Sep. 22–What’s the difference between Dick Grasso and many board members of the New York Stock Exchange?

Grasso, at least, went to the trouble to read and understand where all the $139.5 million in comp was coming from. Many of the others voted for these plans without fully understanding what they were doing.

It’s incredible that someone could vote for a pay package of over $100 million and not understand its contents. It’s more incredible that these people — CEOs of major corporations — would confess their own incompetence. The reality is that these people didn’t do their jobs, and they should have the wisdom to resign from the board of the NYSE now.

Their resignations and that of Grasso won’t solve the endemic problems of corporate governance. The reality is the process we’ve just witnessed at the NYSE takes place every day in most American corporations. Directors owe their jobs to CEOs, and many don’t have the time or skills to fully understand what they are doing.

Most boards meet four times a year. At each meeting, there are massive issues to review. Few directors, who are appointed by the CEO, have the time or inclination to delve into all the details. Moreover, the CEO has lawyers, consultants, and investment bankers who can spin information the way he wants it spun. It’s almost impossible for a committee of independent directors to dissect a complex package presented by a professional lawyer or banker.

If corporate governance is to improve, boards must be more independent and have their own resources to do their jobs.

Directors need their own staffs to help them review all pertinent information. Boards should have their own lawyers. Audit committees should have their own auditors, and comp committees should have their own consultants.

These professionals should be hired and paid by the board. Their job should be to review all of the legal and financial documents and report to the board, when excesses or conflicts occur. These people will serve as advocates for the board. They’ll have the time and inclination to delve into complex subjects, such as pay packages or accounting games.

Every board should have representatives from two key corporate constituencies — shareholders and employees. Nominating committees should reserve slots for candidates from institutional shareholders and employees. They should have a seat at the table, and be part of the dialogue. These directors would reflect the views of their constituencies, but would also serve to keep the other directors in line. This would reduce abuses.

For institutions that are quasi-public or designed to serve the public good, like the NYSE, the board should include a representative from a government regulatory agency, in this case, the SEC.

If reform is ignored amid Grasso’s ouster, we’ll be no better off than we are now. We must insure boards have independent representatives and resources to do their job.

Peter Siris (guerrillainvesting@hotmail.com) is a New York hedge fund manager.

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(c) 2003, Daily News, New York. Distributed by Knight Ridder/Tribune Business News.

Sep. 14–Dear Dick,

I’m sorry all that lousy publicity made you give up the extra $48 million. But I’m sure you can still make ends meet on the remaining $139.5 million.

If you’re looking for a good hedge fund, give me a call.

You have done a fine job running the New York Stock Exchange. You took a stodgy institution and enlivened it. It isn’t easy dealing with the prima donnas who run the big Wall Street firms, the scrappy floor brokers, and all those fat cat CEOs, who want to be on TV gaveling the exchange open and closed.

I know you never asked the compensation committee for a specific salary. How crass do they think you are? You picked a group of excellent directors and relied on them for corporate governance.

The art of picking the right directors is highly underrated. You were smart in picking some who were among the highest paid execs. To many of them, your compensation must have looked like chump change. Besides, the directors who run brokerage businesses didn’t want to cross you. The CEO of the NYSE has too much power. And corporate execs like the prestige of serving on your board.

You also had the NYSE hire compensation consultants to make recommendations to your board. These consultants compared your salary to those of similar execs. If they’d compared you to the head of the SEC or some other government agency, you would’ve been working for $250,000 — starvation wages.

If they had compared you to other companies of your size and profitability, you would’ve made a fraction of your current comp. You got lucky. These consultants compared you to the heads of the biggest Wall Street firms.

Do you notice these comp consultants always seem to push the envelope in finding comparables for execs? I guess the secret is the company hires them, then and pays their fees. If they want to keep working, it’s in their interest to make recommendations that enrich the people who hired them. You scratch my back, I’ll pay your fees.

I am sure you didn’t ask directly for $139.5 million. No one ever comes right out and asks. The world doesn’t work that way. When I served on comp committees, the CEO usually has informal chats with the members, usually over a nice dinner. Sometimes an underling or lawyer will meet with us to discuss a pay package. Still, these types of comp packages never come as a surprise.

Several members of the comp committee are quoted as saying they didn’t understand all the details of the comp plan. You were smart in creating such a complex package. Comp meetings normally take one hour, and cover a lot of ground. It’s tough to keep up with all the little details. Most comp committee members trust management to be fair. With the forest of paper, perhaps no one realized the size of the perks.

But this is how the game works. CEOs pick directors and hire compensation consultants. Then they create packages too complex for many committees to understand. It’s easy to see how the $139.5 million could get there.

The question isn’t whether a man in your position is worth $139.5 million. The question is whether the cozy relationships between boards, compensation committees, and CEOs will ever come under control?

If you had really wanted to make your mark as the head of the NYSE, you would’ve taken on the cause of excessive executive pay. Then again, maybe that wouldn’t have been such a good idea. If you did, you wouldn’t be walking away with $139.5 million and CEOs would be leaving the Big Board in droves.

Peter Siris (guerrillainvesting@hotmail.com) is a New York hedge fund manager.

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(c) 2003, Daily News, New York. Distributed by Knight Ridder/Tribune Business News.