Sept. 24 (Bloomberg) -- Treasury Secretary Henry Paulson, reversing his position, said he would accept limits on executive compensation in his proposed $700 billion rescue plan for the banking industry after an outcry from lawmakers.

``The American people are angry about executive compensation and rightfully so,'' Paulson told the House Financial Services Committee today, departing from his prepared remarks. ``We must find a way to address this in the legislation, but without undermining the effectiveness of this program.''

The remarks were a shift from comments yesterday, when Paulson, a former chairman of Goldman Sachs Group Inc., said introducing limits on pay would impede getting the fund started. Both Democratic and Republican legislators have insisted on some restrictions on compensation in return for the government buying devalued assets from financial companies.

The concession came as officials and congressional staff continue to negotiate a package, after legislators from both political parties refused to ``rubber stamp'' the Treasury's original plan. House Republicans warned the Treasury chief earlier today that the legislation wouldn't pass and asked for more time to consider alternatives.

Paulson sought to soothe congressional concerns about the authority he is asking for, saying he welcomed some form of supervision of the program. His original proposal would have prevented courts from reviewing the Treasury's use of taxpayer funds while raising the nation's debt ceiling to $11.315 trillion from $10.615 trillion.

`Extraordinary Power'

``I'm not looking for extraordinary power,'' Paulson said in response to questions from lawmakers. ``We need and want oversight, transparency, protection. And we've got to do it in a way in which we can be effective.''

Paulson and Federal Reserve Chairman Ben S. Bernanke appealed to lawmakers to come together quickly behind the proposal to help calm financial markets, prevent bank failures and bolster the U.S. economy.

``I understand that this is an extraordinary ask, but these are extraordinary times,'' Paulson said, adding he was ``encouraged by the bipartisan consensus for an urgent legislative solution.''

Limiting pay packages of executives at companies that participate in the bailout program had been a sticking point between the Bush administration and Democrats in the House and Senate.

Pay Provision

Senator Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, yesterday told Paulson in a hearing to ``count on'' a compensation provision to be in the legislation.

Paulson received an $18.7 million cash bonus for the first half of 2006, and in 2005 he was the highest paid chief executive officer on Wall Street, reaping $38.3 million in salary, stock and options. He had also accumulated 3.23 million shares of Goldman's common stock worth $492 million, plus restricted shares worth $75.2 million and options to purchase 680,474 shares, according to a Goldman regulatory filing on July 2, 2006.

Paulson wasn't required to pay a 20 percent tax penalty on some of his compensation from Goldman under an Internal Revenue Service rule that waived the tax on executives forced to sell stock to comply with government ethics rules.

At the hearing before Dodd's committee yesterday, Paulson said: ``In terms of the compensation issue, there's a lot of things at need to be done there, but I would respectfully submit that we can't do those as quickly as it takes to get this system up and running, because that's what you care about.''

Paulson's comments on compensation today, made at the beginning of the House panel's hearing, weren't in the prepared testimony the Treasury released by e-mail.

``People in this country understand pay for performance, for success -- that's the American dream,'' Paulson told the House committee today. ``No one understands pay for failure.''

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net

Last Updated: September 24, 2008 17:15 EDT