and former NYSE compensation committee chairman Ken Langone of deceiving their fellow board members--a list of luminaries that includes Goldman Sachs CEO Hank Paulson, J.P. Morgan Chase's William Harrison, and former Secretary of State Madeleine Albright. For his part Grasso has sued the exchange, demanding an additional $50 million he says he's still owed and accusing his successor as chairman, John Reed, of defaming him. He and Langone angrily deny deceiving anyone.
Despite the huge sums at stake, Grasso and Langone, a wealthy investment banker, insist the fight is not about money--it's about honor. They show no inclination to settle a case that everyone else involved would like to see quietly go away. Instead the two men seem to be itching for a courtroom showdown.
"They got the wrong fucking guy," Langone told FORTUNE during one of a series of incendiary conversations. "I'm nuts, I'm rich, and boy, do I love a fight. I'm going to make them shit in their pants. When I get through with these fucking captains of industry, they're going to wish they were in a Cuisinart--at high speed." He adds: "If Grasso gives back a fucking nickel, I'll never talk to him again."
If and when the Grasso case goes to trial, nobody is going to come out looking good. The process by which Grasso's pay was set was a perversion of corporate governance--an eight-year accumulation of mistakes, misjudgments, and lack of oversight by the board. But a FORTUNE review of the events leading up to Grasso's $140 million payday also suggests that at critical moments along the way the directors were deceived.
Finally, Grasso's own character was a key element in his fall from grace. The same traits that allowed him to rise from an $81-a-week clerk to chairman and CEO of the exchange--and to become, for a brief time, a national hero--were also the traits that brought him down. "It's a Shakespearean tragedy," says Larry Fink, CEO of BlackRock and a former member of the NYSE's compensation committee. "You don't learn this in business school. You learn this in English class."
THE KID FROM NOTHING
The central fact of Dick Grasso's life is that for all the wealth and power he achieved, he never felt that he was a member of the club. At an institution that valued connections--either social or family--Grasso had neither. He was an Italian kid from working-class Queens, N.Y., a college dropout whose father abandoned his mother when he was an infant. Everything he had was the result of his own hard work--and the resentment he harbored toward those who'd had it easier was never far from the surface. "He's a kid from nothing," notes Jimmy DeSocio, a former New York City firefighter who grew up with Grasso. "This ain't a Yale graduate's kid. It's the American dream. Why are they breaking his balls?" (Though Grasso declined to be interviewed, he encouraged several friends to speak to FORTUNE.)
An indifferent student, Grasso needed summer school to earn his high school diploma, and he dropped out of college after about a year. After two years of Army duty at Fort Meade, Md., Grasso returned home in March 1968; a month later, he took a union job as a clerk at the New York Stock Exchange. He was 22.
Grasso's mother was unimpressed. She wanted him to quit and become a cop. Police, fire, or sanitation--that was the way kids like Grasso made it into the middle class. "From the lower middle class, a job with a pension was a big deal," says DeSocio. Grasso took the police exam and did well, but failed the eye test. He would remain at the NYSE for the next 36 years.
The institution Dick Grasso joined in 1968 seemed frozen in time. For almost 200 years the Big Board had enjoyed a near- monopoly over the stocks it traded--which included virtually every blue-chip company in the country. Although it was nominally overseen by the SEC, the exchange was allowed to govern itself through its special status as a self-regulatory organization. It was owned by its 1,366 seatholders, who had the exclusive right to do business on its hardwood trading floor.
Some of those seatholders were specialists, designated middlemen who matched buyers and sellers in the handful of stocks under their aegis. Although their ostensible purpose was to ensure liquidity whenever there was a shortage of buyers or sellers, that was rarely necessary. Mostly they minted money. In addition to their middleman role, they were allowed to capitalize on their intimate knowledge of the market's movements by trading for their own accounts. Seats on the exchange were passed down from generation to generation.
As for the way stocks traded, that hadn't changed in at least a century. The "open outcry" auction system--in which trades in NYSE stocks had to be routed to the floor through floor brokers who shouted out prices at specialists' trading posts--was at the heart of how the exchange did business. Commissions were fixed, as they'd always been. Even the NYSE's fortress-like building at 11 Wall Street seemed stolid and immutable.
Yet 1968 was also a time when one could see the first glimmers of change. The year before Grasso arrived, Muriel Siebert became the first woman to own a seat. The first black seatholder would arrive in 1970. Trading volumes were soaring, creating a back-office paperwork crisis all across Wall Street, building pressure for automation. The National Association of Securities Dealers had begun planning the launch of Nasdaq, an electronic exchange that would soon give the Big Board its first real competition. And in 1975, under intense government pressure, the NYSE finally agreed to eliminate fixed commissions.
Grasso's first job was in the listings department. Although listing fees were a large revenue source for the exchange, the NYSE had never courted companies to list their stocks--at least not until Grasso showed up and started hustling listings as if his life depended on it. By 1973, Grasso was running the department.
As Grasso rose, he became consumed by the New York Stock Exchange. He worked incredible hours, steeping himself in the NYSE's people and ways. Gradually he came to know everyone and everything about the institution, cultivating hundreds of personal relationships that would later prove invaluable.
The exchange consumed his personal life too. After a divorce, he married his former NYSE secretary. He abandoned Queens for Long Island and later advised ambitious young exchange friends to do likewise. "You need to get out of Queens," Grasso counseled one floor broker. "You need to move to an area where the people around you are the people you do business with. That way, even in your downtime, you're in your uptime."
When it suited him, Grasso could turn on the charm. "He was the king of the relationship managers," says Chris Keith, a former NYSE senior vice president. "Grasso had an extraordinary ability to endear himself to people with power."
But he was also a ruthless infighter. Compensation consultant Graef Crystal, who advised the exchange in the late 1970s, recalls Grasso's making short work of better-educated, better-pedigreed, and better-looking rivals. "The duel these guys fought," says Crystal, "was the difference between someone wielding an épée and someone wielding a broken wine bottle."
In the early 1980s, Grasso was named an executive vice president. By then he had emerged as a protégé of the exchange's president, John Phelan. Like Grasso, Phelan had spent his entire career inside 11 Wall Street--in his case, working as a specialist for a firm founded by his father. Phelan was viewed as brilliant, secretive, tough, controlling, and hypersensitive to criticism--all descriptions later applied to Grasso. "John knew everything," says Lewis Horowitz, a former NYSE executive vice president and Phelan's ex-partner. "Dick learned it from John."
There is no question that Phelan was grooming Grasso for bigger things. He gave Grasso assignments designed to broaden his experience. He offered to let Grasso take Fridays off so he could finish his college degree at Columbia University. (Grasso declined, concluding that his time would be better spent at the NYSE.) He sent Grasso to a special management training program at Harvard.
But there were also times when Phelan held Grasso back. Phelan had originally joined the NYSE as its No. 2. In 1984, when he was bumped up to chairman and CEO, the job of president suddenly became open--and the 38-year-old Grasso wanted it. Phelan chose someone older, telling Grasso he wasn't ready for the job. Grasso was deeply hurt. Phelan mollified Grasso by allowing him to report directly to him instead of to the new president. Four years later Grasso got the president's job.
Then, in 1989, Phelan announced that he would step down as CEO the following year. Naturally, Grasso wanted the job--but again he was passed over.
Jim Bradford, a brokerage executive who served on the board's search committee, says Grasso was viewed as "the inside guy in the skunkworks who always made things work." But, he says, "there were strong doubts about making him chairman.... We thought we would do better getting someone with more prestige."
So the exchange directors selected the anti-Grasso: William H. Donaldson. Donaldson had a sterling résumé: He had two Ivy League degrees (Yale and Harvard Business School). He had co-founded the first Wall Street firm to go public (Donaldson Lufkin & Jenrette) and founded the Yale School of Management. And he had worked in government (as undersecretary of state and in the White House). Silver-haired, tall, polished, Donaldson cut a striking public figure. The board gave him a five-year contract.
The appointment of Donaldson tapped a deep well of resentment within Grasso. Yet because Donaldson had never worked inside 11 Wall Street, it was all the more critical to keep Grasso around. The board assured him that if he stayed, he'd ultimately get his due. In the meantime he received the additional title of executive vice chairman of the exchange. Grasso, then just 44, resolved to lie in waiting. "I'm going to keep my mouth shut," he confided to a friend, "and when the time comes, I'm going to take his job."
And that's what happened. If the exchange board thought Grasso lacked the stature to serve as chairman, he'd raise his profile--testifying in Washington, giving speeches, and becoming more active in charities. Grasso also secured his power base, becoming the unquestioned master of the trading floor. Donaldson, meanwhile, stayed in his office with the door closed. The specialists and floor brokers viewed him as aloof.
To the exchange directors, it was clear that Grasso was the one who really knew what was going on. "Bill always deferred to Dick on a business issue," says one former NYSE hand. "A board member would ask a question, and Bill would turn to Dick."
In early 1994, with a year left on his contract, Donaldson began making noises about sticking around for another term. The directors were having none of it. "Donaldson was a good front guy," says Bernie Marcus, then chairman of Home Depot and an NYSE director. "But the truth is, the exchange was being run by Grasso, and we all knew it." When Donaldson announced his retirement from the NYSE, the directors didn't even form a search committee. Grasso was the unanimous choice to replace him.
At one point an exchange insider asked John Phelan, then retired, what might be expected of his old protégé. Phelan loved Grasso but recognized his flaws. "He doesn't serve himself well sometimes," Phelan replied. "Dick has a dark side."
THE BUGGY WHIP SALESMAN
Even now, after everything that's happened, it's nearly impossible to find anyone connected with the New York Stock Exchange who doesn't believe Dick Grasso did a great job as chairman. But they define his success narrowly. What Grasso did was to brilliantly serve his power base--the specialists, floor brokers, and other seatholders. With the rise of Nasdaq and the development of electronic trading networks, the open-outcry system used by the NYSE seemed doomed. Institutional investors resented having to pay exchange middlemen to get their trades executed--and were agitating for change. Grasso not only preserved the specialist system, he also retained the Big Board's historical 80% share of the trades in its listed stocks. "We don't need specialists anymore," says Langone. "A box will do it. Dick Grasso had the knack for selling buggy whips. There's no more buggies out there, but he keeps selling buggy whips."
How did he do it? First, he turned the exchange into a nonstop marketing machine. Intent on transforming the NYSE into a brand to rival Coke, Grasso amped up the Big Board's advertising budget, eventually to $40 million a year. He turned the opening and closing bells into media events. Grasso brought a lion onto the bell platform. He ushered cancan dancers onto the trading floor. He was doused in green slime for Viacom's Nickelodeon; was spun in the air by a professional wrestler; and drove a Harley down Broad Street. He also turned the excitement of the floor into a backdrop for reporters covering the market--starting with CNBC's Maria Bartiromo, who began broadcasting from the floor just months after Grasso became CEO.
The second key was Grasso's salesmanship. If you thought he hustled listings in his 20s, you should have seen him at 50! Grasso raced around the world to court overseas companies, which he saw as the NYSE's big untapped market. Taking aim at Nasdaq, he courted the hot tech IPOs that were its bread and butter. He compiled a "hit list" of Nasdaq listings he wanted to steal, starting with Microsoft and Intel, for which he'd reserved the listing letters "M" and "I."
Third: For years, NYSE critics had been lobbying to eliminate the special regulatory advantages that helped preserve the Big Board's dominance. Longer than anyone thought possible, Grasso held them at bay. He slowed the advance of the electronic trading networks. He delayed the decimalization of stock prices, fearing (correctly, as it turns out) that it would ravage specialists' profits. Most important, he managed to preserve the "trade through" rule, which requires that brokers use the exchange with the best posted price. Because a specialist could post a low price for just a few shares, that drew the lion's share of volume to the NYSE--even if that price wasn't available for a sizable trade.
Finally, whenever Grasso felt the system was being attacked, he reverted to the Queens street-fighter. Grasso took criticism of the stock exchange personally--and he responded in kind.
Take, for instance, Benn Steil, a Ph.D. economist at the Council on Foreign Relations, who wrote academic papers critical of the specialist system. Grasso canceled the exchange's membership in the Council--and an NYSE deputy warned it wouldn't be renewed "as long as Benn Steil continues to be employed there." Sarah Teslik, executive director of the Council of Institutional Investors, drew Grasso's ire in 1999, after criticizing the NYSE's role in recommending fees for a proxy solicitation firm. That year she got no bonus. The reason? She says her board advised her that "I need to be nicer to the New York Stock Exchange." Teslik says she later learned that Grasso had tried to have her fired. "You cross Dick Grasso, you better have a working spouse," says Teslik. Through a spokesman, Grasso denies trying to get Steil and Teslik fired.
THE HOUSE OF GRASSO
An outside vendor was once rigging equipment on the platform for the daily opening-bell spectacle when Dick Grasso walked up to inspect the preparations. "You can't go out there," the vendor warned. Grasso exploded. "Don't tell me what to do in my house!" he screamed.
Practically from the moment he became chairman, Grasso turned the stock exchange into his personal fiefdom--"the House of Grasso," as several exchange veterans put it. He was its public face. He made every decision, large and small. And he was the unquestioned boss.
Among Grasso's senior staff, loyalty was an absolute requirement. And to Grasso, according to one insider, "Loyalty was 'Yes, Dick.'" Subordinates who failed to meet his exacting standards received brutal tongue lashings. They were summoned to Grasso's palatial sixth-floor office, which he inexplicably kept at a sweltering 90 degrees year-round. ("It keeps meetings short," he joked.) After seating his victim in a chair, Grasso, his face flushed, would unleash a stream of venom. Then he might sit and just stare silently for several minutes. Or he might turn his back without saying a word, leaving the visitor sitting nervously. Finally, Grasso would snarl: "Get out of here!" One executive who endured a Grasso scolding stumbled out of the chairman's office and promptly collapsed. He was taken to the hospital--and quit less than a year later.
Grasso's seatholders also feared him but for a different reason. Even though they owned the exchange, he was their primary regulator. And although few will speak on the record about the issue, many exchange veterans told FORTUNE that they feared Grasso would use his regulatory powers against them if they dared to cross him. "If it didn't go his way," says a veteran broker, "he had the hounds after you. There was always that threat." A prominent specialist says that during a dispute with Grasso, the exchange CEO told him bluntly, "I'll make sure you never get another stock again." "If you crossed Dick," says James Rutledge, a longtime seatholder, "there were incidences of audits."
Over the years Grasso has repeatedly denied that he abused the NYSE's regulatory powers--and, through a spokesman, he did so again for this story, calling FORTUNE "recklessly irresponsible" for bringing it up. Indeed, when pressed, the exchange veterans who spoke to FORTUNE have difficulty coming up with examples of regulatory abuse. Rutledge, for instance, says he himself was never audited gratuitously. But, he adds, the threat was always in the air. "And it was always held over your head."
In early 1999, Grasso was engaged in a dispute with employees of a specialist firm called Henderson Brothers, which at the time was up for sale. Through a company called Papyrus Technology, a Henderson executive named Tom Patterson had patented a handheld device for floor brokers, after running a pilot program with the exchange. But the exchange had ultimately turned to a different vendor, refusing to pay Papyrus licensing fees. When Papyrus made noises about suing, Grasso warned a Henderson executive that if Patterson didn't drop the matter, "I'm going to take out the nuclear weapons."
Fearful that Grasso would use his regulatory powers to block the firm's sale, some 20 Henderson specialists legally revoked their interest in Papyrus. The firm was sold a year later--with Grasso's approval. In early 2004, Papyrus filed a lawsuit against the exchange containing this allegation: "Mr. Grasso threatened to retaliate if Papyrus asserted a claim against NYSE." (Grasso declined to comment, citing pending litigation.)
"Dick was vindictive," says a prominent industry insider. "I was scared of him. Everybody was." Says an NYSE seatholder: "He's very good at destroying people." "If you pissed him off," adds a third, "you're back on the streets of Queens."
The extent to which the New York Stock Exchange had become the House of Grasso was never more obvious than in the week after 9/11. That week he was the exchange--the public face of an institution that had otherwise gone dark. Just as Giuliani was the conduit of news about New York's recovery, so Grasso was the one who gave the world daily updates on the exchange's progress toward the resumption of trading. (When a specialist named Robert Fagenson gave his own update to a reporter, Grasso responded by screaming at him--and then wouldn't speak to him for a year.) And when the exchange triumphantly reopened on Sept. 17, Grasso was the only dignitary on the platform who spoke.
Of course, the smooth reopening of the markets cemented the NYSE's role at the center of American business. And it turned Dick Grasso, with his shaved head and raspy voice, into an icon--much like the exchange itself. "He's the embodiment of capitalism," Ken Langone told a reporter a few months later.
At that moment Dick Grasso had never seemed more indispensable.
THE CHAIRMAN'S AWARD
In retrospect, the roots of the Grasso pay scandal can be traced back to 1995, Grasso's first year as NYSE boss. That December a man named Stanley Gault set in motion a plan that would both enrich Grasso--and eventually destroy him.
Gault, the CEO of Goodyear, was the chairman of the exchange's compensation committee and he had come to believe that the NYSE's top executives were woefully underpaid. He wanted their pay to more closely resemble the "world-class talent" running such FORTUNE 500 companies as Citicorp and General Electric.
It would be hard to imagine an institution where such an approach made less sense. With 1,500 employees and revenues of less than $1 billion, the NYSE was tiny compared with those corporate giants. In fact, it wasn't a normal profit-seeking business at all, but operated more like a public utility, charging fees to both its listed companies and the firms that operated on the exchange. Indeed, although it reported revenues and earnings, it was incorporated as a not-for-profit company. There were other important differences: The exchange didn't face market risk the way companies did every day. It didn't have a publicly traded stock. Besides, it was a regulatory body! In his last year on the job, William Donaldson had made almost $2 million; there wasn't a regulator anywhere who got paid that kind of money.
Gault and the board, however, feared that the exchange would begin losing top managers to companies like Citicorp, which could lard them with stock options. So they began systematically ratcheting up the pay packages at the exchange. Nobody benefited more than Dick Grasso.
As the exchange's No. 2, Grasso had earned $1.1 million. Now, as CEO and chairman, he would have an annual base salary set at $1.4 million. But that was just the beginning. Grasso also got bonus and retirement money from five separate incentive and benefit plans.
Here's how his bonus money was set: Each year a consultant would calculate the median pay for CEOs in a select "comparator group," which included such highly paid CEOs as Sandy Weill at Citi and Maurice Greenberg at AIG. That figure would be discounted by 10%--a tiny nod to the enormous difference between the "comparator" companies and the exchange. The resulting figure was then multiplied by an NYSE "performance" score, which was set, in part, by Grasso himself. This portion of the formula was called the Chairman's Award.
Of course, much of the pay for the comparator group CEOs came in the form of options, which meant there was at least some risk. But Grasso's money was never at risk; since the exchange had no stock options, it simply gave him everything in cash.
Then there was the matter of Grasso's retirement benefits. When the exchange disclosed the stunning news that it had paid its chairman $139,465,000, Grasso and the NYSE both insisted that the money had accumulated during Grasso's decades of service at the exchange. That wasn't true. In 1995, as part of his first five-year contract, he'd been allowed to withdraw all his deferred money, including his accrued retirement benefits--a highly unusual move. That sum amounted to $6,571,397.
Thus Grasso started as chairman and CEO in 1995 with an empty piggy bank at the NYSE, but a benefits program that grew so lucrative that he would accumulate nearly $140 million in less than eight years.
SLEEPING WITH THE PAINTER
In the summer of 1999, Grasso appointed Ken Langone to head the NYSE compensation committee. The founder of a New York boutique investment bank called Invemed Associates, Langone has served on many boards over the years and has developed an unapologetic attitude towards compensation. His philosophy? If a CEO isn't performing, he should be fired. But, says Langone, "you can't pay a great manager enough money." Langone, says one critic, is a "serial overcompensator."
A big, blustery, profane man, Langone, 68, has long been prized as a corporate director. The son of a plumber, Langone currently serves on the boards of Home Depot (which he co-founded), General Electric, ChoicePoint, and Yum Brands. He is worth an estimated $800 million. As a director, Langone is known for rarely missing a meeting, poring over reports--and pushing to ensure that his CEOs don't go home "with an empty pail."
At Home Depot, Langone recruited Bob Nardelli from GE with a pay package that brought the new CEO $38.3 million in 2002 alone. At Yum Brands, Andrall Pearson, the restaurant chain's former CEO, says that Langone, while a "great director," was "always on the high side of things" as a member of the comp committee. "That's just the way he is," says Pearson. "His thought is, 'If I got rich as a shareholder, you ought to get rich as a manager.' Ken likes to share the wealth."
At the NYSE, Langone's attentiveness to his board duties set him apart. The exchange's high-powered directors tended to treat the NYSE board like a charity. Its enormous size (27 members) and frequent turnover (directors served only two-year terms) also helped make it feel ceremonial, more a rubber stamp for Grasso than an independent overseer. Several directors missed more meetings than they attended; AOL Time Warner chairman Steve Case missed ten out of 11 during one stretch before finally resigning in early 2001.
Many directors came from the securities industry, which, of course, Grasso regulated. One former Wall Street CEO told FORTUNE that he had been urged by his deputies to accept a board invitation in the hope that it would ease his firm's regulatory problems. Grasso's status as a regulator made it difficult for Wall Street board members to confront him and gave them a strong incentive to make him happy. "You can't be as direct with someone who's regulating you," says the former director. "This guy could really punish us."
During his first four years as CEO, Grasso had made $15.4 million, $6 million in 1998 alone. Yet Langone seemed to view this amount as chump change--and was determined to pay him more. Why? The original rationale had been that Grasso might bolt for a big job in private industry. But Grasso had repeatedly said he would never leave the NYSE, and Langone says today that he wasn't worried about the possibility. To Langone, it was a matter of simple fairness: Grasso had single-handedly preserved the exchange, and the board needed to make him feel appreciated. "Don't wait to go home one night and find your wife in bed with the painter," he says. "You need to show her how much you love her every day."
Previously, the benchmarks for Grasso's pay had been treated as a ceiling. Langone viewed them as little more than a "starting point." Thus, for 2000, Langone's committee recommended--and the board unanimously approved--bonus awards for Grasso that exceeded the benchmark by $15.7 million, according to Spitzer. He made $26.8 million that year. In all, Grasso's pay and bonus during the four years Langone chaired the comp committee amounted to a stunning $80.7 million.
THE TICKING TIME BOMB
While Dick Grasso's soaring salary and bonuses were being unanimously approved by the compensation committee and board every year, an even bigger payoff was rapidly accumulating out of view. This was Grasso's retirement package--and it was a ticking time bomb waiting to explode.
Many companies have a supplemental executive retirement plan, known as a SERP. But the exchange's program was extraordinarily generous as a result of unusual provisions made during Grasso's tenure. Typically such programs generate a pot of money that an executive can take upon retirement. The size of the pot results from a formula that considers the CEO's most highly paid years and the length of time he's been at the company.
At the NYSE, both factors were rigged in ways designed to enrich Grasso. First, in 1999, Grasso was credited with four extra years of service, increasing the multiplier on his retirement pay. One consultant concluded that it would boost Grasso's take by about $15 million. But an even bigger factor was how the total from his "most highly paid years" was calculated.
SERP programs normally consider only the cash executives receive, excluding the stock grants and options that constitute much of their total pay. But at the NYSE, Grasso was paid millions in cash bonuses to make up for the exchange's inability to give stock--and the exchange counted most of that cash in calculating his retirement pay. The result was astounding: It meant that during Grasso's last few years at the exchange, every $1 million he got through the NYSE's primary bonus program could generate as much as $6.8 million for his SERP account.
In 1999, Grasso signed his second five-year contract. Just as he'd done in 1995, Grasso sought to lay claim to his retirement money, which had grown to $29.9 million in just four years. But instead of taking it in cash, he wanted to transfer it from his SERP account to his NYSE savings account, where he could invest it.
This transfer, like the cash payout in 1995, was highly unusual. Grasso wasn't entitled to the money until he retired--and would likely forfeit a chunk of it if he left before the end of the contract. In 1995 the exchange's consultant had wanted to make Grasso pay an interest charge for pulling the money out early, but had backed down when Grasso squawked, according to the Spitzer complaint. This time the benefits consultant, William Mischell of Mercer Consulting, advised the NYSE staff that the transfer would require the exchange to record a special $12 million accounting charge. Again Grasso objected. In a conversation with Grasso's longtime HR chief, Frank Ashen, Mischell was advised, according to notes he took at the time: "Grasso does not want a $12m expense associated with his SERP." According to the notes, the argument against taking the charge was: "1. Grasso wants it (the rest are details)." The exchange ultimately recorded a smaller charge.
In both 1995 and 1999, the board was never informed of the consultant's recommendations--or that they'd been rejected by Grasso. Similarly, in 2001, when the compensation committee was considering enhancements to a key NYSE bonus program, Mercer provided Ashen with the analysis showing that every additional $1 million paid to Grasso could add $6.8 million to the chairman's SERP. This extraordinary information was also not shared with the comp committee or the full board, Spitzer alleges in his complaint.
In a sworn statement Ashen later gave to Spitzer, he said that although the directors on the compensation committee were "generally aware" that Grasso received SERP benefits, he could not recall "any instance between June 1999 and September 2002 in which they discussed the amount of Grasso's accumulated SERP benefits." He added, "I do not recall any instance in which the committee discussed the specific effect that a compensation award had or would have on the amount of Grasso's SERP."
In 1999 the board was presented with a proposal to include Grasso in a bonus plan called the capital accumulation plan (CAP). It called for Grasso to get an extra deferred bonus equal to 50% of his primary bonus. In approving this additional bonus, the board seemed amazingly uninterested. "The proposal was approved unanimously with very little discussion in the compensation committee and absolutely no discussion in the full board," noted Jeffrey Hyman of Hewitt, the exchange's compensation consultant, in a memo to his own colleagues. "Incidentally, no one raised the question of how much Grasso will aggregate over his career by virtue of these enhancements. The answer is roughly $60 million from the pension and capital accumulation plans alone."
When the compensation committee met in February 2000 to decide Grasso's 1999 pay package, the worksheet passed out to the committee members did not include the CAP amounts. The copy Ashen prepared internally--and which was used to actually pay Grasso--did have the CAP amounts included. The same thing happened the following year.
"THE SECOND COMING"
After 9/11, Dick Grasso got his biggest payday yet: a 2001 pay package of $30.6 million, including salary, incentive plan bonus, CAP award, and a special $5 million retention bonus. This bonus money was not supposed to fully vest until May 2005, when Grasso's contract expired.
By then, Grasso, who has four children, was living like the wealthy man he had become. In addition to his multimillion-dollar home in one of the loveliest sections of Long Island, he owned a summer home in the Hamptons, an expensive studio in Tribeca, ten cars, and a Harley-Davidson motorcycle. Always concerned about security, Grasso now flew only on private jets. Armed bodyguards followed him everywhere.
Those in Grasso's inner circle were handsomely paid too. In 2002 exchange president Billy Johnston had retired with a $6 million severance payment and a retirement pot--after just six years on the exchange payroll--of $6.8 million. The two Grasso lieutenants who succeeded Johnston as "co--chief operating officers" would take down $3 million apiece in 2002. Each had a $20 million retirement pool. Grasso's personal assistant made around $250,000.
In July 2002, Grasso began talking to Langone about extending his contract. The exchange had been having a tough year financially. (It would ultimately earn $28 million in 2002, down from $101 million in 1998.) Grasso had imposed special fees on the floor brokers and specialists and would soon be warning his own staff to think twice before "buying another pencil." Yet because of his own mammoth retirement windfall, the exchange was going to have to book a $24 million charge--a sum that would clobber earnings and perhaps draw attention to Grasso's compensation, which remained a closely guarded secret. By extending his term 18 months the exchange could spread the charge out over a longer period.
Langone was happy to go along. "We loved this guy," he says. "In all the years I was on the board, in every evaluation, I never heard one negative comment about Dick Grasso's performance. You would have thought they were talking about the Second Coming of Christ."
Once again, Grasso wanted to transfer his retirement money--$51.5 million this time--to his NYSE savings account, just as he had in 1999. He also wanted to accelerate the vesting of a special $5 million bonus payment he'd been awarded for 2000 and to transfer that money to the same savings account.
On Sept. 23, Grasso's proposal went before the nine-member compensation committee in a special telephone meeting. Here is where the bottom line suddenly became clear: By the end of his current contract, according to a two-page term sheet, Grasso would be entitled to a projected lump-sum retirement benefit of $110,751,000.
Three new committee members--BlackRock CEO Larry Fink, Bear Stearns CEO James Cayne, and DaimlerChrysler chairman Jürgen Schrempp--participated in the call. In handwritten notes, Mercer consultant Mischell described their reaction this way: "disaster! The new members were shocked by the size of Dick's SERP. They want an independent consultant to say it is ok ... someone who has never worked with NYSE before."
A few days later Langone retained Bob Stucker, a top compensation expert and president of Vedder Price, a Chicago law firm. Stucker had worked on plenty of rich pay packages before, notably representing Bob Nardelli in his negotiations with Home Depot. Stucker's team, which reported directly to the comp committee, prepared an analysis of Grasso's proposal for its next meeting, on Oct. 3.
This report was considerably more skeptical than anything the directors had heard from Mercer and Hewitt, management's consultants. It noted that Grasso's proposal was at odds with the exchange's goals because it reduced financial incentives for him to stay. Vedder also said that it was "rare" for boards to allow such "pre-retirement transfers" and pointed out that Grasso's retirement package was $100 million more than the median for CEOs in his "peer group." After two hours the committee rejected the accelerated vesting of Grasso's $5 million bonus but took no further action on his contract.
And that's where matters remained until January 2003, when Grasso advised Ashen he had a new contract proposal. Now Grasso wanted to take all his money out--in cash. The total was almost $140 million: $51.6 million in SERP money, plus another $88 million in various deferred payments sitting in his NYSE savings account. Although the term sheet Ashen prepared for the board didn't spell it out, Grasso was also asking for an additional $48 million--to be paid out in $12 million annual installments. In return, Grasso would stay at the exchange through May 2007.
Why did Grasso suddenly want the money right away? In a press release, Grasso later said it was "to facilitate personal financial and estate planning." But former New York State controller Carl McCall, who served on the NYSE board, says Grasso told him he was worried that a future board might try to block him from ever taking out so much money--especially if his pay became public. (Grasso's spokesman denies that this exchange ever took place, accusing former directors of providing "a revisionist and erroneous tale.")
It was a legitimate fear. The recent business scandals had created enormous pressure for tougher regulation and improved transparency, prompting the NYSE to impose a stiff new set of governance standards on listed companies. That had generated comment on the operation of the exchange itself, including an article by economist Benn Steil, Grasso's old critic, titled "NYSE to Corporate America: Do As I Say, Not As I Do." If the exchange were forced to apply the same standards to itself that it imposed on its companies, future compensation decisions might have to withstand review by a truly independent comp committee and board--as well as public scrutiny. In February 2003, bowing to pressure from the SEC, Grasso named a special committee to review NYSE governance, co-chaired by McCall and former White House chief of staff Leon Panetta, also an exchange director.
Bob Stucker of Vedder Price first learned about Grasso's contract proposal when Schrempp faxed him a term sheet, seeking his comments. It was just three days before a Feb. 6 comp committee meeting; Ashen hadn't even told Stucker about Grasso's new plan.
Once again Vedder was skeptical, calling the pre-retirement payout "rare" and adding that it presented "due diligence issues." The compensation committee decided to ask for a more detailed analysis. Vedder soon advised Langone that it could complete its review of Grasso's proposal in time for a meeting in late March.
Don't bother, Ashen said; Mercer would conduct the study. According to a sworn statement by Mercer's William Mischell, Ashen spelled out how the "analysis" was to be performed, demanding six drafts of his report, revised to his specifications. The impression the HR chief wanted to leave was that Grasso was already due the money he was seeking. Mischell says that Ashen directed him to describe millions that Grasso was requesting as "vested" when it really wasn't. According to Mischell, Langone also knew large sums were being falsely described as vested but did nothing to correct the error. (Through a spokesman, Grasso says that every penny he took in 2003 was vested. Langone says, "I told the committee everything I knew.")
The final Mercer document concluded that the Grasso proposal would save the exchange about $4 million. After Ashen and Grasso had reviewed the final draft, the report was sent to the comp committee. Everything was teed up for board approval, starting with a special March 28 meeting of the compensation committee.
One last time, though, Vedder Price got in the way. Two days before the meeting, it submitted a memo pointedly noting that the analysis "by management and Mercer" had identified only "some" of the costs and benefits of Grasso's proposal. In a phone call that same day, a Vedder attorney told Ashen that the firm intended to advise the board to carefully examine how much of the money that Grasso wanted was actually vested.
One day after that conversation, Grasso told his HR chief that he was canceling the compensation committee meeting scheduled for the next day. Vedder Price would have no further contact with the New York Stock Exchange.
"IT TOOK MY BREATH AWAY"
Hank Paulson, the CEO of Goldman Sachs, was one of those exchange directors who hadn't been particularly attentive to his duties, missing more than half the board meetings since his appointment in July 1999. Paulson had been surprised to receive a board invitation from Grasso. Goldman Sachs had been a big investor in the electronic exchanges that were competing with the Big Board. But Grasso had also always been inclined to keep his friends close and his enemies closer. Indeed, not long after Paulson became a director, Goldman bought a big specialist firm.
Paulson had joined the comp committee in mid-2002, but it wasn't until early 2003, when Frank Ashen had come to brief him, that he focused on Grasso's contract proposal. "It took my breath away," says Paulson. "I'm fairly sophisticated, but I'd never heard of a retirement benefit like this before." Paulson says he was astounded not only at the amount Grasso had accumulated but also at his proposal to take it early. "You don't take your retirement before you retire," he says.
Paulson then called Grasso and told him that he considered the payout request "extraordinary" and that "if it leaks that you are even thinking of taking it--or that you have--it will blow up in your face." By the time the March 28 meeting was canceled, Paulson was convinced that the Grasso proposal was dead.
"I WANT TO TAKE IT NOW"
By the spring of 2003, the NYSE--and Grasso--were starting to look a little tarnished. In late March, Grasso had nominated Citigroup's Sandy Weill to join the board as a "public representative." This was a terrible mistake. Weill's reputation had been damaged in the Wall Street analyst scandal; Grasso was forced to drop the nomination two days later.
In mid-April the Wall Street Journal had broken the news that the exchange was investigating a number of specialist firms on allegations of improperly trading ahead of exchange customers. (The SEC would soon join the investigation--and turn its fire on the exchange itself, for not being a tough enough regulator.) In early May the Journal reported that Grasso had received a 2002 pay package "valued at more than $10 million" and amassed a retirement package of "between $80 million and $100 million." Although the numbers were low, the Journal story offered the first hint of Grasso's enormous paychecks. In June the reform committee headed by McCall and Panetta released an interim report calling on the exchange to immediately embrace ten reforms, including the public disclosure of executive pay and the removal of all securities industry executives from the NYSE compensation committee.
And then, after all that, the compensation committee once again took up Grasso's contract proposal.
The McCall-Panetta governance reforms--which the board immediately adopted--forced four Wall Street executives to quit the compensation committee, including Langone and Paulson. McCall replaced Langone as the new comp committee chairman. Soon afterward, McCall says, he met with his predecessor, who told him an "arrangement" had been negotiated between Grasso and the committee to present the new contract for approval at an August board meeting. "He said, 'We have already worked this out with Grasso,'" recalls McCall. Langone adamantly denies this: "I told them they were bound by nothing. I told 'em all--start over, baby." Former board member Larry Fink backs Langone's account.
The committee certainly did not proceed as though it were starting from scratch. In briefings with Ashen and Mischell, McCall says he got the party line: Every penny was already vested. McCall also met with Grasso, who expressed the view that he was "entitled" to the money. "I want to take it now," McCall says Grasso told him. "I worked this out with the comp committee and we agreed."
McCall says today that he believed he had no choice: A deal had been cut that he was obligated to fulfill. But he did have a choice. He was the new chairman, and any prior arrangement struck between Grasso and Langone was moot, since nothing had been voted on. Yet on July 14, when the comp committee approved Grasso's contract, McCall voted with the others to give the CEO his $140 million.
Still, worried about the potential negative publicity, McCall began sounding out other directors who weren't on the comp committee. When Hank Paulson discovered that the contract had been resurrected, he immediately called Grasso and urged him not to proceed. A few other board members weighed in, too, speaking to both McCall and Grasso. In response, Grasso assured at least five board members that he would pull his contract proposal from consideration at the Aug. 7 meeting.
Paulson was scheduled to be out of the country on Aug. 7, on a long-planned bird-watching trip to Brazil. On Aug. 1, as he prepared to board a private jet for the trip, he tracked down McCall. "I had him tell me one more time it had been taken off the agenda," says Paulson. "If it hadn't been, I would have canceled my trip." Reassured, Paulson boarded his plane.
The compensation committee gathered at 8 A.M. on Aug. 7, prior to the scheduled board meeting. McCall explained that after the July vote he'd heard from other directors "concerned with the timing of the new agreement" and asking "questions regarding disclosure," according to the committee minutes. "Mr. McCall informed the committee that, as a result of the calls he had received, Mr. Grasso did not think it was wise to proceed at this time.
"An extended discussion ensued," as the minutes put it. None of that discussion, however, focused on the question of whether Grasso should get this payout--the only question was when. Three holdovers from the Langone era--Fink; Gerald Levin, former CEO of Time Warner (parent of FORTUNE's publisher); and Mel Karmazin, then president of Viacom--led the charge to approve the contract immediately. Nothing good would come of putting the decision off, Fink argued--they were merely being asked to give Grasso money that by rights already belonged to him. ("Everyone believed it was already his," Fink says today.) Holding off would put Grasso "in an awkward position," Levin added--and it wouldn't change the outcome. Karmazin pressed for an immediate decision too. He was worried that the news would leak. "We need to be in control of our own destiny," he declared.
Taken aback, McCall warned that several directors were upset about the $140 million payout and might not support it once it became public. Even Grasso wanted them to wait, he added.
And with that, Grasso was summoned. McCall says he expected the exchange CEO to reaffirm his wish to put off the matter. Instead, according to McCall--and a second director--Grasso said simply, "It's up to you." (Grasso has insisted that he tried to persuade the committee to delay consideration of his contract.) After Grasso left, McCall informed Ashen that the committee had voted to recommend Grasso's new contract to the full board. Its meeting was scheduled to start in about an hour.
Five board members were away. No consultant would be available to answer questions. Ashen gave McCall a set of talking points, which, as usual, described the money Grasso wanted as already vested.
For two hours, the debate raged. Ironically, it was the Wall Street bankers--those Grasso regulated--who fought the hardest against moving forward with the contract, largely because they feared the reaction. They were all too familiar with the public's festering disgust with Wall Street.
Ultimately a split board decided to proceed, before agreeing to have the vote recorded as unanimous. But some directors retained a prescient sense about the whole affair. "You're not going to survive this," J.P. Morgan Chase's William Harrison told Grasso afterward.
Originally the board planned to make its first public disclosure about executive pay in the NYSE's annual report in early 2004. But there was no way the news of Grasso's huge payout wouldn't leak; the board had to announce it. And it did, in an Aug. 27 press release that trumpeted the fact that Grasso was staying for another two years but buried the news of his $140 million payout deep in the third paragraph.
Just as the Wall Street executives on the board had feared, the outcry was instantaneous. GRASSO'S JACKPOT, screamed the headline in the New York Post. In Washington, Grasso's old boss William Donaldson, who now headed the SEC, fired off a letter to McCall. "In my view, the approval of Mr. Grasso's pay package raises serious questions regarding the effectiveness of the NYSE's current governance structure," Donaldson wrote. He demanded board minutes, contracts, consultant reports, and Grasso's pay history. He gave the NYSE a week to respond.
There was one more shoe to drop. Grasso's new contract entitled him to pocket yet another $48 million through 2007--$12 million a year--in addition to his future salary and bonus. When McCall informed the board of this wrinkle--in a contract they'd already approved--several directors who weren't on the comp committee expressed shock and dismay, insisting they knew nothing about it. At a hastily called board meeting, Harrison and Paulson demanded that Grasso forgo the $48 million. Reluctantly, Grasso agreed. "That's great, Dick!" Paulson gushed. "You've done the right thing. We all support your decision."
This latest stunner was announced in a Sept. 9 press conference by McCall, who gamely insisted that the entire board remained solidly behind the NYSE chairman. But it only made matters worse. (DITCH THE LOOT, read the next day's Post headline.) Grasso, meanwhile, told reporters that he had no involvement in the annual board deliberations on his pay, except to utter four words when he learned how much he was getting: "Thank you. I'm blessed."
On the stock exchange floor Grasso's longtime allies were in open revolt. In recent years Grasso had forced them to swallow millions in extra fees, saying they were needed to bolster the exchange's sagging earnings. Seatholders began publicly calling for his resignation. The daily press drumbeat was relentless.
For his part, Grasso made no apologies. "Sure, I make a lot of money," he told his staff, "but I'm going to be here. You thought I was going to be gone? Too bad--I'm still here!"
The end came during an emergency board meeting late on Wednesday, Sept. 17--just three weeks after Grasso signed his last contract. He did not go easily, however. Early that day, McCall says, Grasso had called, urging him to leak information from his committee's forthcoming report on NYSE governance, in hope of providing a "distraction."
But it was too late; he'd lost the board. Before the meeting, Larry Fink, an old friend and ally, had phoned Grasso to convince him it was over. "I love you, Dick," he said. "But the problem is bigger than you. You need to resign." When the meeting convened, Grasso agreed to offer his resignation--if the board asked for it. By a 13--7 vote it did.
"They thought I would take a dive!" shouts Ken Langone. "Or that Grasso would take a dive!" He shakes his head at this foolish thought. "Bring it on, baby!"
Langone is sitting in his Park Avenue office, offering an expletive-strewn defense of his--and Grasso's--behavior. It's been months since New York attorney general Spitzer filed his lawsuit seeking the return of more than $100 million to the New York Stock Exchange. Spitzer's case has two separate thrusts. First, Grasso's pay was grossly excessive, under a New York State law that bars not-for-profits from paying anything more than what is "reasonable" and "commensurate with services performed." Second, Grasso and Langone duped the board about the CEO's haul. It is this second assertion that earned Langone status as the only board defendant named in Spitzer's lawsuit--and makes him steam like water boiling in a teakettle.
Langone, from whom Spitzer is seeking $18 million, repeatedly declares his intention to make life miserable for pretty much everyone involved, including Paulson ("Paulson is the guy that's going to have not only egg, but shit all over his face") and Harrison ("the fucking genius that gave Enron all the money"). He ridicules the investment bankers on the board who claim they didn't know what Grasso was really being paid--"pet rocks," he calls them. "You know why they didn't care about what was going on at the exchange?" he asks. "They had to go back to their offices so they could rip off their customers!"
Langone reserves special contempt for McCall, who was not named in Spitzer's suit despite chairing the committee that approved the $140 million. Both Langone and Grasso believe that Spitzer spared McCall for political reasons: The New York attorney general is widely expected to run for governor, and McCall is an influential New York Democrat.
For his part, Spitzer has also done a little baiting. In his complaint, for instance, he noted that Langone's firm has been charged by the NASD with receiving inflated commissions in return for doling out shares in hot IPOs. (Langone says he plans to fight this allegation to the death as well.) Newsweek writer Charles Gasparino recently reported that Spitzer told former GE chief Jack Welch to deliver a message to Langone: He was so angry about the attacks that he's "going to put a spike through Langone's heart." To which Langone responds, "If he's going to put a spike through my heart, it better be made out of steel, because if it's wood, it's going to break!"
Langone notwithstanding, it's hard to dispute the first of Spitzer's claims. Grasso's pay was indeed outrageous, even by the outrageous standards of the times. The process by which Grasso's package was approved was appalling. Normally this would be a private matter between a company and its shareholders--except that the NYSE doesn't have shareholders, and the not-for-profit law clearly applies to the exchange, even if the institution bears zero resemblance to a charity.
The deceit charge is murkier. In settling with Spitzer, both Ashen and Mercer Consulting gave detailed statements backing Spitzer's charge that the board had been given "inaccurate, incomplete, and misleading information." (Both deny any deliberate deceit.) Both have agreed to testify against Langone and Grasso.
Some directors insist they knew about every penny Grasso got. Others say they were confused. And still others now believe they were misled. But few regard Langone as deceitful. Says one director critical of Grasso's pay: "Ken didn't sneak anything by anyone." Adds former Merrill Lynch CEO David Komansky, who calls Langone a friend and sat on the comp committee: "What's on his mind is on his mouth. I don't think he could be sneaky if he wanted to be." Langone says that if the directors didn't understand everything, it's because they didn't ask enough questions.
The dispute over Grasso's pay has become the holy war that no one wants. Many on both sides blame the man the board picked to succeed Grasso: former Citigroup CEO John Reed. Reed, who accepted the job at the un-Grasso-like sum of $1 a year, immediately hired former federal prosecutor Dan Webb to investigate the pay fiasco. The exchange directors--almost all of whom Reed promptly replaced--expected him to use the Webb report as a bludgeon to convince Grasso to put an end to the matter quietly by returning some of his windfall.
Indeed, Webb's report, which has yet to be released publicly, concluded that Grasso's peak pay was "grossly excessive ... three to four times what was reasonable." But instead of using it to extract a settlement, Reed turned the report over to Spitzer and the SEC, calling on them to investigate. The attorney general took up the challenge, viewing it as a way to showcase the issue of excessive executive pay. But while he has vowed to whip Grasso and Langone in court, the fight no longer ranks high on Spitzer's list of priorities. Today, he tells FORTUNE, he's more interested in broader investigations underway in his office than "the silliness over one guy's pay."
Spitzer has made clear he'd happily settle the case if Grasso would return a chunk of his pay. But Grasso says he won't pay a penny and is demanding a public apology. Fink describes Grasso as a "harmed animal" who sees himself battling to restore his tarnished integrity. Grasso says that if he wins his $50 million lawsuit against the NYSE, he'll give the net proceeds to charity.
The exchange has become a vastly different place post-Grasso. In the immediate aftermath of his departure, says one executive, NYSE employees were "walking around like zombies." Grasso had controlled the place so tightly for so long that "people had forgotten how to think."
Reed and the reconstituted board hired 48-year-old John Thain, chief operating officer at Goldman Sachs, as the exchange's new CEO. Thain is being paid $4 million a year, with a retirement benefit of no more than $120,000 a year, available only after he has reached age 60. All executive compensation arrangements were disclosed in an April proxy statement. The exchange has also hired a new regulatory chief, who reports directly to the board.
The Thain appointment has spurred a conspiracy theory now popular in the Grasso camp. It holds that Goldman Sachs orchestrated a "coup," aimed at destroying the exchange--and replacing it with its own traders and electronic markets. That, they say, is why Paulson went after Grasso. Thain, they predict, will oversee the eventual demise of the open-outcry auction system. A Goldman spokesman, when told of the conspiracy theory, replies: "On the scale of silly suggestions, this scores a perfect ten."
Meanwhile, Thain has announced plans to complete far more trades electronically (while insisting that the specialist system will be preserved). In the post-Grasso era, listings are up and market share has remained stable, but seat prices have dropped, from $1.9 million to $1.2 million.
All of which raises the question: What was Dick Grasso really worth? Some defenders continue to insist that he could easily have made a comparable fortune running a big firm. But Grasso's old No. 2, Billy Johnston, expressed skepticism in a private e-mail: "Not sure RAG would have done as well as a specialist as he did as king!"
Ken Langone continues to believe that Grasso was worth the money. But isn't there a limit, FORTUNE asked him, to how much a board can pay a great manager? "I suppose," responded Langone, "that if we gave Grasso a billion dollars, we might have overpaid him."