Complexities in Professional Mobility

Complexities in Professional Mobility

Just as humans are complex, so are their decisions for where to work.  In this particular post I will discuss determinants of employee mobility and how it impacts firms, individuals, industries, and policies. We will review the differences between firm-to-firm mobility and entrepreneurial spin-out mobility, and study a new approach to understanding employee mobility and retention.

First, let’s look at two forms of mobility—mobility among high-performing employees from firm-to-firm, and mobility of high-performing employees who choose to create spin-out startups from the original firm in which they were employed.

Firm to Firm Mobility (Non-Entrepreneurial Mobility)

In a recent presentation to the Research & Policy team at the Kauffman Foundation, Benjamin Campbell overviewed his research written with Rajshree Agarwal and Seth Carnahan. Their research on employee mobility is focused on the U.S. legal services industry and was funded by the Kauffman Foundation and the National Science Foundation.[i]

According to the researchers’ findings, those high-performing employees who work at a firm with high compensation dispersion, a more scattered salary range across the firm, are less likely to leave a firm than competitors.  

Entrepreneurial Mobility

The research also finds that those extreme high-performing employees that do leave are more likely to engage in entrepreneurship. For these employees, it is not the compensation package that determines their mobility; the fact that they want to start a spin-out will motivate them beyond the lure of the pecuniary rewards.

Policy Implications

  • Policies that constrain or enable individual entrepreneurship decisions have critical implications for regional economic development.
  • Our highest performers will require the highest pecuniary and non-pecuniary compensation for their work. If they cannot find that at their firm, they are more likely to engage in entrepreneurship and spin-outs. The development of additional market competition may be good for society, but potentially harmful for the source firm from which they leave.

Advice for existing firms

  • Understand that human resources and knowledge management go hand in hand. Extreme rewards will retain the best performers, but firms need to understand that any compensation structure still does not suppress spin-outs.
  • Invest in developing the talent and skills of employees.

Advice for spin-outs

  • Convince fellow employees to leave. Building a spin-out team from your existing team can be an important precursor to success; lack of ability to do so could signal low viability of new venture.

Cost of Mobility (Legal-Industry)

  • The average 85-employee firm faces a $22,865 loss when an employee moves to a spin-out.
  • If the employee earns between $100,000 and $300,000 and moves to a spin-out, the firm faces a $193,000 loss in revenues.
  • If the employee earns between $300,000 and $1M, and moves to a spin-out, the firm faces a $1M loss in revenues. 

Professional mobility is a decision that varies from person to person. Once we determine whether the person would consider mobility to a competing firm, or to an entrepreneurial spin-out, we must look at the differing market forces, and the policy implications involved. In her visit, Rajshree Agarwal stated “more stars stay, but the brightest ones still leave,” a reference to a paper she co-authored on the subject of employee mobility. Research shows that investment in an employee’s professional development and above-average compensation will help retain the best employees. However, those employees drawn to entrepreneurial spin-outs may do so regardless of their compensation. While developing an employee’s knowledge may create a threat to the employee starting a competing spin-out, the firm is ultimately benefited by those employees who choose to stay.

[i] Carnahan, Seth, Rajshree Agarwal, and Benjamin Campbell. "Heterogeneity in Turnover: The Effect of Relative Compensation Dispersion of Firms on the Mobility and Entrepreneurship of Extreme Performers." Strategic Management Journal 33 (2012): 1411-430.
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