The corporation strikes back: how businesses fight talent raiding

PROVO, Utah — Apr 06, 2005 — Everybody knows a few "employee superstars" who are so good at their jobs they get "poached," or lured away -- often with a pay increase -- to a different company or industry. But less familiar is a practice called "talent raiding," a human resources technique that most managers don't want to admit they actually use.

As opposed to poaching, talent raiding occurs when one company treats another like major league baseball does a farm team, regularly skimming away many of a victim company's skilled employees to boost competitive advantage, says Brigham Young University business professor Timothy Gardner.

"It's a way of hiring people with the skills you need, while at the same time dealing a blow to your competition," says Gardner, whose new study in the April 1 issue of the "Academy of Management Journal" explains just how a victim company determines whether or not it will fight back.

"First, the threat to the victim company must be clear," says Gardner, an assistant professor of organizational leadership and strategy in BYU's Marriott School of Management. "Second, if a raiding company hires three chefs from a popular restaurant or four programmers from a successful software company, that's going to be seen as a direct attack on a company's ability to create value and will result in retaliation."

M. Diane Burton, a professor of behavioral policy science at MIT's Sloan School of Management, says Gardner's work is notable because it takes HR to a strategic level -- a goal that is much touted but rarely accomplished.

"Gardner illustrates that it is important for HR professionals to pay careful attention to competitors," says Burton. "His work broadens the HR domain beyond its traditional focus of internal firm issues and provides convincing empirical support that the competitive environment matters."

Gardner's study examined 661 parent software companies in the United States with 50 to 5,000 employees. To participate, companies had to have lost two or more employees to the same company in a 12-month period as a result of external recruiting.

Common reactions to talent raids include lawsuits, severed business relationships or tit-for-tat raids of a competitor's employees. In contrast, a victim company may choose to focus more on what it can do internally to decrease the effectiveness of future talent raids. Some examples include raising employee pay, improving internal communications, or requiring employees to sign noncompete agreements.

But is talent raiding unethical? Gardner says no.

"It would be illegal and unethical to hire people solely to acquire trade secrets," said Gardner, who earned his doctorate at Cornell University. "But in a capitalistic society, competition is good. We agree that it's okay for companies to compete for customers, raw materials or for access to natural resources. Likewise, it's good to compete over employees. It's good for customers; they get a better product or service. And it's good for employees – they get paid better and get better benefits."

Along the same lines, Gardner thinks it's justifiable for businesses to compete for human capital. "It's another way for them to make a better product or service. And as long as they are operating within legal guidelines, it's okay to do. If you are in the business of making athletic shoes and you want to start making designer high heels, why try to learn the business on your own? It makes sense to hire people from a designer shoe company to tell you how it's done. This isn't an unethical decision."

Gardner's study also provides suggestions for managers who are considering raiding employees from a rival to help them avoid corporate ire.

"Identify those factors that increase the probability of a retaliatory response," says Gardner. "Hiring employees with valuable, transferable skills dramatically increases the likelihood of just such a reaction. Since general skills are available in the open labor market without the risk of retaliation, seek those skills through regular hiring channels."

Conversely, if companies want to avoid the loss of employees to rivals or diffuse their consequences, managers should consider now which employees are at the most risk of being raided and take preemptive defensive actions. This might include the use of non-compete agreements, various types of "golden handcuffs" (like conditional bonuses) or other actions that tie vulnerable employees to the firm.

Companies need to come to grips with the fact that good HR departments are scanning competitors for good people and hiring them rather than waiting for them to apply, says Gardner.

"The better companies are tracking where their employees are going. Instead of saying, 'Gosh, Sally, Joe and Bill just got better jobs, let's throw them a farewell party,' managers are looking for trends and taking action against companies that may be talent raiding to better manage their workforce."