The Obama administration scrapped the $500,000 salary cap it proposed for executives at firms receiving large amounts of federal assistance but appointed a pay czar to review, reject and even set pay levels — with no appeal.

Kenneth Feinberg, the administration’s new “special master for compensation,” will have broad authority over compensation for senior executives and the top 100 earners at American International Group Inc., Bank of America Corp., Citigroup Inc., General Motors Corp., GMAC LLC, Chrysler LLC, and Chrysler Financial. All seven companies got what the government calls “exceptional assistance” from the Troubled Asset Relief Program.

Mr. Feinberg’s decisions won’t be subject to appeal, and the Treasury Department said he will follow certain principles in making his decisions, including whether compensation rewards risk, allows a firm to remain competitive, is comparable to peers, tied to long-term performance and contributes to the value of the firm. Mr. Feinberg won’t receive any government compensation himself.

“We felt that in cases where we’re offering exceptional government assistance that we had a duty to the taxpayer to ensure that, even if the letter of the law had no restriction on overall salary, that there needed to be a review process to ensure that it was neither excessive, inappropriate or oriented to short term risk taking,” said Gene Sperling, a senior counselor to Mr. Geithner.

Meanwhile, Treasury Secretary Timothy Geithner outlined his push to reform compensation practices at all firms, including those that didn’t receive bailout funds, but shied away from imposing specific rules. Instead, the Obama administration issued voluntary compensation guidelines that tie pay more closely to long-term performance.

Mr. Geithner also said the White House will push legislation giving shareholders more power to vote on executive-pay packages at all firms and improving independence on boardroom compensation committees.

The efforts announced Wednesday are somewhat weaker than what many on Wall Street had feared, given the heated rhetoric surrounding pay earlier this year. At the time, President Barack Obama called bonus payments made by TARP recipients “shameful” and said he would demand “some restraint in exchange for federal aid.” The ire fanned efforts by banks to repay their TARP funds, and federal officials gave 10 large banks a green light Tuesday to return a total of $68 billion.

In February, Messrs. Obama and Geithner said the administration would cap executive salaries for firms receiving extraordinary assistance and require that any incentive compensation come in the form of restricted stock. All other companies receiving TARP funds would also have to cap executive compensation at $500,000, but could waive that limit by simply disclosing information about the pay.

The administration largely jettisoned those efforts in the wake of subsequent legislation passed by Congress that imposed tough pay restrictions on all TARP firms.

The administration feared the salary caps and bonus restrictions, when combined, would put TARP firms at a competitive disadvantage and ultimately hurt the taxpayer’s investment, government officials said.

Mr. Geithner’s broader effort to change pay practices didn’t come with explicit strings. The Federal Reserve continues to work on rules that would prohibit banks from crafting compensation that rewards risk that could put the firm in jeopardy. Most other firms won’t face specific rules.

“We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive,” Mr. Geithner said in remarks at the Treasury after meeting with compensation experts. Instead, he tried to jawbone companies into shifting pay practices.

Mr. Geithner said companies should more closely align compensation with long-term health. He said the administration would work with Congress to pass legislation giving shareholders a non-binding vote on compensation packages, known as “say on pay,” and ensuring that compensation committees are more independent.

Already, many on Wall Street are beginning to voluntarily change their pay practices, though it remains to be seen how long that lasts.

Morgan Stanley has said it is de-emphasizing annual cash bonuses in its pay packages, relying more on base salaries, restricted stock and deferred cash payments subject to clawbacks if the employee’s bets turn sour down the road. A spokeswoman for the firm declined to comment on the latest Treasury plans for pay reform.

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