09 Nov The misguided talent war
Here we go again. Just when HR executives were getting used to having a brisk wind behind them in the race to find and retain talent, the demographic and economic winds reverse – blowing back against them and at gale force no less.
As scores of articles in the press and reports issued by various associations, think tanks, and consulting firms all seem to be urging, it’s time to fire up the recruiting machine because ‘talent’ will soon be (if it isn’t already) in very short supply. No more leisurely cherry picking of the best and brightest.
Forget about gearing up for the next RIF (a dreadful euphemism) program, it won’t be needed, at least for awhile. The battle for brainpower is here. The war for talent has resumed. Companies appear to be again frantically chasing after top talent and showering it with all manner of perks and riches. As one HR executive from a super-sized energy company recently told me, “All we’ve been doing for the past several years is downsizing but now we are gearing up to recruit several thousand people.”
Battle for brainpower
The October 7-13, 2006 issue of The Economist contains a special report focused on the new battle for brains. It asserts that talent has become the world’s most sought-after commodity, and that a shortage is causing serious problems. To support this claim, the article cites findings from a recent international survey of HR executives by the Corporate Executive Board indicating that “attracting and retaining talent” was their top priority, and that over six out of 10 respondents were concerned about company-wide talent shortages.
This Economist survey is written by the usually brilliant Adrian Wooldridge. Although high level and intellectually stimulating, it ultimately proves to be a somewhat disjointed collection of facts and ideas – with one critical contradiction. In the beginning of the piece, `talent’ is referred to as a commodity while in the latter sections talent is portrayed as an elite group of highly-skilled and highly-accomplished people.
The author mentions the usual suspects – the growing value of knowledge, skills and intellectual capital, the aging population and the diversity of the workforce – as the key structural changes that are making talent more important. No surprises here but Wooldridge smartly argues that these trends call for new levels of leadership acumen.
Eyebrow-raising evidence is cited such as New York University professor Baruch Lev’s study showing that talent-intensive assets ranging from skilled workers to patents and know how now account for over 50 percent of the market capitalization of America’s public companies, and Accenture’s assertion that intangible assets constitute 70 percent of the value of the S&P 500. These data points provide rather dramatic quantification of the enormous economic value of brain power, and suggest that driving gains in shareholder value now demand talent management skills perhaps more than financial engineering ones.
The author insightfully points out where the aging population will hurt companies the most. He quotes a finding from a report by RHR International that America’s 500 biggest companies stand to lose half of their senior leaders in the next five years, while many of these companies have decimated the ranks of middle managers who would have been in line to replace them. He also explains that a less loyal and less standardized workforce means that managers will not only need to deal with lots of different types of people, but also manage workers spread out in different regions and across different functions. This will lead to even more competition for scarce leadership talent.
Wooldridge argues that the “talent war” must be taken seriously, but that talent is often too narrowly or too broadly defined. The author defines talent as “brainpower – the ability to solve complex problems or invent new solutions.” He argues that the need to gather talent is prevalent among all companies, that the search is now global with even governments getting involved, and that there has been a general shift from a talent buyers market to a talent sellers market. Lastly, the survey discusses the inequalities of how talented people, particularly top managers, are rewarded compared to the rest of the workforce and how well the concept of meritocracy is working in business.
The pros and cons of meritocracy
The dictionary defines meritocracy as a system in which advancement is based on individual ability or achievement. While the Economist strongly supports the concept of meritocracy, it also expresses strong concerns about it leading to compensation inequality and elitism. Wooldridge points out that America has the freest market in talent but is seeing the most dramatic increase in income inequality.
He cites an academic study of income distribution showing that the share of income going to the highest earning 1 percent of Americans doubled between 1980 and 2004 and the share of the top .1% tripled. Despite these concerns, the author concludes that these income trends are sensible citing statements from Google and Microsoft executives extolling the disproportionate contribution and value of the talent elites working within their organizations.
The article also praises the widespread use of “up-or- out” practices by most successful professional services firms that emphasizes competition by the many for a few top spots as a sign that this kind of winner-takes-all competition among talent is the best approach to ensuring high performance.
Wooldridge concludes by stating that “the success of advanced economies is increasingly dependent not on their physical capital but on their capacity to mobilize their citizens’ brainpower.” He asserts that the rise of global meritocracy is the most beneficial way to achieve this. The author concedes that there is likely to be a backlash against talent but that the way to prevent it is to make sure everyone gets a fair chance in the game.
Not everyone agrees that meritocracy is good. One particularly elegant dissenting opinion is offered in the article “The Natural Basis of Competition and Meritocracies,” appearing in the blog Slow Leadership. It argues against meritocracies as a way to organize people in business by pointing out their significant downsides such as the risk of bias and subjectivity, pitting people against each other by creating winners and losers, and making people fear failure and thus diminishing their appetite for taking risks.
Meritocracy is good but winners take all is divisive
Many American corporations and workers embrace the principle of meritocracy – that people are individually recognized and rewarded for their accomplishments and contributions to their employers. Yet policies that allow a few winners to reap most of the rewards seem to be pervasive in many large organizations and are responsible for creating ambition-driven, money-obsessed elites. It seems to me that in the era of competing on brainpower, it’s just as important to leverage the broad range of knowledge in an organization as it is a few brilliant individuals. It therefore may be better to divvy up performance rewards more broadly and equitably rather than concentrate a big pile of money for the elite few.
Providing more opportunities to more people to reap relatively few big payoffs as the Economist recommends won’t eliminate income inequality and elitism. This doesn’t promote meritocracy in my view but another form of hierarchy, albeit one much flatter and with far more wealth concentrated at the top. Indeed, with layers of middle managers removed and companies making increased profits, there has been far more to go around to a smaller group of people. This elitist approach is one reason why there are so many overpaid CEOs while the compensation growth of the majority of workers has remained flat.
The issue then is not whether meritocracy is good or bad but how to do it right. What should the logic of meritocracy be – that the most talented receive the lion’s share of rewards or that all performers are rewarded commensurate with their contribution? There is no doubt that top talent is important, but leaders should be seeking to leverage and reward the contributions of all talent, not an elite few. They would be wise to forget about fighting and winning talent wars and instead strive to create a meritocracy of the many rather than an autocracy of the elite.
Where does your organization fall along the spectrum of the autocracy of the elite on the one side and the meritocracy of the many on the other? Please e-mail Tony DiRomualdo at email@example.com to share your experiences and perspectives.