Seventeen big banks getting bailouts from taxpayers made ill-advised overpayments to executives in late 2008 and early 2009, but they can't be forced to pay them back, U.S. pay czar Kenneth Feinberg said on Friday.

In his final act before he moves on to oversee payments from a fund that oil company BP Plc has set up to compensate oil-spill victims, Feinberg said he was urging banks to voluntarily adopt policies so that such pay practices could never happen again.

There were 17 companies where the payments that were made during this window of about five months ... were ill-advised, Feinberg told reporters at a press conference.

They weren't illegal, they violated no statute, they violated no regulation, he said, adding they reflected bad judgment but could not be termed contrary to the public interest.

Feinberg proposed that financial firms adopt policies that would let them restructure, reduce or cancel bonuses and other special payments to executives in future crises but said he had no authority to force banks to give back past overpayments.

Feinberg, the Obama administration's special master for compensation, investigated pay practices at 419 banks that got government bailout money during the financial crisis but before pay restrictions came into force in early 2009.

Some $1.7 billion of cash bonuses, retention awards, stock grants and other payments that later came under restriction were made between late 2008 and February 2009. Seventeen banks accounted for $1.6 billion of that amount and Feinberg proposed their compensation committees voluntarily adopt measures to stop such practices in future.

If the company's board of directors has identified that the firm is in a crisis situation, the compensation committee would have the authority to restructure, reduce or cancel pending payments to executives -- and this authority would supersede any rights and entitlements executives have in normal circumstances, Feinberg said.

His report covers a relatively narrow period from October 2008 when banks received payments from the Troubled Asset Relief Program, or TARP, until February 2009 when executive pay curbs were imposed as part of the economic stimulus program that President Barack Obama signed into law.

While Feinberg said the payments by banks including Citigroup, Bank of America and Goldman Sachs were ill-advised, he specified that they were not illegal because pay restrictions did not come into force until February 2009.

His tactic in naming the 17 banks essentially amounts to a name and shame approach, urging them to voluntarily ensure they tighten up on pay practices during crises. Feinberg said he was hopeful that banks would adopt the approach he was recommending but said he hadn't heard from any yet pledging to do so.

Most banks refused immediate comment, but a Morgan Stanley spokeswoman, Jeanmarie McFadden, said the bank support(s) the efforts of the special master on compensation reform and we are reviewing this proposal.

(Reporting by Glenn Somerville and Pedro DaCosta; Editing by Neil Stempleman)