On the concept of "talent-constrained" organizations

by VipulNaik2 min read14th Mar 201428 comments


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Some people have claimed that organizations are often talent-constrained. In other words, they're not short on money, but they're not able to find talented people. Specifically, some people, such as biomedical researcher John Todd, have claimed they'd turn down large amounts of additional money in order to be able to hire superstars. Others have claimed that the effective altruism movement is talent-constrained.

I'll use talent-constrained in the following sense: an organization is talent-constrained if it's willing to turn down a substantial amount of additional money in order to be able to hire a superstar, and that additional money it's willing to turn down is enough to hire several people at the current salaries they offer.

My first reaction to claims of talent constraint is: why don't these organizations bid up the price of talent to the levels that they claim they're willing to forgo to hire that talent? There could be many possible answers. I'll explore the most salient here.

1. Talent constraint because of cash constraint

Some organizations are cash-constrained, so the ways they would use additional cash at the margin differs significantly from the ways they can reallocate existing cash. So, the fact that they'd be willing to forgo huge amounts of additional money in order to hire new talent doesn't necessarily mean that they can reallocate existing money to bid for superstar talent.

While I agree that this is a common situation, particularly for small organizations, I don't think that talent-constrained is the right description of this situation.

2. Genuine absence of talented people

In some cases, the talented people the organization needs are genuinely very rare. So it may so happen that the organization simply hasn't been approached by any person who'd be impressive enough to hire at a high wage. However, I don't find this explanation very convincing.

People decide whether or not to approach organizations based partly on publicly available information about how much those organizations pay. If the organizations in question don't pay most of their workers high salaries (presumably because these workers aren't superstars) then the superstars who are considering whether to apply to those organizations may believe they're not going to be paid high salaries, hence they may not bother to apply. If organizations care enough about hiring superstars, they need to proactively indicate in their hiring advertisements that they are willing to pay large amounts for superstars.

If there truly exist no talented people who fit the description the organization needs, then the real problem is that the organization is simply engaging in wishful thinking. Calling it "talent-constrained" is misleading because it's bemoaning the absence of an option that is impossible to have anyway. (The concept of talent constraint may still make sense at a broader societal level; perhaps more people need to train in relevant fields when they are younger, or perhaps licensing restrictions or migration restrictions are preventing the hiring of talented people).

3. Talented people would or should be willing to work for low pay

The claim here is that one of the characteristics that defines genuinely talented people is a strong intrinsic motivation to work very hard. Those who are willing to work only in exchange for stellar pay are unlikely to be good cultural fits for the job, and are unlikely to be retained in the field.

This type of explanation may make sense in some cases. For instance, it arguably works in principle for effective altruism organizations: they want to hire people who are genuinely passionate about effective altruism. Demanding a high salary as a precondition of being employed is a negative signal and suggests one is more interested in personal gain than in altruism.

4. Workplace egalitarianism and morale

Significant disparities in the amounts of money that different people in an organization are paid can be bad for morale. Therefore, even if there are a few highly talented people whose marginal contribution commands high salaries, paying them more would either create workplace fiction due to income disparities, or force employers to raise everybody's salaries to a higher level. Neither of these may pass a cost-benefit analysis.

5. Irrationality of funders

The most uncharitable explanation is that employers and their funders are simply irrational. In this view, they have an intrinsic aversion to paying people large amounts of money, and this aversion doesn't stand up to rational scrutiny. The aversion may be displayed by people running the organization, or the people funding them (which may be a larger institution with which the organization is affiliated, or rich individual and foundation donors, or a large number of small donors). For instance, an effective altruism organization that paid a salary of $300,000 to its CEO might lose the support of donors who are repelled by the huge amounts of money made. Research labs at universities may be constrained by the payscales used by the universities. They may also be bureaucratically constrained with respect to reallocating funds from equipment to salaries in order to quickly scoop up a star researcher.

Of the explanations offered, which do you think carries the most weight for specific organizations that you know claim to be talent-constrained? Are there other explanations that I missed? What do you think of my critiques and discussion of specific explanations?

Thanks to Jonah Sinick and Ben Todd for comments that inspired this post (I didn't run the actual post by them).

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