Obama Administration 'Pay Czar' Kenneth Feinberg told members of Congress Wednesday that he opposes extending pay restriction imposed on the largest federal bailout recipients beyond those seven firms.

Setting restriction on the largest recipients of the rescue package is justified, given the government’s ownership interest in those firms, Feinberg told members of the House Committee on Oversight and Government Reform.

“But the federal government should not enter the business of micro-managing compensation practices beyond these seven companies by expanding my jurisdiction or broadening my discretionary authority,” he testified.

Feinberg added, however, that he hoped the restrictions would be voluntarily adopted by financial firms across the board.

Last week, Feinberg issued restrictions that cut overall compensation of each form’s 25 highest paid executives by 50%. Cash salaries were reportedly reduced by 90%.

Members of the committee grilled Feinberg about the restrictions, which replaced short-term payment such as bonuses with long-term compensation such as company stock. Rep. Dan Burton (R-Ind.) questioned Feinberg about the so- called brain drain, which would deprive companies of much needed talent as workers leave for firms not under the government’s thumb.

“If they jump ship and you don’t have top talent running these companies, the American taxpayer who is the majority stockholder has inferior people running the company,” he said. “Doesn’t that concern you?”

Feinberg responded that his recommendations were geared toward removing incentive for risky behavior and steer it toward long-term performance, a fact that could serve to cause employees to stay put.

“I think if you look at the total levels of compensation that we established in our determination, we think… they won’t jump ship,” he said.

Feinberg told the committee that in some cases the plan increased salaries for executives, but he disputed a Wall Street Journal report Wednesday that said he increased salaries an average of 14%.

“My definition of a base salary is not only what you get twice a month, but also draws that may be provided during the course of the year, guaranteed commissions, guaranteed bonuses,” he said.

Feinberg will now take aim at the salaries of the next 75 highest paid executives at the seven companies and then will move on to determine 2010 compensation. He will also attempt to re-work some $198 million in bonuses scheduled to be paid to AIG Financial Products executives in 2010. The financial products unit has largely been blamed for nearly bringing down the massive company through risky investments.

Feinberg said the special master of compensation for 2010 – he has not yet been appointed to continue as pay czar - will have a tough job, particularly in renegotiating existing compensation contracts.