This week has seen a strange turn of events in the investment management world.
In a culture known for its bonuses and focus on performance-related pay, two firms have gone against the grain.
No more bonuses at Woodford Investment Management
Earlier in the week, ‘star’ fund manager Neil Woodford confirmed that his firm was stopping the practice of paying bonuses. According to an article in Money Marketing, the firm said it ‘could find no evidence that [bonuses] result in better outcomes for investors’.
According to Woodford chief executive Craig Newman, many studies suggest that bonuses can lead to ‘short-term decision making and wrong behaviours’. The firm has a reputation for challenging the status quo, and cites its move away from bonuses as an example of this.
Soon-to-launch investment trust won't pay bonuses either
On Tuesday this week, it was announced that the planned investment trust set up by former Investment Association chief executive Daniel Godfrey will take the same route, and pay staff a set salary, with no opportunity for enhanced pay.
The trust is planned for launch in the first quarter of 2017.
Firms focus on building in good corporate ethics
The abolition of bonuses – long-since a staple of banking remuneration – is a bit of a shock-wave for the industry.
But, if research suggests that bonuses can encourage and reinforce poor behaviours, the move is less of a surprise.
In fact, it dovetails perfectly with a trend of ‘cultural compliance’ that we have seen emerging over recent months. The Financial Conduct Authority has said numerous times that it is looking to firms to police their own compliance – embedding good corporate governance into their DNA, rather than ‘bolting it on’ at the end of their processes.
A speech last month reinforced this, with the FCA’s Jonathan Davidson stressing culture’s place at the heart of compliance. Andrew Bailey, in a presentation to banks in June, shared a similar message: open cultures, where challenges to the status quo are encouraged, deliver better results for customers.
Good behaviours need to be entrenched in firms’ culture if they want to cut it in this new, more ethical banking world.
If you want to find out more about how to make sure a compliant culture is at the heart of your organisation, you can download our whitepaper, How to embed a compliance culture into your business. It’s free and you can get a copy here.