Sept. 24 (Bloomberg) -- Treasury Secretary Henry Paulson, facing an outcry from Congress, told lawmakers he's willing to accept changes in the Bush administration's plan to buy troubled assets from financial firms.

Reversing his position, Paulson said he would address executive pay in his proposed $700 billion taxpayer-funded rescue plan for the banking industry. House Financial Services Committee Chairman Barney Frank said Paulson also ``accepts the fact'' that the plan will enable the government to take equity stakes in participating firms.

Paulson is working to salvage a deal in the face of opposition from lawmakers of both parties. House Republicans today warned him that the plan wouldn't pass and asked for time to consider alternatives. Paulson and Federal Reserve Chairman Ben S. Bernanke stressed the importance of easing the credit crunch soon, while acknowledging the need for taxpayer protections.

``The American people are angry about executive compensation and rightfully so,'' Paulson, a former chief executive officer of Goldman Sachs Group Inc., told the House panel today, departing from his prepared remarks. ``We must find a way to address this in the legislation, but without undermining the effectiveness of this program.''

The remarks were a shift from yesterday, when the Treasury chief said introducing limits on pay would impede getting the fund started. Both Democratic and Republican legislators have insisted on some restrictions on compensation for companies that would sell devalued assets to the government.

Talks `Ongoing'

``Nothing is final and discussions are ongoing,'' said Treasury spokeswoman Jennifer Zuccarelli in response to a question about Paulson's position on the equity provision.

Frank is consulting Paulson as he leads negotiations in the House on crafting a joint Senate-House measure that Congress will vote on as early as this week. The legislation doesn't need approval from the Treasury to be considered by Congress.

A joint House-Senate bill may be ready as soon as tomorrow, Frank said.

Senate Banking Committee Chairman Christopher Dodd has proposed that the Treasury potentially receive equity stakes in some companies that sell assets to the government. The shares would be realized in an amount equal to the 125 percent of the dollar value of a loss incurred by the Treasury on the sale of the assets.

Dodd yesterday told Paulson in a hearing to ``count on'' a salary provision to be in the legislation.

Paulson's Pay

``We're asking the American taxpayers to sacrifice and put $700 billion out there when other people have been lining their pockets,'' Illinois Representative Luis Gutierrez, a Democrat, said today. ``I want to make sure it doesn't happen tomorrow.''

As Goldman's chief, Paulson himself received an $18.7 million cash bonus for the first half of 2006, and in 2005 he was the highest paid chief executive officer on Wall Street, reaping $38.3 million in salary, stock and options.

He had also accumulated 3.23 million shares of Goldman's common stock worth $492 million, plus restricted shares worth $75.2 million and options to purchase 680,474 shares, according to a Goldman regulatory filing on July 2, 2006.

Paulson wasn't required to pay a 20 percent tax penalty on some of his compensation from Goldman under an Internal Revenue Service rule that waived the tax on executives forced to sell stock to comply with government ethics rules.

Credit Flows

Paulson and Bernanke in two days of hearings sought to stress the impact on the economy outside of Wall Street should the plan fail.

``Credit is the lifeblood of the economy,'' Bernanke said today. ``If the credit system isn't working, then firms can't finance themselves, people cannot borrow to buy a car, to send a student to college, to buy a house.''

In an earlier appearance before the congressional Joint Economic Committee, Bernanke said the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.

``Economic activity appears to have decelerated broadly,'' he said at the hearing, downgrading the assessment of Fed officials when they met on Sept. 16.

Legislators continued to call for the government to take stakes in companies in order to benefit from any gains emanating from the sale of illiquid assets. Paulson and Bernanke yesterday warned that such a move would keep some firms from participating. Bernanke today said he would advise the Treasury ``to be flexible.''

Banking Relief

``If this process is not working effectively, there are ways to use this money to again either purchase assets or purchase capital to support the banking system,'' Bernanke told the Financial Services Committee hearing.

Paulson sought to soothe congressional concerns about the authority he is asking for, reiterating yesterday's concession that he welcomed some form of supervision of the program. His original proposal would have prevented courts from reviewing the Treasury's use of taxpayer funds while raising the nation's debt ceiling to $11.315 trillion from $10.615 trillion.

``I'm not looking for extraordinary power,'' Paulson said in response to questions from lawmakers. ``We need and want oversight, transparency, protection. And we've got to do it in a way in which we can be effective.''

Bernanke and Paulson appealed to lawmakers to come together quickly behind the proposal to help calm financial markets, prevent bank failures and bolster the U.S. economy.

``I understand that this is an extraordinary ask, but these are extraordinary times,'' Paulson said, adding he was ``encouraged by the bipartisan consensus for an urgent legislative solution.''

To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: September 24, 2008 19:20 EDT