Government plans to reform the way executive pay is disclosed and explained in company pay reports have been published in a consultation.

The changes are intended to demystify how director level pay is set, agreed and implemented to address widespread concerns about reward for failure, inflated bonuses and overly complex incentive plans.

Under the proposals, company pay reports will focus more closely on making the link between pay and performance “crystal clear”, the government said.

The plans also include a new requirement for employers to reveal the total pay directors received for the year as a single figure, as well as putting more emphasis on ensuring long-term shareholder engagement.

These latest draft regulations follow last week’s announcement of reforms to the governance of directors’ pay, which included the introduction of a binding shareholder vote on senior executives’ pay policy.

Business secretary Vince Cable said: “Over the last decade directors’ pay has quadrupled with no clear link to company performance. At the same time company reports have become increasingly complex without giving shareholders the information they need.

“These regulations will significantly improve reporting. For the first time companies will be required to set out every element of pay that a director could be entitled to and how it supports long-term company strategy and performance. If the policy isn’t specific enough, shareholders will have a legally binding vote they can use to reject it.

“Companies will also have to clearly disclose directors’ pay in a single figure. This means that it will no longer be possible to mask what they are actually earning.

“I expect shareholders to use this new framework to maintain recent activism and challenge companies to inject greater pay discipline and prevent rewards for failure.”

Responses to the consultation must be received by the Department for Business Innovation and Skills by 26 September 2012.