During last fall’s financial Armageddon, many of Wall Street’s biggest banks faced a stark choice: Either take government money to stay alive, or go bankrupt. The survival instinct won out, and after taking government money, some -- including Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) -- have paid it back.

But Bank of America (NYSE:BAC), AIG (NYSE:AIG), Citigroup (NYSE:C), General Motors, GMAC, Chrysler, and Chrysler Financial still retain those funds, and they’re paying the price -- literally. These seven are subject to the whims of the government’s “pay czar” until they pay back their government money.

Do recent developments like the “pay czar” usher in a new era for executive compensation, where restrictions are placed on bonuses paid as a way of reining in incentives that led to an era of corporate excess and reckless risk-taking? Should the country’s executive compensation system be restructured as part of an overhaul of corporate governance? For that matter, what changes should be made to corporate governance as a whole?

Congressman Paul Kanjorski (D.-Pa.), chairman of the House Financial Services subcommittee on capital markets, gave his thoughts on reforming corporate governance during a recent interview. What follows is an edited transcript.

Jennifer Schonberger: Part of the reason Wall Street levered up and took on so much risk was that it produced such great returns in the short term -- i.e., quarterly results, which in turn translate to windfall bonuses. In that vein, we talk about rectifying the system, restructuring it and trying to put a lid on risk. How much of that is rooted in pay structure/executive compensation? Can we rewire the system to make it more long-term focused?

Rep. Paul Kanjorski: That can be done rather easily, but we shouldn’t do it as simplistically, because the government should not get inside the interest of a corporation -- what they pay their workers. That’s a private entity. We should get concerned and exercise regulation because it has impact on the economy or the financial stability of the nation. We shouldn’t be spending our taxpayer money and getting heavily involved in setting wages.

Now we’ve done that just recently. Our problem is, we need serious reform in corporate governance, and if you do that, you’ll arm the shareholders and the appropriate parties with sufficient powers to make sure the insiders don’t get away with dictatorially running corporations and the assets of corporations. We just haven’t attended to that. Next year, that should be our big measure before this committee -- really in a serious way examining corporate governance and what additional powers are necessary.

Schonberger: Corporate governance has really fallen off the radar for a lot of investors. How do we get investors to care about this critical issue?

Kanjorski: The problem is that we’ve moved away from private investors and private ownership of capital being important as individuals. It’s become funded investors -- pension funds, large institutions, unions. So there’s not a single human mind that’s watching out for it. It’s a collective.

If we realize that, we give the opportunity for those collectives to have influence. If we make the right adjustment on corporate governance entities like CalPERS, they will be able to represent their pensioners in a much better way, because we’ll be able to give them the tools to be able to do that.

Right now, they’re very frustrated. Proxies are sent out, boards are elected, no one can nominate. We have to bring that up to speed. We have to adjust it to meet the new challenges of the global market.

Schonberger: I recently spoke with Yale professor Robert Shiller, and he told me that he thinks it’s time for a national consideration on restraining any further increases in economic inequality. He said that ideally, if it were politically possible, we should put it high on our agenda to start thinking about how we’re going to prevent it from getting really bad. What is your take on this?

Kanjorski: We do have tools that should be used, and we’re not using them. The tax code, if properly graduated, takes care of that problem. We’ve allowed the extremely wealthy to embarrass the political class in this country to drive down the burden that they should properly carry in taxes.

So as an example, [Berkshire Hathaway’s (NYSE:BRK-A)] Warren Buffett makes the perfect argument: Why should he pay 15% and you pay 25%? We should attend to that. That’s wrong. If we graduate taxes properly, these companies either won’t [be able to] afford [to,] or they’ll be throwing money away to overpay their executives.

But the reality is, if you touch that with corporate governance reform -- shareholders don’t want to throw their money away. The only reason is, they don’t know how to fight it. Secondly, it’s so expensive to make a fight now. We need to open that up and allow fresh air into the corporate structure to protect them. Corporations need Landrum-Griffith legislation that we put in place for the labor unions when they were becoming undemocratic and sealed from the inside. We passed a law that said, unions have to afford democratic processes to their members, and we gave the principles that spelled out [that] law. We need to do the same thing with corporations. You have to give democratic processes to your shareholders.

You can read the other half of my interview with Rep. Kanjorski here.

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Fool contributor Jennifer Schonberger owns shares of Bank of America, but does not own shares of any of the other companies mentioned in this article. The Motley Fool has a disclosure policy.