Companies should include workers on remuneration committees to end the system of setting executive pay behind closed doors, the independent High Pay Commission said on Tuesday.
The HPC, set up by left-of-centre pressure group Compass with backing from the Joseph Rowntree Charitable Trust, includes a range of voices, from fund managers and pension funds to trade unions. It also wants simpler pay packages for leading managers.
The proposals are among 12 ideas on overhauling executive pay likely to inform government action and debate among companies, amid growing public anger about pay increases for bosses that have outstripped average wages.
The HPC's year-long inquiry found pay for some top executive roles has risen more than fortyfold in the past 30 years.
Its report comes at a time when many in Britain are worried about rising unemployment and falling living standards.
Prime Minister David Cameron said last month he was concerned by news that pay for directors of Britain's top 100 companies rose 49 percent last year, while business secretary Vince Cable has been considering legislation on pay next year.
Many of the options we are consulting on are reflected in the High Pay Commission final report, said Cable. The report could dovetail with his own review on top pay for which final submissions were due on Friday. The government plans to announce its next steps early in the 2012.
Cable said he was seeking views on whether there should be a binding vote for shareholders on deciding pay, employee representation on remuneration committees, and how to simplify and improve a company's pay structure.
Those were all measures recommended by the HPC, which also wants companies to reveal their top 10 pay packages outside the boardroom and disclose the pay ratio between the highest paid executive and the company median.
Latest data showed that at oil company BP, the chief executive earned 63 times the amount of the average employee, up from a multiple of 16.5 in 1979, while top pay at lender Barclays was 75 times that of the average worker, up from 14.5 in 1979, the HPC said.
That compared with the United States, where average CEO remuneration is 142 times that of employees, according to Thomson Reuters ASSET4 data.
The HPC estimated that by 2035 the top 0.1 percent will take home 14 percent of the national income, a level of disparity not seen since Victorian times.
We have seen rampant, runaway excesses on pay and bonuses and I think people want that brought back under control, HPC chief executive Deborah Hargreaves said in an interview. People are searching around for a different form of capitalism.
Alan MacDougall, managing director of shareholder advisory firm PIRC, said the report would reset the remuneration debate, adding recommendations on simplifying pay and reforming remuneration committees were important in addressing investor concerns.
This year has seen pay revolts at 14 companies in the FTSE 100 index -- defined as cases where at least 20 percent of shareholders opposed or abstained on remuneration reports -- up from seven in 2010.
The 2011 revolts occurred at some of the biggest companies, including BP, HSBC, Rio Tinto and WPP, whose CEO Martin Sorrell has defended pay rates for executives, saying they needed to be compared with those of rivals around the world, notably in the United States.
(Additional reporting by Tim Castle; Editing by Dan Lalor)