Obama is creating the position, formally known as special master for compensation, to institute his administration's guidelines and limits on executive pay for companies that took bailout money from the Troubled Assets Relief Program, or TARP.
Treasury Secretary Timothy Geithner made it clear Tuesday the government wants influence in what companies pay their top executives.
"We need to help encourage substantial reforms and compensation structures, particularly in the financial industry," he said.
But the top House Republican, Rep. John Boehner of Ohio, calls the whole idea of a pay czar "absolute lunacy."
"I just can't get over the fact that the American public is going to put up with this because at the end of the day, this is not the government's business," he told FOX News.
Other critics of the plan say it is going to hurt already ailing businesses because they won't be able to woo top management.
"If you keep these kinds of limits on, you're going to see a talent drain from some of these companies that really need the talent," said government affairs consultant Peter Peyser of Blank Rome Government Relations.
And business lobbying groups are concerned that other companies that didn't take any TARP money eventually may have their pay scales regulated, too.
"There is a tendency to over-regulate, and if they do so they will stifle the financial service industry," said Scott Talbott, a lobbyist with Financial Services Roundtable, which advocates for large financial firms.
But supporters say businesses that took taxpayers dollars should not balk at limits on executive pay.
"They should be thankful that the government stepped in when the private sector would not step in to help their economic viability," said Rep. Carolyn Maloney, D-N.Y.
Maloney said she doesn't think the pay czar would regulate private businesses that didn't take bailout funds. But that's some of the mystery here. No one is really sure how far this position will go. The new guidelines are expected to be announced Wednesday.
Molly Henneberg joined FOX News Channel (FNC) in 2002 and currently serves as a correspondent based in the Washington bureau.