Managing talent

Bharat Anand Ownership of intangible assets like talent, ideas, skills and knowledge is often elusive. This paper studies what type of organisation will host a project where a talented individual is essential for its successful completion (i.e., talent is pivotal), but can leave after her talent has been “discovered”.

Discovery may mean that the individual has been revealed to be talented, has acquired a specific skill or has learnt a key piece of knowledge or information. It is often claimed that in such settings, talent requires strong incentives that are best provided by narrowfocused firms.

But a surprisingly large fraction of such projects are done in corporations where incentive structures are blunt and organisations bureaucratic.

For example, despite the success of venture capital over the past 20 years, more than 90% of commercial R&D is still done within corporations… Weak property rights create an ex-post market for talent that relaxes the trade-off between incentives and synergies within corporations. It does so by forcing corporations to match talent’s outside option, thereby making credible its commitment to share surplus with talent.

Hold-up by talent thus limits expropriation by corporations, an instance of the second best principle that two distortions can cancel each other out rather than adding up. We use the model to shed light on several apparently puzzling phenomena in markets for talent.

From “Incentives versus Synergies in Markets for Talent”