Internal Hires: Lower Turnover, Better Performance & Lower Pay?!

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Great tubular bridge, etching. Via Library of Congress. PD.

The Skinny: You will likely earn a lot more by switching firms rather than taking a new job internally, even though you won’t perform as well. But see caution.

Matthew Bidwell did us all a favor a couple of years back when he researched what the difference was between people who were hired for a new role internally (kept working for the same company) and those who were hired externally (switching companies). It’s well known that internal hires costs a lot less than external hires. External hires have extra costs like recruiters, more interview time, etc. Internal hires miss all that. Your job posting is internal (lower cost) and you can get the skinny about candidates pretty easily from their current manager and peers. That’s something you won’t get from the external hire’s boss, who usually has no idea that this person is switching.

What Bidwell wanted to know was if external hires performed differently than internal hires. He figured that culture would play a part, as would simply knowing “how things are done around here” which only comes through internal experience. External hires would therefore fall out at a higher rate (more turnover) and have worse performance initially.

Which is pretty much what he found.

What was really interesting is that even though internals cost a lot less to hire, they made less money.

For job-seekers, this explains why companies seem to be looking for Stars who really have no reason to switch. If you are capable but not currently doing work at your level for whatever reason, life is hard. I’ve talked about this before, so look around for the details. (Some more will come later about how unemployment hurts you.)

Bidwell was looking at hires in an investment banking arm of a financial services company. Since I used to work with Warburg Dillon Read (later UBS Warburg, now UBS Investment Bank, and there may have been an SBC in there somewhere), I’m familiar with the model, so see the caution, below. It may be that investment banks work differently than other places. I know that investment bankers do, because as Elliott Jaques pointed out they’re really free agents and not employees within a Management Accountability Hierarchy.

CAUTION: It’s been shown that star investment bankers often do a lot poorer when they get transferred. [Citation anyone?] The idea is that investment bankers are really the product of a team effort and not just a star. Also, knowing who knows what can be pretty important to getting things done in this sphere of work. So take these results with a grain of salt or two, I guess.

Citation:

Bidwell, Matthew (2011). “Paying More to Get Less: The Effects of External Hiring versus Internal Mobility”. Administrative Science Quarterly, 56(3): 369–407. DOI: 10.1177/0001839211433562. EBSCO: http://iurl.no/52551

About the Author

Forrest Christian

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E. Forrest Christian is a consultant, coach, author, trainer and speaker at The Manasclerk Company who helps individuals and companies find insight and solutions to what seem like insolvable problems. Cited for his "unique ability and insight" by his clients, Forrest has worked with people from almost every background, from artists to programmers to executives to global consultants, both as individuals and as leaders of organizations at least as diverse. [contact]

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