Obama picks 'pay tsar' to target Wall Street

Shareholders to get new rights to have 'say on pay' across corporate America

Barack Obama has appointed a "compensation tsar" to set salary and bonus levels for top executives at companies that have taken huge sums in emergency funds to stay afloat, including Citigroup and General Motors, and to help design a pay structure for the many other firms that have received bailout money in recent months.

It is a third-time-lucky attempt by the Obama administration to square the circle of trying simultaneously to quell public anger over once unseemly amounts paid to those bankers who helped to bring the financial system down, while at the same time acknowledging that too much intervention could harm their ability to compete in the future.

What may be one of the thorniest jobs in Washington was yesterday passed to Kenneth Feinberg, a respected mediator who in the past has been tasked with setting compensation amounts for the families of victims of the 9/11 terror attacks and putting a value on the so-called Zapruder film that captured the killing of John F Kennedy.

The new job will require Mr Feinberg to set salary and bonus numbers for those seven very large companies that have absorbed emergency public funds to keep running. In his hands, therefore, will be the future wage packets of the likes of Vikram Pandit, the head of Citigroup, and Fritz Henderson, who now leads GM.

Simultaneously, the White House was last night preparing to seek new legislation from Congress to give shareholders in public companies a bigger – though non-binding – voice in determining the pay levels of top executives. They believe such a "say-on-pay" approach will apply pressure on compensation committees to show greater restraint in rewarding top brass.

Aside from the powerful political concerns, President Obama is hoping to force a change in corporate culture in America by ending a system that in the past positively encouraged bosses to allow the taking of very big risks because quick profits meant quick pay increases for them.

How effective these changes will be remains to be seen. In February, Mr Obama startled the financial industry by taking the more populist step of imposing a $500,000 limit on pay to the top executives at those firms receiving what he called "exceptional assistance". Soon after that, however, the US Congress went its own way, demanding that the US Treasury establish new rules on compensation levels for the five most senior and 20 most highly paid executives at those firms. It will be up to Mr Feinberg to develop a plan to do roughly that.

The House Financial Services chairman, Barney Frank, said: "We have a heads I win, tails I break even compensation system in the financial services industry in America. Executives have a perverse incentive to expose their companies to more and more risk, but only the shareholders realise the downside of bad bets."