U.S. lawmakers, responding to public outrage about outsized Wall Street pay packages, took the first steps on Tuesday toward setting new compensation standards for U.S. companies.

The vote in favor of executive compensation legislation by the House Financial Services Committee gives lawmakers the chance to partially advance at least a portion of President Barack Obama's ambitious financial regulatory revamp before adjourning for the August recess. The House of Representatives is scheduled to vote on the measure on Friday.

The bill, approved in a 40-28 vote, would give shareholders a greater ability to weigh in on executive compensation packages and would ensure that board compensation committees are made up of independent directors.

In a nod to public frustration with the bailout of Wall Street's biggest companies, the bill would also single out banks, broker-dealers, Fannie Mae (FNM), Freddie Mac (FRE) and other financial companies for additional disclosures of incentive-based compensation structures. Federal regulators would also be authorized to restrict "inappropriate or imprudently risky" pay packages at financial companies, though firms with under $1 billion in assets would be exempted.

Panel Republicans, led by Rep. Scott Garrett, R-N.J., opposed the measure and offered a raft of amendments that would have limited or eliminated large portions of the legislation. The raised the specter that "federal bureaucrats" would be setting pay levels for employees and warned that it could discourage recruitment efforts for companies.

Despite that opposition, the issue puts the GOP in an impossible situation. Republicans don't want to be seen as on the side of companies such as American International Group Inc. (AIG) that have been the source of public outrage over compensation matters.

"It's not to our advantage being up here opposing executive compensation. It's a very popular thing to go after," acknowledged Rep. Spencer Bachus, R-Ala.

Democrats rejected the idea that the government would be setting pay levels. Instead, they said shareholders would have the ability to have more say on an important issue.

"There's nothing in this bill that allows the government to set compensation," said Rep. Mel Watt, D-N.C. "Quit trying to hide behind the government as a big, bad entity."

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com