Internal Promotions vs. Switching Companies

Wharton Professors Matthew Bidwell and Ethan Mollick have conducted research on external vs. internal mobility of employees during their careers.   Here's what they have found (excerpt from interview with Professor Bidwell by Knowledge@Wharton):  

We found quite big differences between the moves that took place inside the firms, and the moves that took place across the firms. When people are moving inside firms, we saw that they got a pay raise. They also got quite a big increase in responsibility — they tended to rise up, in terms of their title. And they pretty much doubled the number of people that they were managing.

When people moved jobs across firms, they also got a pay raise, but it didn’t tend to come with an increase in responsibilities. Instead, they were moving to a job with often a similar title, and usually with the same number of subordinates — managing the same number of people. And so they weren’t necessarily getting a promotion in the same way.

This speaks to the different reasons for moving. When people are moving inside [the firm], they’re moving up the ladder. When people are moving to jobs in other firms, they’re getting a pay raise. They get paid to move. But they’re not making the same kind of move up the ladder. They’re moving to a similar rung, albeit in a different organization.

The authors offer several cautionary notes for firms and employees alike.  For companies, beware that you are often going to have to pay a premium when relying on external talent to fill key positions.   You pay that premium even though you often are not providing that person with additional responsibilities relative to what they had at their previous firm.   For employees, beware that hopping from one firm to another may get you an immediate pay raise, but it may delay future promotions and pay increases, costing you money down the road.   The authors do not suggest that one should stay at the same firm forever.  However, they do caution against taking a job at a firm where career advancement seems unlikely.   Being able to land a few promotions before moving to another company can be the better long term strategy for career advancement, development, and compensation.