Patricia Hewitt will this week signal the start of a three- month consultation with British business on boardroom pay, which is expected to lead to sweeping reforms.
The Trade and Industry Secretary will publish the consultation document on Tuesday, paving the way for new laws preventing executive reward for failure.
Sources close to Ms Hewitt said that the document will ask whether company boards should be given new powers to fire underperforming directors. But the Government is keen to avoid this leading to an increase in litigation.
Ms Hewitt will also ask how directors' performance can be assessed. The idea mirrors plans outlined in the failed Private Member's Bill tabled by Conservative MP Archie Norman.
Ms Hewitt wants to end rolling contracts, which lead to lucrative payouts for sacked executives. This has been a feature of the National Association of Pension Funds' recent corporate governance drive. It has urged members to abstain or vote against directors standing for re-election at company annual general meetings if they are on contracts of two years or more.
Later this month the NAPF will target defence group Cobham. It is urging its members to abstain from approving the company's remuneration report. The NAPF is unhappy that director Robin Clark is still on a two-year contract.
Cobham's AGM is on 11 June. On the same day, the NAPF is urging its members to abstain from approving the remuneration report of technology group Bookham and the re-election of a non-executive director. The NAPF is unhappy that five out of the company's six non-executive directors have options in Bookham.
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