Employer brand : The value of a name
A study shows that prestigious firms can hire the best people without having to pay more than the market average. However, this employer advantage is time-sensitive. It applies at the start of a graduate’s career, and after 5 years, employees can take their firm’s status wherever they go. In addition, from VP level upward, high status firms have to pay employees significantly more than their lower status counterparts.
Roxana Barbulescu’s interest in the levers involved in job change has resulted in research covering networks, gender, educational and employment background, and now, status. The importance of the issue came to her attention when she noticed that her students talk about it incessantly. “MBA students are very aware of firm status. Their first job has to be ‘good,’ because, among other things, it will mean being well — or less well — perceived by subsequent employers.” A study that combines Barbulescu’s worker-focus with her co-researchers’ organizational-focus confirms that students can indeed better secure their futures by starting out at a prestigious firm. But students should also know that these firms leverage their ambition and ability to the company’s advantage. The study reveals when the balance of power shifts, and employees can draw maximum advantages from their employers’ statuses.
Employers: the financial advantages of high status
High status firms are those that are widely reputed for the consistent excellence of their organization and people. It is hardly a surprise that these firms attract the highest quality employees, meaning the MBA graduates who have earned honors and awards. Significantly, high status firms can hire top talent without offering above average salaries. Barbulescu explains, “Economic theory would suggest that high status employers would have to pay better people more money, but we found that this is not the case. High status employers pay top graduates the same amount as lower ranked firms do for average graduates.” In short, high status translates into lower costs for top quality people. In addition to such financial benefits, prestigious firms are able to effectively maintain their leading status by virtue of the better work produced by these better people. Still, this employer advantage does not last forever. As of the VP level (a level generally achieved after 6 to 8 years at the bank if the individual is working his or her way up from the lowest rung, or 3 to 4 years if hired after an MBA), high status firms have to pay workers more than lower status firms. Barbulescu cites the example of Goldman Sachs vs. Vanguard, firms with a 10 point difference in rank. “At the VP level, Goldman Sachs has to pay 15% more than Vanguard, and this percentage keeps increasing. The balance shifts, and workers have the financial advantage.”
I have stressed the 5-year minimum commitment to my students. I tell them that taking a job with a high status employer is an investment in the medium-to-long term.
Employees: the advantages and constraints of a dream employer
For employees, working at a high status firm obviously presents numerous benefits from the start. “The advantages that people mention the most are the chance to work with smarter people, get good training (a top priority), benefit from a rich work environment, and build skills and networks.” People who begin their careers at high status firms can use this experience as a stepping-stone. “High status employers do provide employees with significant leverage for future jobs,” says Barbulescu. “When a person moves from a high status firm to a lower status firm, he or she might not be able to earn more, but the change offers an opportunity to rise in rank.” The catch, and one of the findings that most surprised Barbulescu, is that it takes at least 5 years with a high status firm for the situation to yield this career benefit. Less time than this makes other companies question a person’s skills and ability. “This is a legitimate concern,” Barbulescu comments. “Leaving a high status firm sooner than this can indicate — or at least suggest — that a person has not been able to handle the job. Realistically, it probably also means that the person has not yet been evaluated for a promotion, and potential new employers like seeing that accomplishment. Since the study, I have stressed the 5-year minimum commitment to my students. I tell them that taking a job with a high status employer is an investment in the medium-to-long term. You have to be willing to commit and ensure the specific firm is the right place for you, and you must clarify your goals. Are your main objectives to keep learning and build leverage over the long run, or do you want to earn the most you can straight away or perhaps try out a new workplace in a couple of years? In either of the latter cases, top graduates should know that joining a high status firm will not enable them to reach those goals more than if they join an average status firm.”
The impact of status over time
Early on in a career, firms benefit from their high status more than the brilliant young professionals they are able to hire. The quality of the work these people are able to do enables them to ensure organizational excellence at an ordinary cost. However, once people rise in the hierarchy to VP level and beyond, high status firms have to pay workers more than lower status firms because from this point on, employees no longer need the direct connection with the high status employer to reap the advantages. As Barbulescu puts it, status is “sticky”: it becomes a signal attached to the person. The value of the status is not diminished by his or her departure from the firm, and that’s why high status firms have to work harder and, specifically, spend more than their lower status counterparts to retain their experienced members.
Based on an interview with Roxana Barbulescu and the article, “I used to work at Goldman Sachs! How firms benefit from organizational status in the market for human capital” by Roxana Barbulescu, Matthew Bidwell, Shinjae Won, and Ethan Mollick (Strategy & Management Journal , 2014)
The findings in this study can be used to help HR professionals in high status firms more effectively tailor HR management practices according to the stage of a person’s career.
- Early on, young professionals want good training and mentoring, and HR should ensure they get it. It is one of the main reasons they join a high status firm, along with an interest in building their skills and developing their professional networks. Conversely, at this point in their careers, they may place relatively lower priority on work-life balance or cultural fit.
- Later on, high status firms have to find ways to make people want to stay. In addition to high pay and interesting work, the issues of work-life balance and cultural fit are likely to arise and deserve increased attention from HR management teams.
Babulescu believes that learning is very important to people in professional services fields throughout their careers. “Employers tend to assume that later in their careers, people ‘know it all’ or are not interested in learning, but I have not found this to be the case. I think that experienced people simply want to learn different things, and that work-life balance, which young professionals are sometimes willing to sacrifice on, becomes a genuine concern.”
The researchers studied the investment banking industry to explore the tension between employer and employee benefits of high firm status, looking in particular at the evolution of pay in these firms as careers advance. Firm status was derived using Vault.com prestige rankings from 2001 to 2009, and the researchers tested the relationship between firm status and wages using a 2011 survey of MBA alumni from a large U.S. business school. Their final sample included 458 individuals and a dataset of 509 person-job observations. In addition, the researchers used interviews and a supplementary study of students from the same school.