YESTERDAY AFTERNOON, President Obama, with Treasury secretary Tim Geithner at his side, announced a plan to limit executive pay to $500,000 per year for companies seeking government assistance. The proposal serves a number of purposes. Most of all, it’s a strong play to the president’s promise to demand transparency in both the public and private sectors—something he’s had mixed results with so far. It’s also widely seen as a reaction to public outrage over the disgusting executives who “did this to us”—those who daily appear to be finding new ways to hold onto their cash flow as the rest of the ship is sinking.

On its face, this news is likely to have conservatives and free-market champions concerned. It smacks of government meddling, and the president’s demeanor—“I won’t tolerate it”—feels just a bit like a nanny’s scold. There’s nothing wrong with a banking executive making $14 million a year; most individuals in that position have virtually given their lives to get there. But of all the news from Washington that should have big-government opponents worried, this should bother them the least. Even the loudest cheerleader of the free market should own up to the recent indiscretion on Wall Street, and not stand between the fool and his consequences. The president is right to say that executives doling out $18 billion in bonuses while asking for taxpayer rescue is “shameful.” Sometimes people with money do stupid things.

But as much as Obama’s plan sounds like punishment, it’s really just an accountability mechanism with surprising—and commendable—amounts of flexibility. Most importantly, it only applies to companies who need government assistance (a bailout) to avoid failing. If your company takes federal (taxpayer) money, your executives cannot be paid more than $500,000 per year. They may still receive unlimited company stock as bonuses, but can’t cash it in until after the company repays its government loan.

If you generally oppose government bailouts, these restrictions should encourage you. Not only are they an incentive for companies to pay back the billions they’re taking from taxpayers, but they’re also a repellant: companies that don’t absolutely need federal assistance will have good reason not to seek it. (Most executives wouldn’t dream of roughing it on half a million a year. Bank of America C.E.O Kenneth Lewis, for instance, makes $14.4 million; G.M. chief Rick Wagnoner takes home $11.7 million). Companies already want out from under the loans as soon as possible (to “be under less scrutiny,” as Goldman Sachs C.F.O David A. Viniar put it), and this will help emphasize the importance of the government getting its money back.

Corporate accountability is generally uncontroversial in Washington; under the Bush administration, the Securities and Exchange Commission increased the requirements for disclosing executive compensation. Members of both parties, including House minority leader John Boehner—the man behind the Republican solidarity against Obama’s stimulus bill last week—support the new executive pay cap legislation. This plan will let those of us who want strict bailout oversight rest easier: companies will have to disclose all means of compensating their executives, and corporate boards will have more say about pay rates and special spending like planes, parties, and retreats.

The diplomatic exceptions in Obama’s plan also make it difficult to oppose. It won’t apply to companies who have already received handouts—only future applicants or returning beggars. The $500,000 salary cap will not apply to companies that just need standard assistance; it’s only for the “exceptional” cases like, the White House says, AIG or Bank of America. (It won’t affect banks that got in early, like Goldman Sachs and JP Morgan.) It also only limits the most senior executives—lower-level employees may still receive salaries in the millions.

Any time the White House is handing out new rules for private companies, we should be on alert. But this time, companies have invited restrictions by acting irresponsibly and asking taxpayers for lifeline. Unlike last week’s horrifically ill-focused stimulus bill, the pay cap proposal doesn’t represent a significant advancement for government economic control. Sure, it’s mostly a make-everyone-feel-better move. But it appropriately demands account for our money that could forseeably disappear into the thin Wall Street air, and that’s something we should all feel better about.