Internal Promotion: Get More for Your Money

With so many talented people in the market for a job these days, it’s no wonder so many employers look outside their company when it’s time to fill a higher-level position. Is this the best route to take, however? Many say no, and Matthew Bidwell, a management professor at Wharton University of Pennsylvania, has done some research to back up this claim. His research paper, “Paying More to Get Less: The Effects of External Hiring versus Internal Mobility” attempts to prove the ineffectiveness of external hiring for high-level positions.

According to Bidwell’s research, the first two years for “external hires”  see lower performance evaluations than internally promoted employees. Two years is the amount of time it takes to get a new hire functioning at 100%, not only to perform their job at full capacity, but to build relationships with co-workers as well, says Bidwell.

There’s also the issue of retention. External hires see increased exit rates compared to those who are promoted from within. Bidwell attempts to explain why in his study.

“There is a much greater risk of being let go during those first few years, mainly because they may not develop the necessary skills and thus will not perform as well as expected. Then, too, they might decide to leave voluntarily.” Bidwell states.

On top of the inherent risks that come along with hiring someone new, there’s also another problem. New hires cost more. In fact, Bidwell’s research suggests, on average, external hires for high-level positions get paid 18%-20% more than their internally promoted counter-parts. This is due to the fact that external hires generally have more education and career experience than those filling lower-level positions in the same company. What looks good on paper doesn’t always translate into better job performance however, as the numbers above suggest.

So before you begin the search for a brand new, very qualified employee when a position opens up, think twice. Not only is their success at your company far from guaranteed, but you’ll likely be expected to pay them significantly higher as well. When you promote internally, you’re choosing someone whose work ethic you’re already familiar with, who knows your company, and who can do the job well, often better than a new hire, for less money. It’s also good for employee engagement and morale, to see someone work their way up. Upward mobility within an organization is a win-win. So next time a management, or other high-level position opens up at your company, before you post that classified ad, or go through your inbox, look around your office.



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