As President Barack Obama called for "basic common sense" regarding executive pay Wednesday, the Treasury Department was announcing a campaign of measures to limit the compensation of top executives at institutions that receive government funds through the Troubled Asset Relief Program. "The Treasury guidelines on executive pay seek to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery and taxpayers being paid back on their investments," Treasury officials said in a media statement regarding the restrictions. Any firm designated as needing "exceptional assistance" -- or TARP funds beyond what's reasonably accessible to other institutions, usually through bank-specific agreements with the Treasury -- will be subject to strict regulations regarding executive compensation and company expense. The Treasury will require the institutions to limit the annual compensation of senior executives to $500,000, other than restricted stock, with any additional pay made in the form of restricted stock that vests when the government has been repaid the bailout funds with interest. The top five seniors of the firms are currently restricted from receiving any golden parachute payment upon severance from employment, "a ban that will be expanded to include the top 10 senior executives" with the new rules, which also require the companies to adopt a strict policy toward extra expenditures "related to aviation services, office and facility renovations," (ahem -- John Thain) "entertainment and holiday parties, and conferences and events." Other institutions participating in generally available capital access programs will face similar restrictions, though they will be allowed to waive their $500,000-plus-restricted-stock limitation on executive pay so long as they publicly disclose their compensation policies. Beyond such restrictions, Treasury officials urged further steps to examine how compensation strategies at these -- "not just those related to top executives" -- may have encouraged risk-taking behaviors that contributed to current market events. The Treasury also urged the development of "model compensation policies," which should include a requirement that all public financial institutions, not just those receiving TARP assistance, publicly disclose compensation information and work toward implementing compensation incentives with a "long term perspective" on the health of the institution and the recovery of the market. Examples of firms receiving "exceptional assistance" include American International Group (AIG), Bank of America Corp. (BAC) and Citigroup Inc. (C) under the Systemically Significant Failing Institutions and Targeted Investment programs. These restrictions will be imposed on institutions going forward, but not applied to institutions with contracts that have already been reached, according to the Treasury. Read the Treasury's announcement. The compensation and bonus policies at major financial firms receiving TARP funds have come under increasing criticism from the media and even the President, who on Saturday told the nation he had "learned this week that even as they petitioned for taxpayer assistance, Wall Street firms shamefully paid out nearly $20 billion in bonuses for 2008.... [T]he American people will not excuse or tolerate such arrogance and greed. The road to recovery demands that we all act responsibly, from Main Street to Washington to Wall Street." Despite Obama's plea for "transparency, rigorous oversight, and clear accountability," from Wall Street CEOs, the days that followed his Saturday address revealed damning tax errors of yet two more of his nominees. Treasury secretary Tim Geithner had already come under fire for his failure to pay some $30,000+ in taxes while he was employed at the International Monetary Fund. Even in light of the criticism he faced over the flub, Geithner's nomination was approved. For nominees Nancy Killefer and Tom Daschle, however, tax flubs would be the undoing of their nominations. Killefer asked on Tuesday for the withdrawal of her nomination for chief performance officer. Daschle also withdrew his nomination for head of the Department of Health and Human Services, and soon after Obama appeared on several televised media outlets, apologizing for the nomination mistakes. While recovering from embarrassing nomination flubs, the administration is reportedly also in discussion about a forthcoming bank rescue plan, rumored to involved from $1 to $2 tillion in additional spending after the TARP and the financial stimulus bill being picked apart in Congress. Geithner is reportedly in discussions to refocus on assets through the TARP. Sources told Bloomberg the Treasury and the Obama administration are moving away from a federally-regulated "bad bank" to hold toxic securities, and toward a measure to guarantee illiquid assets against potential losses while still held on bank balance sheets. Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.