The reputation of British industry has been damaged by disproportionate pay rises for directors presiding over tumbling stock prices.

According to CBI president Sir John Egan, companies should no longer offer reward for failure. He called for annual performance reviews to ensure directors were worth their salaries.

He was speaking at the CBI annual conference, against a background of growing shareholder anger over boardroom pay hikes, such as the £11.5 million package being sought by Jean-Pierre Garnier, chief executive of GlaxoSmithKline. Its shares have lost 40 per cent of their value.

Sir John said businesses should be unapologetic about high pay for those able to deliver results but should stop handing out big increases without regard to performance.

He said: "If we want world-class leadership and world-class performance, we must expect to pay for it. Our fellow-citizens understand that.

"What worries them is what they perceive as reward for failure.

"We should share that concern and the way to address it is by maximising the element of top management pay related to performance and by much greater transparency."

Pay was one of a range of issues which had damaged the reputation of British business, Sir John said.

Much of the harm had been inflicted by corp-orate scandals such as Enron in the United States, for which UK companies had no responsibility.

But British business had created the impression it was cynical and uncaring by ignoring the needs of the community at large and allowing the gap between workers' and management pay to widen.