One of my earliest encounters with management consultants was when I worked for Wang Labs.
Wang was going through an effort – ultimately futile – to remake itself by focusing on a set of verticals.
I was a member of the financial services strategy committee – woo-hoo – and, as such, got to work closely with a couple of the high-priced consultants that Wang had brought in to help us see our way clear.
At one point during the period when I met fairly regularly with “our” assigned consultants, a colleague and I were sitting around while “our” guy picked our brains on what we thought the size of one particular sub-segment of our market was.
We sat there for a while, picking some numbers out of thin air and other numbers out of our orifices. Meanwhile, the consultant took notes.
We assumed that he was going to use our educated but decidedly thin-air guesses to sanity check the market research that his group would be independently conducting.
So I was a bit surprised a few months down the road when the consultancy presented its findings and proposals to the Wang senior execs while us team playahs sat in the audience.
There, up on the full screen, narrated by the big consultant cheese in his ultra-authoritative voice, were our unfiltered, undoctored numbers, listed as coming from “industry sources.”
That I did not immediately make my professional way out of technology and into management consultancy is clear testimony to my complete inability to act as a profit-maximizing careerist.
If meeting my first “real” consultants didn’t get me to jump (sinking) ship, it did open my eyes to what smooth operators these folks were.
So I wasn’t surprised at all when I saw an article in The Economist a few weeks back on the compensation specialist branch of the consultancy boondoggle.
The article summarized a recent study conducted by Cambridge University’s Judge Business School. The purpose of the study was to determine whether hiring a compensation consultant golden goosed CEO pay:
All told, the academics found that firms that hire compensation consultants paid their CEOs 7.5% more than those that did not. They concluded that “our study finds strong empirical evidence for the hiring of compensation consultants as a justification device for higher executive pay.” (Source: The Economist)
Kind of like the first job of any elected politician is to start raising funds so that he/she can get re-elected, I guess the first job of any consultant is to find more ways to stay barnacled to any firm that’s brought them in. (Full disclosure: as someone who works on a freelance basis, I have been known, on rare occasion, to make a further-work suggestion based on some opportunity I’ve spotted while working on the alpha project they hired me for. But, because I am not an especially cagey or avaricious consultant – in other words, not very smart – these occasions are exceedingly rare.)
But spotting an opportunity is one thing. Quasi-bribing the person in charge to hire you back because you did such a bang-up job goosing his pay for him the first time around is quite another.
No, I don’t think that these consultants go in and demand pay-for-play. Still, it doesn’t take a big leap to imagine that even the dimmest compensation consultant is at least marginally coin-operated, and subliminally making a connection between pleasing the boss and getting asked back.
These findings make it a little harder to argue that higher CEO pay is linked to shareholder returns or to greater talent; if that were the case, one would not expect such a clear correlation between pay and the use of consultants. The trend smacks more of the lickspittle courtier of Louis XIV, who, when asked the time, replied, “It is whatever time your majesty pleases.” The modern equivalent is, it seems, “Whatever pay your majesty pleases.”
And, since everything reminds me of something, this story reminds me of a compensation-related situation that occurred when I worked at Genuity.
As everyone who worked at Genuity for more than twenty-seconds realized, things got more interesting, compensation-wise, when you reached a certain level in the organization.
That level, as it happens, was director, which was the position I held.
For some reason, the bonus payout rate for directors and above was the same rate for everyone in this rarified group, including the executive management team. The bonus rate was a percentage of salary, so obviously if you were in a higher salary range you made more than someone at my level, who was – relatively speaking – carrying around a beggar’s bowl.
The annual bonus rate, for both those below the director level – poor things – and those above (yay, us!) – was set each year by the executive management team who were, in effect, voting themselves a raise while allowing them the cover of stating that they had come up with the “right” figure based on the merit and performance of the company’s directors and VPs.
Well, if there was damned little that we could count on the executive team for, we knew they would always act prudently when establishing the below-director bonus rate, and generously and wisely when determining what the rate that would include their mighty cohort would be.
Even when Genuity was teetering on the brink, those bonus checks were good and juicy. (Maybe not investment banking juicy, but I remember at least one 40% check.)
Probably more than even the most charlatan of compensation consultants would have proposed.
And best of all, the company didn’t have to pay a compensation consultant to do the deed for us.
All the more to toss in our very own seemingly bottomless bonus pool.
So while I’m not exactly shocked to find out that compensation consultants quickly figure out which side of the bread that butter is on, some companies manage to figure out how to take care of this particular business quite nicely on their own.