The Treasury Department on Wednesday took new steps to rein in executive compensation, saying the Obama Administration would introduce legislation that could create stricter limits on pay; it also appointed an official to head up efforts on the issue.

Treasury Secretary Timothy Geithner outlined a broad set of principles in a statement released after he met with Securities and Exchange Commission Chairman Mary Schapiro and Federal Reserve Governor Dan Tarullo.

The principles included that compensation should properly measure and reward performance, it should be structured to account for the time horizon of risks, and that there should be a re-examination of “golden parachutes” and retirement packages. They also called for improved transparency and accountability. The rules generally exempt commissions, which serve as one of the principal compensation methods in the financial-services industry.

"We have an obligation to investigate how compensation practices may have contributed to the financial crisis…and what practices need to be changed” to prevent another one in the future," said Gene Sperling, counselor to Geithner. “There is an important policy dialogue that we need to get right.”

The Administration plans to propose legislation that would impose a number of possible strictures on pay levels.

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The legislation would require company compensation-committee members to be independent from management -- answerable only to the compensation committee, and its independent advisors and legal counsel.

It would also give the Securities and Exchange Commission the authority to strengthen independence of compensation with committees, similar to how it previously bolstered the independence of audit committees.

The Administration will also call for “say-on-pay” legislation that would give the SEC authority to require nonbinding, annual say-on-pay votes for all public companies. This practice is already in place in countries such as the U.K., where even though the vote is nonbinding it has had the effect of getting companies to involve their shareholders much more strongly in the compensation-setting process. 

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"We are going to support giving the SEC legislative authority for say on pay legislation and to make sure that compensation committees are fully independent," Geithner said at a press conference. "We’ll be very supportive of Chairman Schapiro’s efforts to encourage greater disclosure in these areas, and important device for helping encourage better evolution and practice."

Schapiro agreed, saying in a statement: “I firmly believe that better disclosure of compensation leads to more informed shareholders and in turn to more accountable corporate directors.  This is the foundation of our capital markets.”

Treasury also announced the appointment of a “pay czar,” who will have the power to reject compensation plans from financial companies receiving “exceptional assistance” from the government.

Kenneth Feinberg, who has led government efforts such as distribution of aid to victims of the Sept. 11, 2001, terrorist attacks, was appointed to the post of special master for compensation.

“Special Master” is a specific post that comes from the judicial system, and indicates someone who is appointed to hear a case involving difficult or specific issues; Feinberg had the same title in his 9/11 aid role.

Feinberg will be able to reject compensation plans from companies receiving exceptional assistance that he decides have excessive or inappropriate salaries. The “exceptional assistance” clause would likely apply only to companies such as American International Group (AIG), Bank of America (BAC), Citigroup (C), General Motors (GM), GMAC and Chrysler that received more bailout money than they were entitled to under regular Troubled Asset Relief Program rules.

Feinberg will be asked to review the compensation structures for the top 100 salaried employees at the companies.

Treasury wanted to “empower an individual” to review compensation plans for the seven firms that have received “exceptional assistance” in a process that “strikes the careful balance” between protecting the taxpayers’ investment in the seven firms with the need for the companies to offer compensation plans “that would allow them to be viable and competitive," Sperling said. "Feinberg will use “sound judgment guided by clear principles” in his reviews and decisions.

Geithner said the Administration was not looking to create a heavy government role, but rather to find the appropriate level of regulation.

"We are not proposing ongoing government role in setting policy on compensation," he said. "We do not believe it’s appropriate for the government to set caps on compensation. We are not going to prescribe detailed prescriptive rules for compensation. We think all those things would be ineffective and counterproductive in some ways and we’re going to try to find the right balance looking forward."