Council leaders should be given thousands of pounds in "parachute payments" when they are voted out of office, a report has urged.
Pay and perks for councillors should also be dramatically boosted in a bid to encourage people to participate in local democracy.
The proposals are in an official study due to be delivered to Communities Secretary Hazel Blears on Monday.
At present the leaders of Britain's biggest town halls, who earn up to £60,000 a year as elected politicians, lose their salaries the day they lose their seats.
However, the Councillors Commission report calls for "parachute payments for elected mayors, leaders and executive portfolio-holders who lose office through the action of the electorate".
It suggests the windfalls should be similar to redundancy money, and based on the length of time in office.
But a Whitehall source said: "We will not be taking this forward. We believe we can give better support and get better local representation from councillors without imposing a major new financial burden on local taxpayers."
The report also says councillors should be able to enter generous local government pension schemes, while centrally-imposed restrictions on pay for middle-ranking politicians should be removed - potentially paving the way for increases.
And it indicates that some councillors should be able to claim the dole to top up their earnings, and proposes a "communications allowance" to fund public relations material.
However, town hall members would be barred from serving more than five terms in office - raising the prospect that hundreds of experienced councillors could be swept out.
