Government regulators could prohibit incentive-based pay packages at large U.S. financial institutions that encourage inappropriate risks under a bill approved on Friday by the U.S. House of Representatives.

Heading next to the Senate, where its outlook is uncertain, the bill would also give shareholders in public corporations the right to cast annual, nonbinding votes on executive pay, giving them a louder, but largely symbolic say on pay.

The House Democrats' bill, part of a broad push to tighten banking and market regulation, would also impose new standards on corporate compensation committees and compensation consultants, requiring them to be independent of managers.

Financial institutions with assets of less than $1 billion would be exempted from the regulation on incentive-based pay.

The House vote signifies progress for Democrats' drive to toughen oversight of banking and markets amid the worst financial crisis in generations and a stubborn recession.

It also raises to a new level Washington's efforts in recent years to moderate the high pay of top U.S. business managers, a perennial issue in U.S. corporate governance.

Republicans criticized the House bill, largely echoing complaints from business lobbyists fighting to block new limits on executive pay and other financial regulation reforms.

Republican Representative Pete Sessions said the House bill would undermine confidence in corporate America and amount to a government takeover of the free enterprise system.

Democratic Representative James McGovern, in floor debate, said executive pay is out of control, even as many Americans struggle to stay in their homes and keep their jobs.

Corporate executives are continuing to give themselves multimillion-dollar pay packages ... The misbehavior in corporate America must come to an end, McGovern said.

The House vote came a day after a report showed that more than 4,700 bankers and traders got 2008 bonus payments of $1 million or more at large banks bailed out by taxpayers.

In spite of a dismal year on Wall Street, the report by New York Attorney General Andrew Cuomo said bonuses paid at nine bailed-out banks exceeded some of the banks' annual profits.

President Barack Obama is pleased with the House pay bill, White House spokesman Robert Gibbs said on Thursday.

The administration has an executive pay proposal, as well, but it does not include empowering regulators to ban too-risky incentive-based pay at banks and other financial firms. It does call for an investor say on pay and more board independence.

(Editing by James Dalgleish)