Looking for an employee to fill a vacant IT job? If possible, it might pay off to promote a lower-level staff member rather than make an external hire, according to a new report.
External hires cost more and perform worse than internal recruits, according to a recent research paper written by Wharton management professor Matthew Bidwell.
The extra cost of hiring from the outside can be significant — Bidwell says those folks are paid about 18%-20% more than what it costs for an employee promoted from the inside.
They can also take as long as two years before they’ve gotten up to speed on how the organization operates and built relationships with others in the company. That may explain why recent external hires are consistently given lower performance ratings than employees who have been promoted, according to Bidwell.
On the other hand, when employees move up the ladder, their responsibilities are typically introduced gradually so they don’t have to deal with a steep learning curve.
Promoting more internal employees can also boost performance, as current staff members will be motivated by the possibility of a promotion.
Of course, all employees start out as external hires, and in some cases, it will benefit the department to add “new blood.” But Bidwell argues that companies put too much emphasis on hiring from the outside and aren’t getting enough out of their investments.