So far, I feel like I don't even know the meaning of the word "grudge." I mean, I was head over heels in love with a girl when some exchange student I never got to meet came along and stole my chance from me... Terrible as I felt, I didn't hate the exchange student. I didn't have any negative opinion about him at all. Maybe it was because I never got to meet him, but... If I can't hold a grudge against someone like that, I'd hate to come across the person I can hold a grudge against.
As some have already pointed out, I think that there is a difference between just forgiving someone, and respecting yourself enough to not allow them to treat you that way again. You can do one or the other, and you can also do both. Personally, I believe that forgiveness isn't about saying "It's ok that you did that to me", but more about saying "I'm still ok after you did that to me." Getting to that point can sometimes be hard, depending on the nature of what was done, I suppose... But it at least allows you to move on from it, whether you remain friends or not.
And you're the authority figure in these parts? In general, I very much live in the moment. If a long-time friend acts like an asshole, I'll treat them like an asshole. If a long-time enemy acts friendly to me, I'll treat them like a friend. I'll keep certain perceptions of people, but that's not exactly a grudge. And it's not something I'll stubbornly hang on to. In other words, I might think ill of someone, but I would never write them off as a bad person. Everyone's got their redeeming qualities.
I learned about the strength of forgiveness a long time ago and I currently try not to hold grudges. It can be tought to forgive someone, but you free yourself completely from power it holds over you... I actually blogged about it last summer: Forgiveness
So don't piss him off. Not everyone. Recognizing that is not holding a grudge, though, it is simply learning that there are people who are unrelentingly selfish and who take some small pleasure in inflicting harm on others. Holding a grudge is taking it personally. Holding a grudge is slapping that person down befiore he or she finishes a sentence. Even if someone has no redeeming qualities, they may accidentally say something helpful.
Cog made a good point! Though whether or not a person has redeeming qualities, or has anything to say - good or bad, I don't think something that has happened in the past should hold so much weight in the present. Memories are just like photographs, they aren't the real thing, they're simply there to commemorate all the stages of your life. People are so affected by what they remember happening to them and put so much effort and emotion into it when it is simply a memory. It isn't a living thing that can harm you unless you allow it to, so that's why I choose to move on and forget rather than hold a grudge or dwell on a person or situation that has come and gone.