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Damning criticism of executive pay practices

Don’t get mad, get even. Good advice for those who find their exasperation at excessive pay packages bursting out of control.

Shouting abuse at bankers might not do much to persuade compensation committees to reduce salaries at the top. A calmer and more reasonable discussion could achieve more.

In the opening pages of his slim new book “Pay Check,” David Bolchover says he is keen to steer a middle way between the outrage of the envious and the disdain of those who see nothing much wrong with the current situation.

That he does not manage to remain so coolly neutral shows how difficult this subject is. Bolchover takes pains to deny that he wants to “harp on about greed and inequality.” But in his damning criticism of pay practices he reveals a barely controlled outrage of his own.

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Bolchover offers some familiar criticisms of the way top pay is handled. He does so crisply and with good use of data. Many of his grenades hit their targets.

He is withering about the cliched term “talent,” which is used to justify excessive pay. But he goes a little far in calling this an ideology. Surely nothing so carefully crafted as an ideology informs the statements made on retaining top talent.

He detects a conspiracy where perhaps nothing so planned exists. Still, it is a provocative argument: “The originators and upholders of the talent ideology ignored the near impossibility of measuring individual contribution in large corporations.” he writes, “and then hoped the rest of us would be intimidated by this near impossibility into remaining silent.”

Bolchover denies that a true market for capable executives is in operation. This marketplace is “based on entirely subjective assessments which render it corruptible,” he says.

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This is a bit of an exaggeration. The really hard part for recruiters -- the reason this market is undeniably imperfect -- is in spotting the difference between the genuinely skilled and those who just talk a good game.

The author worries rightly about the consequences that excessive pay has on those about to enter the workforce. He fears this signals to young people that “wealth simply gets given to those who maneuver themselves into the right place at the right time. A dynamic society needs people to aspire to wealth through their inventiveness and conscientiousness, not through their wiliness in climbing the greasy corporate pole.”

Bolchover is right to question how much credit any individual can take for a team’s or a company’s success. “Perhaps it is not MBAs from top business schools that create banking revenue, but banking revenue which promotes the perception that MBAs from top business schools are commercially valuable,” he writes.

Following Phil Rosenzweig, a professor at IMD business school, he suggests luck has more to do with success and failure than we like to admit.

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Consider Stan O’Neal, the former Merrill Lynch boss. “He just happened to be the incumbent, the head of a company that was performing, more or less, as it would have done with a different leader, selected from a large pool of equally qualified candidates from both within Merrill Lynch and outside the company,” Bolchover writes. “He was not a hero, and he was not a dunce. He was just there.”

Bolchover’s assault on talent sometimes goes too far. He is dismissive of the “rainmaker,” a person who has a reputation for pulling off deals. But such people undeniably exist, and by and large earn their money.

And when Bolchover says “a significant number of people have the ability to be a CEO of a major company,” he is surely wrong.

The arguments over top pay will continue, and this book is a useful, if flawed, addition to the debate. This complicated problem defies simple solutions.

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Stefan Stern is a columnist for the Financial Times of London, in which this review first appeared.


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