The IoD is calling for pay strategies to be rethought, if they are rejected by 30% of shareholders.
Remuneration should then be put to a fresh vote, it said.
Despite some high profile rebellions in recent months, executive pay is usually approved at annual general meetings, the IoD added.
"There is still a pressing need to rebuild public trust in big business, to work in the long-term interests of investors and employees, rather than the short-term interests of managers," said Oliver Parry, head of corporate governance at the IoD.
"Now is the time for sensible reforms which increase transparency and draw more engagement from shareholders."
At present, shareholders have a binding vote on future remuneration policy once every three years. If the policy is rejected by 51% of shareholders, it must be revisited.
The IoD is arguing that threshold should be lowered to 30%.
Shareholders also have a retrospective, non-binding vote on executive pay every year, and company annual general meetings often see vociferous criticisms of executive pay.
In April last year, BP shareholders, for example, rejected a pay package of almost Â£14m for chief executive Bob Dudley at the oil company's annual general meeting. However, the vote was non-binding.
In November last year the government outlined its plans to make companies justify high levels of executive pay.
Among the measures under consideration were pay ratios, which would show the gap in earnings between the chief executive and an average employee.

Dreamland theme park in Margate - home to a Grade II* listed wooden Scenic Railway roller coaster - has been restored after an arson attack in 2008.
John Challis, who played Boycie in the BBC comedy Only Fools and Horses, exchanged memories with the crowd.
The show filmed in Margate in the 1980s with the characters riding on Dreamland's rollercoasters.
"I have always remembered it because it was special," said Challis.
"It was a jolly boys' outing - a bunch of hooligans got on a coach in London and came to Margate."
Dreamland's website crashed because of high demand as tickets went on sale for the park, which is to reopen on 19 June.
People in the queue said they had visited during their childhoods and wanted their own children to do the same.
The funfair, once home to Europe's largest big wheel, was bought by Thanet council through a compulsory purchase order in 2013.
Dreamland was one of the country's oldest amusement parks.
At one time, the 16-acre site held a zoo and miniature railway, a cinema, cafes, restaurants, bars, shops and a 2,000-capacity ballroom.
Work on the restoration of the Grade II* listed Scenic Railway ride began in September to replace all the wooden parts.
Most of the funding was granted by the Department for Culture Media and Sport's Sea Change programme, the Heritage Lottery Fund and Thanet District council.
Vintage fairground rides from around the UK have been restored and re-created for the new fun park, which will be run by the Dreamland Trust.
Classic sideshows, vintage cafes, restaurants and gardens have also been installed at the site.

The change is effective in both divisions and aims to encourage better pitches for four-day cricket.
"It is a bit of a rubbish rule," Raine told BBC Radio Leicester. "Hopefully it doesn't last too long. I'm not sure why the rule has been brought in.
"It's against the spirit of cricket and against the rules of the game."
The rule change means that Foxes skipper Mark Cosgrove will have the chance to decide if his side will bowl first in their opening County Championship match of the season against Glamorgan in Cardiff on 17 April.
England's limited-overs captain Eoin Morgan has said the move may benefit the game long-term, allowing younger players to develop different skills on better quality pitches.
Raine argues that the toss had little bearing on any of Leicestershire's County Championship results last season.
"I don't think there were too many pitches last year where the toss did really affect the outcomes," he added.
"The two games we did win, we did bowl first but there are plenty of times where we bowled first and lost."
Investors should be given a bigger say over executive pay to help rebuild trust in business, the Institute of Directors (IoD) has said.
[NEXT_CONCEPT]
Crowds of people have queued for tickets for a 1920s funfair which is to reopen after an Â£18m restoration.
[NEXT_CONCEPT]
Scrapping the mandatory coin toss in county cricket is "against the spirit of the game", says Leicestershire all-rounder Ben Raine.