On Thursday, April 2, board members tried to sooth seething shareholders by pledging to better align pay with performance in the future.
It didn’t work.
“This year, there will be very specific parameters and metrics on pay,” promised NYSE Euronext Inc.’s deputy chairman, Marshall Carter, at the company’s annual stockholder meeting on Thursday.
Golden parachutes—big payouts for top executives should the exchange be sold—will not be offered in the future, chairman Jan-Michiel Hessels pledged, “unless there is extremely good reason.” CEO Duncan Niederauer pointed out that much of his $9.2 million in compensation last year was in stock that has shed significant value.
“I may not feel the same pain as you,” he told the audience, “but I feel it.”
The comments did not sit well with shareholders who pointed out that the NYSE has a particularly rich history when it comes to lavish executive compensation.
A firestorm of bad publicity nearly consumed the exchange in 2003 when then-chairman Richard Grasso was forced to resign after his $190 million pay package became known.
“If you’re getting bonuses for performance, that doesn’t seem to be working now,” snapped one angry investor at Thursday’s meeting.
Another shareholder stood up and reminded the board to be “sensitive” when it comes to compensation and revisit its policies “given the history here.”
Since the Grasso controversy, the NYSE board has been overhauled and new management appointed. The compensation committee is now headed by Sir Brian Williamson, a former chairman of the London International Financial Futures Exchange. A spokesman said NYSE officials were unavailable for comment after the annual meeting.
NYSE’s compensation committee seemed to bend over backward last year to be generous with its CEO. It targeted Niederauer, named CEO in late 2007, for a $5 million “performance bonus” and insisted even in light of poor results that “individual performance would have supported higher award levels,” according to a regulatory filing. It ultimately granted the CEO a $4 million performance bonus to reflect a 20 percent reduction in the companywide bonus pool.
In an effort to defuse anger about his pay, Niederauer tried to make a case that the exchange performed better than its dismal financial results and stock price indicated.
Last year, NYSE had a net loss of $745 million on revenue of $4.7 billion, compared with net income in 2007 of $639 million on $3.9 billion of revenue. Its stock price fell to $26.90 a share from $83.81.
Niederauer cited progress in raising revenue and lowering expenses and noted the exchange would have been profitable were it not for a $1.6 billion asset write-down related to the 2007 merger between NYSE and Euronext. Niederauer said it was “good governance” to take the write-down, which auditors require of companies when they determine the asset will not generate the expected cash.
“We try to be a leader in good governance,” he said.
Kenneth Steiner, another investor, blasted the board for agreeing to golden parachutes for Niederauer and three other senior executives. Under the terms of that agreement, Niederauer would be awarded $26.2 million if he elected to sell the exchange, which includes the company paying the taxes associated with his windfall.
“How does this benefit shareholders?” Steiner asked.
Hessels, the chairman, replied a little sheepishly: “We did this because we felt two years ago it was common practice.”