City heavyweights Neil Woodford and Lord Myners are backing proposals for a radical shake-up of executive pay that aim to curb excessive payouts and hand more power to shareholders.
Control over setting executive salaries and hiring and firing directors would be handed to a shareholder committee, under new measures designed to tackle the yawning pay gap between the boardroom and front-line staff.
The report, which has been drawn up by Conservative MP Chris Philp in partnership with the High Pay Centre, calls for greater transparency and swifter action to tackle bumper pay packets. It suggests this could be achieved by introducing binding shareholder votes on executive pay and by forcing companies to publish the ratio between chief executive remuneration and the salary of the average worker.
The far-reaching plans come as top-brass salaries continue to rocket, with the average chief executive's pay hitting £6 million per year - the equivalent to 150 times the average worker's income.
City grandee Lord Myners said shareholders were struggling to hold companies to account over pay because the ownership of major corporations was becoming "increasingly fragmented".
He added: "This is as a result of the institutionalisation of ownership and increased pressure in fund management towards creating portfolios with investments in several hundred different companies."
The former City minister and chairman of Marks & Spencer said the mentality of share investors had switched from that of a car owner to a car renter.
He said: "The owner services his car, maintains it in good condition, drives it carefully and relies on it. The renter does none of these things.
"Institutional investors are the equivalent of renters. They are driven by the short term with qualified interest in the long term, largely as a result of client focus on short-term performance versus a diversified index or benchmark."
He said the situation was a departure from the simple model adopted by early shareholders who kept a "close and informed eye" on operations, including the "effectiveness of management, care for employees and the wider community".
The study said the action is needed to repress the rise of the "ownerless corporation", resulting in shareholders having little influence over the companies they own.
It said shareholders tend to act only when a merger and acquisition deal is not in the interest of the company, or when a pay deal is shockingly bad.
Mr Woodford endorsed the findings of the report just days after he snubbed the City's high-pay culture. He has scrapped bonuses and put workers on a flat salary at his Oxford-based firm Woodford Investment Management.
He said: "In many institutions, corporate governance duties have been separated from fund management responsibilities, with the result that engagement is often not as effective as it should be.
"Short-termism, which is frustratingly rife in fund management, also hinders the UK's institutional investment industry's ability to hold executive management teams to account in an appropriate and effective way."
Under the proposals, the shareholder committee would aim to make directors more accountable to investors by replacing the nomination committee, which is in charge of recommending the hiring or firing of directors during an annual general meeting (AGM).
It will also question the board on corporate strategy and performance and run the rule over pay packages proposed by the remuneration committee before they go to a shareholder vote at the AGM.
The chairman of the board and an employee would also be on the committee as non-voting members in order to give them "a voice" when decisions are made.
Blue-chip giants Anglo American and BP faced investor protest at their AGMs earlier this year. Shareholders voted to reject BP's remuneration report for the last year, which included a pay deal of 19.6 million dollars (£13.8 million) for chief executive Bob Dudley.