Bailed-out firms will be ordered to slash pay

The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler, and the financing arms of the two automakers. Some executives, like the top traders at AIG, will face tight limits on their pay. In addition, the top-paid employees at all the affected companies will face new limits on their perks.

The plan will also change the form of the pay to align the personal interests of the executives with the longer-term financial health of the companies. For instance, the cash portion of the executives’ salaries will be slashed on average by 90 percent, and the rest will be replaced by stock that cannot be sold for years.

It’s unclear whether the pay limitation will affect any of Bank of America’s employees in Boston, although two members of its senior management team are here: Brian Moynihan, now head of consumer and small business banking, and Anne Finucane, global chief strategy and marketing officer. The law says the pay czar can limit compensation for senior executive officers, and the next 20 highest-paid employees.

Neither Bank of America nor the Treasury Department will disclose which employees would be affected. And while Bank of America has its wealth management operations based in Boston, where top performers can earn considerable paychecks, the company also now owns Merrill Lynch, an investment banking firm where compensation at the highest level can be in the tens of millions of dollars.

But while the plan would pare compensation substantially from what the highest-paid people at the companies might have received under normal circumstances, it would still permit multimillion-dollar pay packages. And it would have no direct impact on firms that did not receive government bailouts or that have already repaid loans they received from Washington, leaving it unclear how much effect, if any, it will have on the broader issues relating to executive compensation, income inequality, and the populist animosity toward Wall Street and corporate America.

The plan, which was written by Kenneth R. Feinberg, the official at the Treasury Department in charge of setting compensation for bailed-out companies, will be made public in a few days. The official who described the plan’s basic components did not disclose the particular impact on specific employees.

Wall Street is facing criticism and anger over the large year-end bonuses at many firms.

Firms like Goldman Sachs, JPMorgan Chase, and Morgan Stanley received tens of billions of dollars in loans and loan guarantees from the government, but because they have returned the loans, they are no longer under any pay restrictions. With the financial markets and their profits recovering after the huge government assistance program last year, the three are expected to make huge payouts this year even as unemployment continues to rise.

The administration and regulators at the Federal Reserve have been preparing new guidelines to align executive pay scales at banks with appropriate risk-taking. But the White House, which has come under attack from conservatives for giving the government what they consider too large and intrusive a role in the economy, has also made clear it has no intention of seeking to impose any broad-based caps on executive pay.

Instead the administration is seeking to influence pay decisions through several changes in the way corporations govern themselves. The White House has proposed, for instance, giving shareholders a nonbinding vote on the pay of top executives.

It has also proposed that compensation committees of boards, as well as compensation consultants, be more independent.

And it will propose that the companies under review divide the function of chairman and chief executive between two executives. Many of these proposals have been introduced in legislation by Senator Charles E. Schumer, Democrat of New York.

The cuts described for the seven companies that received the most assistance may present an incomplete picture because the Treasury Department has already addressed a handful of very highly paid executives. Under pressure from Feinberg, Citigroup agreed to sell its Phibro trading unit, which is headed by Andrew Hall, the trader whose pay last year was almost $100 million.

And as a result of Feinberg’s discussions, Kenneth D. Lewis, the head of Bank of America, who said he would resign by the end of the year, agreed to forgo his salary and bonus for 2009. (He will still receive a pension of $53.2 million, although Feinberg can issue an advisory opinion challenging it.)

The plan will hit executives at some companies harder than others. At the financial products division of AIG, the locus of problems that plagued the insurer and forced its rescue with more than $180 billion in taxpayer assistance, no top executive will receive more than $200,000 in total compensation, and officials in that unit will not receive any other compensation, like stocks or stock options. Some bonuses previously promised will be paid in the coming year.

But at other companies, the cuts may mean less. Many executives at Bank of America and Citigroup are expected to reap multimillion-dollar pay packages.

For executives at all seven companies, new restraints will also be imposed on perks. Any executive seeking more than $25,000 in special perks - like private planes, limousines, or company-issued cars - will have to apply to the government for permission.

Todd Wallack of the Globe staff contributed to this report.