Companies will be forced to publish how much more their chief executives are paid compared with the average employee, in a move which the Government believe will promote wage equality.
The proposals, due to come into effect June 2018, will form part of a new corporate governance code.
Listed companies will also be obliged to assign a non-executive director to represent employees, create an employee advisory council, or nominate a director from the workforce.
Under the new plans, firms which face significant shareholder opposition to executive pay deals will be “named and shamed” on a register. This involves around 900 publically listed companies in the UK.
More than 20 per cent of stakeholders will need to oppose executive remuneration before names are added to the register.
Business Secretary Greg Clark said the measures would make companies “more accountable to their employees and shareholders”.
He said the UK needed “a system where people who are paid well and highly are paid well on the basis of the performance of their company”.
Commenting on the announcement, Paul Drechsler, the CBI president, said: “We know that how companies act and behave determines the way people think about business. Companies take this seriously and we look forward to working closely with the government to ensure the UK maintains its reputation as a global leader in this field and as a primary location for international investment.
“The CBI is very clear that the unacceptable behaviour of a few does not reflect the high standards and responsible behaviour of the vast majority of companies.”