WASHINGTON — Talking tough but stepping gently, the Obama administration rejected direct intervention in corporate pay decisions Wednesday even as officials argued that excessive compensation in the private sector contributed to the nation's financial crisis.

Instead, the administration plans to seek legislation that would try to tame compensation at publicly traded companies through shareholder pressure and less management influence on pay decisions.

At the same time, the administration drew a sharp line between the overall corporate world and those institutions that have tapped the government's $700 billion Troubled Asset Relief Program.

The administration issued new regulations Wednesday that set pay limits on companies that receive TARP assistance, with the toughest restrictions aimed at seven recipients of "exceptional assistance." Those firms are Citigroup Inc., Bank of America Corp., General Motors Corp., Chrysler, American International Group Inc., GMAC LLC and Chrysler Financial.

The regulations limit top executives of companies that receive TARP funds to bonuses of no more than one-third of their annual salaries.

But in a significant expansion of authority, the regulations call for a special compensation overseer who will burrow into the pay practices of some of the country's biggest enterprises.

The administration named Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the 9/11 attacks, as a "special master" with power to reject pay plans he deems excessive at the seven companies with the biggest injections of public money. Feinberg also would have authority to review compensation for the top 100 salaried employees at those firms.

The tempered broader approach to executive pay wasn't immediately embraced on Capitol Hill, where a leading Democrat said he wants to go further.

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In a lengthy statement released after the White House announcement, House Financial Services Committee Chairman. Barney Frank said he wants legislation that would instruct the Securities and Exchange Commission to ban company boards from rewarding excessive risk taking.

"It is not the government's business to discourage risk taking," said Frank, D-Mass. "But neither should we allow systems which have existed up until now whereby decision-makers are handsomely rewarded if they take big risks that pay off, but suffer no penalty whatsoever if those risks result in losses to the company."

With one set of policies for taxpayer-assisted firms and a more hands-off approach to the rest of the corporate sector, Obama is straddling what has been an explosive issue with the public and in Congress.

Executive pay emerged as an issue earlier this year amid disclosures that AIG, the insurance conglomerate, had paid bonuses of $165 million even as it accepted billions from the government.

"We do not believe it's appropriate for the government to set caps in compensation," Treasury Secretary Timothy Geithner said. "We're not going to prescribe detailed prescriptive rules for compensation. All those things would be ineffective, could be counterproductive in some ways."