The Wall Street Journal reports (subscription required) that "More than 40 financial firms have been hit with pay-related proposals, including Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), J.P. Morgan Chase & Co. (NYSE: JPM) and Morgan Stanley (NYSE: MS). Most of the targets are recipients of government capital from the Troubled Asset Relief Program."

This is great news and represents an increase of more than 60% over last year, according to RiskMetrics. Of course, it doesn't matter nearly as much as it should: The "say on pay" votes are really just advisory: All that they do is put a little box on the proxy ballot where shareholders can say how they feel about their company's egregious executive pay practices.

With the Obama administration's $500,000 executive pay cap for bailed out companies imposed, the more important and more determining question concerns how the American people respond.

Ironically, the public's reaction may hinge on how Wall Street and the broader financial community reacts.

Historically, Americans have opposed pay caps and generally looked unfavorably on government -- particularly federal government -- efforts to interfere with market-based valuations of talent / labor. In a nutshell, the public favors a minimum wage but believes "the sky's the limit" regarding compensation; if a board of directors, business partner or negotiated contract says you're worth $10 million a year in salary and bonus, then you deserve $10 million year.

President Barack Obama is planning to cap executive compensation at companies receive large amounts of TARP money at $500,000 per year.

"Tomorrow, I'm going to be talking about executive compensation and changes we're going to be making there," he told Anderson Cooper. "We've now learned that people are still getting huge bonuses despite the fact that they're getting taxpayer money, which I think infuriates the public."

President Obama announced that he wants to impose compensation limits on executives that receive government financial rescue funds. These proposals are said to include the following provisions:

• A $500,000 cash cap on annual compensation for senior executives
• Requiring top executives at financial institutions to hold stock for several years before they cash out
• Requiring nonbinding "say on pay" resolutions giving shareholders more say on compensation

These provisions would only apply to firms receiving government funds and would be applicable until they are repaid to the government.

This is a dramatic intervention into corporate governance, but then again the government bailouts are also unprecedented as well. Several are claiming that this is another step into more socialist America.

Can President Obama force CEOs to take a massive pay cut? While many others in the economy -- particularly the millions of regular Joes and Janes who have lost their jobs -- are helping to push down wages, CEOs have been immune from the pay cuts. But if Obama forces CEOs who take government money to limit their pay to $500,000 -- 25% more than Obama takes in -- will that cause all CEO pay to tumble? I think the answer is "no."

Why? Many reasons. First, no CEO in his or her right mind would volunteer to take government money given the ensuing pay cut. For example, if the CEO of a car company made $14 million in 2008, why would that same CEO volunteer to make $500,000 in 2009? Instead, the CEO would seek a position with a company that did not take government money and therefore did not limit the CEO's pay.

Over the past 12 months, shareholders in Ambac (NYSE: ABK) have lost more than 90% of their investments as the bond insurers ill-advised forays into structured finance have resulted in massive losses.

But for some reason the company's compensation committee deemed that performance worthy of $3 million in bonuses for 4 of Ambac's top executives. The company's latest proxy statement shows that CFO Sean Lenorard received a $950,000 cash bonus and Executive Vice President Douglas Renfield-Miller got $550,000. Chairman Michael Callen received $975,000 and Chief Executive Officer David Wallis took home $500,000

With public indignation and Congressional outcries building concerning large Wall Street bonuses while the U.S. taxpayer bails out the same industry that contributed to the financial crisis, efforts to limit or eliminate excessive compensation may hinge on whether the Obama administration wants to use political capital to do it.

The public attention-grabbing incidents are certainly there to keep the U.S. Congress focused on the issue: Wall Street allocating its sixth-highest level of bonuses during the investment banking sector's worst year since the Great Depression. Former Merrill Lynch CEO John Thain's decision, since reversed, to use $1.22 million in company money to redecorate his office, is one example. Another is Robert Rubin receiving more than $100 million in compensation from Citigroup (NYSE: C), a bank that's receiving hundreds of billions of dollars in government guarantees and other, direct financial assistance.

Sen. Claire McCaskill has come up with a novel way to cut compensation on Wall Street. The government should force a cap on the salary of every employee at firms that take TARP money. The upper limit would be $400,000. Not just the CEOs and top managers -- everyone. That would include the most elite bankers and traders who often make their firms hundreds of millions of dollars.

If the plan goes through, and that is a big if, it could measurably improve profit margins at big investment banks like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS). It could also force a lot of the best talent out the door.

Just when you think you've heard it all, you hear more. In the last year, Wall Street -- or more specifically, the brokerage units of New York financial companies -- lost $35 billion. (Worldwide, financial institutions have taken $1 trillion in write-offs of bad assets). Those firms received a large proportion of the $350 billion TARP and persuaded the Treasury to guarantee losses from hundreds of billions worth of their financial toxic waste. Their reward? $18.4 billion in bonuses.

How much of the TARP went to paying for those bonuses? The banks have cleverly neglected to report that. But let's face it -- money is fungible. So if they did not use the money from the deposits they received from the Treasury to pay bonuses, our tax dollars freed up cash they may have had from other sources that did go to paying those $18.4 billion in bonuses.

An era of greed that began with the election of Ronald Reagan has come to an abrupt end. That means that the seething emotions of greed and envy that come along with bonus time at investment banks will have fewer dollars attached to them. And talent will flow to government and academia rather than Wall Street. This could be good for the U.S.

Some of those masters of the universe in the investment banking industry have seen the value of their stock tumble (and many of them are going without bonuses this year). Here are some of the "casualties":

Former Merrill Lynch CEO John Thain's decision to spend $1.22 million to redecorate his office will probably put the issue of executive compensation limits back in play for the U.S. Congress, most likely for only bailout fund recipient companies, but quite possibly for other business arrangements, as well.

The compensation issue was considered politically dead for this year, but Thain's audaciousness could serve as the type of catalyst necessary to get a controversial bill through a review process that's designed to defeat or delay legislation. Thain was put in charge of Merrill's trading, investment banking, and brokerage operations after the Bank of America (NYSE: BAC) acquired Merrill.

Further, Thain's $1.22 million splurge of the company's money is the type of action voters will notice, prompting them to place pressure on U.S. Representatives and U.S. Senators to act. Thain's gratuitous redecorating has surfaced alongside Merrill's distribution of bonuses despite massive losses at the former investment banking and brokerage giant.

Board of directors oversight?

Some will argue that executive and employee compensation is a matter for a corporation's board of directors, not the U.S. Congress. Economist Peter Dawson said that's precisely the reason Congress should intervene.

In The New York Times, Cornell economics professor Robert H. Frank makes the case that executive compensation isn't as big of a problem as so many are convinced it is.

Frank writes that "In the past, a C.E.O. could often stay in the job for many years despite lackluster performance. Today, a C.E.O. who fails to deliver is often dismissed after a year or two."

I'm not sure what planet Mr. Frank is on. It might be true that executives don't last as long as they used to on average, but the financial markets are full of underperforming companies run by ineffective CEOs. When changes are made, it's often as a result of prodding by activist shareholders rather than by proactive decisiveness on the part of the board of directors. Then there's this ridiculous point:

If the market for executive talent is competitive, critics ask, why are C.E.O.'s in an industry paid about the same, regardless of performance? That's because no one knows with certainty how a particular executive will perform.

Exactly. But the point of pay for performance is to align executive compensation with performance. If they do well they make a lot of money, and if they don't then they don't. Mr. Frank seems to concede here that pay for performance is essentially a myth.

That said, I basically agree with Frank's point that imposing congressional limits on executive pay is a bad idea. Limiting tax deductibility would simply lower shareholder returns.

But maybe there's an alternative. If Congress imposed a limit on the tax deductibility of executive pay (one with teeth, not one that provides a giant loophole for anything that is tied to "performance") and then used the extra revenue produced to buy down capital gains tax rates, the result would be to provide an incentive for companies to limit executive pay while also giving a portion of the money back to shareholders when they pay excessively.

With stock prices plunging, many investors are mad as hell and they're not going to take it anymore.

Brad M. Barber, a professor of finance at the University of California, Davis, Graduate School of Management told (subscription required) The Wall Street Journal that hedge funds are sparring with management more because it "gives them someone else to blame for their misfortune."

Maybe that's part of it, but I don't think it's just a rationalization thing. The reality is that the vast majority of companies would likely benefit from a large activist hedge fund smacking people around and keeping things honest. Most public companies have seen their operational and stock price performance tumble over the past year but executive compensation hasn't budged. Corporate governance in America is essentially a joke and if a bear market brings about a renewed focus on managerial neglect and incompetence, that's a good thing.

It might well be that many fund managers are motivated by frustration at their declining performance and are lashing out at anyone who had anything to do with it but in many cases investors are victims of bad and self-serving management.

The typical American's tolerance for federally rescued banks and other institutions that continue to award bonuses? Very little.

Three-quarters of Americans say Goldman Sachs (NYSE: GS), Citigroup (NYSE: C) and other bailed-out and taxpayer-assisted companies should cancel all bonuses this year, a new Bloomberg News / Los Angeles Times poll shows.

Further, a majority of respondents also said the U.S. government should have a voice in how these companies are managed, while two-thirds favor tighter financial sector regulation. The poll was conducted December 6-8.

Economist Richard Felson said it's understandable that Americans would express concern about bonuses in financial institutions that accepted federal assistance.

"Awarding bonuses does send the wrong signal. It's also arrogant in the view of many citizens. In our nation, hundreds of thousands of taxpayers are being laid-off with no federal assistance to cushion their loss of income, and down the street a bank executive of a bank who received federal bailout money could be collecting a $300,000 bonus. It gives the appearance of the federal government paying for these bonuses . . . paying for large compensation despite these business flops," Felson said. "It's an arrogant and incorrect policy."

This post is part of AOL Money & Finance's Best & Worst in Money 2008 feature.

The year 2008 brought the word "greed" to new levels with major companies going bankrupt thanks to the greed of their top execs, who were more worried about lining their own pockets than about the interests of their customers and shareholders. This greed also helped to fuel the housing bubble that burst and sent home prices falling in what seems like an unending downward spiral. As the financial news continues to worsen, it's hard to pick the biggest money story of the year. We've pulled together our top four picks, and it's up to you to vote on the biggest money story of the year.

Here are our top four picks in alphabetical order:

Collapse of Wall Street
The world hasn't seen so many Wall Street firms go bust since the Great Depression, and we seem to be teetering on the edge of another worldwide depression. Top Wall Street execs pocketed millions, and in some cases, billions of dollars thanks to sales of complex financial instruments that it appears no one truly understood (or if they did understand their toxic natures they perpetrated a huge fraud on the investors who bought them). Now these same executives pocket millions in golden parachutes as they leave the firms they destroyed. And, while they enjoy their millions, investors, customers and employees of these now defunct or badly bruised firms face destroyed careers and/or portfolios.