Proposals to curb excessive pay-offs for directors who quit failing companies have been announced by trade and industry Secretary Patricia Hewitt.
In a paper entitled Rewards for Failure, the Government outlines alternative strategies for closer links between directors' pay and performance.
These include shortening directors' notice periods to about six months, and giving company boards the right to veto the pay packages of failing directors.
The Government will ask shareholder groups, trade unions, and business lobbyists to comment on the document, and may come forward with concrete proposals later this year.
Business groups have urged the Government not to legislate against 'fat cat' pay, saying that new regulations would create unnecessary legal complexities for big companies.
However, the paper makes clear that the Government has not ruled out changing the law to stop hefty pay-offs for directors who preside over share price collapses or large-scale job losses.
"Britain has some of the best and most successful businesses in the world. But the good reputation of the majority is being tarnished by the bad practice of the minority," Hewitt said.
"We have no problems with big rewards for big success, but shareholders are rightly concerned when directors leave failing companies and walk away with excessive payouts."
The Government's move comes in response to a growing tide of resentment over 'fat cat' pay over the past year.
Last month shareholders at pharmaceuticals giant GlaxoSmithKline voted against a pay package that entitled chief executive Jean-Pierre Garnier to up to £22m if he left the job early.