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External Hires are Expensive


The Wall Street Journal article "Is It Better to Promote From Within?" cites a recent study conducted by Matthew Bidwell, an assistant professor at the University of Pennsylvania's Wharton School, which "found that external hires get paid 18 percent to 20 percent more than internal employees do for the same job." Mr. Bidwell's study also points out that, "Not only were outside hires more expensive, but they were also 61 percent more likely to be laid off or fired from that position and 21 percent more likely than internal hires in similar positions to leave a job on their own accord." Here is a link to the article.

Employers should take notice.  To the extent that a company is not developing programs to retain wanted talent, the replacement costs are quantifiably more expensive. Mr. Bidwell’s research doesn’t even address the lost institutional knowledge to a competitor, time to get up to speed, recruiting agency costs, and the list goes on.  Experts have quoted that the true cost of losing wanted talent and hiring an external employee is 2-3x base salary. In short, companies should review their compensation philosophy and succession plans to ensure they are retaining and motivating the company’s most important asset: it’s people! 

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