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Article

To Attract and Retain Top Talent, Firms Sell Themselves as Springboards to a Great Career

Economics
Published on:

These days, workers at management consulting, investment banking, accounting, and law firms tend to be as interested in their career paths as they are in their salaries—which often means jumping from one firm to another in pursuit of better opportunities. But their career paths and motivation can be powerfully influenced by what sort of tasks an employer assigns to them. A study by Raphaël Lévy, Associate Professor of Economics and Decision Sciences at HEC Paris, and his colleague Heski Bar-Isaac, Professor in the Joseph L. Rotman School of Management at the University of Toronto, explores how these firms’ task allocation strikes a balance between producing value for the business and offering workers opportunities to prove their talent.

Three key findings:

• “Lose it to use it”: To attract and motivate employees, employers sometimes sell their jobs as springboards to a great career even outside the firm.

• Employees are motivated to perform when granted exposure on the labor market and when assigned to tasks allowing them to showcase their skills.

• Different human resources policies coexist: some firms consent to high exposure to their employees to boost their professional advancement, others, more concerned with employee retention, offer flatter career paths.

Career paths reflect outside opportunities

In professional service firms where human capital is the main asset, attracting and retaining talented workers is key. This might mean showing prospective hires a potential path to eventually becoming a partner and spending one’s career at the firm. But professional service firms have far fewer partners than associate positions, and the dominant paradigm in these firms has long been that of `up-or-out’: either you make it to partner, or you leave.

 

Professional service firms often have to sell themselves as workplaces where workers can build a career, even if it's in another firm.

 

To make such positions still attractive to employees, despite that winnowing down, firms need to promise workers that even if they don’t get to partner, the job is still a safe proposition, because they’re going to get a job of equivalent quality somewhere else. That’s why firms have developed outplacement practices in which they will help you to land that job elsewhere. Professional services firms thus often have to sell themselves as workplaces where workers can build a career—even though, perhaps paradoxically, their ascent is likely to take them someday to another firm.

Cultivating opportunities through task assignments

In following that strategy, firms also have to keep in mind that how employees grow and get ahead in their careers—and what motivates them to do their best—has a lot to do with what sorts of tasks they’re assigned to perform. If you’re a worker who is assigned routine tasks that don’t require talent, no matter how well you perform, the output stays the same, and the job is completely uninformative when it comes to displaying your abilities. In contrast, if you’re assigned to more challenging tasks, performance becomes highly indicative of talent. This in turn provides incentives for employees to outperform to showcase their skills to potential employers. One way to motivate young employees is to assign them to tasks in which they spend lots of time with the clients, so they get important exposure on the labor market. The firms know that in the end, the clients are going to get to know those employees and develop confidence in their abilities, and possibly want to hire them. This looks self-defeating for retention purposes, but that potential opportunity creates an incentive for employees to demonstrate their value to prospective employers, which ultimately benefits their current employers. 

Striking a balance for mutual investments and shared benefits

While a higher exposure of employees’ performance thus indirectly benefits the firm through heightened employee motivation, it also increases the wage that firms need to pay to retain their employees. This possibly limits their incentives to staff them on more risky tasks since recouping the benefits from such an investment is only possible when futures wages are not too large. In a situation where the worker got all the return from such an investment, the firm won’t have an incentive to make decisions to create those opportunities. An essential challenge is thus to find the extent of exposure that strikes a balance between workers’ and firms’ incentives.

 

Now, many such firms have created permanent non-partner associate positions for which no outplacement effort is needed.

 

Bar Isaac and Levy’s work allows to better understand that there isn’t a single approach to this problem. Indeed, different firms will choose different human resources policies. Some firms strategically differentiate by offering a high exposure to their employees, guaranteeing them to remain highly employable, and hence to rise professionally. These firms are able to attract, motivate, and possibly retain the best talents. Instead, other firms do not afford the effort that managing employees’ future employability requires, and thus offer flatter career paths. The evolution of the internal organization of professional service firms illustrates this possibility to sustain different corporate cultures: while up-or-out contracts that required workers to leave if they didn’t make partner after a set number of years used to be almost universal, some firms have abandoned that approach altogether, and many now have created permanent non-partner associate positions for which no outplacement effort is needed.

Methodology

The researchers used a combination of mathematical modeling and an extensive survey and analysis of prior research on professional service firms, labor market strategies, and the evolution of career paths and changes in the nature of tasks at firms.
This article was based upon the paper “Motivating Employees through Career Paths,” co-authored by Raphaël Lévy with University of Toronto Professor Heski Bar-Isaac and published in Journal of Labor Economics in January 2022, and also upon an interview with Lévy. 

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