At a Labour conference in London on investment in industry he outlined proposals he put recently to Sir Richard Greenbury, chairman of the committee, which reports next month.
Dr Cunningham said that executives should not be offered a one-way bet where outstanding performance was rewarded but mediocrity was tolerated.
He added: "I suggested that the Greenbury Committee consider US-style incentive packages which penalise executives, within limits, for extraordinarily poor corporate performance. There should be no hiding place for mediocrity in the boardrooms of British industry."
Dr Cunningham said Labour supported the view that good performance merited good rewards, but there should be measures to encourage fairness.
These should include full disclosure of pay packages, publication of company accounts ahead of annual meetings so shareholders could put forward meaningful resolutions, a right for shareholders to vote on pay packages and a requirement for the remuneration committee to have at least one wholly indpendent member, who might be an elected representative of shareholders.
The crux of Labour's thinking on corporate governance, he said, was that performance incentives must be linked to clear, transparent individual management performance criteria. Rewards should be for outstanding corporate performance.
Dr Cunningham also outlined Labour plans for business development agencies, to be formed as part of a network of regional development agencies. They would be the result of a streamlining of existing organisations such as Business Links.
One function of the agencies would be as a clearing house for "business angels", perhaps through a national database putting such investors in contact with potential investments. The agency would also help to put together tailor-made finance for small companies in co-operation with banks and other financiers.
Rather than compete with finance companies, the agencies would "work alongside the private sector in a spirit of additionality and partnership".