Shareholders will get veto on boardroom pay

David Cameron has pledged to give shareholders the right to veto boardroom pay rises to try and put the brake on the "merry-go-round" that has seen executive salaries and bonuses continue to soar amid the recession.

The Prime Minister has responded to growing criticism over the failure to curb executive pay packages with the claim that controversial remuneration proposals should be decided by "a straight vote" among the people who invest in the company.

The Government hopes the proposal, expected to feature in a package of reforms being thrashed out by the Business Secretary, Vince Cable, will silence complaints that the coalition is not doing enough to enforce pay restraint among City fat cats.

But critics last night claimed the centrepiece of the plan to tackle "crony capitalism" was unworkable – and a minor advance on powers already available to most shareholders' groups.

The Labour leader, Ed Miliband, who has presented his own reforms - including granting workers a place on company remuneration committees – said voters would not believe Mr Cameron was serious about reforming big business.

But in his interview, Mr Cameron struck a firm tone about boardroom cronies helping each other "fill their boots" while the rest of the country was being forced to tighten its belt.

The Prime Minister told the Sunday Telegraph that "the market for top people" was not working. He added: "We've got to deal with the merry-go-round where there's too many cases of remuneration committee members sitting on each other's boards, patting each other's backs, and handing out each other's pay rises.

"We need to redefine the word fair. We need to try to give people a sense that we have a vision at the end of this, of a fairer, better economy, a fairer, better society, where if you work hard and do the right thing you get rewarded."

All three main party leaders have spoken out against spiralling pay over recent days as they bid to tap into voter anger at the lack of restraint at the top. The Mail on Sunday last night reported that Chancellor George Osborne was drawing up a new offence of "corporate negligence" that could see some bankers sent to jail.

Labour's proposals to create a "more responsible and better capitalism" include simplifying remuneration packages into salary and one performance-related element and publishing a league table of how much more bosses earn than employees.

The party also wants an obligation on investors and pension fund managers to disclose how they vote on remuneration packages and a repeat of the bank bonus tax.

In an interview yesterday, Mr Miliband said: "Does anyone really believe that David Cameron came into politics to create a more responsible capitalism? The public are not going to buy it.

"There can't be any more foot-dragging and backsliding. If David Cameron wants a more responsible capitalism - responsibility at the top and the bottom - then this would be a start."