Firm Productivity Moderated Link Between Human Capital and Compensation: The Significance of Task‐Specific Human Capital

• Author: David Van de Voort,Eric Schulz,Sanjib Chowdhury
• DOI: http://doi.org/10.1002/hrm.21537
• Published date: 01 May 2013
• Date: 01 May 2013

FIRM PRODUCTIVITY MODERATED

LINK BETWEEN HUMAN CAPITAL

AND COMPENSATION: THE

SIGNIFICANCE OF TASK-SPECIFIC

HUMAN CAPITAL

ERIC SCHULZ, SANJIB CHOWDHURY, AND DAVID

VAN DE VOORT

The human capital of a fi rm as manifested by employee knowledge and

experience represents a key resource of a fi rm’s capabilities. Prior empiri-

cal studies have found that fi rms composed of high levels of human capital

experience superior fi rm performance. Human capital theory proposes that

an individual’s general or fi rm-specifi c human capital is positively related

to compensation. However, empirical studies examining fi rm-specifi c human

capital’s association with higher employee compensation have been incon-

clusive. The current study proposes that fi rm-specifi c human capital be cat-

egorized as task-specifi c and non-task-specifi c. Employees accumulate task-

specifi c human capital through duties conducted in their current position.

Non-task-specifi c human capital represents experiences gained in prior posi-

tions to an employee’s current job within the fi rm. Utilizing human capital

data from 38,390 employees representing 76 fi rms in the IT sector, this study

examines the association between forms of human capital and employee

compensation at different levels of fi rm productivity. Results show that task-

specifi c human capital is associated with higher employee compensation. In

addition, fi rm productivity moderates this association.

Keywords: human capital; task-specifi c; compensation

Correspondence to: Sanjib Chowdhury, Department of Management, Eastern Michigan University, 466 Owen

Building, 300 W. Michigan Avenue, Ypsilanti, MI 48197, Phone: 734.487.2215, E-mail: schowdhur@emich.edu.

Human Resource Management, May–June 2013, Vol. 52, No. 3. Pp. 423–439

© 2013 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.21537

Introduction

T ransformations in the labor market

to knowledge-based work have spurred

greater organizational attention to-

ward workers as a means of competi-

tive advantage (Pfeffer, 1998). The

human capital of a firm as expressed by the

knowledge and skills of its employees denotes

a critical resource of a firm’s capacities repre-

senting a potential organizational source of

competitive advantage (Coff, 2002; Leonard-

Barton, 1992). Prior empirical studies have

424 HUMAN RESOURCE MANAGEMENT, MAY–JUNE 2013

Human Resource Management DOI: 10.1002/hrm

The focus of

this study is to

investigate the

diverse nature of

experience-based,

firm-specific human

capital and its

association with

compensation.

found that firms composed of high levels of

human capital are associated with superior

firm performance (Kor & Leblebici, 2005; Sels

et al., 2006).

Human capital personifies an employee’s

productive capabilities stemming from the

education, training, and experience he or she

received (Black & Boal, 1994; Hitt, Bierman,

Shimizu, & Kochhar, 2001). Human capi-

tal theory predicts a sufficiently motivated

employee who acquires experience with

applications specific to a firm will become

more productive to that firm (Hanoch, 1967;

Schultz, 1960). Classic human

capital theory characterizes two

forms of human capital: general

and firm-specific (G. S. Becker,

1964). General human capital

enhances an employee’s produc-

tivity to multiple organizations.

Advanced levels of formal edu-

cation, as a parameter of general

human capital, have been con-

sistently found to be associated

with higher employee compensa-

tion (E. Becker & Lindsay, 1994;

Parent, 2002; Topel, 1991). Firm-

specific human capital amplifies

an employee’s productivity only

to the immediate employer.

Human capital theory posits

that individuals who attain high levels of

general and or firm-specific human capital

will receive higher compensation from orga-

nizations as an inducement to acquire these

valued skills and experiences (G. S. Becker,

1964). Unlike the positive relationship

found between general human capital and

employee compensation, research examining

the relationship between experience-based,

firm-specific human capital and compensa-

tion has not demonstrated consistent find-

ings (Altonji & Shakotko, 1987; Goldsmith

& Veum, 2002; Slaughter, Ang, & Boh, 2007).

Therefore, the focus of this study is to inves-

tigate the diverse nature of experience-based,

firm-specific human capital and its associa-

tion with compensation.

Firm-specific human capital is concep-

tualized as an individual’s productive capa-

bilities resulting from the skills and abilities

accumulated over the course of employment

in a specific firm. The key concept of human

capital theory is the categorization of general

human capital, which is applicable in multi-

ple organizational settings, and firm-specific

human capital, which has value for only one

firm. Researchers have suggested that human

capital is more appropriately conceived as a

dossier of varying skills and portability across

organizational contexts than previously

expressed by classical human capital theory

(Glenn, McGarrity, & Weller, 2001; Groysberg,

McLean, & Nohria, 2006; Pil & Leana, 2009).

Gibbons and Waldman (2006) further elabo-

rated on traditional human capital theory

by identifying task-specific human capital,

which is conceptualized as experience gained

from performing tasks of the present job.

In response to the more delineated view

of human capital theory, scholars have ques-

tioned the applicability of employees’ firm-

specific human capital acquired in prior jobs

held in that firm to account for their efficiency

in current job responsibilities (Chowdhury &

Schulz, 2008). Some of an employee’s human

capital attained from a former job within the

same firm will be lost when that employee

is promoted or transferred to a new job and

acquires new tasks to conduct. Accordingly,

the value of an employee’s firm-specific

human capital and corresponding produc-

tivity to the firm would be diminished as an

employee’s human capital attained in a past

job remains unutilized in their present job

(Clement, Koonce, & Lopez, 2007).

To understand firm-specific human capi-

tal’s link with compensation, our study pro-

poses that it should be subcategorized as

task-specific and non-task-specific human

capital. Employees gain task-specific expe-

riences in the current position over time

(Gibbons & Waldman, 2006). Conversely,

non-task-specific human capital is accumu-

lated by an employee’s experience in prior

jobs within the firm. As a strategic human

resource lever, compensation provides mul-

tiple layers of motivation to encourage

employees to attain higher levels of human

capital (Milkovich & Milkovich, 2004).

Although firms, in general, may compen-

sate more for general and both task-specific