Wall Street's record-breaking paystubs: Pay for performance? Really?
Yesterday's post, which questioned the dubious news that banks were--surprise!--finally realizing that paying top dollar to poach stars doesn't always work out well, preceded today's even more dubious headlines. The collective executives of Wall Street are on track to pay their employees $144 billion, shattering the record payout for the second year in a row. Their defense? What else? "If they don't adequately compensate employees," banks told the Wall Street Journal, "they risk losing top talent."
That implies, of course, that individual performance, skill and talent is what generates the increasing revenues for these companies. This, after all, is the bedrock upon which all performance plans today are based, both inside and outside the confines of Wall Street's canyons. "Pay for performance"--the mantra of CEOs, directors, HR executives and pay consultants the world over--starts with the assumption that employees have control over how well they perform, and that individual performance is a result of innate talent and irreplaceable skills.
But what if they're really just more lucky than good?
Yesterday's post already examined how much resources, culture and colleagues shape the performance of any supposed star. But luck surely plays a role, too, especially in the often high-stakes game of high finance. As commenter ThomasW1 wrote in response to my post yesterday, "They may have become stars simply by being in the right place at the right time; they were initially just lucky. With many, many smart people all working with the same information, the best decision will never be obvious no matter how smart you are."
I'm not suggesting companies shouldn't reward good performers. Clearly, some people take their jobs more seriously than others, work their networks more effectively than others, have natural talents that exceed their peers', and are more diligent, comprehensive and hard-working than their colleagues. A meritocracy is the backbone of any successful institution; performance--both individual and organizational--is doomed without one.
But meritocracies have their limits, too, and the notion of "pay for performance" can be taken way too far. People do not have complete control over their performance--it is shaped by the quality of their managers, the economic environment they're working in, and the cooperation of their peers. Too much focus on paying for performance--and the inherent bonus culture that goes with it--can result in overly competitive, decidedly risky and dangerously hubristic behavior.
And yes, ThomasW1, luck is a big factor. Traders or sales guys or engineers who get matched with helpful managers or are fortunate enough to be placed on the right account at the right time are more likely to look like star performers than those who end up working on a market that soured or with a customer whose prospects dimmed through no fault of their own.
At some point soon, if it hasn't already, the discussion over Wall Street pay is going to become a theater of the absurd. Despite countless efforts to curb the excesses, despite bankers' central role in creating the financial crisis that still holds our national economy in a headlock, and despite the public sentiment against the unpopular bailouts, the plot to change the structure of the financial industry's compensation seems as illogical as ever.
Someday, hopefully, the financial industry will recognize that while a meritocracy matters, too much focus on rewarding supposed talent will keep creating as many risks as it does rewards. Until then, as the old adage says, it'll likely keep being better to be lucky than good.
October 12, 2010; 10:42 AM ET |
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