Business leaders have set out their views on how the government should tackle "fat cat" pay awards to directors who fail to deliver for their companies.

The Department of Trade and Industry began its consultation on "rewards for failure" in June, after a number of high profile clashes between chief executives and shareholders.

Under proposals set out by the CBI, key contractual terms would be announced as soon as they have been agreed.

At present details cannot be released until some months after the appointment has been made.

Directors' contracts would last no longer than one year and would deal with the issue of severance pay in all but exceptional circumstances, which would also have to be explained to company shareholders.

"The CBI is unequivocally against rewards for failure," said director general Digby Jones.

"There have been a small number of well-publicised cases where severance arrangements have given the wrong signals. It is vital that the business community works hard in every way at polishing its reputation with the wider community.

"The standing of business is at stake and must be tackled but in a way that ensures world-class companies can attract top international business people and retain and nurture home grown talent.

"Britain needs the best people to want to serve on the boards of listed companies, not be driven to the unpublicised world of subsidiary companies or private equity.

"The flexibility to compete for and secure the best talent available is vital to the future success of UK business."

The proposals have already won the backing of the Institute of Directors.

"The IoD welcomes the CBI's paper on directors' contracts and severance," said director general George Cox.

"We are very much in accord with the thinking behind the proposals since, all too often, high severance payments are not so much a matter of misplaced generosity but the outcome of contracts which were poorly structured at the outset."