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News Flash - Hiring Externally is More Expensive....

Saw this clip from the Wall Street Journal a week or two ago and thought it was worth sharing along with some other thoughts:

"The Wall Street Journal reported that CEOs recruited externally earn significantly more in their firstLook_outside year than those who are promoted from within the company. A new study surveyed nearly 1,300 companies and found, among the largest companies, that external hires were paid about 75% more than internal hires. For smaller companies, the pay disparity was even greater, with external hires earning a median of $3.6 million and internal hires earning a median of $1.6 million."

Here's a collection of thoughts on the wisdom and cost of hiring externally:

1.  The trend outlined for CEOs occurs across the organization when it comes to external/internal considerations, although with nothing approaching the salary differential listed for CEOs.  My back of the napkin math tells me that a 15% premium is probably the cost of going outside for the average position.

2.  Succession Planning isn't a perfect science.  I think we'd all like to promote from within for every position and let the slotting take effect, but it just isn't practical.  Even the companies that do the best job with internal training and readiness still have to go outside a lot.  Sometimes you just don't have anyone ready on the bench, or the change beats the readiness you can provide, with the internal candidates who are next up.

3.  Your employees are trained to how the game works.  With this in mind, your employees know that if they want more than the 5% increase you are offering and a promotion isn't in the works, the best way for them to get a 15% jump is to hit the streets and find another job. 

4.  Is the Best of Both Worlds to challenge yourself on an internal hire by always looking at external candidates at the same timeLots of people think so, although sometimes its hard to find the energy or time if you have a viable internal candidate.

The moral?  Try to have a bench if you can, and if you're forced to look outside, be a smart shopper for the talent you're targeting.  It's a market economy - don't pay for Starbucks if you're buying Maxwell House.


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