The Government is set for a hostile reception today from the investment community over its crack-down on boardroom fat cats following its insistence that it has not ruled out legislation to curb controversial rewards for failure.
The National Association of Pension Funds (NAPF) and the Association of British Insurers (ABI) said they opposed the introduction of new legislation as a way to stop companies awarding failed directors huge pay-offs.
The powerful shareholder bodies, in spite of being leading lights in the current campaign by investors against excessive boardroom pay, have warned that changing company law would not boost the UK's corporate governance record.
Nonetheless the Department of Trade and Industry has made it known that its four-month consultation, which will begin with today's publication of its paper on boardroom remuneration, will consider legal options as well as boosting best practice through City codes of conduct.
Christine Farnish, chief executive of the NAPF, warned embarking on the legal route would be like "opening a can of worms". "It would be very difficult to define failure in legislation and it would lead to an awful lot of lawyers' fees being run up in court," Ms Farnish said.
Peter Montagnon, head of investment at the ABI, said legislation could have "unintended consequences". "It could lead to a compliance culture where people try to get around the rules by saying 'it doesn't say I can't do it so I can'."
The NAPF and ABI, whose members together control nearly half the stock market, favour retaining the flexibility of reining in lavish pay-outs by shareholder activisim.
As well as the humiliating defeat of GlaxoSmithKline's pay policy at its annual general meeting two weeks ago, shareholder groups have scored victories at the retailer Kingfisher and Standard Chartered bank. Both have scrapped unpopular "golden goodbyes" in directors' contracts.
Mr Montagnon, referring to DTI proposals, warned that getting the balance right between clamping down on pay-offs while allowing companies enough freedom to recruit top executives could be very tricky.
The NAPF urged investors not to support the remuneration report of Tesco at its AGM on 13 June and is also opposing Cobham and Bookham Technology because of concerns about contract lengths and the lack of independence of non-executive directors.