The use of $18 billion of taxpayer cash to pay bonuses infuriates me as much as anyone, but I'm concerned that capping executive pay at $500,000 is too extreme. Any additional compensation will have to be made in the form of restricted stock grants that cannot be sold until the government loans have been paid back.

Here's the problem: Regime change is needed at Citigroup, Inc. (NYSE: C) and Bank of America Corporation (NYSE: BAC), where Clown Prince of Wall Street Kenneth Lewis has destroyed one of America's most valuable companies. But what executive will take his job for $500,000 per year when he can make five or ten times that running a smaller company without so many problems?

The real problem with executive pay at these companies was that executives who destroyed companies made billions. But why should new people with strong track records who had nothing to do with this mess be penalized with smaller pay packages? My concern is that these executive pay caps will prevent the companies that most need new blood from attracting it.

A better idea would be to tell companies receiving bailout money to toss out their entire executive suites and boards of directors with no severance packages. Then, new executive compensation reform should focus on structuring pay in a way that it is actually tied to performance.

Taxpayers have far too much at stake in these companies to leave their fates in the hands of the current executives or bureaucrats willing to work for $500,000 per year.