The New York Stock Exchange (NYSE) was a registered non-profit until 2007, when it was acquired by a for-profit entity.

Richard Grasso began his career with the NYSE in 1968 as a floor clerk. He progressed throughout his career, becoming chairman and chief executive of the NYSE from 1995 to 2003. He was a respected CEO, credited with securing the NYSE's position as the pre-eminent U.S. stock market.

On August 27, 2003, controversial news broke that Grasso's retirement plan savings had built up to more than $139.5 million during his 36-year tenure. He was also due to receive $48 million in deferred pay over the next four years.

Performance evaluation and award

Grasso was evaluated each February based on the previous year's performance (January through December). Each year, a hired consultant would calculate the median pay for CEOs in a select "comparator group" that included highly paid CEOs such as those with Citicorp and AIG. These benchmarks for Grasso's pay were treated as a ceiling.

That figure would be discounted by 10% to account for the difference in size between the "comparator" companies and the exchange. However, with 1,500 employees and revenues of less than $1 billion, the NYSE was tiny compared with those corporate giants. This number was then multiplied by an NYSE "performance" score, which Grasso was involved in determining.

Unlike his CEO counterparts, however, Grasso bore no risk. The CEOs received much of their compensation in stock options, but as the NYSE has no stock options Grasso received all compensation in cash.

Performance oversight

In both 1995 and 1999 (when Grasso's contracts were under negotiation), the NYSE hired an HR consultant to advise on the matter. The consultant had some reservations about the magnitude of Grasso's compensation and the fact that he was asking to withdraw previously accumulated retirement benefits. The board was never informed of the consultant's concerns and recommendations or that they'd been rejected by Grasso.

In 2000, the compensation committee recommended and the board unanimously approved bonus awards for Grasso that exceeded the compensation plan's benchmark by $15.7 million.

In 2001, when the compensation committee was again considering enhancements to a key NYSE bonus program, the same consultant provided the NYSE's director of HR with an analysis showing that every additional $1 million paid to Grasso could add $6.8 million to his retirement plan. Grasso and the director decided that this information would not be shared with the compensation committee or the full board.

Additionally, compensation information provided by the director of HR to the board routinely excluded information on the incentive plans and the retirement plan in which Grasso was participating.

In 2003, when the NYSE disclosed that it had paid its chairman $139,465,000, the payment was portrayed as having been earned during Grasso's decades of service there. However, that was not true. Grasso had withdrawn all of his previously accumulated retirement earnings in 1995. Thus, Grasso started as chairman and CEO in 1995 with no accumulated retirement benefits, but rather a new lucrative benefits package that allowed for the accumulation of nearly $140 million in less than eight years.

Required:

a) Who are the stakeholders in this situation?

b) What do you think was the main reason for the controversy?

c) Are there are any ethical issues with the process/actions described?

d) What corporate governance practices may have prevented this?