Piia Pilv, of Mercer's pay consultancy, has noticed a similar pattern in eastern Europe and the Middle East. At first clients were interested only in getting hold of international pay data, but soon afterwards they started looking at the design of long-term incentive plans. Multinationals that are grappling with different pay schemes in different markets lead the way, along with industries that employ lots of foreign executives. In the Middle East, says Ms Pilv, private companies are rapidly raising pay towards international norms, but the state-owned sector is slower. Whereas Japan is a laggard, Chinese companies are embracing long-term equity incentives. Early government approval was given in 2006 and now some 100 firms, such as ZTE, a telecoms-equipment group, are planning to use long-term incentives to motivate managers.

Pay-consultancy services offered by firms such as Mercer, Frederic W. Cook, Watson Wyatt and PricewaterhouseCoopers have themselves proved controversial. Critics complain that the data they provide help to ratchet up pay because almost all companies seem to want to pay their executives at or above the average (a statistical impossibility), and that the consultants suffer from conflicts of interest. In the past they reported to the chief executive rather than to the board. That arrangement has been outlawed by the New York Stock Exchange, but sometimes the consultancies have other large contracts with the company which are in the gift of the very executive whose salary they are helping to set.

It is feeble of boards and managers to blame the consultants for everything. Directors were always free to decide whose advice to take and whose to ignore. And companies have good reason to follow the crowd in pay because good packages are difficult to design. Bengt Holmstrom, a professor at MIT, points out that some of the most astounding pay packets were offered by companies such as Apple and Oracle whose boards adopted unusual structures or turned their backs on comparative data.

Accusations of conflict have more substance. Quietly, a few consultants will admit that in the 1990s the standard of advice sometimes fell short — though of course only at other consultancies. But the consultants' job has changed since they stopped working for executives and took up with the board instead, and they themselves seem happier to work that way.

How to Cut Severance Pay
Even the most controversial elements of pay may have a market logic. Krishna Palepu of Harvard Business School observes that companies preach the rhetoric of pay for performance but go on to guarantee the payout, using devices such as severance payments. Perhaps that is because a company cannot go on piling risk onto its executives. Imagine a board replacing an executive's standard options with a type that pays out only if the company's share price beats an index of its competitors. Such an option, recommended by some advocates of governance reform, has the advantage for the company of rewarding the executive for doing better than his peers but not for a piece of luck that affects everyone equally. But it is a riskier proposition for the executive. Messrs Hall and Murphy calculate that a standard option has a probability of 80% of paying out at the end of ten years, compared with less than 50% for an indexed option.

In Britain investors sought to tighten long-term incentives so that they paid out only for companies that had done better than average. One device was to award restricted shares based on share-price performance and dividends that outclass similar companies. According to PricewaterhouseCoopers, the trouble with such plans is that they do not pay out often enough. That is bad for the companies as well as for their executives, because a scheme that frequently fails to pay out soon loses its motivating power. Companies have responded by easing the rules for other incentive schemes, such as the annual bonus.

Boards could do away with severance payments and the like, but at the cost of making executives' jobs even riskier. That holds two worries for companies. First, a riskier job would attract a different kind of applicant, so companies might find it harder to lure an executive from a secure perch at a successful public company. Second, those applicants who were not put off by the extra risk might well expect extra compensation for it. So the reforms advocated by governance activists would sometimes result in even higher pay than they do now.

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