Chapter 13: Managing Your Personal Human Capital

Investors want to make sure that their financial capital is invested in enterprises that are well managed. Specifically, they want returns commensurate with the risks they take. Whether you’re the CEO or a line manager, you have comparable concerns when you invest your time, energy, and ideas in your company. Like a financial investor, you want to know how well you are leveraging those personal investments. For example, you probably know where your personal savings stand and know the value of your house and car. What about your worth as an employee? Is it increasing in value? Is the return on your investment commensurate with the risks you are taking as an employee?

Unlike the rest of this book, this chapter discusses your personal skills, knowledge, and experience: the choices you have made as you have invested in your education, experimented with different jobs, and made trade-offs over the course of your career. Even without access to information about your company’s internal labor market, you can begin to manage your own human capital with the discipline of an investor by using some of the management principles explained in Part I. As the unwritten contracts that once bound employees and employers together dissolve in greater numbers, each person should be asking, “How am I managing my most valuable personal asset?”

Toward More Self-Reliance

U.S. corporations furloughed more than a million managers and staff professionals between 1979 and 1987. A smaller but still significant wave of layoffs began rolling through the corporate world in 1999. Those events neutralized whatever illusions people had about a long-term career with a single company, let alone lifetime employment. Many people nevertheless maintain long-term employment in the middle of this turmoil. Despite what people read in the news, they find that careers in organizations are alive and well. Job longevity in the United States actually has been growing, mostly as a function of the aging of the workforce. The average tenure in large companies hovers around eight years and is even higher for salaried employees.

Although careers remain alive and well for many people, others feel like free agents. What they do from day to day seldom has the feel of permanence. Change from job to job and from company to company is anticipated—with regret by some and with relish by others. Layoffs are not the only reason many employees have begun to feel like free agents. Corporate retirement policies also have played a role. A larger share of retirement planning and investment decisions has been pushed into the hands of employees, at least in the United States.

Not many years ago the great majority of pension plans offered by U.S. companies—large and small and across industries—provided “defined benefits” at retirement; that is, they promised a specific retirement income that was based on pay level and age. The organizations made annual contributions, made the investment decisions, and assumed all the investment risks. Today more and more employees—well over a third in the United States—find themselves covered by “defined contribution” plans. Like variable-pay and pay-for-performance arrangements, those plans shift the burden of risk and decision making onto employees. They make no promise about what people will get at retirement. Such plans range from glorified savings accounts in which employees provide all the savings to profit sharing–type plans. Employees in those plans are responsible for their financial futures even if many of them are less than fully prepared to assume that responsibility.

What Job? What Company?

Few stories have exploded the concept of the lifetime career and the notion of corporate permanency more humorously than one told by Charles Handy in The Age of Unreason:

Thirty years ago I started work in a world-famous multinational company. By way of encouragement, my employers produced an outline of my future career. ‘This will be your life,’ they said, ‘with titles of likely jobs.’ The outline ended, I remember, with myself as chief executive of a particular company in a particular far-off country. I was, at the time, suitably flattered. I left them long before I reached the heights they planned for me, and by then I knew that not only did the job they had picked out no longer exist, neither did the company I would have directed nor even the country in which I was to have operated.

Thirty years ago I thought that life would be one long continuous line, sloping upward with luck. Today I know better.^[1]

People who regret the loss of stability that characterized the workplace climate of the past can take some comfort from the fact that several developments have made managing one’s own career less daunting. First, greater access to information about opportunities has made the search easier; second, the portability of retirement assets has made job transitioning easier. In the Great Stone Age before widespread Internet service, employers had a huge advantage over their employees and job applicants. Human resource departments with access to data on competitive wage levels could tell at a glance if their wage rates were high, low, or near the middle for every position. That gave them a substantial bargaining advantage. Information asymmetry always works to the advantage of the party with the most relevant information.

Today, because of Internet access, there is a more level playing field. People can find where the jobs are and learn much more about opportunities, including compensation comparisons. For example, CareerJournal.com posts thousands of executive and professional jobs, and Monster.com nearly a million jobs in 22 countries. CareerJournal, Monster.com, Hotjobs, Careerbuilder, and other sites help job seekers and every person who is unhappy with his or her current situation. They also have helped companies reduce recruiting costs and announce job openings to a broader pool of potential candidates. Given the number of daily “hits” on those Web sites, one can imagine the number of hours spent by disgruntled employees searching for better jobs—often on company time! Employees who are not satisfied with the return they are getting on their skills and know-how can scan the corporate universe quickly for alternatives. The more people who use those job networks, the more valuable they become.

More information and more equal access to it are slowly creating a more efficient market for human capital, as they did earlier for financial capital. This development, if it continues, will have huge implications for individuals, companies, and the larger economy. Consider what is known about the impact of efficiency on free markets. Greater efficiency eliminates barriers between willing buyers and sellers. It reduces transaction costs and makes disparities between opportunities more visible. It narrows differences between what one party is asking and what another party is willing to pay. More important, greater efficiency directs resources away from moribund enterprises and to those with greater return opportunities. We have observed this in financial markets for a long time and now see something similar happening in labor markets.

Although the trajectory of efficiency appears promising, today’s labor markets are fairly inefficient. Theoretically, greater access to job information should lead to better matches of people with employers. The fact that a high percentage of jobholders say that they would change jobs if they had the opportunity can be taken as evidence that many individuals and employers are not well matched. Part of this certainly is explained by the “transaction costs” of changing jobs, which often exceed the benefits. Alternatively, either companies are not providing individuals with sufficiently accurate information or individual workers are failing to obtain or use information properly. Whatever the cause, poor matching can be costly to both companies and individual employees. Next we’ll explore in greater detail how these issues play out for you as an individual.

^[1]“Shoot, I might even put that back in the employee handbook.” Charles Handy, The Age of Unreason. Boston: Harvard Business School Press, 1989, 6.