Dancing with the Stars: The Practical Value of Theory in Managing Star Employees

Star employees create disproportionate value for organizations. However, managing stars is decidedly difficult. Scholars have not yet appropriately addressed this practical problem. Much of the issue pertains to interpreting our theoretical models that convey human capital from a static perspective. By combining incomplete contract theory with human capital research and theories of strategy, we show how existing theory can provide a framework for solving problems related to managing stars while also offering a platform for further research within the strategic human capital field. To do this, we recap extant theory and examine how stars create value for an organization by codeveloping firm-specific capital while simultaneously developing general human capital. In addition, we provide a practical dynamic value appropriation framework to illustrate how the employer and the employee determine who captures the value stars create as they go through the employment life cycle.