Obama's Pay Curbs Miss the Mark, Street Says

Updated from 12:25 p.m. EST

President Barack Obama's proposed clampdown on CEO salaries for companies getting a government handout may be misguided in its execution, even if the spirit of the move makes political sense, Wall Street analysts and observers say.

Analysts are concerned that Obama's $500,000 salary cap for senior executives is indicative of misplaced priorities. Although some believe that heads of major financial institutions should not benefit as the country is rocked by their previous excesses, they contend the salary cap is unscientific in its approach and fails to address the much larger problems associated with the credit crisis.

"One of the problems we're having ... is we're confusing policy, economic policy, with social justice. I'm not sure the two should go together," says Jim Paulsen, chief investment strategist at Wells Capital Management.

The pay curbs , presented by Obama and Treasury Secretary Timothy Geithner Wednesday, will effectively limit executive compensation at firms that receive "exceptional" government assistance in the future. The restrictions will not be retroactive for companies such as AIG (AIG Quote), Bank of America (BAC Quote) and Citigroup (C Quote), which already have received support that extends beyond the Troubled Asset Relief Program's Capital Purchase Plan.

Brent Longnecker, chairman of compensation consulting firm Longnecker and Associates, says that payout limits are warranted, but he wishes the administration had been less simplistic in its approach. The government would be wise to determine a range of compensation through the industry, and then, for example, cap salaries at the 50th percentile, he says.