Internal Promotions: Who Benefits

Most organizations at some point during an interview will discuss all the great opportunities for internal promotion.  At the mention of “promotions,” a job candidate can easily think about how nice it will be to hold the applied for position for a short period of time and then make the jump to the new job.  It is only human nature to hope for the best.  There was job application website commercial a few years ago that summed up the expectation well.  The commercial began with a young woman bringing coffee into a board room full of older employees.  It transitions to what looks like the next day and she appears again in another outfit carrying the tray.  She sits the tray down on the table and looks around before asking the gentleman at the head of the table when she will be the one having coffee brought to her.  Although the example is clearly hyperbole to create interest in using the site to find a new job, it does well at illustrating expectations.

Figure 1: Reasons for Internal Hire

There are a variety of reasons why an internal promotion makes good business sense.  A recent HCS survey asked 600 organizations what it promoted from within in the last year (see Figure 1).  Not surprisingly, almost forty percent indicated that the internal candidate cost less than the external candidates.  When the market starts to outpace an organization, giving someone inside a nice increase is cheaper than paying market rates and then dealing with any compression issues.  Moreover, most organizations have some policy for internal promotions that tends to favor the organization more than the market. The next two more occurring related to the internal candidate being a “known commodity.”  Basically, leaders have more knowledge of what an internal candidate actually knows and at what level he or she performs.  Organizational knowledge makes up approximately 20 percent of the cases while performance expectations account for 12 percent.  If an employer knows what is known and expected performance, then the only one major unknown remains: can the candidate apply those things in a different, higher level position. The other two reasons (speed of the process and team cohesion) play a less important role.

Given these reasons, what is the pay off.  Do internal candidates stay longer? Do they perform better than their peers?  The same survey found that there is a very marginal difference on both.  Internal candidates do on average stay longer after the promotion.  The survey found that the average amount is approximately 1.3 years.  However, the performance of the internal promotions is slightly less.  Of the 600 surveyed organizations, a little more than half (55 percent) indicated that their external candidates have performed better.  The major reasons included bringing new ideas, willingness to change the current way of doing things, and lack of acceptance of current cultural norms that inhibit increases in efficiency and effectiveness.  Basically, the new person is willing to ask “why?” more often than the internal candidate.

Like many things in business as well as life, balance is important.  An organization that only promotes from within clones its good and bad habits while one that goes only to the outside continuously increases costs.