Former News of the World editor Rebekah Brooks says she offered a job to a reporter convicted of phone hacking to keep him from going public with allegations.
But she insisted she hadn't known that illegal activity was taking place under her command.
The tabloid's royal editor, Clive Goodman, and private investigator Glenn Mulcaire were arrested in 2006 and later convicted of eavesdropping on the voicemails of royal aides.
Brooks - then editing sister tabloid The Sun - said she offered Goodman a backroom job after he was released from jail to stop him going to an employment tribunal.
"He was going to allege that other people at the News of the World knew he was accessing voicemails and agreed to it and certain other people were involved in that practice," Brooks told a jury at her trial.
She said Rupert Murdoch's media company believed the allegations were unfounded, but wanted to avoid "damaging headlines".
Goodman turned down the job but accepted a financial settlement.
Brooks said police told her in 2006 that her own phone had been hacked by Mulcaire for 18 months. She said she was "pretty shocked" by that, but after consulting with her bosses decided not to make a formal complaint or become a prosecution witness.
Brooks insists she did not know phone hacking was taking place when she edited the News of the World between 2000 and 2003.
But she said there had been a collective failure among newspapers in employing a large number of private investigators to ferret out secrets for scoops.
More hacking revelations erupted in 2011, leading Murdoch to shut down the 168-year-old News of the World.
Brooks denies conspiracy to hack phones, bribe officials and obstruct police. Six other defendants also deny a variety of charges.
