^{Democracy & Technology Blog} Limit CEO pay?

I am not sure which is worse, Rep. Barney Frank’s proposal to limit executive compensation, or Treasury Secretary Henry Paulson’s reported justification for opposing it:

Rep. Frank’s draft would mandate that any company selling assets into the program ‘meet appropriate standards for executive compensation,’ including limits on what could be deemed excessive or inappropriate, according to a copy seen by The Wall Street Journal. The government would also have the ability to ‘claw back’ incentive pay that was based on ‘earnings, gains, or other criteria that are later proven to be inaccurate.’* * * *Mr. Paulson is resisting efforts to limit the pay of executives whose firms participate in the program and plans to fight it “hard,” according to a person familiar with the matter. He fears that provision would render the program moot, since many firms might choose not to participate. (emphasis added.)

William Kristol is right when says limiting compensation “would punish overpaid Wall Streeters and, more important, limit participation in the bailout to institutions really in trouble.”
Maybe Paulson’s argument was misconstrued. I hope so.
Normally CEO compensation ought to be governed by the laws of supply and demand, but arbitrary limits hardly seem inappropriate in the context of a taxpayer bailout. A painless bailout will only tend to beget more bailouts.