The White House's two-part proposal would give shareholders a voice on executive compensation, or a "say on pay" for senior management.
The legislation, which would effectively be carried out by broadening the powers of the Securities and Exchange Commission, would also attempt to establish greater independence for board members responsible for setting executive pay packages. This is similar to what the Sarbanes-Oxley Act established for audit committees in the wake of the Enron scandal earlier this decade.
If approved by Congress, the proposals would affect all public companies, not just the banks and other financial firms that had a direct role in the current economic crisis.
Separately, the White House also officially named Washington attorney Kenneth Feinberg as the administration's "pay czar" on Wednesday.
Feinberg, who previously oversaw the federal compensation fund for September 11th victims, will be responsible for approving major expenses for banks, automakers and insurers that took government funds under the Treasury's Troubled Asset Relief Program, or TARP.
Setting a low barWednesday's announcement marks the latest attempt by the Obama administration to tackle the issue of pay in corporate America.
In February, the administration unveiled a broad set of guidelines for financial firms that took taxpayer money under TARP. That included limits on executive salaries and the creation of so-called "clawback" provisions which would reclaim pay from workers whose actions may damage the firm's long-term financial health.
Some of those policies became law as part of an amendment authored by Sen. Christopher Dodd, D-Conn. that was added at the last minute to the $787 billion stimulus package passed in February.
In a series of remarks published Wednesday, Treasury Secretary Timothy Geithner urged companies, not just those in the financial services sector, to act responsibly, suggesting that they align executive pay packages with the long-term performance of their businesses.
"This financial crisis had many significant causes, but executive compensation practices were a contributing factor," Geithner said in a statement.
Critics have charged that bankers were tempted by the lure of short-term gains, namely big bonuses, instead focusing on the long-term health of their firms. Such bets were believed to contribute to the downfall of Bear Stearns and Lehman Brothers.
At the same time, soaring compensation packages and outsized bonuses have become lightning rods of debate for lawmakers and taxpayers.
Public furor erupted earlier this year over the $165 million in annual bonuses that AIG (AIG, Fortune 500) paid to employees, after the government stepped in numerous times to prop up the insurance giant.
Some close observers of executive pay trends were skeptical about just how effective Wednesday's announcement would be, particularly the legislative proposal which would give shareholders a "say" on executive pay.
Shareholder activists have had little success in getting companies to change their ways in recent years. At the same time, the "non-binding" vote means that companies do not necessarily need to heed investors' wishes.
"It seems pretty timid," said Sarah Anderson, executive pay analyst at the Institute for Policy Studies. " 'Say-on-pay is about the lowest bar they could possibly have set."
Some answers, but still more questionsThe issue is clearly not going away anytime soon. The House Financial Services is holding a hearing about executive compensation on Thursday.
In addition, hundreds of banks and other troubled firms remain stuck in the TARP program and will continue to wrestle with the issue of compensation limits until they return taxpayer funds to the government.
Late Wednesday, the Treasury Department issued an interim final rule for companies in that very position. Bonuses paid to senior executives and other highly-paid employees at TARP recipients will be limited to one third of their total compensation.
For small community-based lenders that took just a sliver of taxpayer aid, only the CEO might be affected. But for institutions that received over $500 million in aid, including big banks Citigroup (C, Fortune 500) or Bank of America (BAC, Fortune 500), the rules would affect the top five senior officers and the 20 most highly compensated employees.
Both bank leaders and pay experts contend that the crackdown has already prompted top performers at Wall Street firms that have received taxpayer assistance to jump ship for other firms that are not beholden to government restrictions. There are fears that the trend could persist given the latest pay restrictions.
On Monday, 10 banks, including Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), won approval from the agency to pay back money received as part of the program. Once these banks do so, they will no longer be obligated to abide by many of the pay restrictions the administration outlined earlier this year.
Firms that remain under the government's thumb would also have to put in place a so-called "luxury expenditure" policy. That would require top executives to get board approval for the purchase of big-ticket items.
Several banks came under fire from politicians in recent months after large expenditures came to light. Most notably, Citigroup drew the ire of the Obama administration earlier this year once its plans to take delivery of a $45 million corporate jet were made public.
Regulators also said that the seven firms which received "exceptional" government assistance -- AIG, Citigroup, Bank of America, General Motors, GMAC, Chrysler and Chrysler Financial -- would be required to live under a set of more severe compensation restrictions to be overseen by Feinberg.
In his new role, Feinberg will have the power to review compensation for the top 100 salaried employees at those firms. That means he will get the final say on salaries that might be deemed excessive or inappropriate, a White House official said.
One expert warned, however, that it would be troubling if Feinberg was given too much power.
"Should [Feinberg] oversee, supervise and control compensation at these companies? Sure. Should he actually be designing programs and setting individual pay levels? That's concerning." said Susan O'Donnell, managing director at compensation consultancy Pearl Meyer & Partners.
Geithner, however, attempted to silence criticism that the administration was overstepping its bounds in the affairs of private firms.
"I want to be clear on what we are not doing. We are not capping pay," he said. "We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive."
--CNN's Suzanne Malveaux contributed to this report
