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U.S. Securities and Exchange Commission

Statement by SEC Chairman:
Letter to NYSE Regarding NYSE Executive Compensation


Chairman William H. Donaldson

U.S. Securities and Exchange Commission

Washington, D.C.
September 2, 2003

The Honorable H. Carl McCall
Chairman, Human Resources and Compensation
Chairman, Special Committee on Governance of
     the NYSE New York Stock Exchange, Inc.
11 Wall Street
New York, NY 10005

Dear Mr. McCall:

On August 27, 2003, the Exchange announced that its Board of Directors unanimously approved a new contract for Mr. Richard Grasso, its Chairman and Chief Executive Officer, which will extend through May 2007. The Exchange also announced that, as part of the new contract, the Exchange restructured the deferred compensation and savings and retirement plan benefits previously earned by Mr. Grasso and that it distributed to Mr. Grasso benefits from three plans totaling $139.5 million.

As you know, I believe that self-regulatory organizations must be models of good governance. In my March 26th letter to Mr. Grasso, I urged that the New York Stock Exchange demand of itself the same high standards of governance that the Exchange has proposed for its own listed companies. Further, I asked that the NYSE review its governance structure and report the results to the Commission by May 15, 2003. In response to my letter, the Exchange issued an Initial Report of the Special Committee on Governance of the NYSE that outlined a number of first steps the Exchange planned to take to better serve its investor community, including changes to how compensation of executives is determined. The Exchange indicated that the Committee would take additional time to further review all aspects of the Exchange's governance and make recommendations to its Board. The Committee's final report is still pending.

In my view, the approval of Mr. Grasso's pay package raises serious questions regarding the effectiveness of the NYSE's current governance structure. I am especially concerned that the pay package was awarded before the Exchange completed its governance review, which has been pending since March. To better assess the steps that the NYSE has taken to date with respect to its governance processes, we need full and complete information about the procedures and considerations that governed the award of Mr. Grasso's pay package. I am enclosing a list of questions regarding the terms of the pay package and related items and the process of their approval. I ask that you submit a response by September 9, 2003.

If you have any questions about this request, please contact my office, (202) 942-0100, or Annette Nazareth, Director, Division of Market Regulation, at (202) 942-0090.


Sincerely yours,


William H. Donaldson


cc:  Mr. Richard Grasso



Modified: 09/02/2003