Few who know anything about executive compensation, it seems, are fans of how the government’s financial-services rescue programs address the issue.

While the Treasury Department has not yet issued guidance on how to interpret or implement most of the vaguely worded pay provisions in the federal Troubled Asset Relief Program, observers aren’t waiting around to voice their displeasure.

Particularly troubling to these critics is their growing suspicion that a new presidential administration and Congress will try to expand the bailout legislation’s compensation restrictions — meant to limit pay at troubled companies — by applying them to the entire community of public companies, as well.

Such an effort would most likely be mounted if Barack Obama wins the White House and Democrats score big majorities in the House and Senate, according to Steve Barth, a partner in the transactional and securities practice at the law firm Foley & Lardner. “We think [the legislation] is the blueprint for what is going to be imposed on all public companies, and that will raise some incredibly complex issues,” he told CFO.com.

For example, he pointed to the provision whereby financial firms that sell troubled assets directly to the government, or receive an equity infusion, would be prohibited from structuring pay packages encouraging executives to take “excessive or unnecessary risks.”

The Treasury Department has not explained how it will define that phrase, but to Barth, discouraging risk-taking is antithetical to a healthy free-enterprise system. “If you apply these rules designed for troubled financial institutions to, say, software firms or other very entrepreneurial companies, what will it do to their capital-raising and business-development efforts? These companies are in the business of high risk. Are we really going to disincentivize risk-taking?”

And there would be further seepage into the private sector, as happened with the Sarbanes-Oxley Act, Barth noted, because most companies with a notion of going public someday adopt public-company rules as a matter of course.

Richard V. Smith, senior vice president and principal at Sibson Consulting, said he thinks a bid to broaden the bailout legislation’s applicability will happen no matter who is president. “Whether executive pay in public companies can actually be regulated, I don’t know,” he said. “But I think there will be a legislative attempt.”

That would be most unwise, however, Smith added, predicting that the best and brightest executives would flock to hedge funds and other private companies. “We wouldn’t get the talent we need to drive public companies and this economy,” he said. “And out of 15,000 public companies, how many are in trouble? It’s really only the financial services industry.”

Perhaps there will be seepage into nonfinancial firms even if the government does not drive it. Kenneth Raskin, the head of White & Case’s global executive compensation, benefits, and employment law practice, said he already had received calls from some clients asking whether they should subject themselves to some of the new compensation rules.

“I definitely see it happening that some companies will jump on the bandwagon voluntarily, just to be visibly up front and fair to their shareholders on what they do with respect to executive comp,” said Raskin. “But I also see a real possibility of Congress expanding it to other companies.”

But in any event, according to Raskin, the legislation is too weak to have much impact on how companies pay executives. One example of a provision that lacks teeth: the reduction from $1 million to $500,000 in the maximum tax deductibility of compensation for the CEO, CFO, and three other highest-paid executives at companies that take part in the bailout.

When the $1 million threshold was established in 1993, many companies simply started making stock options and other performance-based incentives, which were not subject to the cap, a bigger part of compensation packages. Other simply preferred to lose the deduction than lose their top executives. While the new law applies the limit to all compensation, Raskin said, many companies will either continue to simply absorb the lost deduction, or “wink and nod” at the rule by agreeing to pay off executives after the term of the bailout legislation expires. And anyway, he observed, the rule is moot for companies that don’t owe any taxes.

The bigger issue, and a missed opportunity for the government, Raskin said, is the gross-up provisions contained in the employment contracts of many senior executives, especially CEOs.

A gross-up is meant to defray taxes owed by executives who receive large golden parachutes. Current law provides that if a parachute is worth more than three times a departing executive’s average base compensation over the past five years, the executive owes a 20 percent excise tax on the amount that is above that average base compensation. Gross-ups are additional sums paid to the executive to effectively allow him to pay the tax without eating into his parachute.

Had Congress disallowed gross-ups, “that would have been very significant,” Raskin said. The legislation does prohibit golden parachute payments — including those provided for in previously existing employment agreements — at companies that sell assets directly to, or receive equity investments from, the government. However, for companies that sell assets to the feds through an auction process, parachutes are disallowed only in new employment contracts, so gross-ups under existing contracts would still be in effect.

Sibson’s Smith agreed that he doesn’t see much in the legislation that will effectively rein in executive compensation. “I think this is too little, too late — more of a social salve than anything else,” he said.

Smith did say that he hopes the compensation committees of some of the bigger financial firms “show some backbone” by publicly proclaiming that while they’re participating in the bailout program, they will lower executive pay and suspend severance and golden parachute payments. “This would be a good time to take a lead role in executive compensation and support this rescue,” he said.

Few are more frustrated with the bailout law’s pay provisions than the Institute for Policy Studies, an independent research organization that has been criticizing executive compensation excesses for 15 years.

In a report issued Tuesday, the institute’s Sarah Anderson lamented the law’s lack of a direct limit on overall compensation. “There is nothing in the Treasury Department’s new rules that would prevent a nationalized bank’s board of directors from approving a $20 million CEO pay package — unless the Treasury Secretary decides that award poses an excessive risk to the institution,” Anderson wrote. “Without clear limits on pay, the public is being asked to put their trust in Henry Paulson, a man who made hundreds of millions of dollars as a Wall Street CEO to decide what’s ‘excessive.'”

In the opinion of Barth at Foley & Lardner, though, the decreased tax deductibility, the restrictions on golden parachutes, and other provisions of the legislation will effectively put a ceiling on pay packages. “To say there’s no limit on pay is just wrong,” he said.

It will be interesting to see what happens, by the way, when executives who had signed agreements that included golden parachutes don’t receive their payouts. “The employee would have a contractual claim against the company,” Raskin said. However, neither the employee nor the company could make a claim against the government, the Treasury Department clarified on Tuesday.

Also on Tuesday, Treasury cleared up a potential loophole in the new law’s golden parachute provisions. Under existing rules the term is defined as payments to executives upon involuntary termination, such as a takeover, sale, or liquidation of the company. But golden parachutes also allow executives to terminate their employment “for good reason,” meaning upon malfeasance or acts of ill will by the company. The question was left open, then, as to whether executives of financial firms participating in the bailout could invoke this right and receive a severance. Now that question has been answered: they can’t.