State officials responsible for investing hundreds of billions of dollars in pension funds launched an assault on New York Stock Exchange Chairman Richard Grasso (search) on Tuesday, demanding his resignation while arguing his $140 million pay package compromised his role as regulator.

New York Comptroller Alan Hevesi (search) became the latest financial official to demand Grasso's resignation, issuing a statement that highly criticized the controversial pay package. Hevesi is the sole trustee overseeing the roughly $105 billion New York State pension fund.

Earlier in the day, California Treasurer Phil Angelides (search) and the heads of the California Public Employees' Retirement System (search) and the California State Teachers' Retirement System (search) sent an open letter to Grasso asking that he step down as head of the world's largest stock exchange.

"We seriously question whether you are able to continue to effectively lead this important financial institution and whether, if you remain in your current position, the NYSE will have the requisite moral authority to provide critical leadership in the arena of corporate reform," said a joint letter from Angelides and the heads of the massive funds.

Angelides, a Democrat who sits on the boards of both pension funds, told reporters that Grasso's pay package had been too large given his role as a regulator with influence over listing standards.

As for a $5 million bonus the board granted Grasso after he was instrumental in quickly getting the exchange up and running after the Sept. 11 attacks, Angelides said he knew of no New York City firefighter who was given similar recognition.

NYSE spokesman Ray Pellecchia declined to comment.

The California officials said they were confident other large investors would join in their calls that would lead Grasso to resign.

However, they added while selling off listed stocks was not a "realistic option," the funds would take other "concrete" follow-up steps if Grasso does not step down.

"We have clout in the marketplace and we are always willing to use it," Angelides said.

North Carolina Treasurer Richard Moore joined his New York and California counterparts, demanding Grasso's resignation.

Moore, sole trustee of his state's $56 billion public pension fund, told Reuters in a telephone interview, "on Main streets across America, people continue to be outraged at cliquishness on Wall Street."

But since the NYSE divulged Aug. 27 that Grasso was compensated with a mammoth pay package, the exchange has faced public outcry and intense media and regulatory scrutiny, with many saying the chairman receives far too much money for someone serving as a regulator of stock markets.

"The enormous amount of his remuneration is inappropriate for a regulator," Hevesi said in a statement. "It is also very troubling that the exchange did not publicly disclose his extremely complicated contract until it was forced to."

Grasso "has lost the ability to implement needed reforms at the NYSE and to regulate and monitor its members and listed companies," Hevesi said. "While in many ways he has done an excellent job, his effectiveness on the key issues of fighting corporate corruption and improving corporate governance has been shattered."

The federal government has also stepped into the fray.

U.S. lawmakers said on Tuesday they are prepared to grill the head of the Securities and Exchange Commission about Grasso's compensation at a hearing this week.

"His pay package is clearly excessive ... The way he and the board have handled this leaves a lot to be desired," Rep. Harold Ford told Reuters when asked about the Grasso matter.

"It really raises questions about the judgment of many on Wall Street today ... It's a reflection of how out of touch their priorities are," said the Tennessee Democrat.

SEC Chairman William Donaldson (search), himself a former head of the NYSE, is scheduled to testify before the House Financial Services Committee on Wednesday and before the Senate Banking Committee on Sept. 30.

Kenneth Langone (search), an important ally of Grasso's on the NYSE board, said earlier on Tuesday that Grasso's job as Big Board chairman is not in peril, and he'll run the NYSE for as long as he wants to.

"Dick is going to be fine," Langone told Reuters in front of the midtown Manhattan skyscraper that houses his office. "Dick is going to be there as long as Dick wants to be there."

Langone, a multimillionaire and founder of investment firm Invemed Associates LLC (search), was chairman of the NYSE's compensation committee in recent years, when many of the details of Grasso's controversial compensation package were worked out.

Grasso, NYSE chairman since 1995, has worked for the Big Board his entire career, joining the exchange 35 years ago.

On Thursday the board of the exchange will dispatch three directors with close ties to the trading floor to hold an "unofficial meeting" with many floor members, where they are expected to try to quell the rising tide of dissent.

NYSE directors Robert Fagenson, Christopher Quick and James Duryea will sit down with many floor members."

"There's going to be a tremendous amount of frustration, anger and disappointment that's going to be expressed," Fagenson told Reuters. "But we have to filter that and translate that into where people think we ought to be going and whether or not they see a direct impact on the business of the stock exchange, which is our primary concern."