The Obama administration yesterday (Wednesday) continued its assault on highly paid Wall Street executives, announcing plans to appoint a “pay czar” to oversee compensation at financial firms receiving Troubled Asset Relief Program (TARP) funds.

The government also will create a new program to give shareholders at nonparticipating firms a vote on executive pay packages.

President Barack Obama has targeted executive pay practices as part of a larger effort to overhaul regulations and prevent a repeat of the worst financial crisis since the Great Depression.

Obama will unveil a “series of specific proposals” on June 17 designed to streamline and reorganize regulations, White House spokesman Robert Gibbs told Bloomberg News.

The administration originally proposed regulations in early February to put a $500,000 per year lid on the salaries of executives at firms that tapped into the government’s $700 billion TARP rescue fund. The only exceptions would be in the form of restricted stock or other long-term incentives.

But the plan was compromised when Senate Banking Committee Chairman Christopher Dodd, D-CT, spearheaded a provision that limited bonuses to no more than one-third of executive compensation. The provision was eventually tacked on to the $787 billion stimulus legislation, along with another stipulation that made it easier for banks to repay TARP funds and avoid the new regulations.

The two-pronged approach announced by the Obama administration Wednesday was designed to reconcile the administration’s initial pay policy with the Congressional bill and prevent financial companies that pay back the government funds from circumventing the guidelines.

Leading the administration’s charge has been Treasury Secretary Timothy Geithner who has repeatedly pointed to executive compensation policies based on short-term profits as a key factor in the financial crisis.

Geithner, who has said compensation practices became “divorced from reality,” met with Securities and Exchange Commission (SEC) Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and other compensation experts, to further discuss how to put the clamps on the practice.

“A centerpiece of sensible reforms will be to tie compensation to better measures of long-term investment and return, and to adjust them to reflect the risk” incurred by executives’ decisions, Geithner said recently during a hearing at a Senate Appropriations subcommittee.

Kenneth Feinberg, who oversaw the government’s compensation to the survivors of the September 11, 2001, terror attacks, will take over the pay czar role, Reuters reported, citing a source familiar with the administration’s plan.

The pay czar, or “special master,” will review compensation structures for the top 100 salaried employees of firms receiving exceptional assistance, such as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and insurer American International Group Inc. (NYSE: AIG), the source said.

“In the case of a company receiving exceptional assistance, the special master would have the authority to disapprove of a company’s compensation plan if he determined they were paying excessive and unjustified salaries to their top executives,” the official said.

The other initiative would give the SEC authority to force financial firms to allow shareholder votes on executive pay packages. The nonbinding vote would cover everything from bonuses and salaries to severance packages, and would need Congressional authorization.

Geithner has supported the so-called “say-on-pay” rules ever since he took office. In a May 18 speech in Washington, he said that giving shareholders a vote on compensation would bring a “kind of disclosure that can help a lot.”

“It clearly is going to force companies to be more transparent with their disclosure” on compensation, Irv Becker, national practice leader for Philadelphia-based Hay Group’s executive compensation practice toldBloomberg.

Even if the measure is implemented, it likely will take several years before shareholders begin to confront management, Becker predicted.

“It’ll kind of be novel the first year, maybe the first two, and then likely be a little bit more serious in future years,” said Becker, a former head of compensation and benefits at Goldman Sachs Group Inc. (NYSE: GS).

Nevertheless, Geithner vows to press ahead with the new measures, and perhaps others still on the drawing board.

“As you’ll hear from us in the next few days, the SEC has some important responsibilities and obligations in this area, and some tools and authorities they may seek,” Geithner said.

Source: Obama Administration Wants New “Pay Czar” and Shareholder Vote to Reign in Executive Compensation