Member Article

Woodford Investment Management cuts bonuses

It has been revealed today that Neil Woodford of Woodford Investment Management has decided to cut bonuses for all employees. According to Woodford, this is to discourage “short-term” decision making, improve performance and focus on long-term returns. The overall salaries of employees has been increased to ensure that no employee would lose out from this decision.

“While annual bonuses are an institution in the City and often used to motivate employees, there are much more effective and efficient ways to reward employees for good work.” said Derek Irvine, vice president of client strategy and consulting at Globoforce. “This decision is a breath of fresh air and will hopefully lead to other companies in the City following suit. Many businesses seem to believe that there is a direct correlation between large bonuses and company performance, however this is hardly the case. Indeed, as Woodford implies, bonuses often only have short-term benefits, which means the return from each pay-out can be limited.”

Derek continued by saying “the problem with bonuses is that they are often awarded at the start of the year. They may lift morale and engagement that month, however this doesn’t last. Woodford is taking a good approach by breaking up this bonus and spreading it throughout the year. By doing it this way, engagement will be held throughout the year and in fact, will likely go up. Another more effective method is to spread a bonus across smaller payments that come not just from the top, but from the crowd or an individual’s peers. Crowd-sourced recognition and rewards add a human element to performance evaluations – something additional money in a pay check can’t do. This creates a valued, happy, and motivated workforce that can see the contribution they are adding to an organisation, and has a much more positive, long term impact on performance.”

This was posted in Bdaily's Members' News section by Savannah O'Hare .