John Duffield, the chairman of New Star Asset Management, announced plans yesterday for a cash bonus scheme for staff as he gave warning that assets under management at the embattled group had fallen by almost £3 billion in less than three months.

Mr Duffield, who made millionaires out of a host of his employees, including his secretary, when he listed New Star almost two years ago, said that the cash would be paid to junior staff. At the same time, he put forward a new long-term incentive plan, to be made predominantly in shares, for the fund manager’s 35 most senior employees.

In a surprise move, John Tiner, the former chief executive of the Financial Services Authority (FSA), will join the New Star board as an independent director. The two sat on opposing sides during the FSA’s five-year investigation into the split capital investment trust scandal. A host of fund managers, including New Star, eventually agreed to pay £194 million into a compensation fund initially predicted to reach £300 million.

Mr Duffield said that he was introducing the cash bonus plan, a break with New Star’s tradition of rewarding employees with shares, because of the damage that falling stock markets had done to his shareholdings. New Star shares have fallen more than 82 per cent since their peak last June, reducing the value of Mr Duffield’s own holding from almost £114 million to £20 million as at yesterday’s close. Mr Duffield has 22 million shares, or 7.6 per cent, of the firm’s equity.

“This is the first time in my life that I’ve been in a recession that has hurt me personally,” Mr Duffield said. “Here we are in a bear market which has really hurt me in terms of my own personal holding. I look at our junior employees that have shares and these have really fallen. I think it’s only fair to reward them in the right way.”

If approved by shareholders, New Star’s cash bonus scheme will be introduced next year. The long-term deal for senior staff should mature in 2012. The payout will depend on investment performance, sales and profits targets. The staff plan came as New Star revealed that assets under management had fallen by £2.8 billion to £20.3 billion since the beginning of the year. About £1.2 billion of the withdrawals were by UK and international mutual fund investors, the company said.

New Star, which presaged the exit at its surprise profit warning in January, cut the annual dividend by 44 per cent from 9p to 5p.

Mr Duffield said that market conditions were the toughest he said seen since New Star was set up in 2001. He said that there would be no let-up in the tough environment for the rest of the year, but that he still expected the FTSE 100 to end the year on a high.

New Star managed to post a 36 per cent increase in operating profits to £98.1 million for the year to the end of December, marginally ahead of analysts’ expectations. Net revenues rose 29 per cent to £173.3 million.

Shares were up 6¼p at 91¼p. Mr Duffield suggested that, despite the grim investment market, there were early signs that conditions were improving.

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