With Richard Grasso gone, the hunt begins for a successor.

Grasso resigned Wednesday as chairman of the

New York Stock Exchange

during an emergency board meeting, as an increasingly vocal group of angry directors decided the exchange couldn't withstand further controversy over his $139.5 million pay package.

A source close to the board said directors have decided not to appoint an interim chairman and will instead let Carl McCall, the head of the compensation committee, run the board while a search is begun for a permanent leader.

The board initially asked California corporate lawyer Larry Sonsini, chief executive of Wilson Sonsini Goodrich & Rosati, to serve as interim chairman, but the high-powered Silicon Valley attorney, who joined the NYSE board in 2001, turned it down. Also rejecting the job was board member Herbert Allison Jr., chairman of TIAA-CREF, the teachers' investment fund.

For now, the NYSE is filling the leadership gap by turning to two of Grasso's deputies: Catherine Kinney and Robert Britz, co-chief operating officers of the NYSE and members of the board. They'll manage the exchange's day-to-day affairs.

According to McCall, Grasso -- who called Wednesday's meeting -- offered to resign if the directors felt it was in the exchange's best interest. They accepted on a 13 to 7 vote.

"Throughout my career and on behalf of all exchange constituents, I have worked with great partners to build and enhance the value and brand of the NYSE," Grasso said in a statement. "I look forward to supporting the board and the Exchange in bringing about a smooth transition to a successor. I believe this course is in the best interests of both the Exchange and myself."

The move capped an extremely difficult month for both the Big Board and Grasso, a career employee of the nation's premier stock exchange whose tireless work in the aftermath of the Sept. 11 terrorist attacks elevated him to hero status.

Recent revelations that Grasso received a $5 million bonus for that performance -- along with word that he nearly collected another $48 million on top of the deferred compensation he did pocket -- helped cement his fate.

The $139.5 million package represented deferred compensation Grasso earned during his 36-year career at the NYSE, but much of that money was awarded to him by the NYSE during the past five years.

Under his new employment contract, Grasso could receive millions more in severance. He may be entitled to collected his unpaid salary for his contract, which expires in 2007. His base salary is $1.4 million and that means he could be entitled to an additional $7 million. The contract also granted him $28.4 million in supplemental retirement benefits. From the contract, it appears Grasso would be entitled to some, but not all, of this money. A lot of Grasso's severance package will depend upon whether his leaving is deemed for "cause," or a voluntary event.

Big Boys

Grasso's ouster was said to be supported by some of the same Wall Street leaders whose pay package his most resembled:

Goldman Sachs

(GS) - Get Report

Chief Executive Henry Paulson,

J.P. Morgan Chase

(JPM) - Get Report

Chief Executive William Harrison,

Credit Suisse First Boston

Chief Executive John Mack and

Morgan Stanley

(MWD)

Chief Executive Philip Purcell.

Grasso had hoped to mollify his critics at a NYSE board meeting he called for next week to discuss the controversy over his massive pay package and review the exchange's governance policies.

But the steady hum of controversy turned to a roar this week after some of the nation's public pension funds called for him to resign, forcing Wednesday's meeting. Although critics never accused Grasso or the board of any legal wrongdoing, they found the appearance of impropriety discredited the exchange, particularly at a time when the nation is so focused on corporate ethics. Critics contended it was unseemly for Grasso, who also wears the hat of an industry regulator, to accept such a huge pay package from people whose companies he ostensibly regulates.

California State Treasurer Paul Angelides, who issued a critical call for Grasso's resignation Tuesday, urged the NYSE and the

Securities and Exchange Commission

to thoroughly investigate the decision-making behind Grasso's controversial pay package. Grasso's departure was a necessary first step for that examination, Angelides said.

"Clearly this is not something that just happened by the act of one person. I think the responsibility has to be fairly placed, assessed, then dealt with," Angelides said.

The 27-member NYSE board now faces an immediate succession issue because there is no obvious internal candidate for chairman. Most critics think the board almost certainly will look outside the institution for a new leader to help restore its reputation after this incident.

The board itself could also be in turmoil because it's likely a number of directors could be forced out, including Ken Langone, who led the compensation committee at the time Grasso's big pay package was negotiated. Other board members also will likely go, including some of the seven board members who voted for the 57-year-old Grasso to stay.

Indeed, the SEC believes Grasso's departure does not put an end to governance issues at the exchange.

"The SEC will continue its review of governance standards and will work closely with the new leadership at the exchange to put an appropriatestructure in place that will ensure the credibility and integrity of thegovernance of the exchange," the agency said in a statement.

Already people are beginning to speculate about some possible successors. The names include former

Federal Reserve

Chairman Paul Volcker and former New York Fed President William McDonough. Another possibility is former Securities and Exchange Commission Chairman Arthur Levitt.

A darkhouse candidate might be former Secretary of State and current NYSE board member Madeline Albright. Sources say she is well liked by other board members and would help the institution by making it the first U.S. stock exchange to be led by a woman.

On the Floor

Frustration with Grasso was greatest among the rank-and-file floor brokers who technically own the NYSE through their membership. In a letter to Donaldson, exchange member James Rutledge said Grasso should step down and called the board's performance "indefensible."

"The repeated closing of their eyes to mounting criticism and expressions of concerns reflects poorly on everyone associated with 11 Wall Street," he wrote, referring to the NYSE's address in Manhattan.

Michael LaBranche, who runs the

LaBranche

(LAB)

specialist firm at the NYSE, said Grasso's resignation is "in the interests of the New York Stock Exchange."

"The New York Stock Exchange needs for Mr. Grasso to leave in order for it to move forward and restore investor confidence," he said. LaBranche was fined $150,000 and censured by the NYSE last month for failing to turn over employee emails in an investigation of its trading practices. The company is appealing.