Obama plans to announce the new limits with Treasury Secretary Timothy Geithner at the White House on Wednesday.
"If the taxpayers are helping you, then you've got certain responsibilities to not be living high on the hog," President Barack Obama said in an interview with "NBC Nightly News".
An administration official familiar with the new restrictions said the most restrictive limits would apply only to struggling large firms that receive "exceptional assistance" in the future. Healthy banks that receive government infusions of capital would have more leeway.
The official, speaking on the condition of anonymity because the plan had not yet been made public, said firms that want to pay executives above the $500,000 threshold would have to compensate them with stock that could not be sold or liquidated until they pay back the government funds.
The president and members of Congress have been weighing various proposals to restrict chief executives' compensation as one of the conditions of receiving help under the $700 billion financial bailout fund.
Banks and other financial institutions that receive capital infusions, but are considered healthy, could waive the $500,000 salary cap and the stock restrictions. But they would have to disclose the compensation and submit the pay plan to shareholders for a nonbinding vote.
The administration will also propose long-term compensation restrictions even for companies that don't receive government assistance, the official said.