The Other Side of the Talent Frenzy

At Growthology, one of recent themes has been talent. In most entrepreneurship and innovation research, talent development and acquisition falls under the category of human capital – and you can see an overview of this research on Kauffman’s State of the Field site.

It is clear why we care about understanding this topic: talent is an ever-present necessity of not just successful startup entrepreneurs, but of any successful business. Growthology authors have examined new ways firms acquire talent, the connection between talent, invention, and innovation, policies that make it easier for talent to grow and contribute to American economic growth, and more.

Here is the next question I would like to address: Is exceptional talent exceptionally compensated?

Some Background on the Talent Arms Race

This focus on talent has led firms to engage in an arms race, which is developing among companies where talent provides the greatest advantage. The high end of the talent spectrum has seen firms such as Airbnb, Apple, Google, Facebook, Ford, GM, Netflix, Uber, and others; which offer perks to attract the best talent. These perks range from “unlimited vacation” (Netflix and LinkedIn), to gourmet chefs (Google, Uber, and Airbnb), to the now-somewhat ubiquitous ping-pong tables and gym memberships associated with young tech companies. All these companies, in an effort to lure the very best talent, spend significant resources creating an office Shangri-La.

There is a reason firms competing at the deep end of the talent pool feel the need to offer these extras; the ferocity of the battles for exceptional talent is ramping up. Especially in the tech sector, the difference between a talented software engineer and a superstar one can be the deciding factor in a company securing its competitive advantage.

An Economist article repeats a quote about meritocracy in the tech economy:

“A great lathe operator commands several times the wage of an average lathe operator, but a great writer of software code is worth 10,000 times the price of an average software writer.” 

Convincing the promising new graduate to choose your job offer, or acqui-hiring a nascent entrepreneurial team with unmatched skill, is what these companies are banking on as competitive advantages.

Who Really Benefits from Exceptionally Talented Workers?

Firms see the value of exceptionally talented workers; but are the exceptionally talented workers really reaping the benefits of their talent? “Golden handcuffs”, the idea that such generous perks keep individuals tied to their work (and to their employer) longer, has consequences for employee satisfaction and overall labor market mobility.

While superstar workers still command hefty wage packages, the incentives at their firm may actually discourage the use of those perks, where taking holiday time can be seen as slacking. Even in media, the popular stereotype of tech firms in Silicon Valley is one that glorifies working in this kind of meritocracy, and glosses over the many who get left behind or don’t fit in. While a few companies are blessed with sky-high valuations (although that trend has begun to fall off), those returns are often concentrated in the original founders, who choose to distribute equity shares that give them significant controlling power.

So exceptional talent, as the indispensable resource for firms, has instigated a race to offer the most lavish package of monetary and non-monetary benefits to the most talented workers. But there may be evidence that these workers aren’t actually as satisfied as their wages and benefits would show. The economy as a whole may also be suffering from a lack of labor mobility. While a lack of exceptional talent leads to slowed innovation, decreased international competitiveness, and slower economic growth, it is important to understand the consequences of the talent that does exist.

chris jackson

Chris Jackson

Chris Jackson is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, assisting in the understanding of what policies and environments best promote entrepreneurship and education in the pursuit of economic growth.