Federal Reserve, Arbiter of Wall Street Pay

NEW YORK (TheStreet) -- Soon, it seems, Wall Street will lose the top reason most of its employees come there in the first place: money.

The Federal Reserve is considering a proposal that would put it in charge of compensation decisions for financial institutions, according to the Wall Street Journal. The move is part of a comprehensive plan by the Obama administration that would make the Fed a risk watchdog of sorts in the financial markets.

The proposal now being considered by the Fed's board appears wide-ranging in scope. Essentially, it would make the Fed an arbiter of pay at any company along the food chain of the financial crisis whose employees were incentivized to take on more risk. Those employees include everyone from the loan officers who drove once-traditional banks into the subprime market, to the traders who leveraged up 30:1 to the top executives who made poor decisions for a firm only to walk out with golden parachutes before its collapse.

The biggest financial firms are expected to receive the closest scrutiny, unsurprisingly so. American International Group (AIG) is the biggest recipient of government funds, and became the poster child for bailout bonuses gone bad in March. Bank of America (BAC) is still embroiled in a scandal over bonuses paid to Merrill Lynch employees as the firm prepared to report a $15 billion quarterly loss. Wells Fargo (WFC) in August preemptively made the decision to weight salary raises in stock rather than cash to align interests with that of shareholders.

Those and scores of other firms, including Goldman Sachs (GS), Morgan Stanley (MS) and Citigroup (C), have been closely watched by regulators to ensure that pay packages are acceptable, and CEOs were called to task about pay policies in February. At the time, the administration had put in place a rule that capped executive compensation at $500,000 for companies receiving "extraordinary help" from taxpayers, and Congress soon passed restrictions of its own.