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The War for Talent Is Over

Over the past few decades, companies have bent over backward to recruit and retain talented workers with enormous pay packages, generous perks, and promises of greater autonomy. As interest rates rise and growth slows, however, corporations are using the current economic upheaval to wrest back control.

MUNICH – For nearly two decades, the battle for talent has shaped how firms around the world are run and governed. With firms deriving value mainly from their human capital, rather than from the physical assets they owned, a talented workforce came to be coveted more than plants or machines. In 2001, the celebrated management consultant Peter Drucker published an article entitled “The Next Society,” in which he argued that giving more freedom to what he called knowledge workers is essential, as the key battle of this century is the war for talent. And he was almost right.

Unlike machines, however, human capital cannot be owned. Talented workers can always leave, taking their employers’ value with them. Over the years, firms responded to this threat by decentralizing decision-making processes and giving workers greater autonomy. To encourage talented employees to stay, firms introduced incentive pay and stock-based compensation packages, with the hope that equity ownership would give managers a stake in their company’s future.

In other words, the empowerment of talent became the new mode by which firms organized their activities. Consequently, CEO pay has skyrocketed over the past 40 years. With human capital now the primary driver of top incomes in the United States, the “working rich” – rather than financial capitalists – have become the capitalists of the twenty-first century.

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