Jason Lauritsen - Crushing talent dogma to free human potential

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How do you Value Talent?

Value is one of those concepts that seems fairly simple on the surface, but is far more difficult in actual practice.  My first brush with the idea of value was during my childhood years.  By nature of having a grandfather who was a postmaster for decades, I became interested in stamp collecting.  As with most types of collecting, having a superior stamp collection revolves around collecting stamps that are rare and thus have a high “book value.”

A few times during my stamp collecting experience, I would come across a stamp that had a significant book value (usually something between $5-10).  When this happened, I’d get pretty excited.  Most stamps were worth pennies apiece, so these were rare finds.  Inevitably, I’d decide that I wanted to buy something that required money I didn’t have, so I’d ask the question: can I sell some of my stamps?  That’s when I learned a valuable lesson.  One of the adults in my life would then explain to me that while “the book” says that these stamps have value, the reality was that they aren’t worth anything unless someone else was willing to pay for them.  And the true value of the stamps was whatever someone was willing to pay for them.

This lesson is one that also applies to talent.  When we look around our organization and the people who make it work, it’s easy to get stuck in the “book value” of talent and to loose sight of the actual value of your people.  As I used to do when I was a child, we can get infatuated with the “book value” of something and ignore the reality of the marketplace in determining the practical value.  The challenge we face in our organizations is that, unlike stamps, the book value of talent is often too low compared to what someone else will pay.  I once lost an up and coming talent from my team to another company who increased her salary by 50%.  Clearly, her market value was far higher than what my book value (her salary) had been.  Alternatively, I’ve overpaid individuals at times because they had high demand, low supply skills that commanded a high salary, but who couldn’t actually deliver the goods.

Acquiring and keeping talent is hard work, particularly when it comes to the financial part of it.  One of the reasons it’s so difficult is that it’s easy to get focused on everything except the value of the talent.  Value, when clearly understood and out in the open, helps you determine what you should be paying for talent.  It’s also a great way to help employees see that their own path to increased compensation is by creating more value (and becoming more valuable).

Here are some considerations that will help you get started in thinking about the value of talent.

  • Talent should be valued on a individual by individual basis.  The salary range that HR gives you is a broad and generalized “book value” for the type of skills you are trying to hire.  The problem with the salary range is that it can’t account for the broader spectrum of talent.  For example, you may be told that the acceptable range to pay for an accountant is $50-60,000.   That range is based on a set of skills and a certain amount of experience in the job.  What if you need an accountant for a specific role who’s technically skilled (as described in the job description), but who also has strong relational skills and leadership potential?  Not all accountants are created equal in that regard and, generally, people skills and leadership potential are really valuable particularly in an accountant.  So, the kind of talent you seek might have a much higher market value than the range you are given.
  • The value of talent isn’t about what you think you should be paying, the salary range HR gives you or what you have paid in the past.  It’s about what the market will pay for that talent.  The critical decision point is whether the market value for that particular talent is worth it to your organization.  If you’ve ever participated in an auction, you have experienced this decision.  In an auction, you have to first decide that you’d like to bid on something (that you value it enough to want it).  Then, as the bidding starts, you decide how much you value it so that you can decide how much to bid the item up.  At some point, either you win the item because you valued it more than the other bidders or you will find that someone else values the item more than you do.  The talent marketplace operates a lot like an auction.  So, it’s imperative that we get clear on how to value talent specifically to our organizational needs..  
  • Value needs to not only be about what the market will pay, but also what kind of value can it can produce for your organization.  A great sales person with a strong book of existing customers who either do or can buy from your company can be phenomenally valuable.  If that sales person is generating sales that are producing $1.5M in bottom line profit to the organization each year, it might make perfect sense to be paying that sales person a half million dollars per year to keep them around.  For other highly skilled positions, consider than it’s becoming more and more common for individuals to leave their corporate jobs and become consultants because they can make 3-4 times their corporate salaries as consultants doing the same work with far fewer headaches.  As a consultant, it’s common for a company to determine the specific value of a project and then determine if the pay is appropriate–which it often is despite being far more per hour than what is being paid to internal talent.  This makes a pretty compelling case that we are under-valuing those on our payroll who have the talents to be working as consultants.  Granted, there is stability that comes with the corporate paycheck, but if you like employing talent that is good enough to make a living as a consultant, you need to consider that their value to your organization might be far higher than the “book value” salary you are paying them today. 
  • One major mistake that companies often make is paying people based only on their perceived current value to the organization.  As talent become more and more challenging to find and keep, when you find someone who you feel has a lot of future potential with the company, you should consider what that future potential is worth to you.  Perhaps it’s a smart value decision to overpay someone like this in order to ensure that they aren’t compelled to test their market value (or if they do, they will find out that they have it really good).  The other side of this thought process is to consider the true cost of replacing an important person in your organization, particularly one that fills a key spot on your succession plan.  What would the lost value be in terms of experience, training, relationships, market and company know-how and savvy, and team morale?  You should be considering these issues when you think about how you are valuing talent, particularly your current talent.  
  • Finally, probably the biggest issue that gets in the way of valuing talent within our organizations is what I will call “context and comparison.”  If I had a nickel for every time in my career that a manager said to me during a salary negotiation for a really talented hire or promotion, “If I pay them that, they will be making more than I do”, I’d have a lot of nickels.  We’ve come to believe that managers should always be paid more than the people they manage.  And, we’ve decided that executives should be the highest paid individuals in the company.  Sometimes, this makes sense from a value-based perspective.  But, it often does not.  Valuing talent skillfully will mean assigning value to the talent independent to what anyone else in the organization makes.  When you consider it, how does what someone else makes have any bearing on what an individual’s talents are worth to the market or what kind of value that individual can create for the company?  It doesn’t.  
So, the morale of the story is this.  Valuing talent is hard.  And, it’s going to change how you think about and make pay decisions.  But, as talent becomes an increasing valuable commodity, what other choice do you have?  
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  1. Susan Mazza

    We certainly have a long way to go to reinvent the models by which we value talent. It seems to me that for as long as we stick to the purely hierarchical model as the foundation for designing compensation with the assumptions you point to like the higher you are on the chart the more you should get paid it is going to be hard to make any kind of fundamental and meaningful change.

Jason Lauritsen