NYSE Chairman Should Have Kept His Money–and Been Proud of It

by | Sep 20, 2003

One year ago Jack Welch, who as CEO of General Electric created $400 billion in stockholder wealth, faced a storm of public protest over his retirement benefits, which were worth a modest $2.5 million a year. Welch caved in and renounced the benefits. Now Richard Grasso, chairman of the New York Stock Exchange, has followed […]

One year ago Jack Welch, who as CEO of General Electric created $400 billion in stockholder wealth, faced a storm of public protest over his retirement benefits, which were worth a modest $2.5 million a year. Welch caved in and renounced the benefits. Now Richard Grasso, chairman of the New York Stock Exchange, has followed Welch’s lead, forgoing $48 million. Evidently neither man believed he had the moral right to the wealth he had earned.

Grasso’s cave-in followed a public uproar, including the wrath of many in Wall Street and Washington, over the fact that he was awarded $139.5 million in accumulated pay for his 36 years at the exchange, the last eight as chairman. His salary, bonus and retirement payments were reasonably comparable to those of CEOs at other top financial institutions. Calls for him to give back the money and resign abounded–never mind that Grasso had earned every penny of his compensation by displaying exceptional leadership. As CEO of the exchange, he had helped to grow the exchange, upgraded its technology, and led it through a recovery from the 9/11 attack.

What reasons were given as to why Grasso should surrender his payout? Some complained that his compensation was above the median (or 50th percentile) for his peer group of CEOs. But this is a rationalization. Half of all CEOs earn more than the median; so why not Grasso, if his work merits it? To those who protested Grasso’s income, however, merit and ability are irrelevant.

Adding to the clamor against Grasso was the chairman of the Securities and Exchange Commission, William Donaldson. He complained that because of Grasso’s compensation package, the SEC was finding it more difficult to persuade private companies to lower the pay levels of CEOs. But as long as there is no fraud involved, CEO pay should be none of the government’s concern. The government has no right to interfere in the running of privately owned businesses. But the SEC evidently is on a moral crusade to level down the salaries of all CEOs.

What can explain the desire to induce guilt in successful CEOs and to reduce their pay? It is the egalitarian remnants of Marxism. Though Communism has fallen, the premises of Marxism persist in our culture. According to Marxism, real wealth is earned by brute labor and therefore profits earned by managers and CEOs are assumed to be stolen rather than earned. Marxism evades the true source of wealth: human intelligence.

Morally, the Marxist view holds that no individual has a right to his own personal gain; all must work self-sacrificially for the sake of the group, the state, society: from each according to his abilities, to each according to his needs. This inverted morality punishes success and rewards indolence. Regardless of people’s differences in ability and effort, on this view, the more able must sacrifice themselves–they must be forced to give up their “surplus” earnings–for the sake of the less able and productive.

Modern capitalists–from the 19th century to the present, from John D. Rockefeller to Bill Gates–are hated because they became wealthy while other people, who were less able and less productive, did not. Ayn Rand described this hatred for achievement as hatred of the good for being the good. It is businessmen who have created wealth on a scale unprecedented in the history of the world and who have elevated America and the rest of the free world from a state of rural poverty to that of an advanced industrial civilization. But the more successful businessmen have been, the more they have been hated and the more virulently they have been attacked by government regulators and intellectuals.

Wealthy capitalists are partly forgiven for being rich provided they give most, if not all, of their money away. They are never given credit, praise or recognition for having created the wealth in the first place.

It is an abomination to persecute the able and productive or to penalize them for their achievements. It is time that we rejected Marxism and all of its premises. It is time we recognized that while men are equal in their political and legal rights, they are not equal in their motivation and ability and thus will not be equal in their success.

We must renounce the notion that men must work for the sake of others and declare that all individuals have a moral right to the fruits of their work–Richard Grasso included.

Editor’s Note: A reader sent in the following comment. We republish it here because it raises an excellent issue:

I believe that Ed Locke’s defense of Dick Grasso’s pay – although well-written and based on sound principles with which I agree – is probably not applicable in this specific case. Of course, there is nothing inherently wrong with a securities exchange obtaining a market-dominating position and then reaping as much profit as possible and paying its chief executive as much as it wants– provided that such a situation is the result of voluntary transactions. But that does not appear to be the case or the NYSE.

As far as I can tell, the NYSE has vigorously lobbied (often successfully) Congress and the regulators to forcibly prevent competitors (e.g., the electronic exchanges, or ECNs) from engaging in practices that encroach on its market-dominating position. And I believe that a big reason the exchange members/owners (such as the specialist firms) loved Grasso enough to pay him $140,000,000+ is that he was very effective in waging such a political lobbying campaign to protect their position (e.g., via testimony before Congress). As a result, I don’t think that the current structure of the securities markets–with the NYSE dominating trading in NYSE listed stocks–is the result of purely voluntary, free-market forces.

I am not an expert on the technical intricacies of all of this–and the NYSE has itself probably been a victim of government interference–but, to the extent that Grasso used his position to try and squash his competitors via the force of government, he actually does not have a moral right to that money.

Edwin A. Locke is Dean's Professor of Leadership and Motivation Emeritus at the R.H. Smith School of Business, University of Maryland. He is a Fellow of the Association for Psychological Science (APS), the American Psychological Association, the Society for Industrial & Organizational Behavior, and the Academy of Management. He is the recipient of the Distinguished Scientific Contribution Award (Society for I/O Psychology), the Lifetime Achievement Award from the Academy of Management (OB Division), the J. M. Cattell Award (APS) and the Distinguished Scientific Contribution Award from the Academy of Management. He, with Gary Latham, has spent over 50 years developing Goal Setting Theory, ranked No. 1 in importance among 73 management theories. He has published over 320 chapters, articles, reviews and notes, and has authored or edited 13 books including (w. Kenner) The Selfish Path to Romance, (w. Latham) New Directions in Goal Setting and Task Performance, and The Prime Movers: Traits of the Great Wealth Creators. He is internationally known for his research on motivation, job satisfaction, leadership, and other topics. His website is: EdwinLocke.com

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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