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Top UK Fund Managers are Ditching Bonuses

Senior staff at one of Britain’s top independent fund managers won’t be getting their bonuses this year. Or ever.

bonusesAs the Guardian reports, Neil Woodford, a star fund manager and founding partner of Woodford Investments, is challenging the notion that bonuses motivate better staff performance.

He’s put employees on flat salaries (which were raised, at least for the current financial year, to soften the blow).

Woodford claims incentive payments are distractions that largely don’t work and can lead to “wrong behaviors.”

The company’s CEO, Craig Newman, agrees.

“There is little correlation between bonus and performance and this is backed by widespread academic evidence,” Newman told the Guardian.

“Many studies conclude that bonuses don’t work as a motivator, as expectation is already built in. Behavioral studies also suggest that bonuses can lead to short-term decision making and wrong behaviors.”

Rewarding staff to do better may seem like a no brainer. But as Forbes reports, a survey of senior managers at 150 large and mid-sized U.S. companies by risk advisor Willis Tower Watson found just 20% thought “merit pay was effective at driving higher levels of individual performance.”

Woodford’s move is being backed by at least one rival. Daniel Godfrey, who is a former leader of UK investment industry body Investment Association, has said his new funds management business won’t pay bonuses either.

“I don’t want to demonize bonuses full stop, but there are areas of the economy where pay is objectively too high, but when you are in an arms race, it is hard to stop it,” Godfrey told the Guardian.

The funds management sector is known for paying particularly high bonuses to individual stars who can receive multi-million dollar one-off payments if their funds’ performance beats industry benchmarks.

About Ross Kelly

Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.