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From: Hotel News Resource
Date: 2012-08-01

Description by macauHR: Here is some research sure to rankle every employee who has applied for an internal promotion and been passed over in favor of someone brought in from the outside.

Why External Hires Get Paid More, and Perform Worse, Than Internal Staff (2)

Those tradeoffs might help explain why external hires earn so much more than internal employees promoted into the same jobs. If these hires have better resumes and are perceived as able to get a job more easily outside the company, then they can demand higher pay than internal people. Hires may also want higher pay to reflect the unfamiliar environment that they face on coming into a new position. Hiring managers confirm that they typically pay 10% or 20% more to pull people out of positions "where they already have some security and where people know them and know they are doing a good job," Bidwell says.

He acknowledges that his research may frustrate an organization's in-house workforce. "It is sadly the case that being more marketable, as external candidates are, is always going to be valuable and will generally lead to higher compensation. So the question is, should internal people threaten to quit to raise their pay?" It's well known in academia, for example, that the only way to get a significant pay raise is to nail down an outside offer, Bidwell notes. "But in some organizations, that's an easy way to get fired. People will take it as a signal that you are disloyal."

Bidwell offers this career advice: "If you like where you are, stay there. Or at least understand how hard it can be to take your skills with you. You think you can go to another job and perform well, but it takes a long time to build up to the same effectiveness that you had in your previous organization. You need to be aware that often your skills are much less portable than you think they are." Bidwell is clearly a fan of internal mobility. "While the pay may be less, your performance is better, and there is more security."

'Let's Make a Deal'

For his research, Bidwell analyzed personnel data from a U.S. investment banking division from 2003 to 2009. In that study, he documented twice as many internal promotions as external hires. Investment banking, Bidwell writes, represents "an interesting context in which to study the effects of internal versus external mobility [because] organizational performance often depends on the skills of the workforce, [thereby] increasing the importance of personnel decisions." In addition, workers in banking are "notoriously mobile, making this a context in which organizations regularly engage in external hiring at all levels."

One important feature of investment banking jobs is that promotions tend to involve some measure of continuity with the prior job. Promotions often involve getting a higher title, such as vice president or director, while continuing to do similar work. In fact, as Bidwell notes, promotions in many organizations do not instantly lead into a very different job. Instead, responsibilities increase gradually, being recognized over time by a promotion. When considering their future staffing needs, though, organizations still must think about how they will acquire the workers capable of operating at the higher levels: Will it be by hiring or promotion?

Bidwell found similar patterns for different kinds of jobs and within different organizations. He analyzed separately the investment professionals (traders, salespeople, research analysts and investment bankers) and the support staff at the research site. His findings about pay and performance were consistent across those groups. He also looked at another investment bank and a publishing company, and found the same results of "paying more for external hires while giving them lower performance ratings."

Why External Hires Get Paid More, and Perform Worse, Than Internal Staff (3)

Keyword:  Staff, Employee, Job, Labor, Hire
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