Obama, who sharply criticized Wall Street chiefs for accepting billions of dollars in bonuses last year while the economy staggered toward collapse, had promised compensation reform as part of a package of stricter regulations on the financial industry.
The restrictions are a first step in a broad effort to overhaul pay practices and are likely to be popular with average Americans, potentially diverting attention from Tuesday's shock withdrawal of former Senator Tom Daschle's nomination to lead Obama's bid to expand healthcare insurance.
Obama and senior congressional Democrats are also seeking to push through an economic stimulus package of almost $900 billion despite Republican criticism that it focuses too much on government spending and not enough on tax cuts.
An Obama administration official said the new rules would require companies that get exceptional government funds in future to abide by the cap.
Additional compensation must be limited to restricted stock that does not vest until government money is paid back with interest, according to the new rules.
Companies that have previously received bailout money—such as financial giant Citigroup and insurer AIG —would have to agree to stricter oversight and prove they have followed already established limits on executive compensation, which are widely seen as being too lax.
Keep track of what Obama has been doing since taking office:
Day 15: Withdrawls, Withdrawls... But the Show Goes On (Feb. 3)
- Former Senator Tom Daschle has withdrawn his name for Secretary of Health and Human Services. The action comes after Daschle admitted failure to pay past taxes. "Now we must move forward," Obama said in a written statement accepting Daschle's request to be taken out of consideration. (Full Story)
- Obama's choice to oversee budget and spending reform, Nancy Killefer, also withdrew her nomination Tuesday because of tax reasons, according to a letter released by the White House. (Full Story)
- A group of Republican senators offered a $445 billion alternative plan to boosting the ailing economy, about half of which would be in the form of tax cuts. The stimulus package would include cutting payroll and income taxes for a year, as well as lowering the 35 percent corporate tax rate to 25 percent and offering home buyers a tax credit worth $15,000 or 10 percent of the purchase price, whichever is less. (Full Story)
- The Obama administration is still struggling with the details of a bad bank concept that is expected to be part of a package of industry and consumer measures to be unveiled next week, according to a source familiar with the situation.(Full Story)
- New U.S. Attorney General Eric Holder said he would prosecute Wall Street crime but was not planning any "witch hunts" despite mounting outrage among Americans over corporate excess. "We're not going to go out on any witch hunts," Holder told reporters. (Full Story)
Day 14: Obama Targets CEO Pay (Feb. 2)
- The Obama administration indicated that it will not unveil new measures to aid the financial services industry this week, but will instead move on the issue of Wall Street bonuses and executive compensation. (Full Story)
- Fighting to save his Cabinet nomination, Tom Daschle pleaded his case in a closed meeting with former Senate colleagues after publicly apologizing for failing to pay more than $120,000 in taxes. Obama said he was "absolutely" sticking with his nominee for health secretary, and a key senator added an important endorsement. (Full Story)
Day 13: Obama's Bill 'Wastes a Ton of Money': Sen. Kyl (Feb. 1)
- The U.S. Senate's No. 2 Republican warned his party's support for Obama's economic stimulus bill was eroding and "major structural changes" were needed to win Republican support. "You have to start from scratch and reconstruct this," said Sen. Jon Kyl of Arizona. He said the proposed bill, with a price approaching $900 billion, "wastes a ton of money." (Full Story)
- Discussions between the Obama administration and financial industry representatives continued for a third day with the focus moving to new terms on lending, transparency and executive compensation for companies receiving financial aid, according to a source familiar with the situation. (Full Story)