The National Association of Pension Funds (NAPF) has written to the chairmen of Britain’s top 350 companies urging executive pay restraint and making it clear that company remuneration should be aligned with the long-term interests of shareholders, including pension funds.
The NAPF said that boards should pay close attention to how profits are apportioned between capital, remuneration and dividends to shareholders.
It added that the growing trend of employers deferring parts of bonus payments into shares is good practice and that it expects more companies to use this method in 2010.
The NAPF has also questioned whether current remuneration structures serve management and shareholders well and suggests that a review of ‘best practice’ is now warranted.
NAPF head of corporate governance, David Paterson, said: “While we appreciate the restraint shown by many companies in remuneration policy during 2009, it is important that in the coming year there is a clear focus on linking pay to results and to the long-term interests of shareholders such as pension funds.
“Shareholders in turn need to play their part by remaining vigilant and ensuring that boards are held to account for their pay policies through ongoing discussion and also by the use of their votes at annual general meetings.
“Through its regular engagement work, the NAPF will be pressing companies to explain how their remuneration policies help align management with the interests of long-term investors.”
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