Home—Blog—The myth of 'talent'
Jan 26, 2010, 10:34
Posted byMerryn Somerset Webb
Comments (17)
I'm reading a great little book by David Bolchover. It's called Pay Check and asks the simple question "Are top earners really worth it?"
No, it didn't take me long to come up with the answer either.
But the interesting thing here is not that they aren't worth it. It's why they think they are, and how they get away with their ludicrously large paycheques when we all know they aren't. It all comes down to the "talent myth," says Bolchover.
Consider the case of Lionel Messi (a very good Argentinian football player, apparently). His individual performance and impact are very measurable: we know how many goals he scores and how many he helps to score. We can see his skill in action. So we know he is a rare talent and that if his current club doesn't pay him a fortune, someone else will. According to the theory, the same is true of top CEOs: they have a rare talent and must therefore be paid a fortune – 531 times the average blue collar worker's pay in the US at the moment. But there's a problem here. We can't measure a CEO's talent as we can that of Mr Messi. We can't know if any one CEO has a rare talent - or any talent at all. Every big company has tens of thousands of employees contributing to success or failure. Indeed, many companies perform well despite poor leadership, helped along by buoyant economies, market positions put in place by predecessors, or excellent middle managers.
The fact that we can't measure this talent doesn't mean it doesn't ever exist. But it does make the case much harder to prove. It seems very, very likely that there are actually a substantial number of people knocking about just as capable of doing each CEO's job as the CEO in place. But if that's the case, then what's going on with the paycheques? The truth, says Bolschover, is that senior executives have made use of the difficulties of measuring corporate performance "to further their own financial agenda," constructing and "jealously guarding" an ideology of talent that allows them to keep getting grossly overpaid.
This is irritating. But it is also dangerous. It makes the rest of us angry, particularly in hard times. It stifles entrepreneurship – why take risks when you can get rich without doing so? And it encourages the culture of entitlement: to make us do things that cost us effort we need to see entrepreneurs, not corporate big wigs, buying new yachts. But there's another problem too. Our tolerance of the talent myth is costing us all money every day. It is costing us as shareholders. Every penny paid to an over-egoed top man and his team is a penny that isn't paid into our dividends. But it also costs us as taxpayers, thanks to the fact that the talent myth has spilled over into the public sector. How often have you heard councils justify paying their heads £200k on the basis that if they didn't, said council head would defect to the private sector and take his special talents with him - when it is perfectly obvious to all outsiders not only that he couldn't but he wouldn't.
He couldn't because he doesn't have any special talents, and because he wouldn't be an insider in the private sector – it is hard to jump bandwagons. And he wouldn't because he knows that. Yet every time we fall for the idea that he might go, and every time we tolerate his salary and perks, we bump up our own tax payments.
There is much to be done this decade to make life start feeling vaguely fair again. But shareholders and taxpayers can make a good start in 2010 by starting to refuse to pay up for the beneficiaries of the talent myth, who are getting rich at their expense.
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(26 January 2010, 12:33PM) Complain about this comment
This article reminded me of Adam Crozier ( http://en.wikipedia.org/wiki/Adam_Crozier ) : A fine exaqmple of management talent - nice work if you can get it!Plus ca change: I used to wince as Sir Peter Bonfield moved from company to company, paying himself and his cronies handsomely whilst making catastrophically poor business decisions.Who in their right mind signs on the dotted line employs these clowns? (Let me put it more honestly, how does one get on this gravy train gig? I sincerely doubt I could do a worse job!)Watching the ratio of executive to non-executive pay rise astronomically year-on-year throughout a decade when any old fool could leverage up very cheaply is quite demoralising. It's a pigopoly. It's shameless plundering. It has destroyed shareholder value and destroyed the myth of meritocracy. So much for good corporate governance in the UK.
(26 January 2010, 03:18PM) Complain about this comment
Well here’s a thought ! MAKE EVERYONES PAY IN THE COMPANY TRANSPRENT. It`s not just a problem that board members getting too much pay but the people just below. I never worked in a company where pay isn’t a jealously guarded secret. If you ask someone how much they invest in their pension they will tell you and then if you ask them what percentage of their pay goes into their pension they will tell you. However if you ask the same person how much they get paid even under threats of accidently on purpose falling out of windows; and black n Decker accidents with kneecaps they will not reveal how much they get paid. Its taken the longest recession in Britain’s history to dislodge most of these leeches however the systems of so called attracting talent are still in place.
(26 January 2010, 10:22PM) Complain about this comment
The most highly paid Council Chief Executive in the UK (£250K+) leads the Council rated the worst in the UK (Liverpool)Need we say more !
(27 January 2010, 03:37PM) Complain about this comment
Crash Gordon, you're missing the point, he's so highly paid because the council is so awful that it needs someone of really high calibre to sort it out, if he fails and the council gets even worse he'll need an even higher paid replacement.
(28 January 2010, 12:02PM) Complain about this comment
I've had the same thoughts before so I agree with the author's sentiments. But how many of us go to annual shareholder meetings and stand up and ask the CEO to fully justify his pay packet and then put the same question to the board members. Most of wouldn't dare. We're intimidated which is exactly how they want us to feel. The institutions won't challenge because they have someone on the board.
(28 January 2010, 03:39PM) Complain about this comment
And... right on cue...http://news.bbc.co.uk/1/hi/business/8485170.stmAdam Crozier has just been appointed as CEO of ITV! Unbe-freaking-lievable!Great news for the Post Office, might take a short position in ITV though!
(30 January 2010, 12:32PM) Complain about this comment
To AlexHe is the more expensive one after the old one (his mate, on only £200K) couldnt sort it out!
(01 February 2010, 10:24AM) Complain about this comment
A fascinating insight into this last week at the Kent Reliance annual meeting. CEO Mike Lazenby saw his pay rise by 11% last year even as profits fell by 81%. The members demanded an explanation. The chairman told them the board "was paid the necessary package to attract and retain talent." Nonsense of course and nonsense the audience saw right through. One elderly member explained it better: these executives are too busy "looking at what each other earns. If Joe has an increase Harry has an increase.. but what is his pay based on?" Quite.
(01 February 2010, 10:36AM) Complain about this comment
And looking at it again I see Lazenby is the second highest paid boss in the building society sector. The only person who earns more than him is the boss of Nationwide. NAtionwide is 100 times bigger than Kent Reliance. Still, his pay pales into insignificance compared to that Lloyd Blankfein. Blankfein is, according to the Times, to be paid up to $100m this year. As I say in the main blog we don't know and can't measure if he has talent. But even if we could, under what circumstances would we ever value it at $100m?
(02 February 2010, 12:35AM) Complain about this comment
Oh really? Who would have guessed the corporate puppets are all in it to grease their own poles with as much our wonga as possible? Next you will be telling me the men in grey suits stifle political change and true universal equity and justice? Clowns
(03 February 2010, 09:36AM) Complain about this comment
The current business climate is very challenging. Nothing to do with lousy leadership or an abdication of accountability; Joe Sixpack shouldn't have borrowed so much.Outsourcing all technically skilled workers to cheap overseas subcontractors makes an immediate positive impact on the bottom line. They're all mostly glorified typists anyway. Anyone that refuses to see my "bigger picture" needs to be managed out of the business.Customer service is a problem cost centre and needs to be merged with value added service propositions to facilitate extraction of maximum revenue from the target consumer. This is an ideal opportunity to manage the less revenue-generating employees out of the business.Did you see that YouTube video with the Ford Ka and the pigeon? It was really funny. We need a massive viral marketing campaign. We will double our marketing budget over the next eight quarters for this. Can I have my £16m now please?
(11 February 2010, 06:44PM) Complain about this comment
Nobody has to justify their salary, they just have to convince others to pay them the said amount. The hardest part is getting invited to the party, but once you're in you can scoff and drink like the rest of them. I guess the one saving grace of the private sector is that it is results orientated: even if the CEO has no talent, as long as the company in question is turning a decent profit, his/her job is safe If the company goes belly up or profits fall drastically, the CEO is out on his ear (albeit with a nice little bank-hander). By constrast, once you've been invited to the public sector party, you are in for life and as long as you don't simultaneously kick a fellow councillor in the goolies, sleep with a trainee who happens to the be the son or daughter of your immediate boss, steal a huge wad of council tax money and deliberately burn down the town hall, you can usually hold on to your job for life. Hey, you can even start an illegal war and get away with it...
(18 February 2010, 11:32AM) Complain about this comment
I retired 10 years ago as a fully qualified chartered public sector accountant, and senior manager in a nationalised industry, on a salary of £38k. It would perhaps be worth about £48k. now. My bosses were paid according to recognised scales and I was prepared to accept that the very best of them were probably twice as good as me and deserved their salaries of double mine (although after attending many meetings with them over the years, I did even wonder about that ! )What makes me really angry is when I see the likes of Crozier, the Network Rail chiefs, bankers, and many others, who according to their salaries must be assumed to be 20 or more times more talented than me. I just don't believe it !!
(04 December 2011, 05:08PM) Complain about this comment
You're saying: Companies believe that you need to pay more for top talent. In some cases the untalented pretend to be talented and benefit from this policies. Therefore we should stop paying those in top positions a lot of money. This argument is not logical. If the untalented are benefiting from the talent myth it does not mean that you don't need to pay good money for top talent. Reducing CEO's salaries may well prevent companies from having the best CEOs. Surely the problem is not that companies pay their CEOs a lot, but that the untalented are posing as the talented. Unless you don't care that a consequence of your argument is that companies might well lose the best CEOs.
(25 January 2012, 01:18PM) Complain about this comment
I m not sure I agree with the article in its entirety. Ter has to be a clear distinction made between executive pay in the pvt n pub. sector! In Pub. sector avg lowest level full time job is approx £16k. There are approx 20 levels between the 'boss' and lowest level worker, simple 15% extra pay each level gives £227k for the Boss. Seems fair! Now unless we further downsize the salary of the guy earning 16k...£227k remains justified!The diff between pvt n pub sector is in pvt % of exec pay (upto 50%!) is in terms of stock options which over time grow in price giving higher returns.... now if the exec are not 'talented' stocks price drops (sometimes to 0!). which is a good way of rewarding or punishing talent/grifters! If ne one sud be blamed for the salaries it is the govt who took all the hard earned tax money from ppl and gave it to exec who clearly showed their lack of talent! that was the part which should have been protested! not the part where ppl get paid for doing work!
(25 January 2012, 01:40PM) Complain about this comment
I think talent sud b rewarded. If tats not the case they move to other places wer it is. It is not what they bring to the job but what it will cost to replace them! If an exec at £200k leaves and you want to hire a guy to replace him, (exec post-so same experience and credentials) he will probably ask for same or more pay. No incentive to take up the new post/change his job if tats not the case! We all do it to get a pay rise. We move jobs to get higher pay! And our companies pay us more if they want to retain us! The only ppl who complain r the once who dont develop skills that make them valuable to their current firm or the new one!Messis talent is on full display in the matches similarly exec talent is on display in their annual profits statements... if messi stops scoring / assisting barca will let him go/reduce his pay! that sud have happened with exec whos companies made loss! Blame the govt for bailing out banks! not the talented for gettin their pay!
(06 February 2012, 04:01PM) Complain about this comment
Nice argument. One problem with shareholders challenging this myth and I agree it is that.Shareholders hold to the same myth. In some ways its even worse because investors are remunerated for out-performance against their benchmark over very short periods.So we have the deaf leading the blind!
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