Organizational Design with Portable Skills

Luca Picariello (University of Naples Federico II)

Abstract

Employees learn from performing their tasks, and in the process they accumulate potentially portable human capital. If companies cannot commit to specific task assignments, they may have an incentive to assign workers to tasks that reduce the cost of retaining them but do not maximize their productivity. By contrast, equity partnerships assign tasks to their partners efficiently, because their remuneration increases with their talent and with the portability of their human capital. This provides a novel rationale for the widespread presence of partnerships in professional services and for the tendency to move from equal sharing towards performance-based remuneration systems.

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