Monday, August 07, 2017

High Status Firms: Hiring Advantage but Retention Challenge

Scholars Matthew Bidwell, Ethan Mollick, Roxana Barbulescu, and Shinjae Won have written a new paper titled, “I Used to Work at Goldman Sachs! How Firms Benefit From Organizational Status in the Market for Human Capital.” The scholars discover, unsurprisingly, that high status firms have a powerful hiring advantage. Knowledge@Wharton summarizes the key finding: 

If a firm is high status, it possesses a hiring advantage (“preferential labor market access” in the paper’s language), but the advantage is not what one might think. It isn’t better pay or more interesting or challenging work: It’s the belief that having worked for such an employer can help you get a better job later on.  “You essentially can pay people in reputation,” says Mollick. “They will take less salary early on because the reputation will result in a higher salary later.” 

How substantial was the impact of status in the employment choices made by MBA graduates in the study? According to the authors, the impact was especially critical in investment banking (shocker!), "where respondents’ odds of accepting a job offer nearly doubled with a one-unit increase in their perception of the firm’s reputation."

Interestingly, though, the hiring advantage that high-status firms possess turns into a retention disadvantage later on in people's careers.   These workers may value status over pay when they are looking for a job right out of school, but eventually, they want firms to show them the money!   The scholars found that, "Workers’ pay rises faster with seniority in high-status firms than lower-status firms."    What's going on?  Now these workers have the high-status firm on their resume.  They view themselves as highly attractive candidates on the job market.  Indeed, they probably do have many outside opportunities that are quite lucrative. Thus, they demand high wages if the firm wishes to retain them.  Of course, many of these high-status firms that recruit at top business schools understand that retention will be difficult.  They don't even mind as people leave in many cases.  They cultivate their alumni network, much as a university would.  Why?  After all, these former employees who leave a banking or consulting firm become potential clients for the firm when they move to a different company.  

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