Via Reuters:

New York — New York Stock Exchange chairman Richard Grasso resigned his position during an emergency board meeting last night as the growing condemnation over his $140-million (U.S.) compensation package threatened to damage the exchange itself.

There’s a lot of outrage directed at Grasso and his giant compensation package. For example, CalPundit writes that

If people like Grasso are shunned and embarrassed over this kind of legalized thievery often enough, maybe we can put an end to it and redirect some of that money back to shareholders, to whom it properly belongs in the first place.

I agree that the money should be directed to shareholders, but that’s the direct responsibility of the board (in this case the NYSE directors), not the CEO. The CEO’s direct responsibility is to maximize the performance of the firm. The board’s job is to represent shareholders’ interests and exercise oversight over the CEO and topmanagementt.

Simplifying somewhat, if the CEO does his or her job well, then there’s a pool of profit created every year (“free cash flow”, as it’s often called). Some portion of that is paid to top management, including the CEO, and the rest goes to shareholders. The board’s job is to ensure that the allocation of those profits serves the interest of shareholders. Certainly, we hope that CEOs will voluntarily decline excessive pay. But when was the last time you turned down a pay raise? If your pay is too high, is it your fault or your manager’s fault? I’d say the latter.

Perhaps Grasso should go, but by all accounts he ran the NYSE well, even though he was overpaid for it. The real culprits, the ones who really should go, are the directors of the NYSE. In this case, the directors are particularly culpable because they are primarily CEOs of companies that trade on the Big Board. As such, overpaying Grasso, whose job responsibilities include monitoring member companies, has the appearance if not the actuality of a pay-off for lax oversight.