Large firms will have to publish and justify their chief executives' salaries and reveal the gap to their average workers under proposed new laws.
UK listed companies with over 250 staff will have to annually disclose and explain the so-called "pay ratios" in their organisation.
The move comes after years of shareholder and public outrage over bumper chief executive pay at firms such as Persimmon, WPP, BP, Shell, Lloyds, Astrazeneca, Playtech and William Hill.
Last week housebuilder Persimmon admitted a raft of failures that led to an embarrassing shareholder rebellion over pay as MPs slammed an "egregious" pay deal for top bosses worth over £100m.
The company's chairman and the head of the remuneration committee resigned after anger over their bonuses
Business Secretary Greg Clark said: "Most of the UK's largest companies get their business practices right but we understand the anger of workers and shareholders when bosses' pay is out of step with company performance.
"Requiring large companies to publish their pay gaps will build on that reputation by improving transparency and boosting accountability at the highest levels, while helping build a fairer economy that works for everyone."
The new regulations, which will come into effect from January 2019 subject to parliamentary approval, also require listed companies to show what effect an increase in share prices will have on executive pay.
Government minister Lord Duncan said: "It only takes poor behaviour from a small number of companies to damage the public's trust in big business.
"Improving transparency and accountability in this way, plus other initiatives such as giving employees a voice in the boardroom, will help create a more equal and fair society while ensuring that the UK remains a world-leading place to invest and do business."
TUC general secretary Frances O'Grady said the move was "a first step, but more is needed".
"Fat-cat bosses are masters of self-justification and shrugging off public outcry. New rules are needed to make sure they change," he said.
"We need guaranteed places for worker representatives on boardroom pay committees. That would bring a bit of common sense and fairness to decision-making when boardroom pay packets are approved.
"The Government should put an end to phoney incentive schemes that reward executives above and beyond the actual results they get."
Rebecca Long Bailey, shadow business and industrial secretary, said: "The Tories have missed the mark again, reannouncing half-baked, rehashed policies that do nothing to tackle the entrenched inequality that's crippling our society."
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