Big name fund manager Neil Woodford has permanently abolished staff bonuses at his investment management firm, claiming such regimes can be a “distraction”.
The founder of Woodford Investment Management and chief executive Craig Newman decided to scrap bonuses for the 35 staff working at the company back in April, ready for the start of the fresh tax year.
A spokesman for Woodford confirmed that all employees, including fund managers, traders, analysts and sales staff, have been affected by the company’s rule change.
Despite ditching discretionary bonuses, Mr Woodford decided to increase salaries this year to ensure staff were not worse off on average under the new regime.
The company has opted for a single salary and a flexible employee benefits scheme, which includes pension, medical care and life insurance.
We wanted to take the opportunity to challenge the status quo Craig NewmanMr Newman described bonuses as a “distraction”.
“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.”
In April this year, Mr Woodford also announced he would stop charging investors for costs associated with research.
Mr Newman said the company has implemented a remuneration scheme that is “fair and appropriate” for employees and for clients.
“Drawing on our experience of various bonus-led remuneration models, we concluded that bonuses are largely ineffective in influencing the right behaviours,” he said, pointing to academic evidence which indicated there is little correlation between bonus and performance.
“Behavioural studies also suggest that bonuses can lead to short-term decision making and wrong behaviours.”
Despite admitting one of the “simplest” ways of rewarding fund managers is linking performance to an index or benchmark, Woodford’s chief executive said, however, his company’s investment approach is “benchmark agnostic”.
“As such, it is more appropriate for its fund managers to consistently demonstrate the appropriate behaviours and manage in a way that that gets long-term returns for its clients without a benchmark-related bonus based on assets or returns.”
Mr Newman also said sales managers should be focused on influencing client behaviour through education and information, without the “distraction” of fund inflows or outflows, which sometimes can be outside of their control given extenuating circumstances.
katheirne.denham@ft.com
