Council leaders should be given "parachute payments" amounting to thousands of pounds if they are voted out of office, according to a report.

The Councillors Commission study being delivered to communities secretary Hazel Blears on Monday proposes boosting pay and perks for councillors to encourage people to take part in local democracy.

The commission's most controversial proposal is for 'golden goodbyes', suggesting "parachute payments for elected mayors, leaders and executive portfolio-holders who lose office through the action of the electorate".

The money could be similar to redundancy payments, and based on length of service.

The report also proposes allowing councillors to enter local government pension schemes, removing pay restrictions, allowing some councillors to claim the dole on top of their earnings, and introducing a communications allowance.

Town hall members would be barred from serving more than five terms in office.

The commission also backs electoral reform at a local level, including allowing councils to introduce proportional representation and lowering the voting age to 16.

A spokesman from the Department for Communities and Local Government said: "This is a report from an independent commission and therefore does not represent government policy or government proposals."

Shadow communities secretary Eric Pickles said: "It is vital that councillors are fundamentally arms-length volunteers - and do not become the bankrolled staff of the town hall dependent on the municipal pay packet."

Liberal Democrat spokesman Tom Brake said: "The commission is absolutely right to recommend fair and proportional voting.

"Making our councils more representative is a vital step in restoring faith in local democracy."