Shareholders are to be given the right to veto "fat-cat" pay rises for company directors, the government has said.

Trade Secretary Patricia Hewitt has given details of plans for obligatory annual ballots, at which shareholders will have the right to approve or reject remuneration.

The government hopes to defuse growing criticism of the "rewards for failure" culture, where directors are awarded pay-offs despite destroying shareholder value.

The most notorious recent case was a �300,000 pay-off to Lord Simpson, who was ousted as chief executive of ailing tech firm Marconi in September.

Industry welcome

Despite some criticism from business leaders over the rules, Ms Hewitt told the BBC's Today programme that she was "very struck by how angry they are about when directors' pay has nothing to do with performance.

"It is not good for the reputation of business," she said.

The Institute of Directors (IoD) welcomed the rules, which it helped draw up in earlier DTI consultation.

"Anything which makes remuneration policy clearer, strengthens accountability and enables stakeholders to exercise their influence effectively and constructively, has to be welcomed," said George Cox, its director general.

Eager to shake off the fat-cat image, however, the IoD stressed that cases such as Marconi's were "very much the exception".

Moral pressure

Firms will be able to push through directors' packages even if shareholders vote them down.

But ministers hope it is unlikely that companies will continue to override their shareholders' wishes as expressed in the annual ballot.

Ms Hewitt said she was "consulting on the details" of how much of the rules should be enshrined in law.

Aside from putting remuneration to a ballot, the new rules aim to provide more general transparency on compensation.

Companies will be obliged to report in detail the way they link rewards to performance, placing particular emphasis on directors whose policies are seen as contributing to corporate failure.

Some companies already have such rules in place, but according to the National Association of Pension Funds, only 10% of FTSE-350 firms held a vote on remuneration this year.