Birmingham City Council will advertise next month for a #195,000-a-year chief executive - but business leaders fear the salary will not be high enough to attract the best candidate.
Simon Murphy, chief executive of the professional services lobby group Birmingham Forward, believes the council should be prepared to pay up to #250,000 to get the right person.
Mr Murphy said high-fliers could be put off from applying by the specification of a maximum salary.
The proposed pay package - worth about #230,000 when pension contributions and bonuses are taken into account - will not even be the highest in local government.
Bradford Council, a smaller authority than Birmingham, already pays its chief a basic #200,000.
Mr Murphy's fears were rejected by Alan Rudge, the cabinet member for human resources, who is leading the search for a new chief executive.
Coun Rudge (Con Sutton Vesey) said: "Birmingham Forward can make whatever comments it likes, but we will do what is best for the city. To suggest that you will get the right person by paying a massive salary is a rather naive and simplistic argument."
The successful candidate for the biggest job in local government will replace former council chief executive Lin Homer, who left Birmingham at the end of July to join the Home Office.
When Mrs Homer arrived in 2002, her salary at the council was #170,000. It is understood to have been about #185,000 by the time she quit.
Coun Rudge said he intended to offer a core salary of under #200,000 and a performance-related bonus of six per cent - almost #12,000.
He added: "Money alone is not important. We want someone who is interested in Birmingham, not interested in the price-tag. Someone who is capable of carrying Birmingham onwards.
"The salary is not the sole criteria. Many people believe local authorities already over-pay their senior people. This sort of thing causes a lot of discontent and you have to take a balanced point of view."
Birmingham Forward believes the council is making a mistake.
Mr Murphy said: "A #195,000 salary will attract a range of very good people, but Birmingham deserves the best. If the private sector was looking to recruit such an significant post it would not mention a salary figure at all.
"It may be that the figure comes in at #195,000, but a lot of people in Birmingham Forward feel that because this is such an important post to fill we really ought to cast our net as wide as possible.
"If Birmingham was a plc it would be in the FTSE100. It has a significant influence on the business climate in Birmingham and the region.
"If the council says to the business community 'We have to pay #14 million to get the best person', we would say great. That is what we expect you to do."
Birmingham's new chief executive will earn more than the Prime Minister. Mr Blair's salary is #184,000, although he does have the benefit of homes in Downing Street and Chequers as well as chauffeur-driven travel. His Cabinet colleagues earn #134,000.
The Government has expressed concern about the mounting cost of local authority salaries.
A recent survey by the independent research organisation Income Data Services showed salaries for senior public sector managers rose by 9.5 per cent in the year to march 2004.
Lincolnshire County Council last year gave its new chief a #150,000 salary - a 40 per cent increase on the previous post holder. Bradford Council advertised for a chief executive on #200,000, while Kent County Council already pays #180,000 to its senior officer.
The total bill for the 407 council chief executives in England and Wales is almost #40 million.