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Grasso Furor Puts Spotlight on Exchange Chiefs

The furor over the $140 million pay package that brought down Richard Grasso (search), former chairman of the New York Stock Exchange (search), has turned up the heat on other exchanges to reveal the pay details of their own chiefs.

"The Grasso controversy has understandably fired up the inquiries. It's natural to ask how much other exchange executives have been paid," said Brian Foley, managing director of Brian Foley & Co. Inc., an executive compensation consulting firm in White Plains, New York.

Last week, the U.S. Securities and Exchange Commission (search) called on the heads of the dozen or so U.S. stock and options exchanges to reveal their pay packages by Oct. 3.

Grasso resigned as NYSE chairman on Sept. 17 after the disclosure that he had received a $140 million payout of deferred compensation and pension payouts and was entitled to $48 million in additional benefits.

The pay of American Stock Exchange (search) Chairman and Chief Executive Sal Sodano has also drawn attention, given Amex's status as the No. 3 U.S. stock and equity options exchange.

Sodano's 2002 compensation consisted of a $1 million base salary and a $1.4 million bonus, a source familiar with the situation told Reuters. Under a 1999 contract agreement, Sodano was entitled to a retention bonus of $2 million, provided he remained employed by the exchange through 2002, the source added.

The Amex declined to comment on the exact figures.

Exchanges generally have different CEO pay structures than big publicly traded companies because they serve different functions.

"Their objectives are not to maximize revenues or earnings but to provide a well-regulated marketplace," said Dale Carlson, spokesman for San Francisco's Pacific Exchange (search). "Therefore the pay structures are different from corporate CEO pay levels. If you look at what exchange CEOs are paid, it's appropriate for their responsibility. Whereas Grasso's compensation was an anomaly."

Pay packages among top brass in the U.S. options and futures industry vary, partly reflecting the different market structures of the exchanges.

James McNulty, president and CEO of the Chicago Mercantile Exchange Holdings Inc. (CME), received a base salary of $1 million with a bonus of $500,000 in 2002.

But McNulty, who will leave the exchange on Dec. 31, holds CME stock options which, if exercised, would be worth $65 million to $70 million based on current CME share prices, according to a recent SEC filing.

The CME, the largest U.S. futures mart, became the first publicly traded U.S. financial exchange in December 2002. Cross-town rival the Chicago Board of Trade, still edging toward becoming a for-profit entity, paid President Bernard Dan a total of $891,121 in 2002, according to an SEC filing.

The Chicago Board Options Exchange (search), the largest options mart, paid Chairman and CEO William Brodsky a base salary of $1.25 million and $373,400 pension contribution for fiscal 2002.

In a Sept. 26 memo to its members, the CBOE said: "We believe that CBOE's compensation process is responsible to our membership and fair in all respects."

At the International Securities Exchange, the biggest equity options exchange, CEO and President David Krell was paid $600,000 last year, plus a bonus of $250,000.

He also bought 1 percent of the outstanding shares of the New-York based electronic exchange and has options to buy another 4 percent. The value of the shares was not disclosed.

Last year the ISE demutualized, or separated trading rights from the exchange's ownership rights.

The pay envelope of Philadelphia Stock Exchange (search) Chairman and CEO Meyer "Sandy" Frucher last year consisted of a base salary of $600,000 plus a bonus of $240,000.

Pacific Exchange Chairman and CEO Philip DeFeo's base salary in 2002 was $700,000, plus a $450,000 bonus.

Alan Johnson, managing director of Johnson Associates, a New York-based compensation and consulting firm, said the fuss generated over Grasso may prove brief, because "No one really cares about these exchanges except their actual members."

"The SEC was clearly asleep at the switch, and now they are belatedly trying to institute some good governance practices," Johnson said. "Grasso was grossly overpaid, even by the well-paid standards of Wall Street."