Grasso, grapes and cucumbers
Because of public outrage at his $180 million pay package, Richard Grasso is now the former chairman of the New York Stock Exchange. In the current issue of the New Yorker, James Surowiecki looks at the affair in a short but scintillating piece entitled THE COUP DE GRASSO. In coming to his conclusion that "everyone loses when functionaries get paid like tycoons", the gifted Surowiecki gives us a quick overview of the "ultimate game", a well-known experiment in behavioural economics, and then delves into the work of primatologists Sarah F. Brosnan and Frans B. M. de Wall, whose study showing that female brown capuchin monkeys seem to have a sense of fairness was released on the very day Grasso resigned. Surowiecki writes:
"Pairs of capuchins had been trained to give Brosnan pebbles in exchange for slices of cucumber. This idyllic monkey market economy was disrupted, though, when the scientists changed the pay scale, rewarding one monkey with a delicious grape and the other with the same measly old cucumber. Exposed to this injustice, the capuchins who were given cucumbers often refused to eat; forty per cent of the time, they stopped trading entirely. Things got worse when one monkey in each pair was given a grape for doing nothing at all. The other monkeys often responded by tossing away their pebbles; eighty per cent of the time, they stopped trading. The capuchins were willing to forfeit cheap food simply to express their displeasure at their partners' unearned riches."
Surowiecki's inference? "The point was not — as some of the news coverage suggested — that capuchins are innate sharers. (The capuchin who got the grape showed no inclination to give it up.) The monkeys want to distribute things fairly, not equally. They seem to believe that there should be a clear connection between work and pay." In Grasso's case, however, there was no relationship between what he was doing and what he was being paid, says Surowiecki. He was good but dispensable and the NYSE will carry on without him.
But why was everyone so upset at Grasso's pay deal? Wasn't that a free market issue? Not so, argues Surowiecki. It was not the market, but a group of "friends and cronies" who came up with the flabbergasting $180 million: "?instead of figuring out how little they could pay Grasso and still keep him happy, they tried to figure out how much they could pay him. The board lavished grapes on him when he deserved — and would have been content with — cucumbers."
In dealing with financial topics, James Surowiecki exhibits, without showing off, a rare triad of journalistic attributes: intelligence, style and conscience.
Diarist of the day: Virginia Woolf, 30 September 1935"Yesterday I saw the kingfisher again on the river. It flies across and across, very near the surface: it has a bright orange chocolate under side. And it is a tropical bird, sitting weighted on the bank. I have also seen a stoat — brown with a white tipped tail."
