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Study Shows Execs Prefer to Hire from Within
 

By Aliah D. Wright  4/29/2014
 

 

A survey of business leaders nationwide revealed that 71 percent of them prefer developing current employees’ skills to move them into more-senior roles over hiring external candidates.

The nonprofit College for America (CFA) surveyed 400 senior leaders responsible for human resources to better understand their biggest talent development challenges and opportunities. The CFA discovered:

  • Only 29 percent of respondents prefer to hire new employees with the skills they need.
  • 41 percent strongly prefer development while only 9 percent strongly prefer hiring from outside the company.

Internal Candidates Fare Better

Often, experts say, it makes more sense to hire from within. Internal employees cost less and tend to be more dedicated to their firms once promoted.

External hires are often paid 18 percent to 20 percent more than an internal candidate for the same job, “but they get lower marks in performance reviews during their first two years on the job,” according to an article in The Wall Street Journal that referenced a study by Matthew Bidwell, an assistant professor at the University of Pennsylvania’s Wharton School of Business.

The study, “Paying More to Get Less: The Effects of External Hiring versus Internal Mobility,” analyzed six years of employment data from a financial-services company encompassing nearly 5,300 employees in a wide range of jobs.

“Not only were outside hires more expensive,” the newspaper reported, “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.”

In his research, Bidwell said: “Hiring managers may be tempted by a fresh perspective or a prestigious resume, but they underestimate how hard it is to integrate new people.”

He added: “When you know less about the person you are hiring, you tend to be more rigorous about the things you can see,” such as their experience or education. Yet, “education and experience are reasonably weak signals of how good somebody will be on the job.”

Top Challenge: Building Skills

In the CFA study, employers selected their top three workforce challenges from a list of 10 options.

  • Most employers (94 percent) identified the need to build talent and leadership as important or very important, followed by concerns over missing skills needed for promotion in their current workforce (87 percent), and difficulty in finding well-qualified applicants (85 percent).
  • Employers expressed concerns over employee engagement (76 percent), retention (74 percent) and succession planning for spots left open by retirement (72 percent).
  • The need for unique benefits to recruit workers was least critical, with 67 percent stating that it was important and only 9 percent naming it a top priority.
  • Priorities differed for those companies that relied more heavily on part-time employees.
  • The necessity to develop talent and leadership was the No. 1 challenge for businesses regardless of workforce composition.
  • Companies that employed mostly part-timers reported worker retention and engagement as their No. 2 and No. 3 priorities, respectively.
  • Those employing full-time workers reported the need for qualified applicants and the lack of promotable skills as their No. 2 and No. 3 priorities, respectively.

Education Prized

Despite widespread perception that employers prioritize the development of executives and senior officials, employers in the CFA survey prioritized tuition reimbursement for low-level employees, not for company leaders.

Employers gave, on average, just 14 percent of funds to executives and 16 percent to senior managers.

The CFA survey was conducted in December 2013.

Fifty-two percent of respondents work at organizations with more than 5,000 employees, and 48 percent of respondents work at organizations with 500-5,000 employees. Fifty-four percent of respondents serve at the vice president, managing director or higher level, and 46 percent serve at the director or senior manager level.

Aliah D. Wright is an online editor/manager for SHRM.

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