Woodford challenges fund industry norm by scrapping staff bonuses
The veteran stock picker has instead put all staff, including fund managers and salespeople, on a flat salary.
The change, which came into effect from 1 April 2016, was driven by founding partners Woodford and Craig Newman, CEO, who believe there is little correlation between bonus and performance.
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.
“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.”
This is the latest way Woodford has challenged norms in the fund management industry.
In April, the manager said he would stop charging clients for research costs and publish all costs investors in the £9.1bn CF Woodford Equity Income fund pay on the firm’s website monthly.
The fund has returned 27% since its June 2014 launch, versus an IA UK Equity Income sector average of 10% and consistently appears at the top of best buy tables.