Woodford Investment Management: bonus ban breaks new ground
One of the most prominent figures in the City has taken “the unprecedented step” of abolishing all staff bonuses at his firm, arguing that they do little to boost performance, said Patrick Hosking in The Times. “Star stock-picker” Neil Woodford has instead put all 35 employees of his fund boutique, Woodford Investment Management (WIM), on a fixed salary. “The radical shift in policy is unheard of in the City where discretionary bonuses have traditionally been seen as necessary to drive performance.” But, according to Woodford and co-founder Craig Newman, the payouts “can distort behaviour, encouraging misconduct, recklessness and short-termism”. The firm has increased its employees’ fixed salaries to compensate for the loss.
“The view from the moral high ground is fantastic,” said Jonathan Guthrie in the FT. Woodford’s ethical position, “while doubtless sincerely held”, will probably give his firm a “branding advantage” – provided plenty of other funds “stick to the bad old ways”. It could also alleviate internal politicking, said Hosking. But there are downsides. In a difficult year, WIM could be “exposed” if it is unable to reduce its total pay bill. And without a deferred bonus award to tie them in, “star performers could be more amenable to poaching”.
“It’s relevant that this radical move is being made by a fund manager,” said Maggie Pagano in the Daily Mail. Their own big bonuses are one reason why they have consistently failed to curtail excessive pay at the companies in which they invest. M&G’S Richard Woolnough took home £33m in 2014: his fund is now “at the bottom of performance tables”. It has become “an article of faith” that companies must pay ever-higher discretionary bonuses to get the best from staff. If Woodford’s move helps “prick” that bubble, bring it on.