The government has launched its long–awaited consultation paper setting out a series of options for halting huge pay-outs to failed bosses.
The Paper, Rewards For Failure, is a response to mounting public anger over the huge pay-offs given to directors who have presided over plunging profits, falling share prices and huge job losses.
Last week, a shareholders revolt at pharmaceuticals group GlaxoSmithKline overturned a remuneration package for chief executive Jean Pierre Garnier that would have seen him walk away with £22 million if he was sacked.
Trade Secretary Patricia Hewitt said that directors who walked away as multi-millionaires from companies where they had not performed, "sullied and tarnished" the reputation of business as a whole.
The consultation period, which ends on September 30, will weigh up three broad strategies. Leaving things as they appears to be the least likely option. A middle way would see the introduction of new guidelines on directors' pay and conditions. The legislative route would require changes to the Companies Act and new rules on contractual arrangements for Company Directors.
Shareholder groups, trade unions, and business lobbies have been invited to comment on the document, and concrete proposals are expected later in the year.
"Britain has some of the best and most successful businesses in the world." Patricia Hewitt said. "But the good reputation of the majority is being tarnished by the bad practice of the minority.
"We have no problems with big rewards for big success, but shareholders are rightly concerned when directors leave failing companies and walk away with excessive payouts."
Ms Hewitt added the Government had no intention of curbing the pay of successful directors, but said that it was "utterly insulting" to people who lose their jobs and investors who lose their pensions to see those responsible walking away with a bonus, compensation payments and huge pensions.
The proposals have polarised opinion. Business and shareholder bodies warned against legislation, arguing that legislating on Director's pay and conditions would be a legal minefield. But union leaders were united in their scepticism of the self-regulation route.
Confederation of British Industry director–general Digby Jones said business was ready "to put its own house in order", but warned that legislation would be unworkable.
"Let no one doubt that business is ready to grasp the nettle on this issue," he said. "But transparency and shareholder activism are the ways to police directors' pay, not legislation.
"Investors are the most credible judges of performance, not the government or the law courts.
The Institute of Director backed the CBI's position. Ruth Lea, head of the IoD's Policy Unit, said: "Shareholders are now more aware of their responsibilities to the firms they own and we would like to see the recently demonstrated shareholder activism given the opportunity to take effect."
The Chartered Institute of Personnel and Development also said that legislation would be inappropriate and unworkable.
But Brendan Barber, TUC general secretary, said that time was running out for the fat cats. "Business leaders are now gambling at the last chance casino," he warned. "Unless they stop rewards for failure and curb corporate greed they will inevitably face tough legal challenges."
Derek Simpson, joint general secretary of Amicus, was less equivocal. "We demand legislation to limit fat cat pay, with a workers' representative on every remuneration committee of a publicly listed company."
GMB general secretary Kevin Curran agreed. "Fat cat directors have shown no ability for self–restraint so far and a consultation document with no teeth will certainly not enlighten them."