Signaling Valuable Human Capital: Advocacy Group Work Experience and Its Effect on Employee Pay in Innovative Firms

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Research Summary: The ability of innovative firms to create and capture value depends on innovations that are quickly and widely adopted. Yet, stakeholder concerns can establish important barriers to diffusion. We study the human capital aspect of this challenge and investigate whether innovative firms pay salary premiums to new hires with work experience from advocacy groups like Transparency International. We integrate strategic human capital with stakeholder theory and suggest that advocacy group experience creates signals for valuable human capital in terms of stakeholder knowledge and legitimacy transfers to innovative firms. Using matched data for 3,562 employees in Denmark, we find that new hires with advocacy group experience enjoy larger salary premiums at technologically leading firms, in occupations with direct stakeholder interaction, and for advocacy group top management.

Managerial Summary: Innovation research is increasingly aware of the non‐technological factors behind successful innovations. Users, regulators, or public opinion can be benevolent supporters or stingy opponents of innovations. Employees with an understanding of the needs and sensitivities of societal stakeholders should therefore be valuable to innovative firms. We find this to be the case when innovative firms hire employees from advocacy groups representing such stakeholders (e.g., Transparency International). Such employees receive higher salaries than an otherwise comparable reference group. These findings indicate that recruiting needs of innovative firms reward stakeholder experience, not merely technological expertise. They demonstrate how firms can create value in the pursuit of the public interest. Further, advocacy groups emerge as an important career stage allowing individuals to develop credible signals for stakeholder expertise.
Original languageEnglish
JournalStrategic Management Journal
Volume40
Issue number4
Pages (from-to)685-710
Number of pages26
ISSN0143-2095
DOIs
Publication statusPublished - Apr 2019

Bibliographical note

Published online: 19 October 2018

Keywords

  • Advocacy groups
  • Human capital
  • Signaling
  • Stakeholder theory
  • Value creation

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