Talent Hoarding in Organizations

This paper provides the first empirical evidence of talent hoarding in organizations — the practice whereby managers deliberately suppress workers’ internal mobility to retain productive team members, thereby serving their own performance-based compensation interests at the expense of firm-wide talent allocation. The research question is whether managers with misaligned incentives hoard talent, how this can be measured, and what consequences it have for worker career outcomes and organizational efficiency.

The study uses personnel records from a large German manufacturing firm with over 200,000 employees worldwide, focused on more than 30,000 white-collar and management employees in Germany, covering over 300,000 employee-by-quarter observations from 2015 to 2018. This is supplemented by a manager survey (62% response rate, over 3,000 responses) and an employee survey (50% response rate, over 15,000 responses), plus the universe of internal job application and hiring data covering over 16,000 job openings and over 200,000 applicants.

The conceptual framework formalizes talent hoarding as a moral hazard problem: managers observe worker productivity and are compensated based on team performance, but are tasked with identifying and developing talent for promotion. When a high-productivity worker leaves, team productivity falls. The framework predicts that hoarding intensity increases with worker productivity, team vulnerability to departures (smaller teams), and manager-level hoarding incentives (performance-related pay, low talent visibility).

The key administrative measure of hoarding is the systematic gap between managers’ private performance ratings (not shared outside the team) and public potential ratings (widely circulated within the firm). Managers who suppress potential ratings relative to what would be predicted given worker performance are interpreted as strategically reducing worker visibility. Managers with a 1 percentage point higher share of performance-related pay are 0.19 percentage points more likely to hoard talent; a one-person increase in team size reduces hoarding probability by 1.3 percentage points; and managers in low-visibility functional areas are 4.0 percentage points more likely to hoard. Survey-based hoarding measures yield directionally identical patterns.

To identify causal effects on workers, the paper exploits quasi-random manager rotations. When a manager learns they will move to a different team — typically two to three quarters before the actual transition — their hoarding incentive ceases. This creates a temporary window of reduced hoarding. During this window, worker application rates increase by 2.3 percentage points, representing a 78% increase over the baseline application rate of 2.9%. An event study confirms flat pre-trends prior to the announcement period, supporting the identifying assumption.

Using manager rotations as an instrument for worker applications, marginal applicants — those induced to apply only by the manager rotation — face a 49.1% likelihood of receiving a new position, compared to an average hiring likelihood of 27.6%. This positive selection implies that many deterred applicants would have been successful and that talent hoarding meaningfully degrades the quality of the internal applicant pool. Gender analysis reveals that women are 22% more likely to rely on manager career guidance and 26% more likely to prioritize preserving a good manager relationship. Marginal female applicants are more positively selected on education, past performance, and hiring probability for higher-level positions. The counterfactual reduction in the gender pay gap from eliminating talent hoarding is estimated at 86%.

Scope conditions: the firm is a large European manufacturer with long average tenures (13 years), an application-based internal labor market, and centralized online job portal. Results apply most directly to white-collar and management employees in Germany. External validity is supported by comparisons to German workforce surveys and by the fact that 83% of top publicly listed German companies and half of 665 global organizations in industry surveys report talent hoarding as a significant organizational friction.

Q: How is talent hoarding formally defined in this paper? A: Talent hoarding is defined as actions taken by managers that lower the likelihood that a worker applies for and receives a promotion or any internal transfer outside the team. In the formal framework, a manager chooses hoarding intensity β ≥ 0, where β > 0 reduces the equilibrium probability that a worker gets promoted. The definition encompasses all forms of managerial action that reduce worker departure probability, including suppressing visibility, restricting access to trainings, explicit discouragement, and threats.

Q: Why do managers have an incentive to hoard talent? A: Managers are compensated based on team performance, so losing a high-productivity worker (whose replacement is a random draw from an outside distribution with expected productivity ᾱ) reduces team performance and thus manager compensation. The framework shows that when a worker’s productivity αi exceeds the expected productivity of an outside hire ᾱ, the manager optimally sets β* > 0. The cost of hoarding (parameterized as φm) is convex and varies across managers, capturing altruism, reputation risk, or detection probability.

Q: What share of managers in the survey self-report talent hoarding? A: 75% of managers reported that they sometimes find themselves in situations where they need to dissuade a team member from exploring opportunities in another department due to immediate team needs or performance goals. Additionally, 45% cite the risk of losing talent as a reason not to invest in employee career development, and 66% cite the need to prioritize short-term performance targets over long-term employee development.

Q: How are misaligned incentives documented in the manager survey? A: 55% of managers agree or strongly agree that talent development entails a conflict of interest because more developed workers are more likely to leave the team. While 96% believe their direct intervention has a large impact on workers’ career development, only 36% perceive that impact to be valued by the firm as much as team performance impact. Similarly, 87% say talent development is a high-impact area for the firm, but only 40% believe a track record in talent development matters for their own compensation and promotion.

Q: How is the administrative measure of talent hoarding constructed? A: The measure is the residual from an OLS regression of a worker’s potential rating (a public signal of promotion readiness, widely circulated within the firm) on their performance rating (a private signal of current task performance, not shared outside the team) and worker characteristics including age, education, gender, and tenure. The manager-level measure is the average of these residuals across all workers and quarters under that manager. Managers in the top tercile (mean deviation above 0.1036) are classified as hoarding-prone.

Q: Does the hoarding measure respond to the incentive proxies as predicted by the framework? A: Yes. A 1 percentage point higher share of performance-related compensation is associated with a 0.19 percentage point increase in the probability of being classified as hoarding-prone (p = 0.000), corresponding to a 13 percentage point difference between the 90th and 10th percentiles of the financial incentive distribution. A one-person increase in team size reduces hoarding probability by 1.3 percentage points (p = 0.000), again a 13 percentage point difference across percentiles. Managers in low-visibility functional areas are 4.0 percentage points more likely to hoard (p = 0.002) relative to high-visibility areas.

Q: Is the training-based hoarding measure consistent with the potential-rating measure? A: Yes. A complementary measure based on managers restricting worker access to high-visibility in-person trainings yields nearly identical patterns: a 1 percentage point increase in performance-related pay increases hoarding probability by 0.20 percentage points (p = 0.000); a one-person increase in team size reduces it by 1.4 percentage points (p = 0.000); low-visibility areas increase hoarding by 2.98 percentage points (p = 0.021). The direction and economic magnitudes are highly similar across both administrative measures and the survey-based measures.

Q: How are manager rotations used to identify causal effects on workers? A: When a manager learns they will move to a different position — typically two to three quarters before the rotation — their incentive to hoard workers on their current team ceases. This creates a quasi-random window of reduced talent hoarding for workers on that team. An event study with worker and quarter fixed effects shows flat pre-trends in application rates beyond three quarters before the rotation, consistent with the identifying assumption that managers do not yet know about their rotation in that earlier window. Balance tests confirm workers exposed to rotations are observationally similar on demographics and past performance to non-exposed workers.

Q: How large is the effect of manager rotations on worker applications? A: Manager rotations increase worker application rates by 2.3 percentage points in the quarter of rotation, representing a 78% increase over the baseline application rate of 2.9%. The effect is transitory: application rates return to baseline within one quarter after the new manager settles in. The effect is not driven by managers taking subordinates with them (97% of applications are to positions outside both the current team and the manager’s new team).

Q: Does the rotation effect vary with predicted hoarding intensity as the framework requires? A: Yes. The rotation effect is larger for workers with higher productivity, those whose replacement would be costlier (consistent with the prediction that workers harder to replace face more hoarding), and those working under managers with lower utility costs of hoarding. The paper tests these cross-sectional predictions using continuous interactions between the rotation indicator and standardized proxies for hoarding intensity, and all patterns are consistent with the talent hoarding mechanism rather than alternative explanations.

Q: How successful would the deterred applicants have been? A: Marginal applicants — those induced to apply by the manager rotation who would not otherwise have applied, identified via IV assumptions — face a hiring probability of 49.1%, compared to the average hiring likelihood of 27.6% across all applicants. This large positive selection implies that a substantial share of deterred applicants would have been successful, and that talent hoarding meaningfully degrades the quality and quantity of the firm’s internal applicant pool and the firm’s ability to promote high-productivity workers.

Q: Does talent hoarding have differential effects by gender? A: Yes. Women are 22% more likely to place high value on preserving a good relationship with their manager and 26% more likely to rely on manager career guidance when making career decisions. Consistent with this, marginal female applicants are more positively selected on educational qualifications, past performance, and hiring probability for higher-level positions than marginal male applicants. When comparing potential earnings outcomes, both men and women would earn more in the absence of talent hoarding, but the larger earnings gains for women imply a counterfactual reduction in the gender pay gap of 86%.

Q: What evidence supports external validity of the findings? A: The firm’s employee demographics closely match those of large manufacturing firms in the German BiBB workforce survey across gender, age, citizenship, and marital status. The firm’s internal labor market design is standard for large German firms, where 83% of top publicly listed companies cite talent hoarding as a key organizational friction. Industry surveys also report that half of 665 global organizations report managers hoarding talent by discouraging worker mobility, and talent hoarding occurs through many of the same behaviors documented in this study.

Q: How does the paper rule out confounding mechanisms for the rotation effect? A: The paper tests and rules out several alternatives: worker-manager specific match effects (the effect does not depend on characteristics of the incoming or outgoing manager); finite project timelines driving a rush to apply; and workers being recruited by managers to their new teams (97% of applications are outside the current team and not to the manager’s new team). Balance tests show workers exposed to rotations are observationally similar to non-exposed workers, and event studies confirm absence of pre-trends in team-level outcomes including absenteeism.

Q: What are the policy implications of the findings? A: The findings suggest firms forgo productivity gains when hoarded workers are not allocated to positions where they would be most productive. Potential organizational responses include monitoring or rewarding managers for promoting talent, reducing performance-related pay tied to team composition, or structuring career development activities in ways that cannot easily be suppressed by individual managers. The paper notes that firms generally do not compensate managers for promoting workers, partly due to practical difficulties of such contracts, and that the misalignment between what managers believe benefits the firm and what is recognized in their own compensation is particularly pronounced for talent development relative to all other managerial responsibilities.

Talent hoarding: Actions taken by managers that lower the likelihood that a worker applies for and receives a promotion or internal transfer outside the team, driven by managers’ incentive to retain productive workers to protect team performance and manager compensation. Distinct from mere neglect — it is strategic and deliberate.

Potential rating: A public signal of a worker’s future potential for higher-level positions, assigned by the direct supervisor and widely circulated within the firm (e.g., via HR lists of high-potential workers); distinguished from performance ratings by its visibility outside the worker’s current team, making it a lever for strategic manipulation by hoarding managers.

Performance rating: A private, task-specific signal of a worker’s past performance in their current position, not shared with other units in the firm; used as the baseline against which potential ratings are compared in the paper’s administrative hoarding measure.

Visibility suppression (hoarding measure): The manager-level average residual from a regression of workers’ potential ratings on their performance ratings and worker characteristics; a positive average residual indicates the manager systematically assigns lower potential ratings than predicted, suppressing worker visibility outside the team in a manner consistent with strategic talent hoarding.

Manager rotation: An event in which a manager leaves their current team for a different internal position within the firm, temporarily eliminating their hoarding incentive for current team workers and creating the paper’s quasi-experimental source of variation in hoarding exposure.

Marginal applicant: In the IV framework, a worker who applies for an internal position only because their manager is rotating and would not have applied otherwise; estimated via complier analysis (Abadie 2003) and used to characterize the counterfactual quality and hiring probability of workers deterred by talent hoarding.

Utility cost of hoarding (φm): A manager-level parameter capturing the convex private cost to a manager of engaging in talent hoarding; may reflect altruism, detection risk, or reputational consequences; managers with lower φm hoard more intensively, and variation in φm is proxied empirically by performance-related pay, team size, and functional-area talent visibility.