In a downturn firms can acquire resources that would be too expensive or unavailable in a boom. This logic applies to human resources as well as brand or hard assets. A recent survey found that hiring stars is among the most effective ways to enhance a firm’s talent pool during a recession.
Research has consistently found that stars outperform average employees. For highly complex tasks, the top 1% of workers are more than twice as productive as the average employee. Top research scientists and software programmers are five to ten times more productive than average. Markets recognize the value of hiring stars. A study of twenty General Electric alumni appointed as CEOs between 1989 and 2001found the hiring company’s stock price increased in all but three cases when the company announced the new hire, boosting shareholder value more than $1 billion on average.
In a series of excellent studies, Professor Boris Groysberg (with colleagues including Nitin Nohria and Ashish Nanda) has demonstrated that a star’s performance often suffers after switching employers. Star equity analysts (i.e., those earning the highest rankings from Institutional Investor magazine) suffer an average decline in performance of 20% when they shift firms, and do not return to their previous form for five years. Groysberg, who also conducted the study on CEOs from GE, found that several of the new CEOs, including Paolo Fresco at Fiat and Gary Wendt at Conseco, failed to create shareholder value in their new firms.