Companies will have to be more transparent over how they calculate executive pay, the secretary of state for business has warned.
Vince Cable told parliament that shareholders would have more of a say in pay and remuneration of executives and that companies would have to give detailed reports on how senior management are paid.
He was forced to give a statement to the House of Commons after an urgent question by Chuka Umunna, shadow business secretary.
Umunna tabled the question after it emerged that Cable was due to announce the government's policy in a speech away from parliament.
Umunna said this was unacceptable as it avoided parliamentary scrutiny.
Cable also announced a "claw-back" arrangement for shareholders where they will be able to reclaim some of executives' remuneration if they underperform.
Ordinary staff might also get the opportunity to sit with the executives on a company board, he added.
He hit back at suggestions by Umunna that the government was not going far enough. Cable said Labour had had 13 years in power to sort out the issues around executive pay.
He added that when Labour entered office in 1997, executive pay was 47 times higher than the lowest paid workers in the same business.
By the time they left office it was 120 times higher.
Umunna challenged Cable over whether he thought it was acceptable for the boss of government-owned RBS, Stephen Hester, to take a £1m bonus while laying off staff.
Cable ducked the question, saying it was "above my pay grade" and an issue for the prime minister.