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As disgruntled investors

continue hounding

New York Stock Exchange

Chairman Dick Grasso, some of the attention is getting directed to his friends.

Chief among those is

Home Depot

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co-founder Ken Langone, who chaired the NYSE compensation committee that approved Grasso's $140 million pay package. When the pay package first came to light, it was revealed that both men sat on compensation committees that determined pay for the other -- Grasso on Home Depot's and Langone on the NYSE's. Grasso decided to leave HD's board and Langone stepped down as head of the NYSE committee.

That's not good enough to some. Everyone involved in determining Grasso's pay package should resign, former NYSE chairman James Needham told the

Associated Press


"It's time to clean house," said Needham, who headed the NYSE from 1972 to 1976. "I feel the board just didn't step up to the plate and run that operation properly."

While the entire board is drawing Needham's ire, particular scrutiny is falling again on Langone. According to a research firm, Langone is active on compensation committees with a history of supersizing executive paychecks despite poor share performance. Further, the investment bank he heads is under investigation by the

National Association of Securities Dealers

and has been implicated in improper activity in the past.

"Here's a guy who's sitting on the New York Stock Exchange board whose firm has been accused of serious wrongdoing," notes Greg Taxin, CEO of proxy adviser Glass Lewis. "It turns out he's a chronic overpayer as well."

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Despite resigning his role as chairman of the NYSE's compensation committee in June, Langone continues to serve as a regular committee member. Meanwhile, Grasso has said that he will serve out his term as a director at Home Depot; that term ends in May.

Governance experts have noted that by serving on each other's compensation committees, Langone and Grasso have an apparent conflict of interest. They have the ability to set each other's pay for their own mutual advantage, although not necessarily to the benefit of shareholders.

Perhaps more disconcerting to governance critics is the idea of a regulator serving on the board of directors of a regulated company, at the same time that a member of the regulated company is given a measure of control over the regulator.

"This just doesn't pass the common sense test," said Gary Lutin, an investment banker and corporate governance critic. Calling Grasso's pay package "truly offensive," he added, "when you have a decision that bad, there's likely to be several causes. Lack of director objectivity could certainly be one of them."

Langone did not return repeated calls seeking comment. But a spokesperson for investment bank Invemed Associates, where Langone serves as chairman and CEO, said Langone continues to stand by Grasso's pay package.

The potential conflict of interest created by Langone and Grasso's interlocking relationship is not the only thing about the Home Depot co-founder that has drawn scrutiny. Like Glass Lewis' Taxin, several have noted that Invemed is currently under investigation by the National Association of Securities Dealers.

In April, the NASD charged Invemed with generating illicit profits by allocating shares in hot IPOs to preferred customers who then paid the small investment bank inflated commissions. The matter is still pending before the NASD.

Invemed paid $4,000 in 1984 to settle previous NASD charges. The NASD had accused Invemed of violating fair practice rules by allocating shares of a new public offering to Langone and other Invemed officials. As part of the settlement, the NASD censured Langone, fined him $4,000 personally and forced him to disgorge the $12,400 profit he made on the transaction. Another alleged fair practice violation cost Langone a $500 fine in 1975.

It is Langone's record as a board member that deserves criticism, said Taxin. Langone currently serves on the compensation committees of each of the five public companies of which he is a director:


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General Electric

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, Home Depot,


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Yum! Brands

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Glass Lewis rates the executive compensation practices of many public companies, comparing the amount executives receive with the company's financial and stock performance. Of the companies on which Langone serves as a director, ChoicePoint received the highest rating, a "C." The other companies received a "D" or an "F."

Home Depot, which was among those with an "F" grade, saw its stock price fall 58% last year and 63% over the last three years, notes Taxin. Compared to a peer group of 96 other companies, Home Depot's stock price performance is near the bottom of the barrel, falling in the 3rd percentile.

But Home Depot paid CEO Bob Nardelli a package worth $34.5 million last year. The compensation packages of the company's top five highest-paid employees totaled $73.7 million last year. Those amounts place executive pay at Home Depot near the top of its peer group, in the 98th percentile, according to Taxin.

The other companies on whose boards Langone serves have similar records, Taxin said.

"For some reason

Langone seems be a compensation committee favorite," Taxin said. "We think we know why: He tends to overpay people."

Of course, not everyone is targeting Langone. Despite calling for Grasso's resignation on Tuesday, California State Treasurer Paul Angelides declined to call for the resignation of NYSE board members.

Board members should certainly be reviewing their decisions and their decision-making process regarding Grasso's compensation, said David Ruder, a professor of law at Northwestern University and former chairman of the

Securities and Exchange Commission

. But forcing Grasso or anyone else to resign over the matter is taking the affair too far, he said.