The Rumble Over Executive Pay

Wall Street would love to see Eliot Spitzer realize his immediate political ambitions--becoming, say, Governor of New York or possibly landing a role in a Kerry Administration. Not that financial types wish him well; they just wish he would move on. As New York's attorney general, Spitzer, 44, has pushed through reform of stock-research and investment-banking practices, lobbied for a reduction in mutual-fund fees and left a trail of disgraced executives in his wake. Spitzer carved another notch in his belt last week. After drawn-out negotiations, Richard Strong, the former chief executive of Strong Capital Management, agreed to pay a $60 million fine and accept a lifetime ban from the securities industry to settle charges of improper trading. Spitzer will be at it again this week. He's expected to file a lawsuit seeking to force former New York Stock Exchange (N.Y.S.E.) chief Richard Grasso to return most of the $140 million in accrued pay he received shortly before resigning under pressure last year.

Those are high-profile enforcement efforts, and yet they're only two of the 10 cases that Spitzer is personally working on. His caseload isn't entirely about corporate wrongdoing. He's also challenging a federal attempt to pre-empt states from enforcing predatory-lending laws, and a few months ago won a ruling that forced the Bush Administration to reverse its rollback of pollution regulations that applied to big utilities. "The EPA [U.S. Environmental Protection Agency] cases are huge," he says. But Spitzer clearly sees Wall Street as his bailiwick; an avid and aggressive tennis player, he keeps a tennis ball with the Merrill Lynch logo on it, occasionally palming it as he chats. The crush of activity in his office speaks volumes about how much opportunity presents itself for someone who makes it a personal crusade to clean up the business world.

Certainly, the run of greed-inspired scandals beginning in 2001 with Enron has brought about meaningful changes. The accounting industry now has a federally chartered oversight board. Stock analysts are no longer permitted to shill for investment bankers at road shows. Bankers at Goldman Sachs can't talk to analysts on the phone without a corporate chaperone listening in, and e-mails between their departments automatically bounce back. The compensation committees of public companies must now be composed of independent directors, reducing the chances for cronyism. There's legal basis for forcing executives to give back bonuses when accounting fraud is proved. Mutual-fund fees are coming down. And the Grasso flap is riveting attention on the thorniest issue of them all, one that seems unlikely to be resolved in a definitive way: Just how much is a CEO worth?

In a sense, Spitzer is taking on the whole clubby system that keeps driving CEO pay higher. Boards stacked with cronies too often still rubber-stamp excessively rich packages. In most cases, CEO pay is a question not of what is legal but of what is right. "The nature of CEO compensation is something that deserves additional scrutiny. One of the things that will emerge from the Grasso investigation," he says, "is the failure of compensation committees to fulfill their obligations." The Grasso case involves some of the most high-profile executives on Wall Street--the people who approved his payout in the first place.