Saturday, November 18, 2006

Where all the workers were above average.

[O]ne of the ways that [major investment banks] successfully manage troops of "superstars" is by allowing all of them to think that they are in the top quartile of performance. When you are trying to build a "team" culture rather than a "star" culture, this fib may seem harmless, even helpful, at the margins. Indeed, given the intelligence of those being lied to, they must fundamentally know it is a fib but suspend disbelief because it is in both their and the institution's interest that they do so. At investment banks, even more than at other companies, money is viewed as a proxy for performance -- one's relative standing in the organization is tightly correlated with the relative size of one' s bonus in a given year. As a result, until bankers become relatively senior, the vast majority are compensated within very narrow ranges based on the year they graduated business school and joined the firm. This provides at least a colorable basis for the white lie that 100 percent of the firm is in the top 25 percent. Once management begins negotiating preferential financial arrangements on an ad hoc basis -- particularly among a group that is viewed as generally of lower quality -- the covenant of "team" culture is shattered.
Jonathan A. Knee, The Accidental Investment Banker 126-27 (Oxford University Press, 2006).

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