Oct. 23 (Bloomberg) -- Kenneth Feinberg, the Obama administration pay master, cut compensation for top executives at companies that received federal bailouts as the Federal Reserve proposed rules to curb risky practices at U.S. banks.

Here is reaction from investors, finance professors and analysts to Feinberg’s cutting compensation of top earners at seven large companies and the Fed’s proposed plan to review pay practices at the 28 largest banks.

Kenneth Langone, co-founder of Home Depot Inc. and former New York Stock Exchange board member.

“If you want a graphic example of why government will never succeed in business: If I had a $50 billion investment in a company, I would want to make damn certain I had the very finest managers I could get, no matter what I have to pay. This is sheer stupidity. Just think about the investment that our government has got in all these companies. This is not a government job. The taxpayers have an enormous financial risk in these companies, and very simply stated, I want the best person. If I needed neurosurgery, I would want the finest doctor I could get, no matter what I had to pay for it.”

“These people are thinking like they are bureaucrats, or academics, or whatever the hell you want. Look at their track record in business. If a guy like Jack Welch were making these decisions, or Larry Bossidy, or Bill Gates or Warren Buffett, I’d buy it.”

Charles Geisst, finance professor at Manhattan College, Riverdale, New York, author of “Wall Street: A History” and “Collateral Damaged: The Marketing of Consumer Debt to America”:

“The long and the short of it are the same: It’s unprecedented. As far as I know, this has never been an issue.”

“I think most people would prefer not to hear this and just watch them go back and get some stronger regulation.”

“They are probably just jumping on the bandwagon of the pay issue.”

Kevin Fitzsimmons, analyst, Sandler O’Neill Partners LP, New York:

“The government has said they’re going to revamp the financial regulatory regime and I think pay is an area that gets a lot of headlines and it gets a lot of outrage when politicians talk about it.”

“I’m sure there is excess in certain places and it’s definitely warranted to look at it. I think it would be a mistake and unfortunate to just go and really treat the banks as a scapegoat.”

“I just hope it’s done in a way that there’s a conversation and the industry is not left without a voice, just strapped to the table and having something implemented upon it.”

John Gutfreund, former chairman of Salomon Brothers, president of Gutfreund & Co., New York:

“It’s just belated, that’s all. It’s typical of what happens when you’re dealing with a situation that you haven’t dealt with before. When they (the government) attempted to help a failing economy and helped the big banks, they didn’t set up rules.”

(They only thought about pay) “almost as an afterthought. They should have thought about it advance.”

Peter Wallison, former general counsel at the Treasury Department, now a fellow at the American Enterprise Institute, Washington:

“This is a clear triumph of the mentality of a political witch hunt over reason. This is about politics and envy.”

“We’d hoped that everything the government has been doing returned the banks to health, but they’re driving out the people who are best able to do that. All this does is satisfy the political urge to find scapegoats, not make these banks stronger. The value of these banks will be diminished because good people will leave.”

“If they really follow up on this, it’s a major historical event and it will have vast consequences.”

Jeremy J. Siegel, finance professor, the Wharton School of Business, University of Pennsylvania, Philadelphia:

“When you go to the government and ask for money you shouldn’t be surprised to see them trying to set policies and salary. My opinion is, pay it back as soon as you can so you are not under the thumb of the Feds.”

“When you’re the major lender you have a lot of say in the policy. If the firms don’t like it, work as hard as possible to pay that off.”

Graef Crystal, a compensation specialist and Bloomberg News consultant:

“If this is the beginnings of getting into a broad-based thing where we are going to just start regulating pay, then we aren’t too far away perhaps from having controls on pay and we had those with (President Richard) Nixon in 1973. They were an utter disaster. After about 15 months, the whole thing collapsed like a building that had been wired with explosives and that was the end of it.”

“Every time the government gets in and tries to do something, there are a lot smarter people out there in the private sector -- they are a lot more nimble -- the tax lawyers, the executive compensation consultants. They will find 10 ways around it in 10 minutes and it won’t be pretty. It will end up being dysfunctional.”

Richard Sylla, economic and financial historian at New York University’s Leonard N. Stern School of Business, New York:

“Regulatory reform is really up for grabs right now, and there is lobbying going on, and I would say the Fed coming out on top of (special master Kenneth) Feinberg is almost a part of their campaign to say, ‘Yes, we can do this, by all means, appoint us to be the regulator.’ I think some of the Fed’s enemies will jump up to say the Fed will be too lenient.”

“What we need to get away from is having a guy on Wall Street take a lot of risk this year and say, ‘If it pays off for me, I get a huge bonus at the end of the year, and if it doesn’t, they’ll probably fire me but I won’t lose anything and the bank and taxpayers will be left with the cleanup job.’ We’ve had too much of that.”

Charles Elson, chairman of the University of Delaware’s corporate governance center:

“The board’s authority is diminished. The question is, how will this affect retention? Clearly pay is out of control. That’s important to note. The fix is in the board of directors, not in the third party, imposing compensation standards.”

“I think this is political. It has nothing to do with economic issues. Politics and economics have never mixed successfully.”

“By diminishing the board’s authority, ultimately you will harm investors. Even though the government is an investor, there are other investors as well.”

Timothy Ryan, president and chief executive officer, the Securities and Financial Markets Association (SIFMA), Washington:

“These proposed rules will likely affect compensation for hundreds if not thousands of professionals working in our industry. We appreciate the Federal Reserve addressing the regulation of compensation policies through a standard rulemaking process, allowing market participants and interested parties to provide substantive comments to their proposal.

“Ensuring pay is tied to sufficient risk management, long- term performance and shareholder interests are goals we share, and are reflected in the industry’s Guidelines for Compensation that we released this summer. We look forward to working with the Federal Reserve as this regulatory process moves forward.”

To contact the reporter on this story: William Ahearn in New York at bahearn@bloomberg.net

Last Updated: October 23, 2009 00:00 EDT