WASHINGTON — WASHINGTON - Congress wants Wall Street to feel it where it hurts: the wallet.
The stratospheric pay packages of Wall Street executives have become a lightning-rod issue as Congress crafts a $700 billion bailout for financial firms. Proposals circulating on Capitol Hill vary, but they all would impose some limits or approval authority on salaries of executives whose firms seek help.
The moves in Washington mirror the popular outcry - in constituent e-mails and in postings in the blogosphere - over the prospect of Wall Street's tarnished titans walking away with tens of millions of dollars a year while taxpayers pick up the tab.
But Wall Street, its lobbyists and trade groups are waging a feverish lobbying campaign against compensation curbs. Pay restrictions, they say, would sap incentives for hard work and innovation, hurting the financial sector and the U.S. economy.
"We support the bill, but we are opposed to provisions on executive pay," said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, a trade group. "It is not appropriate for government to be setting the salaries of executives."
Yet some formal restraint on executive pay seems unavoidable, even sensible, some finance experts and economists said.
Arthur Levitt, a former Wall Street executive as well as a former chairman of the Securities and Exchange Commission, said pay curbs on executives whose firms take part in the bailout were essential for congressional approval and were reasonable.
The finance industry, Levitt said, will continue to offer handsome salaries for the successful, though not as high as in the boom years. "The golden egg has disappeared," he said.
Scott A. Shay, chairman of Signature Bank, which holds no high-risk securities, called a limit on executive pay for firms participating in the bailout only fair play: "If that doesn't happen, you are effectively advantaging the institutions that made those risky bets at taxpayers' cost. What sense does that make?"
Across the Atlantic, there is also an appetite for stepping into pay practices in the finance industry. British Prime Minister Gordon Brown called "unacceptable" the practice of linking bonus payments to high-risk investments that delivered hefty profits in the short term.
His Treasury minister, Alistair Darling, echoed that view by saying that Britain's main regulator, the Financial Services Authority, should take a hard look at regulating pay.
Angry sentiments on the issue in Congress were palpable yesterday, when Treasury Secretary Henry M. Paulson Jr. and Ben S. Bernanke, the Federal Reserve chairman, testified before the Senate banking committee.
Sen. Christopher J. Dodd, a Connecticut Democrat, said the "authors of this calamity" should not walk away enriched.
The presidential candidates, Sens. Barack Obama and John McCain, have also called for pay limits.
The proposals in Washington are still tentative and often vague. A Senate draft document calls for a ban on incentive payments that the Treasury deems "inappropriate or excessive" and a "claw-back" provision, requiring executives to give up pay or severance benefits if the firm's financial results are later shown to be overstated.
Other proposals call for a ban on severance payments and allowing large shareholders (those with a stake of 3 percent or more) to propose alternative slates of board directors. This would be an effort to tackle excessive pay practices by opening up and strengthening corporate governance.
Some corporate governance experts say that hastily devised compensation curbs in the bailout package would be a mistake and perhaps open the door to unintended consequences.
"Clearly, the level of pay at some of the Wall Street firms was appalling, given the performance," said Charles M. Elson, a corporate governance expert at the University of Delaware. "But the bailout is about saving the economy, while executive pay is a separate, and complex, issue."
Whether Congress acts on executive pay or not, Wall Street pay levels are destined to come under pressure, said Michael Karp, chief executive of the Options Group, an executive search firm. The fallout from the financial crisis and consolidation in the industry, he said, inevitably means more people competing for fewer jobs, dragging down salaries.
"Of course, superstars will always get paid," Karp said. "But they won't be the way they used to be."