External Hires More Expensive Than Promotions: Study - In House
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External Hires More Expensive Than Promotions: Study

Looking to fill job vacancies at your in-house department? Look no further than promoting your current employees, who will likely outperform external hires and can save you money, a new study suggests.

"My research documents some quite substantial costs to external hires and some substantial benefits to internal mobility," the study's author, Matthew Bidwell of the University of Pennsylvania's Wharton School of Business, said in a statement.

External hires may seem more attractive because they bring new skills or a new perspective to your in-house operation. But those benefits may not outweigh the costs, Bidwell warns. For example:

  • External hires are generally paid about 18% to 20% more than employees promoted from within.
  • External hires leave their organizations, voluntarily and involuntarily, at higher rates than promoted workers.
  • External hires receive significantly lower job-performance evaluations during their first two years on the job, compared to internal hires who are promoted.

The two-year timeframe is how long it usually takes for a new hire to "get up to speed" in her new job, Bidwell says. The learning curve includes building relationships, and figuring out how to be effective in the new organization.

After the first two years, however, external hires are promoted faster than their internally promoted counterparts, according to Bidwell's study, entitled "Paying More to Get Less: The Effects of External Hiring versus Internal Mobility." The study appears in the journal Administrative Science Quarterly.

Bidwell's study, however, was based on six years of data from an investment-banking firm. Though that field may not precisely parallel the legal profession, the bottom-line lessons are the same: If you're hiring, a promotion may make more business sense than an external hire.

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