Company remuneration should be aligned with the long-term interests of shareholders including pension funds, says the National Association of Pension Funds (NAPF) in a letter to the chairmen of Britain's top 350 companies.

The NAPF said executive pay restraint is also necessary, and boards should pay close attention to the way profits are shared out between capital, remuneration and dividends to shareholders. With many companies raising capital and cutting dividends, the NAPF said the growing trend of deferring parts of bonus payments into shares is good practice, and more companies are expected to choose this avenue in 2010.

"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," commented David Paterson, NAPF head of corporate governance.

"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 interest of long-term investors."

The letter sent to the chairman stated: "As we approach 2010, we felt it would be helpful if we were again to set out our thinking, in advance of year-end awards of bonuses and any share plan revisions: Companies should bear in mind the need to ensure that pay and performance are clearly aligned and that the focus on risk, which is a feature of the developing regime for financial institutions, is adopted more widely. We see bonuses as a form of profit share and therefore if profits are down we expect bonuses also to be lower."

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