The human resources director of the New York Stock Exchange and a major HR
consulting firm have become key players in the scandal surrounding a $139.5
million pay package for former NYSE Chairman Richard Grasso.
New York Attorney General Eliot Spitzer filed a civil suit against Grasso this
week, demanding that he repay more than $100 million of the sum. Spitzer believes
Grasso "inflated his pay and deliberately misled his high-powered board
about many details of his package to enhance his pay above and beyond a benchmark
of comparable chief executives," The New York Times reported on Tuesday.
Grasso, forced out of his job when word of the compensation package caused
an uproar last fall, said he's "disappointed that New York's attorney general
has chosen to intervene in what amounts to a commercial dispute between my former
employer and me. I look forward to a complete vindication in court."
But Grasso will have to overcome the testimony of Frank Ashen, head of human
resources for the NYSE. News organizations report that Ashen, a 25-year employee of "the big board"
and its internal compensation expert, has given Spitzer a statement that essentially
says he and Grasso hid bonus payments for Grasso from the board.
In a Tuesday story carrying the headline, "More Than One Canary Sang,"
the New York Post reported that Ashen has admitted to concealing "lumps
of pay of as much as $18 million a pop, by removing large sums from his worksheets
and spreadsheets before he presented final pay recommendations to the NYSE's
Board of Directors for approval."
"After directors signed off," the Post reported, "Ashen would
restore the numbers in order for payroll to cut the excessive paychecks without
the board's knowledge."
In exchange for Ashen's cooperation, Spitzer dropped his original plan to name
Ashen as a co-defendant in the Grasso suit. Ashen has also agreed to return
$1.3 million of the $1.9 million in bonuses he received from Grasso, according
to the Times.
Ashen's lawyer issued a statement saying, "Mr. Ashen recognizes in hindsight
that certain mistakes were made, but at no time did he intentionally provide
inaccurate or incomplete information to the board of directors."
Spitzer described Ashen's cooperation as crucial to the lawsuit.
Another "gold mine of evidence"—as the Post puts it—has
been Mercer Human Resources Consulting Inc, which had been brought in to advise
the stock exchange on Grasso's 2003 contract and his request for $139.5 million.
The Post reported that Mercer was pressured by Grasso and Kenneth G. Langone—an
NYSE board member, chairman of the board's compensation committee, and a friend
of Grasso's—"to crunch the numbers Grasso wanted."
According to the Times, Mercer has since admitted giving the NYSE board a compensation
report that contained "omissions and inaccuracies." It has also provided
key documents in the lawsuit.
Among other things, the Post reported, Mercer had concealed a "bombshell"
internal memo saying that each $1 million increment in a certain bonus plan
for Grasso would trigger a $6.8 million increase in lump-sum payments later.
The newspaper added that Mercer has agreed to give back about $440,000 in fees
it collected from the NYSE.
Spitzer is suing Grasso under a New York State law that regulates not-for-profit
organizations. It says the chief executive of a quasi-public institution—like
the NYSE—can be held liable for being paid an unreasonable amount not "commensurate"
with his official duties.
"This case demonstrates everything that can go wrong in setting executive
compensation," Spitzer said in a press release. "The lack of proper
information, the stifling of internal debate, the failure of board members to
conduct proper inquiry and the unabashed pursuit of personal gain resulted in
a wholly inappropriate and illegal compensation package."