‘Staggering'

Editorial of The New York Sun
January 4, 2007

Just as Governor Spitzer, a.k.a. the Lord High Executioner of Wall Street, was getting set to give his first state-of-New York speech, Home Depot announced that its chairman, Robert Nardelli, would step down with a $210 million severance package after six years on the job. That certainly puts the lawsuit over the $187.5 million compensation of Richard Grasso, who headed the New York Stock Exchange, in a new light.

We don't want to go out of our way to rain on Mr. Spitzer's honeymoon as governor. But neither have we or many other New Yorkers forgotten that as attorney general, Mr. Spitzer had filed a lawsuit describing Mr. Grasso's compensation as "staggering" and "objectively unreasonable" and seeking the money back. Yet the more one hears about the executive compensation market, the more it seems that Mr. Grasso's compensation is, objectively, pretty much in line with what major executives get paid.

True, Home Depot, with a market capitalization of more than $80 billion, is worth more than the New York Stock Exchange, which, now that it is publicly traded, has a market capitalization of $14.6 billion. But Mr. Nardelli led Home Depot for only six years, while Mr. Grasso led the stock exchange for eight years and had worked there for years before. While Home Depot's stock price languished under Mr. Nardelli's leadership, under Mr. Grasso's leadership, the price of a seat on the New York Stock Exchange soared.

Other leading American executives receive similar exit packages. The chairman of Pfizer, Hank McKinnell, will walk away with $200 million, including $305,644 for unused vacation days, as the New York Times's Gretchen Morgenson reported last month. Pfizer's stock price took a dive while Mr. McKinnell led the company. The retirement package of ExxonMobil's chief executive, Lee Raymond, who led the oil company to record profits in 12 years at the helm, was $400 million.

Next to Mr. Raymond's $400 million, Mr. Nardelli's $210 million, and Mr. McKinnell's $200 million, Mr. Grasso's $187.5 million doesn't seem as "objectively unreasonable" as Mr. Spitzer's lawsuit charged. One can have a philosophical argument about whether corporate executives in general are overpaid in respect of their social utility compared to, say, teachers or clergymen. But to make that argument by making an example out of one executive among many and hauling him into court seems to us to be pretty arbitrary behavior for a law enforcement official. It might even be called "staggering."

Mr. Spitzer and his allies say that the New York Stock Exchange, unlike Home Depot, Pfizer, or ExxonMobil, was a not-for-profit. It isn't any more, however, which is a recognition that however it was technically organized at the time, the stock exchange was hardly some sort of public charity, but rather more like the National Football League, with the members being broker-dealers instead of football team owners.

Mr. Spitzer managed to delay the Grasso trial until after the election, and, as governor, has already named the lawyer who spearheaded the case against Mr. Grasso, Avi Schick, as one of his top economic development aides. Yesterday in his State of the State address, the new governor spoke of trying to create an "Innovation Economy" in New York, something that is hard to do if capitalists who earn a lot of money are punished for their success by being subjected by the state government to reputation-damaging litigation. It is one of the ironical turns of New York politics at the moment that the politician who was so outraged by the size of the fortune made by Mr. Grasso is now turning his attention to creating a business environment in New York that can breed such fortunes and that his own political future will be determined by whether he can succeed.