Woodford Investment Management announced that since the new financial year began in April, employees including fund managers and sales staff have recieved a single salary and a flexible employee benefits scheme that includes pension, medical care and life insurance.
The change in remuneration structure was driven by founding partners Craig Newman, CEO and Neil Woodford, head of investment. They said they wanted a scheme they believed was fair and appropriate for Woodford employees and, ultimately, clients.
Drawing on their experience of various bonus-led remuneration models they said they concluded bonuses were largely ineffective in influencing the right behaviours. It led them to consider whether Woodford required a remuneration model at all, and that introducing a single salary structure would "influence more consistent behaviours, which were aligned to the firm's long-term philosophy and client expectations".
Craig Newman, chief executive officer, Woodford Investment Management, said: “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.
“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.
“There is little correlation between bonus and performance and this is backed by widespread academic evidence. Many studies conclude that bonuses don’t work as a motivator, as expectation is already built in. Behavioural studies also suggest that bonuses can lead to short-term decision making and wrong behaviours.”
They cited academic evidence which also concluded that bonuses don’t work as a motivator, because expectation is already built in.
The company stated: “Behavioural studies also suggest that bonuses can lead to short-term decision making and wrong behaviours. It’s why Woodford believes that if it pays people the right amount of money in a single salary it will be able to improve employee behaviour and performance because there isn’t the distraction of a bonus. It also fits with the way Woodford does business.”