The New York Stock Exchange - Essay Example

The case study Level of Executive Pay is a clear example of an executive manager that acted unethically and violated agency problems. An agency problem can be defined as a conflict of interest arising between creditors, shareholders and management because of differing goals (Investopedia, 2011). The New York Stock Exchange (NYSE) is a non profit organization whose ownership is composed of 1300 members or “seats”. Richard Grasso was the Chairman of NYSE for several years during the first decade of the 21st century.

He did a good job of as chairman of the NYSE increasing the productivity of the stock exchange. Some of his major accomplishments included tripling seat prices, investing $2 billion in information technology upgrades, and achieved record volume of business in a bad economy and tough competitive environment. The problem with his tenured as chairman is that he took advantage of his position to benefit economically beyond what he deserved. He also colluded with the board of directors creating agency issues that help him inflate his total compensation.

For instance the Board of Directors was handpicked by Mr. Grasso. They were his puppets and would approve without debating the outrageous bonuses Richard Grasso paid himself. In 2003 when they scandal was revealed Richard Grasso received $2.3 million dollars in salary. The previous four years his total compensation ranged between $9.9 million and $24.2 million. Grasso was a greedy executive that acted in an unethical manner. Upon his resignation due to public pressures Grasso received a lump sum payout which included liquidation of pension plan of $140 million.

The NYSE is most powerful and influential stock exchange in the world. The lack of ethics that Mr. Grasso and his gang of criminals displayed hurt the public image of the NYSE. The chairman of the SEC is a position of similar responsibility. The salary of the Chairman of the SEC is $140,000 a year. Richard Grasso was paid money he did not deserve. One of the reasons that the Grasso scandal occurred was to a lack of corporate governance and internal controls. Both of these areas were tremendously improved though the passage of the Sarbanes Oxley Act of 2002. Mr. Grasso believed he was above the law and that his public servant job was a one way trip towards becoming filthy rich.

He accomplished the goal, but his reputation and legacy was tarnished forever. A stakeholder group that should have audited this situation better were the seat owners of the NYSE. They should have intervened sooner to safeguard the assets of the non-profit organization. In the business environment of the 21st century it has become more important than ever to acted ethically and in a socially responsible manner due to higher expectations from all major stakeholder groups. The international competition has raised the bar and code of conduct for all businesses.

References Investopedia.com (2011). Agency Problems. Retrieved October 14, 2011 from http://www.investopedia.com/terms/a/agencyproblem.asp#axzz1ao91y3Wu