Organizational Design with Portable Skills
Abstract: Employees learn from the tasks they perform, and in the process they accumulate human capital that is potentially portable. If companies cannot commit to specific task assignments, they may have the incentive to assign workers to tasks that reduce the cost of retaining them but do not maximize their productivity. In contrast, equity partnerships assign tasks efficiently to their partners, 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 transition from equal sharing towards performance-based remuneration systems.
