Wall Street is warily watching the Obama administration's pay czar and wondering if he will flex his muscle to claw back past bonuses paid to some of the biggest players in high finance.

Such a move, which Kenneth Feinberg first publicly hinted at this past weekend, could roil the industry, which lately seemed to have successfully toned down congressional efforts to curb outsized pay packages.

There are some real concerns about the scope of 'clawbacks' and the people and payments that they may reach, said Linda Rappaport, who leads the executive compensation practice at Shearman & Sterling, a New York Law firm.

Rappaport, who has advised banks including Citigroup Inc (C.N) and Morgan Stanley (MS.N), both of which received loans from the U.S. Treasury's Troubled Asset Relief Program (TARP), said the concerns about clawbacks can influence the perceived value of incentive awards going forward.

Morgan Stanley has repaid all $10 billion in TARP money it received last fall. Citigroup has received a series of bailouts, including $45 billion from the Troubled Asset Relief Program, that have left the government owning a roughly 34 percent stake.

Feinberg heightened speculation he could use his powers when he told a crowd on Martha's Vineyard on Sunday that Congress gave him broad discretion to recover compensation paid to bailout recipients.

It is a very difficult issue, Feinberg said during his remarks at the island off the Massachusetts coast. I'm not sure it is a good idea for the U.S. Treasury to be a bill collector or try to get money back as an institution.

Still, he said: There may be some egregious cases where it is in the law, I've got the discretion, and I may exercise it.

Some the financial industry's critics on the left have ideas aplenty about how Feinberg can start using his authority.

I would love for him to go after all the characters, but whether that includes some of the Merrill Lynch folks, the AIG people, it is hard to guess, said Richard Ferlauto, the director of corporate governance and pension investments for the American Federation of State, County and Municipal Employees, one of the largest U.S. labor unions.

ROOT OF THE CRISIS

While some have singled out Andrew Hall, Citigroup's energy trader who is expected to make a reported $100 million this year, Ferlauto said he would put Joseph Cassano, the former head of American International Group Inc's Financial Products subsidiary at the head of the list for a clawback.

Cassano, who headed the unit that underwrote credit default swaps that triggered more than $25 billion in write-downs, received $34 million in bonuses and $1 million a month as a retainer after he was terminated in 2008.

He is somebody who is at the root of the crisis and he was essentially untouched, Ferlauto said.

Feinberg's ability to claw back compensation -- even at firms that have paid back TARP money -- was tucked into a rule the U.S. Treasury implemented in June.

It gives Feinberg sweeping power to recover money paid out to employees while the firm was in the TARP, if those payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.

But the rules are unclear about what would constitute an inaccurate pay formula, leaving that judgment to Feinberg.

Actually trying to use that power could be problematic and run into a thicket of legal challenges, some experts say.

Peter Cappelli, management professor at Wharton business school, said government-instituted clawbacks could be viewed as egregious because the power was granted after many institutions were already in the TARP.

I think that's seen as quite a sharp departure, he said.

ANYTHING IS POSSIBLE

James Reda, a New York-based compensation consultant, said he doubts Feinberg would use his power because it would be met with heavy resistance and lawsuits.

The best clawback is to pay a large part of the compensation in stock and subject it to stock price risk over five years, Reda said. If the company turns out not to be so profitable overall, the payout will be a lot less.

For now, Feinberg is focused on reviewing lists of the 25 highest paid employees of seven major firms who are still locked in TARP, including Citigroup, American International Group Inc (AIG.N) and Bank of America Corp (BAC.N).

Feinberg, a Washington lawyer and unpaid appointee, now has 60 days to review the proposals.

Ferlauto, the union leader, is hopeful that Obama's point man on pay will take full advantage of his authority.

He has to make some statement for the Obama administration, Ferlauto said.I think he would do a disservice to taxpayers if he didn't use those powers.

Citigroup Bank of america Merrill Lynch