Recently, New York Attorney General Eliot Spitzer brought suit against former New York Stock Exchange Chairman Richard Grasso for violating a state law that bars officers of not-for-profit corporations from accepting too high a salary. Spitzer, however, is now faced with a difficult question: Why is he targeting Grasso after he sought billions to compensate the lawyers representing New York State in its suit against the tobacco companies?
Regardless of what you think of Grasso, Spitzer’s filing the lawsuit brings to mind a biblical proverb that cautions against “straining out gnats while swallowing camels.” Indeed, the $140 million Grasso received pales in comparison to the $625 million that Spitzer approved for those few law firms that handled the state’s tobacco lawsuit.
Spitzer is suing Grasso under New York State’s Not-For-Profit Corporation Law, which states that an officer’s compensation should be “reasonable” and “commensurate for services performed.” Spitzer’s argument is plausible, given that Grasso’s pay was so huge that it exceeded the NYSE’s net income in 2001 and 2002. But Grasso has his counterarguments, and a court will ultimately decide whether his pay was excessive.
Unfortunately, no court will have the opportunity to make a similar judgment on the millions paid to the lawyers in New York’s tobacco lawsuit.