Crying 'class warfare'

As hard as it may be, please try to refrain from crying for Richard Grasso. Yes, the past few weeks have been tough for him. The latest victim of the soft economy, he was forced from his position as head of the New York Stock Exchange last week with less than two weeks notice.

His termination means he may not be getting a paycheck for a while, but the $140 million he takes with him can probably be stretched to last a few weeks. Slice pizza is cheap in New York, and now that he's out of work he will have ample time to clip coupons.

It's easy to make fun of Mr. Grasso, of course. The pay package that led to his dismissal was obscene, even by 1990 bull-market standards. But there is more to the Grasso story than just one man.

The NYSE board approved the $140 million deal in secret so no one would know about it, and even after the deal came to light some board members still defended it. Viacom President Mel Karmazin said Grasso had exceeded all the targets that were set for him and hence deserved the money. "Dick has been a great leader and he's done a terrific job, and I'm sorry to see him leave," he said.

If the market had hit 15,000, one can only wonder what Mr. Karmazin would have been prepared to give. Maybe Guam?

Grasso's pay package and Karmazin's comments aren't completely surprising. As business and market-watching has become a spectator sport in this country, CEOs have crossed into that rarified high-salaried air that was once only occupied by celebrities and sports stars. But they do raise an issue.

In the past few years accusing people of dealing in "class warfare" has become common in this town. Criticizing CEO pay equals class warfare, because it pits the rich against the poor. Discussing the possibility of increasing taxes on the wealthy is class warfare because it suggests a zero-sum game between the wealthy and the underprivileged.

The Bush administration has repeatedly gone to the "class warfare" well. This past winter was the latest example. When some opposed President Bush's proposal to eliminate the tax on stock dividends saying it was weighted too heavily toward the rich, the president said critics were trying to "turn this into class warfare. That's not how I think." And you can bet the class-warfare argument will make repeated appearances in the 2004 campaign as democrats attack the tax cuts Mr. Bush has enacted.

But how exactly does the class warfare argument hold up?

The past few decades have been very good for the people on top in this economy and particularly on the top in industry. In 1980 the ratio between what an average hourly worker and an average CEO earned was 42 - meaning the average CEO makes 42 times as much as the average hourly worker. In 2001 that ratio was 411. The average CEO salary in 2003 is $10.8 million according to The New York Times.

CEOs argue that money is earned. They get paid a lot because there is a lot sitting on their shoulders, and when the company does well they earn it millions or billions. There's some truth to this. A good CEO can turn a company around and create hundreds or thousands of jobs.But it is curious that as the stock market shot up, the pay gap between hourly worker and CEO salaries widened so dramatically.

Was that rise in compensation due to the fact that those CEOs were doing such a great job running their companies that they drove the entire economy into the stratosphere? Or is it possible that there was a convergence of events and cycles that allowed the economy to grow like mad, that allowed pets.com to momentarily succeed, and that made everyone's CEO look like a genius, if only for a few years?

Is it class warfare to suggest that the answer may be the latter? Is it class warfare to suggest that maybe, after all the smoke is cleared around the NYSE situation, someone else can come in and run the market as well as Grasso for significantly less pay?

Those are just a few questions. But as Dick Grasso cleans out his desk and almost certainly ends up bouncing to another high paying job, there is another question. If the board of the NYSE believed $140 million was fair compensation for Grasso - even as US companies ship jobs overseas to find cheaper labor - who is it that fired the first shots in the class war?