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WORKSTATION

The Pros and Cons of Hiring Outsiders

By PHYLLIS KORKKI

Published: April 21, 2012

AS an employee, you may feel at some point in your career that you aren’t being paid what you’re worth. If the feeling is acute enough, you may lobby for a promotion and a raise. But suppose that doesn’t work. Then maybe, you think, it’s time to apply elsewhere.

Employers, meanwhile, may feel that their talent base isn’t as strong as it could be. When an opening arises, they may receive some credible applications from inside the company. But what if they could do better? Maybe they should hire a star from the outside.

Such thought processes are common among workers and bosses, and a new study shows how they play out. The study, by Matthew Bidwell, an assistant management professor at the Wharton School of the University of Pennsylvania, found that external hires, on average, make around 18 percent more money than internal employees with similar positions. And yet they perform less well in the first two years and are also more likely to leave or be let go.

The findings may well stir indignation among internal employees passed over for jobs in favor of outsiders. The implications are worth considering as the economy improves, loosening hiring budgets and letting more employees seek greener pastures. They come amid a long-term trend of job mobility, with the idea of working for one employer for life seeming downright antiquated.

The rise of so-called knowledge workers has led to the myth of the completely portable employee, says Boris Groysberg, a professor of business administration at Harvard Business School and the author of “Chasing Stars.” Because these workers’ means of production is found between their ears, the logic goes, they will continue at the same level of performance if they move their brains to a new company.

To test that theory, Professor Groysberg studied some of the most ideal free agents he could imagine: Wall Street analysts. In some cases, just about all they had to do was clear off their desks and walk across the street to similar jobs. But he found that for most of the analysts, performance suffered significantly after they started a new job. They failed to account for all the institutional knowledge they had acquired at the old firm and would need to rebuild at the new one, he says.

After working somewhere for a while, you develop spheres of influence, says Beverly Kaye, founder and C.E.O. of Career Systems International, based in Scranton, Pa. You know who the power players are; you know the dos and don’ts. You know people’s “freaky buttons” — the odd things that can make them fly off the handle — and that new people are prone to press by accident.

Companies consistently underestimate how long it takes new hires to be effective in a job, especially when it comes to building relationships, Professor Bidwell observes. They need to understand that new jobs can come with a substantial learning curve, he says.

Of course, there can be much value in hiring externally. Outsiders can bring fresh skills and ideas, along with a healthy skepticism about long-held practices. But Professor Groysberg says employers need to be much more strategic about hiring so that the organization has the right mix of old and new.

As for employees, Ms. Kaye advises, “Don’t look to leave if the reason you’re leaving is financial only.” That is only one marker of a good job match — things like achieving the right fit for your unique skills are also important.

Managers need to be aware of valued employees who are “loose in the saddle,” says Ms. Kaye, co-author of a book called “Love ’Em or Lose ’Em.” A signal is that they aren’t participating as fully as they once were and may need a new challenge.

Even the consideration of other offers means that talented employees are taking their eye off of their company, she says. Then there’s the Pied Piper effect: if one person leaves, she says, others are more likely to follow.

INSTEAD of exit interviews, she recommends that managers conduct “stay” interviews — saying to valued employees: “Listen, I really want you to stay. What can I do to keep you?”

The first response will probably be “Give me a raise,” which is why managers are reluctant to have these conversations, Ms. Kaye says. But if they can’t deliver on a raise, they can say so and then ask, “What else is important to you?” Chances are, she says, that they can find something to give these employees, thereby re-energizing them and persuading them to stay.