Respected fund manager Neil Woodford scraps staff bonuses

The star stock-picker and founder of Woodford Investment Management will put all staff on a flat salary this year, arguing that bonuses as “largely ineffective” at motivating employees to perform well.

Woodford’s 35 employees include fund managers, analysts, sales people, IT professionals and compliance workers.

The company’s new pay scheme was introduced quietly on 1 April with higher salaries to take into account the termination of bonuses.

The move comes in contrast to a culture of excessive bonuses paid in the City’s financial sector. Bonuses have long been seen as a good incentive to drive performance.

However, Woodford and his co-founder and chief executive, Craig Newman, believe bonuses fail to influence the right behaviours.

Newman 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.

“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.”

Last month Prime Minister Theresa May announced plans to introduce rules which allow shareholders a binding vote to block excessive bonuses, in an effort to crack down on “corporate irresponsibility”.

Under current rules shareholders can be over-ruled on votes against overly generous bonuses.

The new Prime Minister is also set to introduce regulation which require companies to appoint employee representatives to boards, in the hopes it will improve corporate governance.

The High Pay Centre last month published data showing that bosses of Britain's biggest public companies earned an of average of £5.5m last year. They received a 10% pay rise, while wages of other employees stagnated.