With the government expected to give ailing US financial institutions billions more in aid, President Barack Obama has moved to rein in firms with new restrictions including $500,000 a year cap on the pay of top executives.
"We're going to be demanding some restraint in exchange for federal aid - so that when firms seek new federal dollars, we won't find them up to the same old tricks," Obama said while announcing the new limits at the White House Wednesday.
Some corporate governance experts said the new rules would force CEOs to be more accountable to shareholders, but others warned the moves may escalate tensions between Wall Street and Washington over increasingly sensitive issue of executive pay.
The new restrictions would not apply to most banks and other financial institutions that have already received capital under the polarising $700 billion bank-bailout bill approved by Congress in October, unless they seek more funds.
Under the new rules, expected to be adopted shortly, executives at large banks receiving so-called "exceptional assistance" and other financial institutions applying for capital are having their salaries limited to $500,000.
However, one key provision would allow shareholders to vote to waive the $500,000 executive-pay limitation.
Most immediately affected are the CEOs of American International Group Inc (AIG), Bank of America and Citibank led by its Indian-American chief executive Vikram Pandit.
According to filings and company statements, Pandit received a base of $250,000 in 2007. His base for 2008 has not been made public. Pandit received $165 million from Citi when the bank acquired his hedge fund Old Lane Partners.
Edward Liddy, chairperson and CEO of AIG, who joined the company Sep 18, will receive an annual base salary of $1 for 2008 and 2009. Bank of America Chief Executive Ken Lewis received a base salary of $1.5 million in 2007, though there are no figures for 2008.
The restrictions are by far the most sweeping imposed on companies that have been lambasted for continuing lavish corporate getaways, handing out billions of dollars in bonuses and other business-as-usual moves that infuriated lawmakers and the public alike. Senator Claire McCaskill, seeking a $400,000 cap - the salary of the US president - for one, said: "These people are idiots."
"We all need to take responsibility," Obama declared. "And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses."