WASHINGTON (Bloomberg)—Kenneth Feinberg, the Obama administration's special master on executive compensation, called on 17 bailed-out financial firms including American International Group Inc. and Goldman Sachs Group Inc. to adopt compensation policies that allow directors to lower top executives' pay when a firm's survival is under threat.

“In a crisis situation, a firm would have authority to restructure, reduce or cancel payments to executives—and not be bound by ‘guarantees,'” Mr. Feinberg's office said in a statement Friday. “The entirely voluntary proposal is recommended by the special master for wide adoption.”

At a press conference Friday, Mr. Feinberg named the companies that received taxpayer rescue funds and made payments to executives during the financial crisis that were “ill-advised” and “bad judgment,” though legal.

He said they were: American Express Co.; American International Group Inc.; Bank of America Corp.; Boston Private Financial Holdings Inc.; Capital One Financial Corp.; CIT Group Inc.; Citigroup; JPMorgan Chase & Co.; M&T Bank Corp.; Morgan Stanley; Regions Financial Corp.; SunTrust Banks Inc.; Bank of New York Mellon Corp.; Goldman Sachs; PNC Financial Services Group Inc.; U.S. Bancorp; and Wells Fargo & Co.

Mr. Feinberg made his proposal to companies that awarded $1.6 billion in payments under review because they occurred during a four-month period the financial crisis of 2008 and 2009. Mr. Feinberg determined that none of the payments were “contrary to the public interest” and said he has “no authority whatsoever” to recoup the money.

Under Mr. Feinberg's recommendation, “if the company's board of directors has identified that the firm is in a crisis situation, the compensation committee would have the authority to restructure, reduce or cancel pending payments to executives—and this authority would supersede any rights and entitlements executives have in normal circumstances,” the statement said.

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