At a 1:30 press briefing today, Kenneth Feinberg, the Treasury Department “pay czar” charged with setting compensation levels at companies bailed out by the federal government, is expected to lay out the Obama administration’s new pay requirements for those companies. While the orders will reportedly cut the compensation of 175 executives in half, the administration’s intent is not to wage a wider war on executive pay, Feinberg suggested at a conference in September.

“Let’s not consider this too much of a precedent, we are interested in the companies [in which] the people are the number one creditor,” he noted at a conference last month. Feinberg must determine the compensation packages for each of the top 175 corporate officials, and “only” for those seven companies, he emphasized at the conference.

At the time, Feinberg also provided an insight into his thinking on how to revise pay structures to make sure executives avoid taking “excessive risk” — what he sarcastically called his “favorite” task. As special compensation master for the big bailouts, he must set compensation of terms and conditions designed to make sure company officials avoid taking excessive risk. “I’d like all of you to tell me what that means,” he challenged the audience, declaring that “excessive risk” means something different to everyone, depending on their personal and professional perspective and the situations they’ve experienced. As a result, “it is very difficult to draw any sort of concrete formula from these benchmarks,” he contended.

Treasury’s press office would not confirm that Feinberg would lay out administration rules in today’s “pen-and-pad” briefing with reporters. But The New York Times and The Wall Street Journal reported this morning that the administration will order pay cuts at companies that received bailout aid.

Citing an official involved in the decision, the Times reported that the administration plans to order cuts of about 50% in total compensation for the top 25 earners at seven companies that got the highest levels of taxpayer help. The earners are at Citigroup, Bank of America, American International Group, and General Motors and Chrysler and the two automakers’ financing subsidiaries, according to the newspaper.

The administration will also order the companies to line up the executives’ incentives with the companies’ long-term financial health, according to the article.  The cash part of the executives’ salaries will be cut by an average of 90%, with the remainder of their compensation replaced by stock that can’t be sold for years, it added.

In related news, the Federal Reserve Board on Thursday issued its proposed rules on incentive compensation policies for the financial institutions it regulates. The guiding principle, according to the Fed, is for banks to design compensation schemes that that don’t undermine the safety and soundness of banks. Fed Chairman Ben Bernanke noted that “Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability. The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system.”

While critics have sought to narrow the gap between the pay of top executives and workers in a more widespread way, Feinberg’s action will focus narrowly on the seven companies, his remarks in September suggested. To be sure, that’s no small thing. Feinberg noted that he’s been charged with “the first governmental[ly] sanctioned effort to actually fix salaries.”

Feinberg was appointed by Treasury Secretary Timothy Geithner on June 10 to be the nation’s special master for executive compensation of the Troubled Asset Relief Program. TARP was established last October under the Emergency Economic Stabilization Act of 2008 to prevent a collapse of the U.S. financial system by propping up failing banks with government loans.

The law also set up pay restrictions for companies taking TARP money, and it’s Feinberg’s job to make sure the seven largest TARP borrowers are sticking to the government guidelines. For example, one of the overarching principles Feinberg must follow is to design compensation packages that promote long-term loyalty and performance, rather than short-term gain.

On one hand, critics argue that allowing the government to fix private salaries “is a bad idea” and a dangerous “precedent” with respect to the ripple effect it could have on business, he said in September. But he also pointed out that the pay-fixing role of the special master is limited to a small universe of seven companies, and those companies are creditors of U.S. taxpayers. That makes the special master “a surrogate for the creditors that own these seven companies,” said Feinberg. “What better role for a creditor to play than to ask the surrogate, the special master, to help protect their investment in these companies.”

In EESA, Congress left the selection of the special master up to Treasury Secretary Timothy Geithner. He called on Feinberg, a mediation attorney, who was the government’s special master for the September 11th Victim Compensation Fund.

Further, Feinberg must determine the compensation structure for the next highest-paid group of company officials – numbers 26 through 100 – from the seven corporations. He does not set individual compensation for this second group of employees, but rather has to design, and make public, the compensation regimen that will be used to fix their pay packages.

Finally, he has the discretion to seek clawbacks from any companies that received TARP funds, not just the largest seven. That means he can force individuals to return any compensation, bonuses, commissions, or other forms of payment that he deems to be contrary to the public interest. He emphasized, however, that the clawbacks are not mandatory.

Feinberg and his 15-person staff must also take into consideration several guiding principles when establishing pay. For example, he must consider the competitive marketplace to make sure that the levels of compensation he sets are comparable to those of other executives in similar situations. In addition, he must also think about the need for performance-based pay. That is, he must consider designing pay packages that tie compensation to prospective performance.