Large payouts for failed bosses are a "genuine cause for concern", an influential committee of MPs has concluded.

In its report, the trade and industry select committee disputed business claims that generous termination agreements were inevitable in a competitive international market for scarce boardroom talent.

"We would hope that the recent examples of shareholder revolt and the wider pubic concern generated by the instances of rewards for failure would prompt all companies to look hard at the way in which executives' contracts are constructed," the MPs argued.

Instead, the committee suggests that companies restrict the duration of their contracts to one year, with a separate specified notice period brought into line with other employees.

Phased payments - where departing executives only receive pay for the time in which they are out of work - were mooted as a possible means of addressing the issue.

But "the obligation to mitigate loss means that they should not be able to remain idle whilst waiting for the full value of the severance package to be paid", warns the report.

Although MPs recommended that business adopts a system of self-regulation, the option of legislation was not ruled out if the unacceptable value of severance packages was not addressed.

"We are convinced that this is a genuine problem," said committee chairman Martin O'Neill.

"However the recent examples of increased activism by institutional investors, and the promotion of best practice has the potential to remedy the situation.

"The government should wait to see the effect of these developments before it considers legislative remedies."

The TUC welcomed the report, but pressed for legislation, claiming self-regulation on the issue had already failed.

"The committee are right to rubbish the justifications behind platinum parachutes and rocketing pay for executives," said general secretary Brendan Barber.

"The TUC support their call for similar notice periods for bosses and employees alike.

"But self-regulation has failed to stop executive excess. British boardrooms have ignored their own voluntary code for nearly a decade and shareholders need more teeth to make an impact.

"Legislation is the only way get this under control."

The Confederation of British Industry welcomed the committee's suggestion that business should self-regulate boardroom pay.

"The committee has rightly ruled out the need for legislation on executive's severance packages," said deputy director general John Cridland.

"Instead the report recognises that shareholder pressure and public concern will bring about a change in practice.

"We welcome the committee's support for many of the solutions put forward by the CBI, crucially to get the contract right at the beginning.

"The other areas of agreement include the payment of severance in monthly instalments which should cease when another job is obtained and reduction of the contract to one year."