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I don't agree with Cavuto to the extent that his point is that limited executive pay at firms like GM will automatically give GM a cost advantage which will drive down exec salaries everywhere.

First of all, exec salaries are a small part of product cost so the market or sales determinant is still going to be product quality unless primary product costs are reduced for GM and Chrysler ONLY (and that just isn't the case).
Secondly, since execs can just as easily be compensated with stock options, the pay of non-restricted salary companies is a function of performance and GM, at a disadvantage of hiring workers and execs, should suffer the most (and is in fact already suffering the most).
An additional point here...companies like Ford could conceivably be taken private and turned into partnerships wherein the execs and management are only paid draws against the partnership interest which varies according to performance (like law firms or accounting firms).
This would put the comp issue beyond the reach of the government unless the gov't decides to go after lawyers and partnership comp as well, and that compounds the problem considerably.
Thirdly, as this all applies to financial firms, the limit on compensation will have no effect on firms outside those restricted because the otherwise highly paid execs, traders and investment bankers (those who actually create the wealth) will either start or join partnerships wherein their compensation is ownership...or bail the U.S. entirely and head for countries and economies that are thriving. Just a note about partnerships.
You can't limit the growth of wealth in a partnership that owns equity because to do so the gov't would essentially be saying to the partnership and the equities (companies) it owns that there is a fixed limit to their success (i.e. a company can only grow so much, or so fast, or succeed but just a certain percentage each year).
Such a limit on success, difficult as it would be to enforce, would kill the American economy...and we would all have to move to another country to earn a living OR join the underground economy that would spring up as it did in all communist countries.

I dont disagree with points 1 and 2. I do think that you might be a little off on point 3. Once the government gets their nose under the tent, they will get greedy and they will be jealous.

This action will get the “workers of the world” all riled up—in fact, this will get all workers looking at the pay of their managers and executives. Most average worker-bees have no idea what the top folk make. I know from experience that Senior VPs in the run of the mill financial institution make eight to ten times that of their front line employee. Bonuses of 60-80% were not uncommon. I was actually a little unsettled when I found out the pay scales.

The government wont HAVE to do anything, there will be a movement towards more organization and unions will see a revival.

THAT is the agenda here.