Trade Secretary Stephen Byers said he would shortly publish a consultation paper on how shareholders might be able to have greater influence on boardroom pay.

Byers wants shareholders to have more power

Mr Byers said the government had no qualms about high salaries per se, but they needed to be justified by high performance.

"We need to recognise that in a global economy world class performance must be rewarded with world class pay," he said.

"But the public are aware some people are paid well for a poor performance. There needs to be a clear link between pay and performance," he added.

"Fat cat" pay rises continue

Angela Garvey has been asking whether fat cats are worth the millions they're paid

Meanwhile, a new survey reported that executive pay has risen by 26% in the past year - ten times the rate of inflation.

A survey for the Guardian newspaper of 77 leading UK companies said that the average pay for top executives was �960,000.

The increases far exceeded the 6.9% increase in profits by the companies, and the 5.02% pay increase for their employees. Pay of other boardroom executives rose by 22%.

Head of executive renumeration at Hay Managment Consultants, Richard Bednarek puts executive pay into context

The figures do not include the windfalls from share options, which added more than �1m to the income of 10 of the top bosses.

Of the 30 top executives with pay of more than �1m, 14 work for just three companies - Cadbury Schweppes, EMI, and fund manager Amvescap.

Byers plan

The Trade Secretary wants shareholders to play a more active role in running companies. He says that too many institutions would rather sell their holdings than engage in positive dialogue with a company that was performing poorly, and that shareholder activism could boost performance.

He will set out five options which will give shareholders a greater role in setting boardroom pay.

• requiring a vote at the annual meeting on the remuneration committee's report

• requiring companies to publish a remuneration policy for approval by shareholders

• requiring annual re-election of company directors

• requiring annual election of the chairman of the remuneration committee

• drafting new procedures which would allow shareholders to put forward resolutions on pay

After the consultation period ends in the autumn, the government will consider legislation as well as changes to the London Stock Exchange rules.

Shareholder backing

Mr Byers' approach has been backed by major institutional shareholders, who are publishing a new code of conduct on executive pay.

General Secretary of the TUC, John Monks: "Pay must be linked to performance"

The Association of British Insurers (ABI), and the National Association of Pension Funds (NAPF), who between them own 55% of the shares in the UK stock market, also want pay to be more targeted on performance.

"Exceptional rewards can only be justified by exceptional performance," said Richard Regan of the ABI.

Director of the Centre for Tomorrow's Company, Mark Goyder assesses the kinds of performance executives will be judged on

"Executive reward and incentive arrangements directly linked to performance can improve the competitiveness of British industry."

The ABI guideline of share options at no more than four times basic pay will remain, but the emphasis will be on more sophisticated schemes with clear performance targets.

"The issue of good corporate governance is at the heart of the government's drive for a more competitive UK economy," said Lynn Ruddick of the NAPF.

Not 'politics of envy'

Labour bitterly attacked "fat cat" pay while the party was in opposition, regularly highlighting a string of huge wage rises for top executives, particularly in the privatised utilities.

But in government it has been careful not to suggest statutory limits on top pay, preferring to work through voluntary action with shareholders.

Union officials said moves to tackle boardroom "greed" were long overdue. But some will be disappointed that the government is not prepared to go further in its pay crackdown.