Woodford Investment Management has permanently abolished all staff bonuses, including fund managers, at the firm.
Founded by Neil Woodford, the much-heralded fund manager and one of the most prominent figures in the City, Woodford IM has taken the unprecedented step of scrapping bonuses, as it believes that they simply don’t work when it comes to finding ways to motivate and retain staff.
Woodford has gone against the grain previously by refusing to take fund management fees when his fund underperformed. And despite conventional wisdom that staff bonuses, particularly in the City, are essential to motivate and retain staff, it confirmed in a statement today that the move was introduced at the start of April.
The new ‘flat salary’ pay scheme was introduced under the radar on April 1 for all the firm’s 35 staff, who include sales people, traders, fund managers and analysts as well as IT, marketing and compliance professionals. Salaries were increased this year so that on average no one would be worse off as a result of the changes.
Discretionary bonuses scrapped
The statement said that with effect from 1 April, the start of Woodford’s new financial year, remuneration for all permanent members of staff at Woodford (including fund managers and sales staff), has been in the form of a single salary and a flexible employee benefits scheme that includes pension, medical care and life insurance – discretionary bonuses are no longer paid.
Craig Newman, chief executive at Woodford Investment Management, explained the move.
“While bonuses are an established feature of the financial sector, Neil and I wanted to take the opportunity to do something different that supports the firm’s culture and ethos of challenging the status quo,” said Newman.
“We have implemented a remuneration scheme that is fair and appropriate for Woodford employees and, ultimately, clients. Drawing on our experience of various bonus-led remuneration models, we concluded that bonuses are largely ineffective in influencing the right behaviours.
Newman said that extensive research undertaken by the firm has convinced them that there is “little correlation between bonus and performance” something that he says is this is backed by widespread academic evidence.
“Many studies conclude that bonuses don’t work as a motivator, as expectation is already built in, he said. “Behavioural studies also suggest that bonuses can lead to short-term decision making and wrong behaviours.”