Shareholders are to be given stronger power to control spiralling executive pay, in a new policy unveiled by the Business Secretary.
Vince Cable moved to strengthen the hand of shareholders and help them crackdown on excessive pay deals amid the so-called 'shareholder spring'.
Mr Cable's proposed reforms will force companies to have votes on directors' pay plans every three years, or annually if changes are made.
For the first time, this vote will be legally binding - meaning that investors can overthrow pay proposals and companies will not be able to make payments outside its scope.
The move represents a climbdown on previous aims to hold compulsory votes on pay annually, but will vastly improve current rules in which shareholder votes are advisory and can be ignored by companies.
Mr Cable has also stuck by plans to insist firms provide one single figure for total annual pay in order to make remuneration more transparent.
He said the package of reforms will "strengthen the hand of shareholders to challenge excessive pay whilst not imposing unnecessary regulatory burdens".
He said on unveiling the reforms that ever-increasing pay packets had become "irrational and damaging" in the years leading up to the financial crisis.
"Top pay got out of control, most obviously in the banking sector, but also elsewhere in corporate Britain," Mr Cable said.
"It was irrational and damaging and it was necessary that shareholders should have the confidence to act."
The moves come amid growing shareholder activism over executive pay, as shown by last week's rejection of WPP (LSE: WPP.L - news) 's remuneration report which included a £6.8m pay deal for chief executive Sir Martin Sorrell.
The shareholder revolt has also seen investors become more effective at exerting pressure on companies, with Aviva (LSE: AV.L - news) 's Andrew Moss the highest profile boss to have been ousted in recent months.
Mr Cable said his drive to clamp down on excessive pay will "give shareholders new powers to hold companies to account on the structure and level of pay, make it easier to understand what directors are earning and how this links to company strategy and performance".
The binding vote on pay policy will also cover exit payments in a move that could mark the end of excessive "golden goodbyes".
Christopher Mordue, employment law expert at Pinsent Masons, said a watered down proposal - of some exit payments needing a shareholder vote - has eased industry concerns.
Mr Mordue said: "That will come as a huge relief - the original proposal threatened to play havoc with the ability of companies to use existing contractual provisions to terminate the employment of directors."
When a director leaves a company, it will "promptly" have to publish details of payments received - a marked improvement on current rules whereby companies only have to disclose exit payments in the annual report.
Sky City editor Mark Kleinman said: "The plans will for the first time give shareholders the right to vote down pay deals.
"But what these measures won't do necessarily, in absolute terms, is control multi-million pound deals - sometimes not for performance."