The coalition has scorned Kevin Rudd's proposal to come up with a global model to rein in salaries for banking executives, accusing him of trying to grab headlines.
As the Senate voted down an Australian Greens move to put a $5 million cap on bank chiefs' pay packets, the coalition argued against the prime minister's latest pitch on the global financial crisis.
Mr Rudd revealed on Wednesday that the government was working with local regulators on ways to tie excessive banking remuneration to higher capital adequacy requirements.
He believes the greed and extreme capitalism under which exorbitant pay packets flourished are at the heart of the financial turmoil now sweeping the globe.
The Greens are challenging Labor to prove their intentions, and wanted to limit executive salaries to $5 million or 10 times the base salary of the prime minister, whichever amount is lesser.
The Greens wanted to link the salary cap to the government's package to guarantee all deposits held at financial institutions.
The package was a blank cheque for executives already earning obscene amounts, leader Bob Brown said.
"These people cannot justify this executive rake off, no matter which way you look at it," he said.
However, the Greens failed to get the backing of the Senate. Independent Nick Xenophon was the only non-Greens senator to indicate support for the amendment.
Despite railing against mega salaries, Family First Senator Steve Fielding did not support the amendment.
Senator Fielding said the government should have used its legislation to send a clear message to the fat cats.
"It's time to get off the gravy train," he said.
"This train will terminate here and mind the gap."
The coalition believes self-regulation is a more appropriate way to handle the issue.
Nationals Senate leader Barnaby Joyce said the banks should not wait for new regulations.
"My advice to bank executives is self-regulate yourselves and then you don't have to worry about comments like Mr Rudd's," he told reporters.
"I think that once you have public funds supporting private institutions such as the banks they should self-regulate.
"They should realise that they are now a benefactor of public money, the public are now under-writing them."
Liberal frontbencher Helen Coonan admitted executive salaries were a concern in the US, but Australia did not have the same problem.
"No one is suggesting that the salaries of our bank executives have been out of line, or have contributed to problems here," Senator Coonan said.
Setting bank executive salaries was the responsibility of bank shareholders, she added.
"Talking about laws against greed can make a great headline, but one that achieves nothing."
Earlier, federal Opposition Leader Malcolm Turnbull said shareholders had been complacent for too long over excessive pay for corporate bosses.
Mr Turnbull said it was important that company executives were properly and fairly rewarded.
"(But) I have to say that I think the levels of executive remuneration in many companies over some time now have been very excessive and I think shareholders, particularly institutional shareholders - the big super funds and the industry funds - have been too complacent," he said.
"(They) haven't stood up for the rights of shareholders in ensuring that executive salaries are properly correlated so that they coincide with the interests of those shareholders."
The issue had been that finance sector executives, at all levels, had been rewarded for writing business, making sales and accumulating loans.
"They've been paid for that without account being taken of the consequences of those loans going bad in the future," Mr Turnbull said.
"Executive compensation or remuneration is actually very complex and it is something that fundamentally is the responsibility of the shareholders of the companies.
"Over the years, I've observed that shareholders perhaps have been too complacent, well I think they have undoubtedly been too complacent on this matter."
Victorian Premier John Brumby is urging big banks to slash their executives' pay packets ahead of culling workers.
He said lower end workers should not be the ones to suffer from tougher economic times.
"They're (executives) paid a lot of money and I think ... boards of banks will be having a look at all these issues as they re-adjust their internal arrangements and re-adjust their banking operations to operate in what is clearly a more difficult environment.
"They will need to take some cost out of the system and I think they need to do that in a way which preserves their labour force."
Mr Brumby said a range of factors have produced the global economic crisis.
"The most important thing now is for governments and countries and communities around the world to work through that.
"The most important thing in Australia is to get some stimulus back into the economy and I think the steps that have been taken to date are very, very positive indeed."