MPs on the Commons Trade and Industry Committee were shocked at an admission by Lindsay Tomlinson, chairman of the IMA, that investment managers had no way of checking whether their votes on directors’ pay had been cast in line with their views. Mr Tomlinson, European chairman of BGI, the fund management arm of Barclays Bank, blamed “bureaucracy” for votes being lost as instructions were passed between investment managers, custodians and registrars.

As MPs dubbed the investment industry’s attempts at democracy as “pretty feeble”, Mr Tomlinson agreed that the process needed to be “cleaned up”. The National Association of Pension Funds (NAPF) disclosed that the level of voting by institutional shareholders dipped last year, despite a perceived renewal of investor activism as “rewards for failure” and “fat cat” pay came under the media spotlight.

Earlier, Tony Watson, chief executive of Hermes Pensions Management, the activist investor and steward of the BT pension scheme, said that payouts for directors whose contracts were ended prematurely should be limited to a single year’s entitlement.

“The bits and pieces that go into a compensation package should be limited to a year,” Mr Watson said. “We don’t want aeroplanes for life or debentures for the grandchildren.”

In written evidence to the committee, Pirc, the corporate governance agency, said that directors of FTSE 100 companies had received annual increases in pay for the past ten years that were well above inflation.