Editore"s Note
Tilting at Windmills

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September 10, 2003
By: Kevin Drum

CORPORATE COMPENSATION....I promised two Easterbrook posts, and here's the second.

Easterbrook is dead right in his contempt for the enormous payouts being given to Richard Grasso, the head of the New York Stock Exchange. After previously fessing up to a $140 million payout, the LA Times this morning greeted me with the news that he actually has another $48 million coming his way. However, good soldier that he is, Grasso said he would forego the extra money because "my leadership, I think, was in many respects being questioned." As Easterbrook says:

The grotesque Grasso overpayment is especially offensive given that the NYSE is a quasi-public institution, supervised by the SEC (whose chief makes $142,000) and operating under a government charter that essentially exempts its management from market risk. Grasso wasn't an "innovative risk-taker," blah, blah, as CEOs like to say in justifying their hauls; he was isolated from many market forces by a government-built barrier. Behind the barrier, he was stuffing his pockets.

I am astonished that shareholders continue to sit still for this kind of abuse. Grasso, I gather, has done a good job as head of the NYSE, but not an exceptional one, and there are surely many others who could have done as well. Despite this, the exchange is paying sums to Grasso and other executives that are a substantial fraction of the earnings of the company.

When are shareholders finally going to figure out that executive compensation in America is no longer just a few people making a little bit more than they should, and therefore not something that really affects the bottom line? The truth is that in most large companies today executive compensation is fantastically higher than it should be, and the overpayments are a serious drag on corporate profits. Reduce the pay of the top 5% of executives at Fortune 500 companies by 50%, and corporate earnings would improve measurably with no loss in the work habits of the top officers.

After all, does anyone seriously think that Grasso would have worked only half as hard if he'd been paid a mere $70 millon? The question answers itself.

Kevin Drum 9:18 AM Permalink | Trackbacks

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