Don't overlook inside candidates, research suggests

November 5, 2012

Don't overlook inside candidates, research suggests

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By Diane Stafford / The Kansas City Star

As president of the Society for Human Resource Management of Johnson County, Kan., Sue Christopher writes regular newsletter messages to the membership.

The biggest reaction she has ever received came this past summer, when she shared excerpts from an article about outside hires vs. hiring from within.

The big takeaway: Employers aren’t doing themselves any favors when they pass over internal candidates.

“Everyone commented that they knew this in their hearts — that 'chasing the purple squirrel,' the perfect outside hire -- is more expensive and takes longer,” Christopher says.

Christopher’s newsletter cites research by Matthew Bidwell and a report by Peter Cappelli, two nationally known human resource consultants.

Bidwell tracked equivalent employees in a “very large financial company” and compared outside hires to inside promotions. Among his findings:

• Internal candidates performed better by a fair amount over external hires in equivalent jobs.

• It took about three years for outside hires to perform at the same level as internal promotions.

• It took an average of seven years for the internal candidate to earn as much as the external hire.

• External hires were paid about 15 percent more than internal candidates for equivalent jobs.

• External hires did as well as internal candidates if they were referred by existing employees.

As Cappelli notes, “The combined factors of higher cost and lower performance don’t include other costs, such as the effects on morale of the insiders and the higher turnover rates that we know happen after [external hires]."

Christopher says she and her human resource colleagues generally prefer to recommend internal hires for the above reasons, but it’s often a challenge to convince CEOs or line managers who want the perfect outside candidate.

“We know it takes time to acclimate to company cultures, politics and friendships,” Christopher observes.