Richard Grasso

Richard Grasso, head of the New York Stock Exchange from 1995, became a test case for how fairness can drive collective action: in 2003, public outrage over a proposed $139.5 million payout made it impossible for the NYSE to keep him in office. His departure illustrates the book’s argument that people will sometimes punish rewards they consider undeserved without gaining anything personally, and that such individually costly reactions can help enforce standards that benefit a group.

Identity and Compensation

Grasso had run the NYSE since 1995 and, by most accounts, had done a good job. He was aggressively self-promoting, but the account does not portray him as incompetent or corrupt. The controversy instead arose from the scale of the compensation arranged for him: a lump-sum payment of $139.5 million, comprising retirement benefits, deferred pay, and bonuses.

The proposed sum drew attention not simply because it was large, but because many people saw no proportion between the reward and the work. Grasso may have been effective, yet he was not thought irreplaceable; no one expected the NYSE to collapse once he left. Nor, the book argues, did running the exchange resemble the complexity of running Goldman Sachs or Merrill Lynch, although Grasso’s package put him in the pay range of Wall Street CEOs who were themselves described as heavily overcompensated. The dispute therefore turned on a judgment about what the job merited, rather than on a claim that Grasso had failed at it.

Public Outrage and Resignation

When news broke that the NYSE planned to pay Grasso $139.5 million, the public response was immediate. Calls for his removal grew louder in the following weeks. The NYSE’s board—the same directors who had agreed to the package—eventually asked him to step down because public outrage had made his continued presence untenable. In the book’s account, he became the first CEO in American history to be fired for making too much money.

The reaction presents an apparent economic puzzle. The public did not have to pay Grasso’s compensation, and complaining could not recover money already promised or redirect it to charity or a wiser investment. Apart from possible benefits to business columnists, those who protested gained no concrete material advantage. By the narrow calculus of personal self-interest, the time and energy spent condemning the package made little sense. Yet people did so in large numbers, and their response had a direct institutional consequence: the board could not retain Grasso.

Fairness and Strong Reciprocity

The book interprets the uproar through the ultimatum game and the idea of strong reciprocity. In the game, one person proposes how to divide a sum of money and the other can accept the offer or reject it, leaving both with nothing. A strictly self-interested responder should accept any positive offer. In practice, responders often reject offers they regard as unfair, sacrificing money to punish a perceived injustice. The book connects that willingness to impose a cost on oneself with the public’s response to Grasso.

The comparison is not that the public shared a literal pot with Grasso, but that both cases involve enforcing a perceived standard of fair exchange without a personal material payoff. The relevant standard was a reasonable relationship between accomplishment and reward. In Grasso’s case, the book argues, the sum seemed too large for what he had done and for a position that was not considered indispensable. The resulting anger was economically irrational in a narrow sense, but it expressed a judgment about what a person deserved.

Limits, Consequences, and Significance

The episode also complicates any simple claim that Americans accept very high incomes or are unconcerned about inequality. The book notes that Americans are generally less troubled by inequality than Europeans and more inclined to see wealth as the result of initiative and skill rather than luck. Grasso himself had risen from a working-class background, a trajectory that might seem to affirm the American belief in social mobility. Yet the uproar over his package showed that this tolerance has limits: even in a culture relatively accepting of unequal incomes, a reward can appear so disproportionate that it provokes collective protest.

The book calls the protest strong reciprocity: a readiness to punish conduct judged bad, or reward conduct judged good, even without personal material gain. It is not presented as altruism. Protesters did not have to love humanity; they acted on their sense of what a just exchange required. The collective effect, however, could be beneficial. The book suggests that the NYSE would be more rigorous about assessing a future CEO’s worth. Grasso’s removal thus serves as an example of how individually costly judgments can produce a collectively rational outcome, placing public fairness norms alongside formal rules as constraints on institutional behavior.