Money broker Tullett Prebon, which is run by City veteran Terry Smith, faces a showdown with shareholders over its bonus structure for top executives.
The possible row could take place at the company's annual meeting on Thursday after the remuneration committee, which sets the pay policy, endorsed a £4.52m pay and bonus package for Smith and a £5m share award.
The committee is chaired by Michael Fallon, the Conservative MP and deputy chairman of the Treasury select committee where he has been critical of City pay, particularly pension payments to former Royal Bank of Scotland chief executive Sir Fred Goodwin.
One investor, the Local Authority Pension Fund Forum (LAPFF), which comprises 49 public sector pension funds, yesterday called on its members to vote against the Tullett remuneration report because of "high salaries" and bonuses which are "uncapped".
The local authorities, which together own less than 1% of Tullett shares, may be joined by institutional investors as the Association of British Insurers' has issued an "amber top" alert on Tullett, warning that some corporate governance issues needed careful consideration. Shareholders have become increasingly vigilant on pay deals this year. A number of remuneration reports have been voted down by investors, including those at housebuilder Bellway and banking group RBS.
Ian Greenwood, chairman of the LAPFF, made his concerns public after writing to Tullett's chairman, Keith Hamill, in March to express its concerns and not receiving a response. Greenwood expressed "concern that the overall emphasis on high variable, short-term compensation at Tullett Prebon neglects the importance of creating sustainable long-term value".
In his remarks in Tullett's annual report, Fallon acknowledged that "the company's remuneration policies are in some respects distinct from the normal practices of UK-listed companies".
Fallon argued that the majority of Tullett's competitors are not listed on the London stock exchange and that having "high levels of remuneration [that] depend upon the achievement of correspondingly high level of performance" is in the interests of shareholders.
Smith was granted 1.8m shares last year, bolstering his basic salary of £650,000. He received a cash bonus of £2m and another £2m which he had to use to buy shares in Tullett, in which he already owned a 4% stake. In the previous year, he received a £4m cash bonus.
The awards were made to Smith after revenues at Tullett Prebon rose 25% on 2007 and operating profit rose 33%.