Tony HazellJul 19 2017

When getting the job done is a bonus

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Congratulations to FCA chief executive Andrew Bailey for being awarded a £65,000 bonus for his first part-year running the regulator.

That is more than twice what the average worker can expect to take home in a whole year.

Of course this sum pales against the bonuses handed out in the banking and investment world, so it is perhaps a little mean to single him out. But it does illustrate why I and many others are so uncomfortable with the bonus culture. 

Just why does any chief executive or director need a bonus? 

Just why does any chief executive or director need a bonus? 

Surely if you are appointed to such a role you are immensely talented, hardworking, driven and will give it your very best shot.

I have nothing against Mr Bailey. I am sure he is a nice man who loves animals. But what is the point of bonuses at organisations such as the FCA? 

Is it for doing a better job than expected? If Mr Bailey has exceeded expectations by so much already then George Osborne made a remarkable appointment.

On the other hand would he – or any other boss for that matter – take the odd sneaky Friday afternoon off if they were not offered a bonus? Surely not!

Other senior staff at the FCA were also awarded bonuses (or performance-related pay as they like to term it), presumably for performing well in their jobs – which is why they were recruited and what they are paid to do in the first place.

Bonuses come as part and parcel with certain jobs. Investment managers are paid massive sums and then can get a massive bonus on top just for doing their jobs. I can understand sales people being awarded commission and bonuses for great performance. Some people need the motivation of extra cash to make them function at the top of their game. 

If a private business does well then I am sure the boss will feel motivated to reward staff by way of a bonus. But when you are already well rewarded in terms of pay and pension, and when you are supposed to be the crème de la crème, surely picking up an extra reward via a bonus is just a little bit sleazy?

Woodford Patient Capital

I do not often talk about my own investments on paper. Suffice to say they are mainly in collective funds and I do not think they would excite you much.

However, I did recently top up my holding in Woodford Patient Capital, a fund that has come in for a little criticism and questioning from some quarters this year.

Why did I do this? Well, there is the undoubted pedigree of Neil Woodford in difficult times – and the bull run cannot go on forever. More pertinently, at the end of May the share price was about 6 per cent below the net asset value as the NAV growth comfortably outstripped the growth in share price. This discount has since narrowed to about 4 per cent.

This is a fund investors were buying and advisers were recommending when it was trading at between 5 per cent and 15 per cent above its net asset value. Yes, bigger discounts are available, but this is an opportunity to, in effect, buy Woodford on the cheap. Fees remain very low while performance is modest, though a performance fee will kick in if annual returns top 10 per cent.

Given the nature of this fund there have been and will continue to be setbacks. But over the long term I still have immense faith in the ability of Mr Woodford to deliver a solid return on my investment. 

Lump sum v drip feed

There are some useful investing statistics relating to the lump sum versus drip feed argument – most of them provided by Fidelity.

Against this, 7IM last week produced some that defied sense in comparing a £10,000 lump sum invested 10 years ago with an £83 monthly investment over a decade.

It will not surprise you to learn that the £10,000 lump sum did rather better, generating a 59 per cent return as opposed to the 40 per cent on drip-fed money, some of which had only a month or two to grow.

A more realistic comparison would have been to look at £1,000 put in once a year versus the £83 per month.

The key for many small investors is that they do not have a lump sum available so monthly saving is a relatively painless way to invest. It also avoids investment shock, which could occur with a market correction soon after the investment is made.

I love statistics, especially when comparing investments. But I must say these were just plain silly.

Tony Hazell writes for the Daily Mail’s Money Mail section