August is normally a quiet month with not much going on, and journalists scratching round for news to report in the financial press. This August however there was an interesting announcement which has stopped a few in their tracks, and should be making them consider their own position.
Widely reported, even throughout the national papers for the wider public to see, was the news that with effect from April this year Woodford Investment Management has decided to scrap staff bonuses for all of its 35 members of staff, from IT and sales staff to fund managers. CEO Craig Newman said; “We wanted to take the opportunity to challenge the status quo”, and it has certainly done that. He continued by saying that “Drawing on our experience of various bonus-led remuneration models, we concluded that bonuses are largely ineffective in influencing the right behaviours”. Staff there have had their salary increased so that no one is out of pocket, and interestingly all staff have agreed to move to the new structure. Given that the average salary across the team is £225,000 p.a. you may not find the universal agreement surprising. But would this approach really work in larger Asset Management and institutional houses?
What drives our behaviour is the culture that surrounds us, and that remains the challenge especially for the larger firms where individuals can feel detached
The fact is many more companies may have to look at plans like this as our new Prime Minister (yes we have one of those since my last article – who said a week was a long time in politics?) Theresa May has already revealed plans to crackdown on “corporate irresponsibility”. Increasing staff salaries does increase fixed overheads and if markets start performing poorly in light of Brexit, for example, this can put pressure on the firms finances. Of equal concern to the larger firms is whether staff retention would be affected if salaries appeared not to keep pace with peer groups or other jurisdictions, a particular concern now with Brexit. Base salary is a considerable motivator, according to research, however firms still need to be measuring employee input and output to ensure they are getting value for money.
It appears on the face of it to be simple, but striking the right balance is crucial. If all the KPIs required to receive a bonus and/or remain remunerated to the same level are based on monetary or financial targets being hit, you will drive the wrong behaviours. Firms need to ensure that all their staff members understand the behaviour expected of them, and that the KPIs set include a mixture of positive outcomes. What drives our behaviour is the culture that surrounds us, and that remains the challenge especially for the larger firms where individuals can feel detached. If you are a graduate fund manager, in a large investment room with a team leader who is too busy hitting their own targets to do your appraisal, or give regular feedback, the only way you will learn is by watching the behaviour they exhibit. So the cycle of poor behaviours is perpetuated. Challenging that status quo is what’s required, but it will need those at the top to stop and really examine the issues and ensure they motivate staff in the right way.