Study Finds Outside Hires in 'Notoriously Mobile' Investment Banking Are Paid More and Rated Lower

A new study by a University of Pennsylvania business professor questions the wisdom of hiring outsiders.

The study by Matthew Bidwell of the university’s Wharton School found that employees hired from outside get paid more, but do significantly worse on performance reviews for their first two years on the job, according to Forbes and the Wall Street Journal. The lateral hires are also much more likely to get laid off.

The problems may be due to the learning curve in a new organization. “People don’t hit the ground running on day one,” Bidwell tells Forbes.

The outside hires made about 18 percent more than workers promoted into similar jobs, were 61 percent more likely to leave involuntarily, and were 21 percent more likely to leave voluntarily. The study examined data from an investment bank between 2003 and 2009, and looked at all employees, including investment professionals, lawyers and administrators.

Bidwell writes that he chose investment banking because its workers are “notoriously mobile.” He was able to replicate the results when he looked at hires at another investment bank and a publishing company.

Another study by Harvard Business School professor Boris Groysberg followed more than 1,000 star investment analysts who switched firms, Forbes says. Most saw their careers decline afterwards. There were a few exceptions: Those who traveled with their teams, those who switched to much better firms and exceptional women.

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