PUBLIC SECTOR bosses could face thesackunlesstheyobserve ministerialrulesoncurbingsalary increases for senior staff.

John Swinney, the Cabinet secretary for finance and sustainable growth, has warned public bodies of "punitive action" if they ignore his wishes on pay rises. The warningalsocoverschiefexecutives' bonuses and extras such as cars, private health care and life insurance.

The rules are contained in a series of public sector pay documents that have beencirculatedtopublicbodies. Covering the current financial year, 2007-2008, the papers state that rises for senior staff have to be seen in the context of a tight spending round for ministers.

Swinney and his colleagues are expecting the next comprehensive spending review, which determines the Scottish block grant and which is drawn up by the Treasury, to be the toughest in 10 years.

The rules on pay rises state that Swinney and another minister will have the power to "approve or reject" any "contentious" increase for quango chiefexecutives, chairs and board members.

Any proposal to include a bonus as part of a salary package will also have to be agreed by the finance secretary.

The rules insist "non-salary rewards" such as cars and health insurance, will only be agreed in "special circumstances" and that "it should be noted that there is a presumption against providing private health benefits, life cover or a company car and any proposal must first be app-roved by Cabinet secretaries/minister."

A menacing section states: "Significant breaches of this policy could result in punitive action being taken, such as capping of future pay increases or a governance review of the body."

The Sunday Herald understands that a "governance review" could mean quango chairs being replaced, or a shake-up of senior management at a public body.

Similar rules apply for non-senior staff in large organiations, the Crown Office and government agencies, with Swinney having the final say on pay rises across large swathes of the public sector.

The Scottish government also expects smaller rises than in previous years: "Ministers expect to continue to see lower levels of settlement in 2007-08."

News of the pay policy comes after it emerged that Scottish Enterprise's (SE) former finance director had retired this year with a £539,105 "golden goodbye". IainCarmichael'spackageincluded £106,765 in pay in lieu of notice, and £380,600 put into his pension fund.

SE chief executive Jack Perry also benefited from a 15.3% pay rise to his "remuneration" package, despite the well-documentedmoneyproblems endured by the body. His colleague, Lena Wilson, pocketed a 26.9% rise, taking her total package to £179,000.

A Scottish government spokesman said: "We have clarified the existing arrangements on Scottish public sector pay policy in the public interest. In particular the policy sets out that pay awards must not exceed limits set by ministers - if they do then systems are in place to deal with the situation and, if necessary, provide for clawback of funding."

GreenMSPPatrickHarviesaid: "It's hugely important that pay awards are fair to public sector workers on average and low pay, instead of giving big boosts to those already on very high salaries."