Is talent really worth it? (Book review)

I am subscribed to The Economist since about 3 years ago. It not only provides with very interesting articles every week and lots of new ideas, but from time to time I am asked to take part in surveys. As a way to show appreciation they normally offer a study, a book, etc…

The latest book that I received from them and read is “Pay check. Are top earners really worth it?”, by David Bolchover.

The book is ferocious critique of CEO’s and finance workers’ pay. The average CEO in the USA earned in 1980 42 times the average blue-collar salary, while by 2000 this multiple increased to 531 times!

The book makes a clear difference between entrepreneurs, true generators of wealth, and the top management of multinational companies. He argues that there are three necessary conditions to award a high pay to the CEO:

  • Enough revenues available.
  • The CEO should have a measurable and substantially positive impact in the company (e.g. like one could defend the impact of a sports star within a team).
  • We would need to demonstrate beyond reasonable doubt that his abilities are extremely rare making him difficult to replace (could Jordan be replaced in Chicago Bulls?).

More often than not, this is not the case.

The favourite excuse being used to award exorbitant salaries is the scarcity of “talent”. The origin of the “talent” ideology seems to be the 1998 article from McKinsey “The War for Talent”.

Some of the extreme cases cited in the book…

  • Lehman Brothers CEO at the time of bankruptcy, Dick Fuld, who in his 15 years as CEO pocketed $466 million ($34M in 2007) before filing the largest bankruptcy in history (with $613 billion in debts), placing him as the worst CEO in American history according to Portfolio magazine.
  • Oil companies BP and Shell which both CEOs missed the objectives in 2008 yet still managed to be handed the undeserved bonus by the compensation committee from each company!

The author states that today, the main enemy of capital is… “talent”, those undeservingly taking the money away from shareholders and calls for shareholder activism to revert this situation and bring the money to whom it belongs (us, the shareholders… either directly or through investment and pension funds…).

I do recommend this book (~125 pgs.).

Advertisements

3 Comments

Filed under Books, Economy, Investing, Personal development & HR

3 responses to “Is talent really worth it? (Book review)

  1. Miguel

    Absolutely.
    But I disagree in one point…it´s not about talent, but about “fake talent”. Too often, people see talent when it´s “money in disguise”. I mean, we live in a society where MBAs, Ivy leagues, masters of all kind are overrated. If we´re talking about some technical master degree, I will encourage any scientific student to do it. But, we´re confusing some degree like a measure of the talent. Contractors are not aware that the only sure thing you can deduct from a IESE´s degree is that the parents of that guy have a lot of money. The guy can have a 99% of stupidity and still have his degree. Or, looking to the US side: how many “brilliant minds” are being accepted in the Ivy League just because dad is the Secretary of X, or COO of Y?
    Talent lies on the entrepreneurs who impuse economy, ideas, and growth…Bill Gates, David Zuckerberg, Steve Jobs, Shawn Fanning…and not some mindless daddy´s boy.

  2. Pingback: Master in common sense « The Blog by Javier

  3. Pingback: On Boards of directors and CEOs | The Blog by Javier

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s